;;trii.^:^;<':;JjJi:u-':';^:?-;''i^- 


A  Treatise 


ox   THE  LAW  OF 


BANKS  AND  BANKING 


By  the  Editorial  Staff  of  The  Michie  Company 


UNDER  THE  SUPERVISION  OF 


THOMAS  JOHXSOX  MICHIE 


Volume  I 


Tni-:  MrcHiE  Company,  Law  Publishers 
CuAi<i.()TTi:s\ii.i.i:,  Va. 


T 


Copyright  1913 

BY 

The  Michie  Company 


EXPLANATORY  NOTE 


This  book  is  arranged  on  the  KEY-Xl'MBER  SYSTE^I.  This  means 
that  topics  and  section  numbers  of  this  book  are  identical  with  those  in 
Decennial  Digest,  and  in  American  Digest,  Kev-Xump.er  Series,  title, 
"Banks  and  Banking."  Moreover,  the  indexes  in  the  advance  sheets  and 
bound  vokmies  of  the  National  Reporter  System  are  arranged  on  the 
same  system,  and  are  current  supplements  to  this  work. 

Whenever  you  find  a  case  in  point  in  this  work  and  wish  to  find  otiier 
authorities  on  the  same  point,  turn  to  the  same  topic  and  section  number 
in  these  other  digests  and  indexes. 

Illustration  :    A  legal  proposition  found  in  this  work  under 

§  5,  "Charter  Provisions,"  will  also  be  found  under 

Banks  and  Banking,  §  5,  in  the  Decennial  Digest ; 
Banks  and  Banking,  §  5,  in  the  American  Digest, 

Key-Xumber  Series,  and 
Banks  and  Banking,  §  5,  in  all  other  Key-Xumber 

Digests  and  Indexes. 


687580 


TABLE  OF  CONTENTS 


\'OLUME  I 


CHAPTER   I. 

I.   Control  and  Regulation   in   General. 

5;     1.   Right  of   Banking  in   General ^ 

§     2.  What  Are  Banks •*  •  •  6 

§     3.  Power  to  Control  and   Regulate 1-^ 

§     4.  Constitutional   and    Statutory    Provisions 15 

§     5.   Charter    Provisions 16 

§     6.  Authority  or  License   to   Do    Business 17 

§     7.  Unauthorized    Banking 1" 

§     8.  In    General 17 

§     9.  -: Validity   of   Transactions   and   Liabilities    Incurred 19 

§  10.  Penalties   and   Actions    Therefor 32 

§  10   (1)   Statutory    Provisions    and     Construction 22 

§  10   (2)   Enforcement      23 

§  10  (2a)   Petition — Sufficiency     23 

§  10   (2b)   Replication   to   Plea 23 

§  10   (2c)   Quo     Warranto 24 

§  10   (2d)  Jurisdiction    and    Venue 24 

§   10   (2e)   Service  of  Process  and   Execution 25 

§  11.  Criminal    Prosecutions 25 

§  11   (1)   Offense    as    Statutory    One 25 

§   11   (2)   Indictment 26 

§  11   (3)   Information     26 

§  12.  License  Fees  and  Taxes 26 

§  12   (1)   Power    to    Impose 26 

§  12   (2)    Exemptions     28 

§  12  (3)   Interest     28 

§  12  (4)   Effect    of    Payment 28 

S  13.   Limitation   of   Indelitedness 29 

S  14.  Reserves    29 

S  15.  Safety  Funds  and  Deposits  of  Securities '^O 

§  15  (1)   Necessity    and    Constitutionality ■■2 

§  15   (2)  Obligation  Therefor   and    Payment -2 

§15   (3)   Lien    of    State — Substitution    of    Other    Securities 32 

§  15   (4)   Effect  of  Failure  to  Deposit ^'2 

§  15   (5)   Loss     ■'•' 

§  15  (6)   Custody,    Title    and    Control •'•* 

§  15   (7)   Payment   of   Debts    Therefrom '-^^ 

§  15   (8)   School     Funds ^5 

§  16.  Reports  and  Statements '^•' 

§  16  (1)   Duty  to  Make  and   I-'.ffccl  of  I'ailurc •'•'> 

§  16  (2)  Time  to  Make •^'' 


yi  TAliLli  OF   COxXTIiNTS. 

§  16   (3)   Form    and    Contents ^^ 

§  16   (4)   Veritication    • ^^ 

§  16   (5)    Returns  as  Notice  of  Bank's  Condition 38 

tj   17.   Public    Examiners 

!J  17  (1)  Appointment 

§  17   (2)   Compensation     

§  17   (3)    Ueni.nal    ^^ 

§  17   (4)   Powers    ^^ 

§  17   (5)   Effect  on  'J'itle  to  I'roperty  and   Rights  of  Action 41 

§  18.   Foreign    Banks ^•'■ 

§   111.   Penalties    for    \'ioiations    of    Kegulations 42 

§  20.   Offenses    liy    Banks    or    I'.ankcrs 4^ 

§  31.  Offenses   Ijy    Persons    Ucaling   with    Banks 42 

CHAPTER  II 

II.   P,.\.\KiN(;  Corporations  and  Associations. 
A.  IxcoKi'oRAiiox,  C)roantz.\tion,  and  Incidents  of  Existence:. 

§  22.   Nature   and   Formation   in   General 45 

§  23.   Incorporation     46 

§  23   (1)    Power    to     incorporate 46 

§  23   (2)   Conchtional   Incorporation— Conditions   Precedent  and   Begin- 
ning   of    Corporate    Existence 48 

§  23   (3)    Results  of   Incorporation 49 

§  23   (3a)   As  to  Liabilities,  Privileges  and  Powers 49 

§  23   (3b)   Charter   as   Contract,   and    Amendment    or    Repeal....  50 

§  23   (3c)   Sale   of    Franchise    and    Effect 52 

§  23   (3d)   Notice   of   Charter 52 

§  23   (4)   Amendment     53 

§  24.  Partnerships    and    Joint    Stock-Companies : 53 

§  25.  Special    Charters    or    .Acts 53 

§  25   (1)   Power    to    Grant • 53 

§  25   (2)   Operation    and    Effect 54 

§  25   (3)   Amendment,    Renewal    and    Repeal 54 

§  26.  General    Laws 55 

§  27.  Defective  Incorporation   or  Organization 56 

§  28.  Evidence    of    Existence 59 

§  28   (1)   In    General. 59 

§  28   (la)   Presumptions  and   Burden   of   Proof 59 

§  28   (lb)   Judicial     Notice 60 

§  28   (Ic)   As    Question    for    Jury 60 

§  28  (Id)  Of   National    Banks 60 

§  28   (2)   Charter    or    Certificate 60 

§  28   (3)   Parol    Evidence 61 

§  28   (4)   User    and    Repute 62 

§  29.  Term   of   Existence 62 

§  30.  Extension,   Renewal   or   Transfer   of   Franchise 63 

§  30   (1)   Extension   or    Renewal 63 

§  30   (2)   Assignment  and  Transfer  of   Rights,   Franchises,   etc 63 

§  31.  Name    64 

§  31   (1)   Statutory    Requirements 64 

§  31   (2)   Change    of    Name 65 


TABLE  OF   CONTEXTS.  VII 

§  32.   Location   and   Place   of   Business 66 

§  33.   Branches    67 

§  33   (1)    Distinct    Corporate    Existence    and    Authority 67 

§  33   (2)   Creation 68 

§  33   (3)   Powers    68 

§  33   (4)   Actions    68 

§  34.  Constitution,  Charter  and   By-Laws 69 

§  34   (1)   In     General 69 

§  34   (2)   Charter    as    Notice 69 

§  34   (3)    By-Laws     69 

§  34J/2.  Repeal  or  Amendment 70 

CHAPTER  III. 

B.    Capital,  Stock  and  Dividends. 

§  35.   Statutory     Provisions 75 

§  36.  Amount  of  Capital  and  Shares 75 

§  37.  Increase  of  Capital  Stock  and  Number  of  Associates 78 

§  37   (1)    In     General 78 

§  37   (2)   Mode  and  Validity 78 

§  37   (3)   Apportionment  and   Disposition  of   Increased  Stock 79 

§  38.   Reduction   of  Capital   Stock 80 

§  38   (1)    In     General 80 

§  38   (2)   Mode    and    Validity 80 

§  38   (3)   Disposition   of   Proceeds   of   Surrendered    Stock 80 

§  38  (4)   Relief    against    Reduction 81 

§  :'>8y2.  Surrender  of  Stock  to  Bank 81 

§  ;')9.  Subscription  to  and  Issue  of  Stock 83 

§  39    (1)    Right   to   Subscribe 82 

§39   (2)   Form    and    Requisites,    Validity    and    Effect 82 

§  39   (2a j    Bona     Fides    of    Subscription 83 

§  39   (2b)   Form   and   Sufficiency 83 

§  39   (2c)    Nature    and    Efifect    of    Obligation 84 

§  39   (2d)   Rescission    of    Subscription 84 

§  39   (3)   Oversubscription    and    Overissue 84 

§  39   (4)   Stock    Certificates 85 

§  39  (5)   Payment     86 

§  39   (5a)   Medium     86 

§  39   (5b)  Time      87 

§39   (5c)   Assessments    or   Calls    for    Payment 88 

§  39   (5d)   What    Constitutes    Payment 88 

§  39    (5e)    Presuni])tii)n    and     Proof    of    Payment 89 

§  39   (6)   Stock     Mortgages    and     F)onds 89 

§  39  (7)  Liability   for  and   Collection   of   Unpaid    Balances 91 

§  39  (7a)   In    General 91 

§  39   (7b)   Persons     Liable 92 

§  39   (7ba)   State    92 

§  39   (7bb)   Married     Women 92 

§  39  (7bc)  Trustees     92 

§  39   (7bd)   Assignor    or    Transferrer 92 

§  39    (7be)    Assignee     or    Transferee 93 


VI I  r 


TABLE  OF   CONTKNTS. 


§  ;^9  (7c)   Facts    Relieving    from    Liability. 


§  39 
§  39 
§  39 
§  39 
§  39 
§  39 
§  39 
§  39 
§  39 
§  39 
§   39 

§  39 
§  39 


(Tea)   Banks    Having    No    Legal    Existence 

(7cb)   Irregularity   of   Organization 

(7cc)   Irregularities  in   Subscription 

(7cd)   Fraud    and    Misrepresentation 

(7ce)  Agreements    Relieving    against    Liability 

(7cf)  Payment,    Release    or    Discharge 

(7cg)   Redemption  of  Share  of  Bank's  Bills 

(7ch)   Reduction    of    Capital    Stock 

(7ci)   Part   of   Shares   Assessed 

(7cj)   Estoppel   of   Director   Who    Became   Creditor.. 
(7ck)   Collusion   between    Bank   and   Judgment   Cred- 
itors  

(7cl)   Purchase    of    Shares    by    Bank 

(7cm)   Illegal  Transaction   of   Business 

§  39   (7d)   Ascertainment    of    Balances    Due    and    Adjustment    of 

Liabilities     

§  39   (7e)   Operation  of  Assignment  for   Benefit  of  Creditors.... 

§  39   (7f)   Enforcement    

§  39   (7fa)   Levy  of  Assessment  and  Sale  of  Stock 

§  39   (7fb)   Nature   and   Form   of   Action 

§  39   (7fc)  Jurisdiction     

§  39   (7fd)   Limitations  and  Time  to  Sue 

§  39   (7fe)  Appearance    and    Process 

§  39   (7ff)   Parties    

§  39   (7flFa)   Parties    Plaintiff 

§  39   (7ffb)   Parties    Defendant 

§  39   (7fg)   Pleading    

§  39   (7fh)   Set-Off     

§  39   (7fi)   Evidence     

§  39   (7fj)   Findings    and    Judgment 

§  40.  Transfer  of   Stock 

§  40   (1)   Assignability     

§  40   (2)   Persons  Who   May   .\cquire   or   Sell 

§  40  (2a)   In    General 

§  40   (2b)   Directors   of   Bank 

§  40  (2c)   Bank    Itself 

§  40  (2d)   Bank  Purchasing  Stock  in  Other  Bank 

§  40  (3)  Validity,  Manner  and  Sufficiency 

§  40   (3a)   Fraud   or   Misrepresentation 

§  40  (3aa)   Effect     

§  40  (3ab)   Rescission    

§  40   (3b)   Authority  from  Holder  or  Power  of  Attorney 

§  40   (3c)   Form   and    Sufficiency 

§  40  (3ca)   In    General 

§  40   (3cb)   Certificate   Containing   Blank   Form   of  .Assign- 
ment  

§  40   (3cc)   Compliance    with    Formalities    and    Rules 

§  40   (3cca)   In    General 

§40   (3ccb)   Right    to    Establish    and    Enforce 

§  40   (3ccba)   In    General 

§  40   (3ccbb)   Particular     Rules    and     Formali- 
ties       


93 
93 
94 
94 
94 
95 
96 
96 
96 
96 
96 

97 
97 
97 

97 
97 
98 
98 
99 
100 
100 
100 
100 
100 
101 
101 
101 
102 
102 
102 
102 
103 
103 
103 
103 
104 
104 
104 
104 
105 
105 
106 
100 

107 
108 
108 
108 
108 

108 


TABLE  OF   CONTENTS.  IX 

§  40  (Sccbba)   Consent  of   Directors....    lOS 
§  40   (Sccbbb)   Production  and  Cancella- 
tion of  Old  Certificates.  108 
§  40   (3ccbbc)   Entry    on    Bank's    Books'.  109 
§  40   (3ccc)   Waiver  of  Compliance  with    By-Laws..    112 

§  40   (3cd)   Issue    of    New    Stock    Certificate 112 

§  40   (3d)   Pledge    or    Collateral    Security 112 

§  40   (3e)   Gifts     114 

§  40   (3f)   Usurious    Transfers 114 

S  40   (4)   Operation    and     Effect 114 

§  40   (4a)   In     General 114 

§  40  (4b)   Rights  and   Liabilities   of  Transferree 115 

§  40   (4c)   Title,   Rights   and   Liabilities   of   Transferree 115 

§  40   (4ca)    In     General 115 

§  40   (4cb)   Liability     for    Unpaid     Balances    and    Assess- 
ment         115 

§  40   (4cba)    In    Absence    of    Contract 115 

§  40  (4cbb)  Assumption    by     Purchaser 110 

>;  40   (5)    Refusal  of  Bank  to  Allow  Transfer 117 

§  40   (5a)   Right  to  and   Liability  for  Wrongful   Refusal 117 

§  40   (5b)   Compelling   Transfer   and   Action    for    Damages 118 

§  40   (5ba)   Jurisdiction  and  Form  of  Action 118 

§  40   (5bb)   Limitations    119 

§  40   (5bc)   Process     119 

§  40   (5bd)    Parties    119 

§  40  (5be)   Evidence     120 

§  40   (5bf)   Variance     120 

§  40   (5bg)   Judgment     120 

§  40   (0)   Restraining    Transfer    of    Stock 121 

§  40K'.  Liability   of   Stock    for   Debts    of   Stockholders 121 

§  40^   (1)   In    General 121 

§  40^   (2)  Attachment,    Execution,    Judicial    and    Ta.x    Sales 121 

§  41.  Profits    and    Dividends 122 

§  41    (1)   Power  and  Discretion  of  Directors 122 

§  41   (la)   In  General 122 

§  41    (lb)   Insolvent    Banks 123 

§  41    (Ic)   Tax    Dividends 123 

§  41   (2)   Accumulation   of  Surplus   Fund 123 

§  41   (3)   Payment   of   Dividends 124 

§  41   (3a)   Duty    to    Pay 124 

§  41   (3b)   To    Whom    Payable    124 

§  41   (3c)   Medium     125 

§  41   (3d)   Application    to    Debt    of    Stockholders 125 

§  41    (3e)   Interest     125 

§  41   (4)   .Action    to    Recover    or    to    ]{njoin    Misapplication 125 

§  42.   Lien  of  Bank  on  Stock  and  Dividends 12G 

§  42   (1)   Creation     and     I'"xistence 126 

S  42   (la)   -At     Common     Law 126 

§42    (ibj    rndiT     Charter    or     Statute 12() 

§  42    (  ]  ba  )    In     General 120 

§42   (111!))    krtroactive    Effect   of    Statutes 127 

§42    (llic)    Ufscrvation    by    a    By-Law 127 

§  42   (Ibd)   Contract    or   Stipulation   in   Ccrtilicate 128 


X  TABLE  OF   CONTENTS. 

§  43   Uc)   Stock    on    Its    Face    Transferable 129 

§  42  (Id)   Stock    Held    in    Trust 129 

§  42  (le)   Shares    Pledged    to    the    Bank 130 

§  42  (If)   Bank   Prohibited   from   Dealing   in   Its    Own   Stock 130 

§  42   (Ig)   Death   of   Stockholder 130 

§  42   (2)    Nature,    Operation    and    Effect 131 

§  42   (2a)    In    General 131 

§  42   (2b)   As     Extending    to     Dividends 131 

§  42   (2c)   Debts    Secured 13A 

§  42   (2d)   Priorities    and    Rights    against    Persons    Dealing    with 

Stockholders    133 

§  42   (2da)   General  Rule  as  to  Notice  of  Lien 133 

§  42   (2db)   Assignee    and    Purchasers 134 

§  42   (2dba)   In    General 134 

§  42   (2dbb)   Indebtedness     Incurred     before     Notice 

of    Transfer 134 

§  42   (2dbc)   Debts    Contracted    after    Notice    of    As- 
signment       135 

§  42   (,2dbd)   Loan    to    Stockholder    Larger   than   Au- 
thorized   135 

§  42   (2(lbe)   Certificate   for   Repayment  of  Concelled 

Stock    136 

§  42   (2dc)   Pledges     136 

§  42   (2dd)   Creditors     and     Purchasers    at      Execution     of 

Sheriff's     Sale 137 

§42   (2de)    Right    to    Refuse    Transfer 138 

§  42   (3)   Discharge,    Estoppel,    Forfeiture,    Release    or    Waiver 140 

§  42   (3a)   Waiver   or   Discharge    140 

§  42   (3aa)   Authority     140 

§  42   (3ab)    What     Constitutes 141 

§  42   (3b)    Estoppel     142 

§  42   (3c)   Forfeiture     14.'! 

§  42   (4) Enforcement    and    Settlement 143 

§  42   (4a)   Manner     143 

§  42   (4b)    Form    of    Action 144 

§  42   (4c)   Jurisdiction     144 

§  42  (4d)   Process     144 

§  42   (4e)   Limitations     144 

§  42   (4f)    Pleading    144 

§  42   (4g)    Redemption     ' 144 

§  421/4.  Voting    Power   of    Stock 145 


CHAPTER    IV. 

C.  Stockholders. 

§  42^.  Persons  Who   May  Be  Stockholders 151 

§  43.  Rights   and   Liabilities   as   to   Bank 152 

§  43   (1)   Right    to    Inspect    Books 152 

§  43   (2)   Ownership    of    Capital    Stock 153 

§  43   (2a)   General    Rule .^.....^.  Ib^ 

§  43   (2b)   Trust    Fund    for    Benefit    of    Creditors 154 

§  43   (2ba)   In    General 154 


TABLK   OF  CONTEXTS.  XI 

§  43   (2bb)   Priority  of  Bank  Bills 154 

§  43   (2bc)   Following  Capital    Stock   as   Trust    Fund   alter 

Distribution 154 

§  43   (2c)    Payment   to   Enable   Bank   to   Resume   Business 157 

§  43   (3)   Power    to    Bind    Corporation 157 

§  43   (4)   Dealings    with    Bank '    157 

§  43   (4a)   As    Principle    or    Surety    on    Note 157 

§  43   (4b)   Sale   of   Stock   to    Bank I57 

§  44.   Constitutional    and    Statutory    Provisions I57 

§  44>4.   Shareholders'    Meetings     I57 

§  45.  Suing  or   Defending   on    Behalf   of    Bank I57 

§  45   (1)   Failure  or   Refusal  of  Bank  to  Sue 157 

§45   (2)    Enjoining    Illegal    Acts    and    Practices 159 

§  45   (3)   Recovery  for  Fraudulent  or  Illegal  Acts  or  Practices 159 

§  45   (4)   Quo    Warranto    and    Proceedings    in    Nature    Thereof 159 

§45   (4a)   Testing    Legality    of    Incorporation I59 

§  45   (4b)  Testing    Validity    of    Election    of    Officers 160 

§  46.  Liability   for   Debts  and   Acts   of   Bank 160 

§  47.  Xature    and    Extent 160 

§  47   (1)   In    General I60 

§  47   (1^)    Stockholders'    Agreements I61 

§  47   (2)   Charter    and    Statutory    Provisions 161 

§  47   (2a)   Special    Charter    Provisions 161 

§  47   (2b)   Constitutional    and    Statutory    Provisions 161 

§  47   (2ba)   Constitutionality   Generally 161 

§  47   (2bb)   Applicability   and    Rules   of   Construction 162 

§  47   (2bc)   Retroactive   Efifect    162 

§  47   (2bd)   Exterritorial    Operation 162 

§  47   (2be0   Repeal     162 

§  47   (3)   Contractual    163 

§  47   (4)   Primary  and  Secondary  Liability 163 

§  47  (5)  Joint   or    Several 164 

§  47   (6)   As    Principle    or    Surety 164 

§  47  (7)   Banks    to    Which    Applicable 165 

§  47   (7a)   What  Constitutes  a   Bank 165 

§  47  (7b)   Specially    Chartered    Banks 165 

§  47  (7ba)   In    General 165 

§  47   (7bb)   Change   of    Name    under    General    Law 165 

§  47   (7c)    Banks   of    Issue    Vel    .\..n 166 

§47   (7d)    Pre-Existing    and     Future     Banks 166 

§  47   (7e)    Illegally   or    Irregularly    Organized    Banks 168 

§  47   (7f)    Reorganized     Banks 169 

§  47   (7g)   State    Banks 1 60 

§  47   (7h)    National     Banks 170 

§  47   (8)   Stockholders    Who    .\re    Liable 170 

§  47   (8a)   Stockholders     Defined 170 

§47   (8b)    Subscribers    and    Stockholder^    of    Record 170 

§  47   (Sba)   General     Uul,- 170 

§  47   (8bb)    Rcfjuisites    and    Sufficiency    of    Sul)>cri])lion    or 

Acquisition     of     Shares 170 

§  47   (8c)   Agent    or    Broker I73 

§  47   f 8d)   Pledgee     .'    173 

§47    (8e)    I\ei)re-.entati\  es    and    'rru>lfi's 173 


XII  TA]!LE  OF   CONTENTS. 

§  47   (Sf)   Beneficiaries   of   Stock    Held    in    Trust 174 

§  47   (8g)   State     1^4 

§  47   (8h)   Corporations   and    Other    Banks 174 

§  47  (9)  Creditors    and    Indebtedness    Secured 174 

§  47  (9a)   Retroactive    Effect    of    Statutes 174 

§  47   (9b)   Creditors    Entitled    to    Enforce 175 

§  47   (9ba)   General    Creditors ■ 175 

§  47   (9bb)   Bill     Holder 176 

§  47   (9bc)   Indorsers     176 

§  47   (9c)   Indebtedness    Secured 176 

§  47   (9ca)   When     Payable 176 

§  47   (9cb)   Debts   Due   or   Owing   from    Stockholder 176 

§  47   (9cc)    Debts  Incurred  Prior  to  Purchase  of  Stock....  177 

§  47  (9cd)   Debts  Contracted  after  Death  of  Stockholder.  177 

§  47   (9ce)   Ultra    Vires    Undertakings 177 

§  47   (9cea)    In     General 177 

§  47   (9ceb)    Establishment   of    Branch    Bank 177 

§  47   (9cec)   Agreements   for  Liquidation 177 

§  47   (9cf )   Particular    Obligations 177 

§  47   (9cfa)   Bank    Bills    or    Notes 177 

§  47   (9cfb)    Deposits    178 

§47   (9cfc)   Judgments    against     Bank 178 

§  47   (9cfd)    Fees    and    Costs    of    Creditor's    Suit....  178 

§  47   (9cfe)   Costs    of    Receivership 179 

§  47   (9cff)    Loss. Occasioned   by    Receiver 179 

§  47   (9cfg)   Agreements    for    Liquidation    of    Bank..  179 

§  47   (10)   When    Liability   Arises   and   Conditions    Precedent 179 

§  47   (10a)   When    Liability    Arises 179 

§  47   (lOaa)    In     General 179 

§  47  (lOab)   Bank    Bills   and    Notes 180 

§  47   (lOac)   Public    Funds 180 

§  47   (10b)   Demand    of    Payment    and    Protest 180 

§  47   (10c)   Proceedings    against    ]5ank    and    Receivership 181 

§  47   (lOca)   Necessity   anti   Sufficiency   Generally 181 

§  47   (lOcb)   Filing  Claim   with    Receiver 181 

§  47   (lOcc)  Judicial    Determination    of    Insolvency 181 

§  47  (lOcd)  Judicial    Ascertainment    of    Indebtedness    and 

Exhaustion   of   Assets 182 

§  47   (lOcda)    In    General    182 

§47   (lOcdb)   Exhaustion    of    Assets 182 

§  47*(l0cdc)    In    New    York 183 

§  47   (lOce)   Judgment    against    Bank,    Execution    and    Re-' 

turn     183 

§  47   (lOd)   Dissolution    of    Corporation 184 

§47   (lOe)   Exhaustion    of    Other    Remedies 185 

§  47   (lOf)   Order  of  Court  Directing  Receiver  to   Enforce    185 

§  47  (11)   Facts   Relieving  from   Liability   or  Defenses 185 

§47   (11a)   Illegality    or    Irregularities    in    Organization 385 

§  47   (llaa)   In    General 185 

§47   (llab)   Denial    of    Corporate    Existence 186 

§  47   (lib)   Invalidity  and   Irregularity  in  Issue  of  Stock 186 

§  47   (lie)   Irregularities    in    Methods    of    Business 186 

§  47   (lid)   Insolvency    of    Other    Stockholders 187 


TAl'.LE   OF   CONTEXTS.  XIII 

§  -IT   (lie)    Payment,     Satisfaction    and     Discharge 1S7 

§  47   (Ilea)   Payment    by    Stockholder   and    Agreements    in 

Respect    Thereto 187 

§  47   (lleaa)   Payment  to   Other  Creditors 187 

§  47  Clleaaa)   Payment    before    Suit 187 

§  47  (lleaab)   Payment  after  Suit  Commenced.  187 

§  47   (lleaac)   Payment    in    Other    Suits 187 

§  47   (lleab)   Redemption  of  Bank's  Bills  and  Notes 

by    Stockholder 187 

§  47   (lleac)   Agreements  Providing  Funds  to  Cover 

Bank's      Liabilities 187 

§  47   (Head)   Dividends    Paid    from    Bank's    Assets..  188 

§  47   (lleb)   Prior  Recovery  or  Payment  of  Judgment 188 

§  47   (llec)   Confession  -of  Judgment  in  Favor  of  Another 

Creditor     188 

§  47  (lied)   Subsequent    Proceedings    by    Another    to    En- 
force   Same    Liability 189 

§  47  (llee)   Former  Judgment  against  the  Bank 189 

§  47   (llf)    Bill    Holders   Entitled   to    Priority   as   to    Suing   Cred- 
itors      189 

§  47   (llg)    Release    by     Bank 189 

§  47  (llga)   In    General 189 

§47   (llgb)    Resolution    of    Board    of    Directors 189 

§  47  (llh)  Assignment   of    Sufficient   Assets    for    Payment 190 

§  47   (Hi)   Reorganization    of    Bank 190 

§  47   (llj)   Dissolution,    Expiration    and    Forfeiture    of    Charter..  190 

§  47   (Ilk)    Discharge    in     Bankruptcy 190 

§  47   (111)   Possession    of   Unreported    Assets    by    Receiver 191 

§  47   (11m)   Waiver    and    Estoppel 191 

§  47   (12j   Measure    or    Amount    of    Liability 191 

§  47  (12a)   In    General.'. 191 

§  47   (12b)    Ratable     Shares 192 

§47   (12c)   Contingencies    Which     Enlarge    Liability 193 

§  47   (I2d)   Facts   and    Contingencies    Reducing    Liability 193 

§  47   (12da)    Payment    of    Premium    for    Stock 193 

§  47  (I2db)    Reduction  of  Capital   Stock 193 

§  47   (12dc)   Application    of    Collateral    Security 193 

§  47   (12e)   Interest   ' 193 

§  48.  Effect    of   Transfer    of    Stock 194 

§  48   (1)   Liability   of   Original    Holder 194 

§  48   (la)    In     General 194 

§  48   (lb)   Requisites    and    Sufficiency    of    Transfer 195 

§48   (Iba)   Persons    Making    Transfer 195 

§  48   (Ibaa)   Subscril)ers      195 

§  48   (Ibab)   Pledgees     1 '.».-. 

§48   (Ibb)   Persons    to    Whom    Transfer    Made 195 

§  48   (Ibc)   Time    of    Transfer 196 

§  48   (Ibd)   Consideration     197 

§  48   (Ibe)    Bona    Fides    of    Transferee    and     Solvency    of 

Bank     197 

§   48    (Ibea)    In     General 197 

§48   (Ibeb)    Intent    to    .Avoid    Lial)ility 197 

§  48   (Ibec)   Colorable    Transfers 202 


XIV  TABLE   OF   CONTENTS. 

§  48   (Ibed)   Gifts     203 

§  48   (ibee)   Transfer    of    Pledged    or    Hypothecated 

Stock     203 

§  48   (Ibf)   Entry    on    Stock    Book 203 

§  48   (Ibg)   Publication   of   Notice    of   Transfer 206 

§  48   (Ibh)   Record    in    Clerk's    Oiifice 207 

§  48   (Ic)   Nature   and    Extent   of   Liability 207 

§  48   (lea)   In    General     207 

§  48   (Icb)    Existing    and     Subsequent    Creditors 207 

§  48   (2)   Transferee's    Liability 208 

§  48   (2a)   In     General 208 

§  48   (2b)   Requisites    and    Sufficiency    of    Transfer 209 

§  48   (2ba)   Consent   of   Transferee 209 

§  48   (2bb)   Solvency,  of    Bank    at   Time    of   Transfer 209 

§  48   (2bc)    Entry    on    Bank's    Books 209 

§  48   (2bd)   Pledgee     210 

§  48   (2be)   Trustee   and   Representatives 211 

§  48   (2c)   Nature,    Duration    and    Extent 212 

§  48   (2ca)   Duration      212 

§  48   (2cb)   Liability  for  Antecedent  and  Subsequent  Debts.  212 
§  48   (2cc)   Dividends    Fraudulently     Received    by     Trans- 
ferer   212 

§  48   (2cd)   Indemnifying     Transferer 213 

§  48J/2.  Assessment  by  State  Official  to  Make  Good  Impairment  of  Cap- 
ital    Stock 213 

§49.  Actions   and    Proceedings    to    Enforce 214 

§  49   (1)    Nature   and   Forms 214 

§  49   (la)   Legislative     Regulations 214 

§  49   (laa)   In    General 214 

4  49   (lab)    Retroactive    Effect   of    Statutes 214 

§  49   (lb)   Statutory    Remedy    Exclusive 215 

§  49   ( Iba)   In    General    215 

§  49   (Ibb)   Ancillary    Suit   in    Other   Jurisdiction 215 

§  49   (Ic)   Forms    of    Action 216 

§  49   (lea)   Creditor's    Suit   and    Receivership 216 

§  49   (Icb)   Action    at    Law    by    Creditor 218 

§  49   (Icba)   Right   to    Sue 218 

§  49   (Icbb)    Enjoining    Creditors    from    Prosecuting 

Suit     219 

§  49   (Ice)   Action   at   Law   by   Receiver  of   Bank 219 

§  49   (led)   Action  by  Attorney  General  to  Dissolve  Bank.  219 
§  49   (Icda)    Right   to    Enforce   Stockholder's   Liabil- 
ity       219 

§  49   (Icdb)    Intervention    by    Creditor 220 

§  49   (Ice)    Superintendent  of  Bank  Authorized  to  Enforce.  220 

§49   (Icf)    Nonresident     Stockholder     220 

§  49    (2)   Jurisdiction     221 

§49   (2a)    Existence    of    Legal    Remedy 221 

§49   (2b)   Court    in    Which    Receivership    Pending 221 

§  49   (2c)   Courts    of    Foreign    Jurisdiction 222 

§  49   (2d)   Loss    or    Divesture 222 

§  49   (3)   Courts    and    Venue 222 


TABLE  OF   CONTEXTS.  XV 

§  49  (4)   Set-Off  and  Counterclaim 223 

§  49   (4a)   Set-Off 2215 

§  49   (4b)   Counterclaim     224 

§  49   (5)   Time  to  Sue  and  Limitations  and  Laches 224 

§  49   (5a)   Time    to    Sue 224 

§  49  (5b)   What    Statutes    Applicable 225 

§  49   (5c)   In  What   Actions   Available 226 

§  49  (5d)  When    Statutes    Begins    to    Run 226 

§  49  (5e)   Period   of  Limitations   and    Suspension   of   Statute....    227 

§  49   (5f)   Operation   and   Stay   of   Proceedings 228 

§  49   (5g)   Laches   and   Lapse   of  Time 228 

§  49   (51/2)   Process    and    Appearance 229 

§  49   (6)   Parties     229 

§  49   (6a)   Parties     Plaintiff 229 

§  49   (6aa)   Necessity    and    Proper    Parties 229 

§  49   (6aaa)   Suit    to    Enforce    Liability    for    Debts    of 

Bank     229 

§  49   (6aaaa)    In    General 229 

§  49   (6aaa.b)   Creditors    229 

§  49  (6aaac)   Corporation    or    Bank 230 

§  49   (6aaad)   Receivers     230 

§  49  (6aaae)  Assignees   for   Benefit  of  Credit- 
ors         231 

§  49   (6aaaf)   Trustees    231 

§  49   (6aaag)   Superintendent    of    Banks 231 

§  49   (6aaah)   Comptroller    of    Banks 231 

§  49   (6aaai)   Attorney   General    231 

§  49   (6aaaj)   County     Treasurer 232 

§  49  (6aab)   Suit  for  Public  Moneys 232 

§  49   (6aac)   Suit   on   Stockholder's   Bond 232 

§  49   (6ab)    Interest     232 

§  49   (6ac)   Joinder   of    Parties    Plaintiff 232 

§49   (6aca)    Receivers    and    Creditors 232 

§  49   (6acb)   Creditors  and  Assignee  of  Claim  against 

Bank     233 

§  49  6ad)    Bringing   in    Parties    Plaintiff 233 

§  49   ( 6b)    Parties    Defendant    233 

§  49   (6ba)   Proper   and    Necessary    Parties 233 

§  49   (6baa)   Creditor's    Suit    against    Bank 233 

§  49   («bab)   Actions   against   Stockholders   by   Cred- 
itors        233 

§  49   (6bb)   Joinder   of    Parties 234 

§  49   (6l)ba)   Joinder    of    Stockholders 234 

§  49   (fibbaa)   Action  at  Law  by  Creditors 234 

§  49   (6bbaaa)   In    General 234 

§  49   ((il)baab)    Stockholders  Who  Trans- 
ferred   Stock 234 

§   49    (6l)bab)    Crediturs    Suits 234 

§  49   ((;l)bal)a)    In    General 234 

§  49   (C.bbabl))    Nonresident       Stockhold- 
ers        2.34 

§  49   (Obbac)   Actions  by   Receiver 234 


XVI  TABLE   OF   CONTENTS. 

§  49   (Gbbb)   Joinder    of    Bank,    Its    Trustee    or    As- 
signee       '2'.)b 

§  49   (ebbba)   Actions    by   Creditors 235 

§  49   (ebbbb)   Actions  by  Receivers 235 

§  49   (6bc)   Bringing  in   Parties   Defendant... 236 

§  49   (6bd)    Death  of  Party— Revival 236 

§  49   (6be)    Dismissal  and  Striking  Ofif  Parties 236 

§  49   (6^)    Dismissal    of    Suit 236 

§  49   (7)    Pleading    237 

§  49   (7a)   Complaint,    Declaration    or    Petition 237 

§  49   (7aa)    Necessary    Allegations 237 

§  49   (7ab)   Sufficiency  of  Allegations 239 

§  49   (7ac)   Prayer  for   Recovery 241 

§  49   (7ad)   Amendments    and    Aider    by    Verdict 241 

§  49   (7ae)   Affidavit   and   Amount  t)f   Indebtedness 241 

§  49   (7b)   Cross  Bill 242 

§  49   (8)    Evidence 242 

§  49   (8a)   Presumptions  and   Burden  and   Degree  of  Proof 242 

§  49    (8b)    Admissibility     243 

§  49   (8c)   Weight  and  Sufficiency 243 

§  49   (9)   Trial    and    Judgment 244 

§  49   (9a)    Reference    and    Receiver's    Report 244 

§  49   (9b)   Findings  of  Fact  and  Conclusions  of  Law 246 

§  49   (9c)   Judgment   or    Decree 246 

§  49   (9ca)   Form,    Requisites    and    Validity 246 

§  49   (9cb)   Amount    for    Which    Rendered 248 

§  49   (9cc)   Second    Assessment 248 

§  49   (9cd)    Persons  Bound  and  Matters  Concluded 248 

§  49   (9cda)   Judgment     in    Creditor's      Suit     against 

Bank    248 

§  49   (9cdaa)   Persons    Bound 248 

§  49   (9cdaaa)   Stockholders    248 

§  49   (9cdaab)   Stockholders  Not  Served.  249 

§  49   (9cdaac)   Nonresident    Stockholder.  249 

§  49   (9cdab)   Matters    Concluded 249 

§  49   (Ucdb)   Judgment  against  a  Bank  as  Stockholder.  250 

§  49   (9ce)    Lien  and   Priority 251 

§  49   (9cf)    Payment   and   Discharge 251 

§  49    ( 9cg)    Enforcement     251 

§  49   (9cga)    Execution    251 

§  49   (9cgb)   Action  on  Judgment  or  Assessment....  251 

§  49   (10)   Liability   for    Expenses 252 

CHAPTER  V. 
D.  Officers  and  Agents. 

§  50.   Constitutional    and    Statutory    Provisions 255 

§  50a.  Definitions   and   General  Considerations 256 

§  51.   Election    or   Appointment,    Qualification    and   Tenure 256 

§  51   (1)   Authority  to  Employ  Officers  and  Agents — How  Appointed..  256 

§  51    (2)    Eligibility — Statutory    and    Charter     Provisions 257 


TABLK   OF    CONTEXTS.  XVII 

§  51    (3)    Election     258 

§  51   (4)   Qualification     259 

§  51    (4a)    Oath     259 

§  51   (4b)    Bond    260 

§  51   (5)   Beginning  and   Duration   of  Term 262 

§  51  (6)   Removal   or   Discharge 263 

§  51   (7)  Trial  of  Right  or  Title  to  Office 264 

§  52.  Meetings  of  Directors 265 

§  53.   Rights   and   Liabilities   as   to    Bank   and   vStockholders 267 

§  54.  Nature    and    Extent 267 

§  54   (1)    In     General 267 

§  54   (la)   Powers,   Duties   and   Liabilities   of   Directors 267 

§  54  (lb)   President's  Powers,  Duties  and  Liabilities 273 

§  54   (Ic)   Cashier's   Powers,  Duties  and  Liabilities 274 

§  54  (Id)   Wrongful  Acts  from    Which  No    Loss  or    Injury  Re- 
sults       276 

§  54   (le)   Liability   for    Acts    Done    during    Absence,    Sickness, 

etc 276 

§  54  (If)   Duty  with  Respect  to  Statements  of  Bank's  Condition.  277 
§  54  (Ig)    Duty  with   Respect  to  Handling  and   Safe-Keeping  of 

Funds,    Securities,    etc 278 

§  54   (2)   Misappropriation    of    Funds    279 

§  54  (3)   Duties   and    Liabilities    with     Respect    to    Loans,    Discounts, 

Overdrafts,    etc 283 

§  54   (4)   Liability  of  One  Officer  for  Acts  of  Another 290 

§  54   (5)   Right  of  Stockholders  to  Enforce   Liability 293 

§  54   (6)   Individual    Interest   in   Transaction 296 

§  54  (7)   Compensation   of   Officers 304 

§  54   (8)    Power  to  Close   Bank   or   Decline   Deposits 307 

§  54   (9)   Liability    on    Bond 307 

§  54   (9a)   Duration    of    Liability 307 

§  54  (9b)   Risks   and   Delinquencies   Covered   by   Bond 309 

§  54  (9c)   False   Representations  in   Procuring  Bond 312 

§  54   (9d)   Supervision  and   Notice   of   Default   or   Loss 314 

§  54  (9e)   Filing  Claim   for   Loss 317 

§  54  (9f)  Actions    on    Bonds 319 

§  55.  Actions   and    Proceedings    to    Enforce    Liability 319 

§  55   (1)   Nature    and    Form — Jurisdiction 319 

§  55   (2)   Limitations   and    Laches 320 

§  55  (3)   Parties     322 

§  55   (4)   Pleadings    323 

§  55   (5)    Evidence,    Issues,    etc 328 

§  55   (6)   Trial     332 

§  56.   Liability  of  Directors  and   Officers  to  Third  Persons 333 

§  57.  Nature  and    Extent 333 

§  57   (1)   In     General 333 

§  57   (la)   Affirmative     View 333 

§  57   (lb)    Negative     View 343 

§  57   (Ic)   Constitutional    and    Statutory    Provisions 346 

§  57  (2)   Individual   Liability   ui)on    Obligations   of   Bank 347 

§  57   (3)   Liability   for   Ultra    Vires    Acts 349 

§  57  (4)   For    Incurring    Excessive    Indebtedness 351 

1    B   &   B— b 


XVIII  TABLE    OF    CONTENTS. 

§  57  (5)   Liability   with    Respect   to    Reports,     Statements,   and    Repre- 
sentations       354 

§  57   (6)   Receiving   Deposits   after    Insolvency 358 

§  57   (7)   Sale  of  Drafts  of  Insolvent  Bank 362 

§  57   (8)   Liability  with   Respect   to   Special   Deposits 362 

§  57   (9)   Personal    Liability   with     Respect    to     Loans,     Discounts,    and 

Investments     363 

§  57   (9a)   At   Common   Law 363 

§  75   (9b)   Loans  and   Investments   in   Violation   of   Statute 364 

§  57   (9c)   Liability  for  Acts  of  Associates  and  Subordinates....  366 
§  57   (10)   Individual    Liability   with     Respect   to    Collections   and    Pay- 
ments       366 

§  57   (11)   Individual   Liability  with   Respect   to   Sale,   Transfer  or   Pur- 
chase   of    Stock 367 

§  57   (12)   Wrongfully   Declaring   Dividends 367 

§  57   (13)   Officers   of   Fraudulent   and    Illegal    Banks 368 

§  57   (14)    Nominal   Directors   and    Persons    Held   out   as    Directors....  369 

§  58.  Actions  and   Proceedings  to   Enforce 370 

§  58   (1)   Time    to    Sue    and    Limitations 370 

§  58   (1/4)   Nature  and  Form  of  Proceedings 372 

§  58    (2)    Set-Off     379 

§  58   (3)   Parties     379 

§  58   (3a)    In     General 379 

§  58   (3b)   Joinder   of   Parties   and   Causes 381 

§  58   (4)   Pleading    383 

§  58   (4a)   General    Rules   and    Observations 383 

§  58   (4b)   Where     Cause     of     Action     Based     upon     Negligence, 

Fraud    or    Deceit 385 

§  58   (4c)    Matters    of   Defense 388 

§  58   (5)    Evidence    388 

§  58   (5a)    Presumption   and   Burden   of   Proof 388 

§  58   (5b)   Competency   and   Admissibility   of   Evidence 389 

§  58   (5c)   Weight  and   Sufficiency  of   Evidence 390 

§  58    (6)   Trial     392 

§  60.  Criminal    Responsibility 393 

§  60   (1)   Constitutional   and   Statutory   Provisions 393 

§  60   (2)   Accessories,   Aiders,   and   Abetters 395 

§  60   (3)   Officers    of    De    Facto    Banking   Corporations 395 

§  61.  —  Offenses     396 

§  61   (1)   Illegal    and    Unauthorized    Banking 396 

§  61   (2)   Criminal     Liability    for     Fraud,     Negligence,     Fraudulent     In- 
solvency,   etc 396 

§  61   (3)   Doing.  Business    While    Insolvent — Receiving    Deposits,    etc..  397 

§  61   (3a)   In  General 397 

§  61   (3b)   Receiving   Deposits   after   Knowledge   of   Insolvency..  398 

§   (4)    Embezzlement,   Misappropriation,   False    Entries,   etc 410 

§  61   (5)   False    Reports,    Statements,    and    Returns,    Exhibiting    False 

Books,    etc 411 

§  61    (6)   With    Respects   to   Loans,    Discounts,   and    (Overdrafts 413 

§  61    (7)   Purchase,   Sale   or   Transfer   of   Stock 414 

§  61    (8)   Illegal  Dividends 414 

§  62.  Prosecution    and    Punishment 415 

§  62   (1)    Indictment   or   Information 415 


TABLE  OF  CONTEXTS.  XIX 

§  62   (la)   Following   Words   of   Statute 415 

§  62   (lb)    Existence  and  Operation  of  Bank — Defendant's  Official 

Relation     415 

§62   (Ic)   Intent — Willful    or    Intentional 417 

§  62  (Id)  Joinder  of  Parties  and  OfYenses 418 

§  62   (le)   Indictments   for  Particular  Offenses   Considered 419 

§  62   (lea)   Illegal    and    Unauthorized    Banking 419 

§  62   (leb)   False    Entries 419 

§  62   (lee)   False   Reports   and    Statements 420 

§  62  (led)   Conversion    and    Misappropriation    of    Funds..  421 

§  62   (lee)   Indictment   for   Aiding   and    Abetting 422 

§  62  (lef)  Overdrawing   Account 423 

§  62   (leg)   Fraudulent    Insolvency     423 

§  62   (leh)   Receiving    Deposits     after    Knowledge     of     In- 
solvency     ■ 423 

§  62   (4ei)    Illegal    Loans,    Discounts    and    Overdrafts 429 

§  62   (2)    Evidence     430 

§  62   (2a)   Presumption  and  Burden  of  Proof 430 

§  62    (2b)   Admissibility    of    Evidence 432 

§  62   (2c)   Weight   and    Sufficiency — \\-iriance 439 

§  62   (3)   Instructions   443 

§  62   (4)   Verdict     449 

§  62   (5)    Sentence  and   Punishment 449 

CHAPTER  VI. 

E.     IXSOLVEXCY  AXD  DiSSOLUTIOX. 

§  63.  Constitutional    and    Statutory    Provisions 457 

§  63   (1)   Constitutionality    of    Statutes 457 

§  63   (2)   Interpretation    and    Construction    of    Statutes 460 

§  64.   Voluntary    Liquidation    and     Dissolution 460 

§  64   (1)   Voluntary    Liquidation    460 

§  64   (la)   Definitions     460 

§  64   (lb)   Methods    of    Liquidation 460 

§  64   (Ic)   Time    of    Dissolution 462 

§  64   (Id)    Estoppel      462 

§  64   (2)   Involuntary     Liquidation 462 

§  65.   Reorganization     ' 462 

§  65   ( 1 )   In     General 462 

ij  65   (2)   Effect    of    Reorganization 46.'? 

§  65   (2a)   In    General 463 

§  65    (2b)    On    Liability    for   Debts   of   Old   Corporation 463 

§  65   (2c)   On   Rights  and   Liabilities  of  Stockholder^ 464 

§  65   (3)   Validity    of    Reorganization    Proceedings 465 

§  65   (4)    Reorganization   Agreements    465 

§  06.   Effect  on   State   Bank  of  Reorganization  as   National    liank 466 

§  67.   Consolidation     468 

§  67   (1)   Right    to    Consolidate 468 

§  67   (2)   What     Constitutes    468 

§  67   (3)    Effect    of   Consolidation 468 

§  68.  Grounds  of  Forfeiture  of  Franchise  or   Di.sxilution 469 


XX  TAL5LE    OF    CONTENTS. 

§  69.  Waiver  or  Remission  of  Forfeiture 474 

§  70.  Proceedings   to    Enforce    Dissolution 475 

§  70   (1)    In    General    475 

§  70   (2)   Nature  or  Character  of  Proceeding 476 

§   70   (;})   Necessity    of   Proceeding 478 

§  70.  (4)   Jurisdiction  and  Venue 479 

§  70   (5)   Parties     479 

§  70   (6)   Multifariousness     480 

§  70   (7)   Pleading      480 

§   70   (8)   Judgment    481 

§  70   (9)   Abatement   and   Vacation   of   Proceedings 482 

§  70   (10)   Costs      482 

§  70   (11)    New   Trials 482 

§   71.   Receivers,  Trustees  or  Commissioners   in   Proceedings   for   Dissolution.  482 

§  71   (1)   Selection,  Appointment  and   Removal 482 

§  71   (2)  Title,  Right  and  Authority 484 

§  71   (3)   Salary    or    Compensation 487 

§  71   (4)   Suits  by  and  against 487 

§  71   (4a)   Suits   by    487 

§  71   (4b)   Suits    against    488 

§  71   (4c)    Revivor    of   Actions 488 

§  71   (5)   Termination    of    Trust 488 

§  71    (6)    Accounting     489 

§  72.   Effect   of   Dissolution 489 

§  72   (1)    In    General 489 

§  72   (2)   On  the   Relation   of  Officers  to  the   Bank 492 

§  72   (.3)    On    Rights    of    Creditors 493 

§  72  (3a)   In    General    493 

§  72   (3b)    Rule    in    Equity 494 

§  72   (3c)   Pre-Existing  Liability   for   Taxes 494 

§  72   (4)   On  Rights  of  Stockholders 494 

§  72   (5)   On    Liability    of    Stockholders 495 

§  72  (6)   On  Right  to  Make  Collections 495 

§  73.  Insolvency   and   Its    Effect   in    General 496 

§  73   (1)   What    Constitutes    Solvency    or    Insolvency 496 

§  73   (2)    Evidence   of   Insolvency 498 

§  73   (3)    Effect   of   Insolvency 498 

§  73   (3a)    In    General    498 

§  73   (3b)  Transacting  Business  after  Knowledge  of  Insolvency.  499 

§  73   (3c)   On  the   Venue   of   Suits   against  Bank 501 

§  73   (4)   Rights  of  Correspondent   Bank 501 

§  73   (5)   Insolvency  of  Foreign  Banks 502 

§  74.  Transfers  and  Preferences  Affected   by   Insolvency 502 

§  74   (1)   In    General     502 

§  74   (2)   Right  of  Directors  to  Prefer  Themselves 507 

§  74   (3)   Payments    to    Depositors 507 

§  74   (4)   Who   Is   Entitled   as   a   Preferred   Creditor 507 

§  74   (5)   Transfers    to    Pledgees ' . .    508 

§  74   (6)   Transfer   after   Appointment    of    Receiver 509 

§  74   (7)   Purchase   of   Its   Own   Stock   by   a    Bank 509 

§  75.   Rights  of  Persons   Making  Deposits  after  Insolvency 509 

§  75   (1)   In     General 509 

§  75   (2)    Deposits    for    Collection 517 


TABLE   OF    CONTEXTS.  XXI 

§  75   (o)   Special    Deposits    518 

§  75   (4)   Rights    of    Payee    of    Draft 518 

§  75   (5)   Restoration    of    Consideration    on    Rescission 519 

§  75   (6)   Evidence     519 

§  76.  Remedies  and   Proceedings   on    Insolvency 519 

§  76  (1)   Right    of   Action 519 

§  76   (2)   Modes    of    Procedure 519 

§  76   (2a)   In    General     519 

§  76   (2b)    Injunction     520 

§  76   (2c)   Summary    Remedies     522 

§  76   (2d)   Creditors'    Suits    522 

§  76   (3)   Parties     523 

§  76   (4)   Evidence     504 

§   76   (5)   Accounting     525 

§  76   (6)    Reference     525 

§  76   (7)    Costs    525 

§  76   (8)   Supplying  Vacancies   in    Bi  ards   of   Directors 525 

§   77.  Assets  and   Receivers   on   Insolvency 525 

§  77   (^)   Assets    505 

§  77   (i^a)   What    Constitutes 525 

§  77   (^aa)    In     General 525 

§  77   (i^bb)   Surplus  from  Sale  of  Collateral 529 

§   '7   (>4cc)   Unpaid      Subscriptions      and      Statutory      and 

Other    Liabilities    of    Stockholders 529 

§  77  (Hdd)  Credits    5;;0 

§  77   (>^ee)   County  Money  Wrongfully  in  Bank r/.'.-i 

§  77   (}/2b)    Distribution    of    Assets .lliO 

^  77   (1)   Appointment  and  Removal  of  Receiver 551 

§  77   (la)   Purpose    of    Appointment 531 

§  77   (lb)   Selection,   Qualification    and    Compensation 531 

§  77   (laa)   In     General     531 

§  77   (Ibb)   Oath 531 

S  77   (Ice)    Bond 531 

§  77   (Idd)   Number    of    Receivers 532 

§  77   (lee)   Compensation     5;!2 

§   (77   (Iff)   Temporary    Receivers    532 

§  77   (Ic)   Grounds   for  Appointment    of   Receiver 533 

§  77   (Id)    Proceedings  for  Appointment  or   Receiver 535 

§  77   (laa)    In     General '..    535 

§  77   (Ibl;)   Jurisdiction   and    Powers   of   the   Court 536 

§  77  (Ice)  The     Petitioner 535 

§  77  (Idd)   Notice     '  .  '   537 

§  77   (lee)   Petition    and    .Answer 538 

§  77   (Iff)    Hearing   and    Determination    of    Motion 538 

§  77  (Igg)  The  Order  of  Court 539 

§  77   (le)    Removal    and    Discliarge 539 

§  77   (2)   Operation  and    EfTect 51^9 

§  77   (2a)    In     General 53j 

§  77   (2b)   On    Rights    of    Attaching    Creditors 540 

§   77   (2c)    On   I'iight   to  Sue   the   Hank 54I 

§   77   CJ.)   Title,    Rights,    Powers   and    Duties   of    Receivers 542 

§  77   ( .';;i )    i  II     General 543 

§   77    (:;]))    i\(I;ition  of   Receiver  to    I'.ank   and   Creditors 542 


XXII  TABLE    OF    CONTENTS. 

§  77   (3c)   Conflicting     Receiverships 543 

§  77   (3d)   Title   and    Rights   as   to   Assets 543 

§  77   (3e)    Powers  of  Receiver  in   General 543 

§  77   (3f )   Duties   of  Receiver  in   General 545 

§  77   (3g)   Liabilities    of    Receivers    in    General 546 

§   77    (3h)    Instructions    from    Court 547 

§  77   (4)   Collection    and    Protection    of   Assets 547 

§   77    (4a)    In     General 547 

§   77   (4b)   Surrender  of  Assets  to  Receiver 548 

§   77    (4c)    Compromise    of     Claims 548 

§  77   (4d )   Proceedings  to  Collect ." 543 

?   77   (4aa)    Form    of   Proceedings 548 

§   77   (4bb)   Jurisdiction  and   Power  of  Courts 548 

§   77    (4cc)    Parties      549 

§   77    (4e)    Retention    of   Ass(jts   by    Bank 550 

§  77   (5)   Sale   or   Other   Disposition   of   Assets 550 

§  77   ( 5a )   Marshaling   the   Assets 550 

§  77   (5b)   Sale   of   Assets 550 

§  77   (5c)   Purchaser   of   Notes 551 

§  77   (5d)    Right   of   Receiver   to   Purchase   at    His    Own    Sale....    551 

§  77   (5e)   Interest    on    Purchase    Money 552 

§  77    (G)    Actions    by    or    against    Receiver 552 

§   77   (Oa)   Actions     ]:)y 552 

§  77   (6aa )     Jurisdiction      552 

§   77    (6bb)    Right    of   Action 552 

§  77   (6cc)    In  Whose  Name  Action  to  Be  Brought 553 

§  77   (6dd)    Representative    Capacity    of    Plaintiff 554 

§   77    (6b)    Actions    against 554 

§   77    (6c )    Defenses     554 

§  77   (6aa)    In    Actions    by    Receivers 554 

§  77   (6b1i)   In    Actions    against    Receivers 55.5 

§   77   (6d)    Set-Ofifs     555 

§  77   (6aa)    Set-Offs    by    Receivers    555 

§  77   (6bb)   Set-Offs   against    Receivers 556 

§  77   (6e)    Plea,    Answer    and    Reply 558 

§   77   (6f)    Issues,    Proof   and    Variance 558 

§  77   (6g)   Parties     558 

§  77   (6h)    Evidence     559 

§  77    (6i)   Judgment     559 

§   77    (6j)    Costs     559 

§  78.  Assignments   for   Benefit   of  Creditors 560 

§   78    (1)    Right    to    Make 560 

§  78   (2)   Involuntary    Assignments 561 

§   78    (3)    Requisites    and    \'alidity 561 

§  78   (3a)   Requisites     561 

§  78   (3aa)   In     General 561 

§  78   (3bb)    Execution    of    Assignment 562 

§  78   (3cc)   Assent    of    Stockholders 562 

§  78   (3dd)   Acceptance   of   Trust    by   Assignee 563 

§  78   (3b)   Validity 563 

§  78   (3aa)    In    General 563 

§  78   (3bb)   Preferences     565 

§  78   (4)   Operation   and   Effect   of  Assignment 566 


TABLE  OF  CONTEXTS.  XXIII 

§  78   (4a)   In    General 5GG 

§  78   (4b)   What    Passes    bj^    Assignment 507 

§  78  (5)  The  Assignee  or  Trustee 568 

§  78   (5a)   Relation   of  Trustee   to   Bank   and   Creditors 568 

§  78   (ob)   Necessity    of   Assignee 568 

§  78   (5c)   Selection   or  Appointment 568 

§  78   (od)   Qualifications    of    Assignee 569 

§  78' (5e)   Joint    Assignees 569 

§  78   (5f)   Title  and   Rights,   Powers  and   Duties   of  Assignee....    569 

§  78   (5g)   Compensation   of  Assignee 570 

§  78   (5h)   Removal    of    Assignee 570 

§  78   (6)   Rights   and    Remedies   of   Creditors 57u 

§  78   (6a)   Assets    570 

§  78   (6aa)   What  Constitutes   570 

§  78   (6bb)   Collection    of    Assets 571 

§  78   (6cc)   Limitation   on   Actions   by   Assignee 571 

§  78   (6b)   Presentation,  Proof  and  Pajmient  of  Claims 572 

§  78   (6aa)   Presentation    of    Claims 572 

§  78   (6bb)   Allowance    of    Claims 572 

§   78   (6cc)    Set-OfT     572 

§  78   (6c)   Distribution    of    Assets 573 

§  78   (6aa)   In    General    573 

§   78    (6bb)    Priorities    573 

§   78   (6d)   Actions  by  Creditors 573 

§  78   (7)   Proof  of  Assignment 574 

§  78   (8)   Vacating  and   Setting  Aside   Assignment 574 

>!   79.   Rights  of  Holders  of  Circulating  Notes 575 

§  79   (1)   Payment   out   of  Assets   in   General 575 

§  79   (la)    Right  of   Bill   Holders  to   Share  in   Assets 575 

§  79   (lb)    Payment   in   Bills,   Notes   or   Other  Obligations   of  the 

Bank    575 

§  79   (2)   Preference    57S 

§  79   (3)   Penalties    and    Interest 580 

§  79   (4)   Set-Ofif   against    Bank    or    Receiver 580 

§  79   (5)   Rights   against    Officers   of    Bank 581 

§  79   (6)  Actions   by   Bill   Holders 581 

vj  80.  Presentation    and    Payment    of    Claims 582 

§  80   (1)   Claims   Provable   and    Kstoppel    to    Claim 582 

§  80   (la)   Claims    Provable 582 

§  80   (laa)   In  General 582 

§  80   (Ibb)   Claims   for  Taxes 58:! 

§  80   (Ice)   Claims    of    Depositary 5S;; 

§  80  (Idd)   Paid-Up    Stockholders    584 

§  80   (lee)    Incidental    Expenses   in    General 584 

§  80   (lb)    Estoppel  to  Claim 584 

§  80   (2)    Presentation   and    Prf)()f 585 

§  80   (2a)   Presentation     585 

§  80   (2aa)    In  General 585 

§  80   (2bl))    Notice   to  Creditors   to    Present   Claims 585 

§  SO   (2cc)   Time    for    Presentation    or    l-'iling   of    Claim....    5.S5 

§  80   (2b)    Proof     586 

§  80   (3)   Allowance    and    Payment 587 

S  80   (3a)    P.y    Wlioni    .Allowed 587 


XXIV  TABLE    OF    CONTENTS. 

§  80   (3a)   To   Whom   Allowed 587 

§  80   (3c)   Rights  and  Liabilities  of  Creditors  Holding  Collateral.  587 

§  80   (3d)   Hearing  and   Determination 588 

§  80   (3aa)    In     General 588 

§  80   (3bb)   Raising  and  Waiving  Objections  to  Allowance 

of   Claims 589 

§  80   (3e)   Payment    589 

§  80   (4)   Preferences    and    Priorities    in    General 590 

§  80   (4a)   Order  of  Liability  of  Assets 590 

§  80   (4b)   Claims    Preferred 590 

§  80   (4aa)   In  General 590 

§  80   (4bb)    Expenses  of  Insolvency  Proceedings 592 

§  80   (4cc)   Claim   for   Taxes 592 

§  80   (4dd)   Pre-Existing  Liens   and   Equities 592 

§  80   (4ee)  Debts  Lawfully  and   Unlawfully   Contracted...    592 

§  80   (4ff)   Claims   of   Firm   and   Individual  Creditors 592 

§  80   (4gg)   Claims   of   State  and   County 593 

§  80   (4hh)   Claims   of   Forwarding   or   Collecting   Banks...    594 

§  80   (4c)    Effect  of  Fraud 594 

§  80   (4d)   Transfer  of  Right  to   Priority 595 

§  80   (4e)   Allowance   of   Preferences 595 

§  80   (4aa)   In    General 595 

§  80   (4bb)   Funds   or  Assets   Available   to   Preferred   Cred- 
itors        596 

§  SO   (4f )    Estoppel  and  Election 597 

§   80    (5)    Deposits    598 

§  80   ( 5a)   In    General 598 

§  80   (5b)    Priorities   as  between   Themselves 603 

§  80   (5c)   Deposits   by   Savings    Banks 604 

§  80   (6)   Special  or  Segregated  Deposits 604 

§  80   (6a)   In  General 604 

§  80   (6b)   Checks   Deposited   for   Collection 609 

§  80   (6c)   Identification    of    Fund    Deposited 609 

§  80   (7)   Deposit    of   Trust    Funds 609 

§  80   ( 7a)   In    General 609 

§  80   C7b)    Deposits    of     Public     Moneys 614 

§  80   (7c)    Right   to  Follow  and   Reclaim   Fund 616 

§  80   (7aa)   In     General 616 

§  80   (7bb)   Notice    of    Character    of    Deposit 618 

§  80   (7cc)    Efifect  of  Beneficiary  Taking  Colkiteral  Security.  618 

§  80   (7dd)   Identification   of    Fund   or    Deposit 618 

§  80   (7d)   Proceedings   to    Establish   Trust 625 

§  80   (8)   Holders  of  Checks  or  Drafts 626 

§  80   (8a)    In  General 626 

§  80   (8b)    Rule    in    Equity 628 

§  80   (8c)   Holders    of    Protested     Paper 628 

§  80   (8d)   Drawers    of    Drafts    on    Consignment 628 

§  80   (81^)   Officers    and    Stockholders 628 

§  80   (8Ha)    Bank    Officers     628 

§  80   (8^b)   Stockholders    629 

§  80   (9)   Dividends  and  Interest 630 

§  80   (9a)   Dividends     630 

§  80   (9aa)    Right    to    Dividends 630 


TABLE   OF   CONTEXTS.  XXV 

§  SO   (9aaa)    In    General 630 

§  80  (9bbb)   Rights  of  Purchasers  of  Claims 632 

§  80  (9ccc)   Establishment    of    Right 633 

§  80   (9bb )   Distribution  of  Dividend 633 

§  80   (9b)   Interest    633 

§  80   (9aa)    Right   to   and   Liability   for 633 

§  80   (9bb)   Computation    of 633 

§  80  (9cc)   Rate   of 634 

§  80    {9y2)    Set-Off     634 

§  80   (9i/<a)   In    General 634 

§  80  (9^b)   Conditions  Annexed  to  Exercise  of  Right 635 

§  80  (9Hc)   Claims  That  May  Be  Used  as   Set-Offs 636 

§  80  (9J/^d)   Estoppel   to    Interpose    Set-OfT 638 

§  80   (914)   Proceedings  to  Compel  Payment 638 

§  81.  Distribution   of   Surplus 639 

§  82.  Civil  Liability  on  Insolvency 640 

§  83.  Criminal   Responsibility   on   Insolvency 640 

§  84.  Offenses    640 

§  85.  Prosecution  and  Punishment 640 

CHAPTER  VII. 
III.  Functions  and  Dealings. 
A.  Banking  Franchises  and  Powers,  and  Their  Exercise  in  General. 

§  86.  What  Are  Banking  Powers  in  General 642 

§  86   (1)   Functions  in  General 642 

§  86   (2)   Mode    of    E?xercise 643 

§  86   (3)   Place    of    Exercise 644 

§  86  (4)   Incidental  and  Implied  Powers 646 

§  87.  Construction  of  Charters  and   Banking  Laws 647 

§  88.  Rules    of    Bank 650 

§  89.  Customs   and   Usages 650 

§  89   (1)   Admissibility  of  Evidence  and   Its  Sufficiency 650 

§  89  (2)  Character    and    Effect 651 

§  89   (3)   Presumption   of  Action   by   Directors 654 

§  89   (4)   Particular   Customs 655 

§  89  (4a)  As  to   Notice   of   Maturity   of   Negotiable    Paper 655 

§  89  (4b)  As  to  Deposits  and  Checks  and  Payment  Thereof....    655 

§  89   (4c)   As.  to    Collections 657 

§  89   (4d)   As  to  Loans  and   Discounts 658 

§  90.  Agency  of  Bank 658 

§  91.  Purchasing  and   Holding  Bank's   Own   Stock 659 

§  92.  Purchasing  and  Holding  Stock  in  Other  Corporations 600 

§  93.  Property    and    Conveyances 662 

S  94.  In    General 6C.2 

§  94    (1)    Acquisition    rind    Molding 6(12 

§  94    (2)    Disposal  of   i'roiiorly 664 

§  95.  Real    Property 6(;5 

§  95   (1)   .Acquisition   and    Holding 6(55 

§  95   (la)    Right  to  .Acquire  and    Hold   Gt-ncrally 6C)5 

§  f'5    (lb)    Kiglit   to   Raise   Question   of   .\utliorily 667 


XXVI  TABLE    OF    CONTENTS. 

§  95   (Ic)   Conveyance   before    Incorporation    Complete G68 

§  95   (Id)   Mortgages     66S 

§  95   (le)   Leases    670 

§  95   (2)    Disposal  of  Property 670 

§  96.   With   Respect  to  Contracts  in   General 671 

§  96   (1)    Formality   and   Authentication 671 

§  96   (2)    Notice   of   Limitations 672 

§  96  '(3)   Contracts    under    Seal 672 

§  96   (4)    Contracts  between    Banks    Entered   into   by   Contracting   Offi- 
cers  Common   to   Both 672 

§  96   (5)   Contract   to    Honor    Drafts 672 

§  96   (6)    Subscription    Contract 673 

§  96   (7)    Illegal   Contracts 673 

§  96   (8)   Ultra    Vires    Contracts 673 

§  96   (9)   Termination 674 

§  97.   Borrowing    Money 674 

§  98.   Bonds,  Assignments  and  Negotiable   Instruments 677 

§  98   (1)    Bonds    and    Assignments 677 

§  98   (2)   Negotiable    Instruments 677 

§  98   (2a)   Power  to  Make  and  Issue 677 

§  98   (2b)   Power    to    Deal    Therein 679 

§  99.     Guaranty    and    Suretyship 681 

§   100.   Torts     683 

§  101.   Efifect   of  Acts   Ultra   Vires 684 

§  101(1)    In     General 684 

§   102   (2)    Rights  Acquired   by   Bank 685 

§   101   (o)    Rights  Acquired  against   Bank 686 

« 

CHAPTER  VIII. 
B.  Representation  oe  Bank  by  Officers  and  Agents. 

§  102.   Grounds   and    Extent   of   Liability   in    General 693 

§   102   (1)    General   Principles  upon   Which   Bank  Held   Liable  to  Third 

Persons     693 

§  102   (2)    Power  of  Directors  to   Define  and   Fix   Duties 700 

§  102   (3)   Manner   of   Prescribing   Powers   and    Duties 700 

§   102   (4)   Manner  of  Contracting  or  Representing 701 

§   102   (5)    Representative   Capacity   of   Particular   Officers   Considered.  .  702 

§  102   (5a)   Directors     , 702 

§   102   (5b)   President — Vice-President    704 

§  102   (5c)   Cashier    710 

§   102   (5ca)    General  Nature  and   Extent  of  Cashier's  Pow- 
ers   and    Duties 710 

§  102   (5cb)   Applicability   of   the    Rules   of  Agencj' 712 

§   102   ( 5d )   Teller     715 

§   1 03.   Statutory    Provisions 715 

§   104.   Disposition  or  Encumberance  of   Property — Acquisition  of  Property..  716 

§   104   (1)   Power    of  Directors,    Generally 716 

§   104   (2)   Power   of   President 717 

§   104    (3)    Powers    of   Cashier 719 

§  104   (4)   Consideration    for   Transfer   of    Bank's    Property 724 


TA15LE   OF   CONTEXTS.  XXVII 

§   104   (J)    Disposition,   Kncuinhrance,  or  Lease  of   Real   listaie 725 

§  104   (6)   Assignments   tor    Benefit   of    Creditors 727 

§  104   (7)   Acquisition   of   Property   by   Officers   for   IJank 727 

§  105.  Contracts    728 

§   105   (lA)   General    Principles 728 

§   105   (1)    Directors     733 

§   105   (.2)   President     736 

§   105    (3)   Cashier     737 

§  105   (3a)    In     General 737 

§  105   (3b)   Partictilar    Powers    Considered 738 

§   106.   Deposits     74C 

§  106   (1)    In    General 746 

§  106   (2)   President     748 

§  106   (3)   Cashier    748 

§   106   (4)    Teller     751 

§   106   (5)    Directors     753 

§   107.   Collections     753 

§   107   (1)    In    General     754 

§  107   (2)    President     754 

§   107    (3)    Cashier     754 

§   107    (4)    Teller    755 

§   107    ( 5 )    Attorney     755 

§   108.   Loans   and   Discounts 755 

§   108   (1)    In    General 755 

§  108   (2)   Directors     750 

§   108    (3)    Committee     756 

§   108    (4)    President     756 

§   108    (5)    Cashier     757 

§  108   (6)   Treasurer   and    General    Manager 759 

§   109.   Bills,    Notes    and    Securities 759 

§   109   (1)    In     General. 759 

§  109   (2)    President    and    Vice-President 760 

§   109    (2a)    President     760 

§   109   (2b)   Vice-President    763 

§   109    (3)    Cashier     703 

§   109    (4)    Directors     769 

§   109    (5)    Clerk   and    .\cluary 770 

§  1 10.  Actions     770 

§  110   (1)   Directors     770 

§  110   (2)    President     770 

§  110   (3)   Cashier    771 

§  ]  10   (4)   Treasurer    772 

§   111.   Representations    or   Admissions 773 

§   111    (1)    In     General 773 

§   111    (2)    Direclurs     774 

§  111   (3)    President     771 

§   111    (4)   Cashier     776 

§   111    (5)    Tclkr      779 

§   112.   Wrongful  .Vets    7S(t 

§   112   ( 1 )    in     General 7H0 

§   112   (2)   Torts  of  Managing  Officer  and   Cashier   Generally 7S0 

§   112   (2a)   Acts  Not  Within  Corporate  Capacity 780 

§   112    (2b)    Acts    Wilhfiul    .Scope    of    Authority 780 


XXVIII  TABLE    OF    CONTENTS. 

§  112   (3)    Particular  Torts  or  Wrongful  Acts 781 

§  112   (3a)   Fraud     781 

§  112   (3aa)    In     General 781 

§  112   (Sab)    Fraud   in   Obtaining   Loan   for   Bank 782 

§   112   (3ac)   Fraud  in   Receiving  Deposits    782 

§  112   (Sad)   Depreciating^   Collaterals    783 

§   112   (3ae)   Fraud    in    Procuring    of    Note 783 

§   112   (Saf)    Fictitious    ^^ntry   of    Credit 783 

§   112   (Sag)    Deposit  of  Worthless  .Check  in  Another  Bank.  783 

§  112   (3ah)   Conspiracy  to   Defraud  Third  Person 783 

§   112   (3ai)   Banks    Retaining    Benefits    of    Transaction....  784 

§   112   (Saj)   Fraudulent   Acts  in   Personal   Transactions....  785 

§  112   (Saja)    In     General 785 

§  112   (Sajb)   Use  of  Name  of  Bank 785 

§   112   (Sajc)    Buying  and   Selling   Stock 786 

§   112   (Sajd)   Fraud    on    Depositor 786 

§   112   (Sak)   Application    of    Principle    of    Estoppel 786 

§  112   (Sal)   Proof    of    Fraud 786 

§  112   (Sb)   False  Representations  as  to  Credit  of  Another 786 

§  112   (3c)   Slander    of    Credit 787 

§  112   (3d)   Negligence     787 

§   112   (3e)   Receiving   Foreign   Bank   Note   in   Payment 787 

§  112   (3f)   Organization  of  Another  Bank  in  Evasion  of  Charter.  788 

§   112   (Sg)   Attempt  to  Prefer  Bank  Officer  to  Other  Creditors..  788 

§   112   (4)   Embezzlement    and    Misappropriation 788 

§   112   (4a)   In    General 788 

§   112   (4b)   Misappropriation  of  Deposits 789 

§   112   (4ba)   In    General 789 

§   112   (4bb)   Special    Deposits    for    Safe-Keeping 790 

§  112   (4c)   Money   Received  for   Transmission 791 

§   112   (4d)   Collateral     Security 791 

§  112   (4e)    Paper  Left   for  Collection 792 

§   112   (4f)   Right   of   Bank  to   Money  or   Paper   L'sed   to   Conceal 

Embezzlement     792 

§  112   (4g)   Recovery  by   Bank 79S 

§   113.   Estoppel  to  Deny  Authority  of  Officers  or  Agent 795 

§  113   (1)   In    General 795 

§  113   (2)   Receiving  and   Retaining   Benefits   of  Transaction 797 

§  lis   (S)   Delay    or    Acquiescence 799 

§   113   (4)   Prejudice   to   Other   Party 802 

§   113   (5)   Loss  to   One   of  Two   Innocent   Persons 803 

§   113   (6)   Attempt    to    Enforce 804 

§   113   (7)   Receiver  or  Assignee  for  Creditor 805 

§  113   (8)    Estoppel   of   Person   Dealing   with    Bank 805 

§   114.   Ratification     805 

§  114   (1)  Authority  and  Acts  Which  May  Be  Ratified 805 

§   114   (2)   Wlhat  Constitutes  and   Requisites 807 

§   114   (2a)    In     General 807 

§   114   (2b)    Knowledge   of   Facts 807 

§   114   (2c)   Negligence     ,  808 

§   114   (2d)   Delay    or    Acquiescence 809 


TAULE  OF   CONTENTS.  XXIX 

§  114  (2e)   Receiving  and  Retaining  Benefits  of  Transaction....  810 

§   114   (2f)   Attempt  to  Enforce  Contract 812 

§  114   (2g)   Assertion    of    Individual    Liability    of    Officer 814 

§  114   (?h)    Bank  Seeking  to   Indemnify   Itself  r^gain^t   FraLUi....  814 

§  114   (3)   Operation    and    Efifect 814 

§  114   (3a)   In    General 814 

§  114   (3b)   Adoption  of   Entire  Contract ■.  81. "i 

§114   (4)   Pleading   and    Proof 815 

§   115.   Rights   Acquired   by    Bank 816 

§   116.   Xotice  to   Otificer  or  Agent 818 

§  116   (1)    In    General 818 

§  116  (2)    In   Respect  to  Discounts  affd   Securities 830 

§  116   (3)    In   Respect   to   Deposits.^ 834 

§  116   (4)    Xotice    Received    in    Private    Business    or    Outside    Scope    of 

Duties    837 

§  116   (5)   Notice   to    Directors 843 

§  116   (6)    Xotice   of    Officer's    Own    Fraud 849 

§   117.   Individual   Interest   of   Ofificer   or   Agent   as   Affecting   Person    Dealing 

with    Bank 852 

§   lis.   Evidence  as  to  Authority 859 


VOLUME  II 


CHAPTER  IX. 
C.  Deposits. 

5;  119.   Relation   between    Bank   and    Depositor    Generally 883 

§  119   (1)    General     Rule 883 

§  119   (2)   Definitions,    Classification   and    Characteristics 887 

§  119   (2a)   Depositor     887 

§  119   (2b)   Deposits    Defined    and    Classification 887 

§  119   (2c)   Nature  and  Characteristics 889 

§  119   (2ca)   A    Loan    889 

§  119   (2cb)   Property    of    Bank 889 

§  119  (2cba)   In   General    889 

§  119   (2cbb)   Not  Capital   Stock   for    Investment 891 

§  119   (2cbc)   Chose    in    Action    and    Property    Right 

of   Depositor 891 

§   119   (3)    What    Law    Governs 891 

§  119   (4)    Right  to  Examine   Bank's   Books 892 

§  119   (.'))    l-iules   of  Clearing   House   Association 892 

§   1 19  ((•))   Particular    Deposits 892 

§   119   (6a)   Deposit   of    Bank    Bills 892 

§  119  (6b)   Deposits   for  Transmission 892 

§  119   (6c)   Deposits  by  One  to  Credit  of  Another 893 

§  119   (6d)   Deposit   by   Debtor   for   Creditor 893 

§  119  (6e)   Deposit  by  Agent  to  Credit  of  Principal 893 

§  119  (6f)   Deposit   Payable   to  Third    Person   on   Contingency..  894 


XXX  TABLE   OF    CONTENTS. 

§   119   (6g)   Savings     Deposits 894 

§  119   (6h)    Money    Held    in    Trust    by    Bank 895 

§  119   (6i)   Deposit    as    Indemnity 895 

§  120.   Power  and  Duty  to   Receive  Deposits 895 

§  120   (1)   Authority     895 

§  120   (2)    Duty  to   Receive   Deposits 897 

§   121.   Making,   Receipt  and   Entry 897 

§  121   (1)   In     General 897 

§  121   (2)   Mutuality,  Proposal  and  Acceptance,  and  Persons  Who  May 

Be    Depositors 897 

§   121   (2a)    Necessity      897 

§  121   (2b j   Acts    Constituting    Acceptance 898 

§   121   C2c)    Denial   of   Receipt   of   Money 898 

§  121    (2d)    Estoppel  of  Depositor  or  Waiver  of  Deposit 898 

§  121   C2e)   Persons    Who   May   Be    Depositors 899 

§   121    (3)   Authority   of   Officer   to   Receive   Deposit 899 

§  121   (3a)    In     General 899 

§  121   (3b)   When    Officer   Represents    Bank 900 

§   121   (3ba)    In     General 900 

§   121   (3bb)    Certificate      Issued      before     Organzation     of 

Bank 900 

§   121   (3c)    Money    Entrusted    to     Employee    Xot     Authorized    to 

Receive     It 900 

§   121   (3ca)    In     General ■ 900 

§  121   (3cb)   Where  Money  Comes  into  Custody  of  Bank..    901 

§   121   (3d)    Fraud   or   Dishonesty    of    Bank   Official 901 

§   121    (3da)    In     General 901 

§   121    (3db)   Certificate    of    Deposit    with    Third    Person    or 

Bank     901 

§   121    (3e)   Ultra   Vires   Collateral   Agreements 902 

§   121   (3f)   Personal   Loan   to    Officer   of    Bank 902 

§   121   (4)    Receipt   of    Money   and    Entry 902 

§  121   (4a)    Necessity  for  .Actual  Receipt  and  Promise  to  Pay....    903 

§   121    (4b)   Mode   of    Receipt   and    Entry 903 

§   121   (4ba)    In     General 903 

§   121    (4bb)    Rules    of    Bank 904 

§   121    (4bc)    Place    of    Delivery   to    Bank    Official 904 

§   121    (4bd)   Accepting  Credit  with    Correspondent 904 

§  121    (4be)    Depositor   Having   More   than   One   Account..    904 

§   121   (4c )    Deposit    Slips 905 

§   121    (4d)    Entry    in    Deposit   or    Pass    Book 905 

§  122.   Deposits    Other    than    Money 907 

§  123.  In    General    907 

§  123K'-  Checks    and    Drafts    Generally 908 

§124.  Checks    and    Drafts    on    Depositor's    Baidc 908 

§  125.  Forged   or  Altered   Paper 911 

§   126.  Entry  to  Credit  of   Depositor 912 

§  126   (1)    In     General 912 

§  126   (2)   Acts    Which    Constitute 913 

§  126   (3)   Person   Entitled  to  Credit 913 

§  126   (4)   Credit    Subject   to    Payment 913 

§  127.  Title    and    Right    of    Bank      914 

§  27   (1)   Commercial   Paper   Received  as   Money 914 


TABLE   OF    CONTENTS.  XXXI 

§  127   (la)   In     General 914 

§  127   (lb)   Sufficiency  and   Operation  of   Endorsement 918 

§  127   (Ic)   Right  to  Charge  Back  Dishonored  Paper 919 

§  127   (lea)   In    General    919 

§  127   (Icb)   Revesting   Title    in    Depositor 920 

§  127   (Ice)   Release  of  Drawer  or   Payer 920 

§  127   (Id)   Certificate   of    Deposit    Credited   as    Money 921 

§  127  (le)   Deposit  of  Check  to  Make  Good  Overdraft 921 

§  127  (If)   Paper   Forwarded   to   Correspondent 921 

§  127   (2)   Bank  Agent  for  Collection 921 

§  127  (3)  Title  as  between  Bank  and  Maker  or  Drawer 922 

§  127   (4)   Title  as  between  Depositor  and  Third  Person 922 

§  127   (5)   Insolvency   of   Bank   of   Deposit 923 

§  127   (6)   Insolvency    of    Payee    Bank 924 

§  127   (7)   Evidence  as  to  Whether  Title  Passed  to  Bank 924 

<;  128.  Title  to   and   Disposition   of  Deposits 924 

§  129.  In    General 924 

§  129   (1)   Title    Generally 924 

§  129   (2)   Obligation  of  Bank   Generally- 925 

§  129   (3)   Special   Agreements    Respecting   Disposition 925 

§  129  (4)  To   Whom   Payment   to    Be   Made 927 

§  129   (4a)    In     General 927 

§  129   (4b)    Payment   to   Person   Other   than    Depositor 927 

§  129   (4ba)   In    General 927 

§  129   (4bb)   Payment  to  Wrong  Person 927 

§  129   (4bba)   In    General 927 

§  129   (4bbb)   Bank  Payee  of  Check 928 

§  129   (4bbc)   Right  of  Bank   to   Recover   Money....    929 

§  129   (4bc)    Particular     Person 929 

§   129   (4bca)    Endorsee  of  Certificate  of  Deposit....    929 

§   129   (4bcb)   Assignee    of    Creditors 929 

§  129   (4bcc)   Committee    or    Guardian 929 

§  129   (4bcd)   Donee      930 

§  129   (4bce)   Partner     930 

§   129    (4bcf )    Surviving     Spouse 930 

§   129   (4bcg)    Executor    or    Administrator 930 

§   129   (5)   Particular    Deposits 932 

§  129   (5a)   Joint    Deposits 932 

§  129   (5b)   Deposit  by   Firm  or   Partnership 933 

§  129   (5c)   Deposit  for  Specific  Purpose 934 

§   129   (5d)   Funds    Deposited    by    Mistake 934 

§  129   (6)   Credits  Allowed   Bank   in   Case  of  Wrongful    Payment 934 

§   129   (7)   Attachment    and    Garnishment 934 

§  129   (7a)    Liability    to    Attachment 934 

§  129   (7aa)   In     General 934 

§  129   (7ab)    Particular    Deposits     935 

§  129   (7ac)   Certified    Checks    Outstanding 937 

§   129   (7b)   Sufficiency    of    Process 938 

§  129   (7c)   Time   from    Which   Lien    .Xttachcs 939 

§  129   (7d)   Defenses   by    Bank 939 

§   129    (7da)    Efifect    of    .ALdmission    <<i    I  ndcbte'dness 939 

§    129    (Tdl))    I'>|uital)!(,'    I\i.i4!u>   i>i   Third    I'rrsons 939 

§   129    (7e)    Supplemental     Complaint 939 


XXXII  TABLE   OF    CONTl^NTS. 

§  129   (7f)   Efifect  of  Payment  to  Attaching  Creditor 939 

§   129   (8)    Payment    under    Execution 939 

§  129   (9)   Waiver  of  Right  to  Deposit 941 

§  129   (10)   Right  of  Depositor  to  Recover  from  Third  Person  Moneys 

Paid    by    Bank 941 

§   130.  Trust     Funds 941 

§  130   (1)    In     General 941 

§  130   (la)   Relation    Created 941 

§  130   (lb)    Efifect  on  Character  of  Title  to  Fund 941 

§  130   (Ic)   Notice  of  Trust  Character  of   Fund 943 

§  130   (lea)   Efifect   of   Notice 943 

§  130   (Icaa)   As    Impressing     Funds    of    Bank     with 

Trust    943 

§  130   (Icab)   Right    to    Follow    Funds 943 

§  130  (Icb)   What   Constitutes   Notice   or   Knowledge 944 

§  130   (Id)   Payment   to   Trustee 946 

§  130  (Ida)   Right  of  Trustee   to   Withdraw 946 

§  130   (Idb)    Efifect  of  Payment  to  Trustee  or  Order   Gen- 
erally          946 

§  130   (Idc)   Duty  of   Bank  to   See  to  Application  and  Lia- 
bility for  Misappropriation    947 

§  130  (Idea)   In  Absence   of  Notice  of   Intention   to 

Misappropriate   or    Divert 947 

§  130  (Idcb)   Banks    Having     Notice    of     Breach    of 

Trust    .' 948 

§   130   (Idcc)    Banks  Participating  in  Breach  of  Trust.  949 

§  130   (ld=ca)   In   General    949 

§   130   (Idccb)   Acceptance       in       Payment      of 

Trustee's   Debt  to   Bank 949 

§   130   (Idd)   Joint    Trustee    Deposits 950 

§  130   (le)    Payment  to   Receiver  of  Depositor 950 

§  130   (If)   Payment  to  Beneficiary  of  Cestui  Que  Trust 950 

§  130   (Ig)   Attachment    and    Garnishment 951 

§  130   (111)   Loss   or    Destruction   of   Deposit 951 

§  130   (2)   Public    Funds 952 

§  130   (2a)   Relation  Created  by  Deposit  and  Title  Generally 952 

§   130   (2aa)    In     General 952 

§  130   (2ab)    Funds   Left   for   Safe-Keeping 953 

§  130  (2ac)   Money   Borrowed   from    Bank 953 

§  130   (2ad)    Entry   of   Credit   to    County 955 

§  130   (2b)   Notice   of   Title *! 955 

§  130   (2c)   Payment   to   or   Order   of   Ofificer 956 

§   130   (2ca)    In     General 956 

§  130   C2cb)   Knowledge    of    Intention    to    Divert 956 

§  130   (2cc)   Bank    Participating   in    Misappropriation 956 

§  130   (2d)   Payment   to   Another   than    Officer   or   Order 957 

§  130  (2da)  Assignee    in    Bankruptcy 957 

§  130   (2db)   Executor   or  Administrator   of  Officer 957 

§   130   (2dc)   Attachment  or   Execution   Creditor 957 

§  130   (2e)   Right   of    Officer   to     Follow     Funds    into     Hands     of 

Third    Persons 957 

§  130   (2f)   Subject  to   Order   of   Successor 957 

§  130  (2g)   Preference  on  Insolvency  as  to  Other  Creditors....    958 


TABLE  OF   CONTEXTS.  XXXIII 

§  130   (2h)   Interest  on   Funds    Lsed   by   Bank 958 

§   130   (3)   Deposits   by   Factors,  Agent   or   Attorney.> 959 

§  130   (3a)   Deposits    by    Agents 959 

§  130   (3aa)   Deposits  by  Agent  in  His  Own  Name 959 

§  130   (,3aaa)    Effect   on   Title   of   Principal 959 

§  130   (Saab)   Relation    between    Bank   and    l?rincipal.  959 

§  130   (3aac)    Payment   to  Agent 960 

§   130   (3aaca)    In     General 9(")0 

§   130   (3aacb)   Duty  of  Bank  to   See   to  Appli- 
cation    Generally 960 

§   130   (3aacc)    Notice     of     Agent's     Want     of 

Authority      961 

§   130   (3aacd)   Losses   for  Which   Bank   Liable.  963 

§  130   (3aace)   Credits    Due   to    Bank 963 

§   130   (3aacf)    Ratification    of    Act    of    Agent..    963 
§   130   (3aacg)    Estoppel     of    Principal    to    Re- 
cover       964 

§  130  (3aad)   Recovery  by   Principal   after   Notice...   964 
§  130   (3ab)   Deposits  by  Agent  to  Credit  of  Principal....   965 

§  130   C3ac)   Deposits  by   Principal  to  Credit  of  Agent 966 

§  130   (3ad)   Agent    Allowed   to    Check   against    Deposit    of 

Principal     966 

§   130   (3ae)   Agent    Authorized    to    Sign    Principal's    Name 

to    Check 967 

§   130   (3af)    Proceeds  of  Check  Indorsed  by  Agent  without 

Authority    968 

§  130   (Sag)   Liability   of   Agent   for   Loss 963 

§   130   (3b)    Factors   and    Commission    Merchants 969 

§  130   (Sc)    Depositor   by    Broker    969 

§  ISO   (3d)    Deposits  of  Attorneys    960 

§   130   (3e)    Deposits   by   Officers   or   Agents   of   Corporations....    970 

§   131.  Funds   of   Person   Other   than    Depositor 972 

§   131   (1)   Title    Generally   and    Relation   Created 972 

§  131   (2)   Right  of  Bank  to  Assert  Title  of  Legal  Owner 973 

§  131   (3)    Estoppel  of  Legal  Owner  to  Assert  Title 974 

§  131  (4)   Payment    to    Depositor    Generally 975 

§  131   (5)   Payment  to   Person   Making  Deposit  of   Legal   Owner 977 

§  131   (6)   Account   Kept   in   Name   of   Another   than   Depositor 978 

§  131   (6a)    Deposit  by  Legal   Owner  in   Fictitious   Name 978 

§  131   (6b)   Deposit  to  Credit  of  Another 979 

§  131   (6ba)   Delivery    and    Acceptance 979 

§  131   (6bb)   Deposit   by   Principal   to   Credit   of   .Agent  and 

Vice    Vcr>a 980 

§   131    (6bc)    Deposit   by    Husband    in    Name    of    Wife 980 

§   131    (6])d)    Deposit  Ivy  Person  in   Loco   Parentis  in   Name 

of   Child 980 

§   i:;i    (6be)    Moneys   Deposited    to    i'ay    Creditor 980 

§   131   (6bf)    Deposit   a   Tender   of    I'ayment 980 

»       §   131    (7j    Deposits   Wiiich    Have    Been   Assigned 981 

§  131   (8)    Money  in  Custody  of  Public  Officer 984 

§   131   (9)   Moneys  or  Credit  Fraudulently  Obtained  by   Deijositor 984 

S   131    (lOj    Funds  of   Wife   Deposited   l)y    Husband   and   Vice   Versa 984 

1    B   &   B— c 


XXXIV  TABLE   OF    CONTENTS. 

§   i:!l    (11)    Deposits  by  Executor  or  Administrator 9SG 

§   131   (12 )   Deposits   by   Guardian 987 

§   131    (13)   Liability    to    Attachment 988 

§  131   (14)   Deposit    for    Transmission    to    Another    Bank    for    Use    of 

Third    Person 988 

§  132.   Interest    on    Deposits 989 

§  132   (1)   Liability  of  Bank  for  Literest 989 

§  132   (la)    In   the   Absence    of   Contract 989 

§  132   (lb)   Linder    Agreements    to    Pay    Interest 991 

§  132   (2)   Time  When  Interest  Begins  to  Run  and   Duration 992 

§   132   (3)    Rate    993 

§   132    (4)    Recovery     , .  .  .    994 

§  133.   Repayment    in    General 994 

§  133   (1)   Obligation   of    Bank    to    Pay 995 

§  133   (la)   In    General 995 

§  133   (lb)    Private   Bankers 997 

§  133   (Ic)   vSource   from   Which    Funds    Deposited    Derived 998 

§  133   (Id)    Effect    of    Outstanding    Checks 998 

§  133   (le)    Efifect  of  Receipt  of  Depositor's   Note  for  Collection.  <;99 
§  133   (If)    Effect  of  Notice  to  Depositor  to  Withdraw  Deposit..    \i\n> 

§  133   (Ig)    Loss    or   Theft    of    Deposit 999 

§  133   (2)   Accrual    of    Right    to    Repayment. 999 

§  133   (2a)   Demand  and  Refusal 999 

§  133   (2b)   Right   to   Written    Demand   or   Order    Payment 1000 

§  133   (2c)    Right   of   Bank   to    Indemnity 1001 

§   133   (3)   Mode,    Sufficiency   and    Medium    of   Payment 1001 

§  133   (3a)   What    Constitutes    Payment 1001 

§  133   (3b)    Payment    to    Agents 1002 

§   133    (3ba)    In    General 1002 

§   133   (3bb)   Unauthorized    Payment 1002 

§  133   (3c)    Partnership   Deposits 1003 

§  133   (3d)   Joint    Deposits 1003 

§  133   (3e)   Payment   Pursuant   to   Execution   of   Garnishment ....  1003 

§  133   (3f)   Payment    to   Wrong   Person 1003 

§  133   (3g)   Remitting    Through    Mails 1004 

§   133    (3h)    Amount    1004 

§   133   (3ha)    In     General 1004 

§  133   (3hb)   Account   Stated 1004 

§  133   (3i)   Place    of    Payment 1004 

§  133   (3j)   Medium    of    Payment 1004 

§   133   (3ja)    Return  of  Identical  Funds 1004 

§  133   (3jb)   Funds    Treated    as    Money    by    the    Parties — 

Depreciated    Currency 1005 

§   133   (3jc)    Deposit   of   Depreciated    Bills   of   Bank 1006 

§   133   (3jd)   Deposit   of    Confederate    Currency 1007 

§   133   (3je)   Deposit  of  Gold 1007 

§  133   (3jf)   Special  Contracts   as   to   Medium 1007 

§  133   (3jg)   Customs    and    Usage 1008 

§   133   (4)    Payment  in  Violation   of  Injunction 1008 

§   133   (5)    Indemnity   Bond  to   Procure   Deposit  of   Public   Funds 1009 

§   133    (6)    Liability  of   Bank   for   Interest 1009 

§   133    (7)    Liability    of    Stockholders 1009 

§   133   (8)   Bank  Accepting  Assignment  of  Property  of  Another  and  As- 
suming   .All    Its    Debts 1009 


TABLE   OF    CONTEXTS.  XXXV 

§  i;i3   (9)   Effect   of   Sale   of   Private    Bank lOO!) 

§  1^4.  Application  of  Deposits   to   Debts   Due    I'.ank   or  Set   Off  liy   Bank .  .  .  .  lOOi) 

§  134   (1)   Right    to    Make    Application    in    General 1009 

§  134   (la)   General     Rule 1009 

§   134   (lb)    Nature   as  Set-Off  or   Lien 1010 

§  134   (Ic)    Conditions  Precedent  and  Accrual  of  Right 1011 

§   134   (lea)    Maturit}'     Debt 1011 

§    134    del))    Mutuality    of    Obligation 1012 

§   134   (Icba)    In    General 1012 

§   134   (Icbb)   Deposits     Made    and     Dei)ts    Owed    in 
Different    Capacities   or   by    Different 

Persons     1012 

§   134   (Ice)   Consent    of    Depositor 1014 

§   134   (led)   Notice    to     Depositor :.1015 

§   134   (Ice)    Insolvency    of    Depositor 1015 

§  134   (Icf)   Insolvency   of    Bank , 1017 

§   134   (leg)   Death    of    Depositor 1017 

§   134    (Ich)    Time    When    Right    Arises 1018 

§   134   (Id)    Funds  and  Deposits  Applicable 1018 

§   134   (Ida)   Right   to   Apply    Entire    Deposit 1018 

§   134   (Idb)   Deposits  in  Usual  Course  of  Business 1018 

§   134   (Idc)    Source    of    Deposit lOli) 

§   134   (Idea)    In    General 1019 

§   134   (Idcb)    Proceeds  of  Paper  Left  for  Collection  ..  lOH) 
§   134   (Idcc)   Proceeds  of  Note  or  Draft  Discounted. 1019 
§   134   (Idcd)    Notes    Which    Bank    Refused    to    Dis- 
count      1019 

§  134   (Idd)   Deposits    after    Maturity    of    Debt 1019 

§   134   (Ide)    Deposits   or   Having  Two   Accounts 1020 

§  134   (Idf)    Deposits  in  Name  of  Other  than  Owner 1020 

§  134   (Idg) 'Deposits    Belonging    to    a    Town 1020 

§  134   (le)   Debts   to   Which    Application    May    Be    Made 1020 

§  134   (lea)   Debts    Due    Bank 1020 

§   134    (leaa)    In    General 1(120 

§   134    (leabj    L'nlicjuidated    Claims 1021 

§    134    (leac)    Where     Depositor     Owes     More     than 

One     Debt 1021 

§   134   (lead)    Particular   Claims   (jr   Debts 1021 

§  134   (leada)    Matured    Notes 1021 

§  134   (leadb)    Demand    Notes 1022 

§   134   (leadc)    Indorsed    Notes 1022 

§  134   (leadd)   Joint   or   Several    Notes 1022 

§  134   (leade)    Notes    of    Firm 1022 

§  134   (leadf)    Liability   on    Dishonored    Paper.  1022 

§  134   (leadg)    Insurance    I'ri'inium 1();.'2 

§  134   (leadh)   Town    Warrants 1022 

§   134    (leadi)    Debts      Secured      by      Collateral 

Security     1022 

§   134    (leadj)    Indebtedness    Secured    by    Mort- 
gage      1023 

§    I:J4    (leadk)    Debt    Reduced   Id  Judgment ....  102:{ 
§   134    (leadl)    Lien    Debt    .Assumed    by    Depos- 
itor  1024 


XXXVI  TABLE   OF    CONTENTS. 

§■  134   (leadm)    Money    Paid    on    Depositor's 

Debts     1024 

§   134   (lei))    Notes  and  Acceptances   Payal)le  at   Bank 1024 

§  134   (If)   Persons  against  Whom  Available 1024 

§  134   (Ifa)    Persons    Presenting    Checks 1025 

§  134   (Ifb)   Attaching    Creditors 1026 

§   134   (Ifc)    Executors    or    Administrators 1026 

§  134   (Ig)   When   Application    Must   Be    Made 1026 

§   134   (Iga)   Day   on   Which   Obligation    Matures 1026 

§  134   (]gb)   Application   on    Last    Day   of   Grace 1026 

§  134   (Igc)   Where  Check  Presented  In'  Another  than  De- 
positor      1026 

§  134   (Ih)   What    Constitutes    Appropriation 1026 

§  134   (Iha)   In     General 1026 

§   134   (Ihb)    Unauthorized   Charge   by   Bank   Clerk 1026 

§  134   (li)   Duty  or  Option  of  Bank  to  Avail  Itself  of  Right 1027 

§   134   (Ij)    Waiver    or    Discharge 1027 

§   134   (Ik)    Enforcement    in    Equity 1027 

§  134   (2)   Applying  Deposits  to   Debts  Not   Matured 1027 

§   134    (2a)    General     Rule 1028 

§   134   (2b)    Insolvency    of    Debtor 1028 

§  134   (2c)   Contracts    Conferring    Right 1030 

§   134   (2d)   Against    Attaching   Creditors 1030 

§  134   (2e)   Against    Executors    or    Administrators 1031 

§  134   (3)   Applying    Deposit  to    Liability    of    Indorser,    Guarantor    or 

Surety      1031 

§  134   (3a)   Depositor  Liable  as  Guarantor,  etc.,  to  Bank 1031 

§  134   (3aa)   Right    of    Bank    in    General 1031 

§  134   (3ab)   Under   Bankruptcy   Act    1032 

§   134   (3ac)    Right  of   Maker  to   Have   Deposit  Applied 1032 

§  134   (3b)   Bank   Liable  as   Indorser,   etc.,   for   Depositor 1032 

§   134   (4)    Deposit   Made   for   Special   Purpose 1033 

§   134   (5)    Deposits   Belonging  to  Third   Persons 1035 

§  134   (5a)    In     General 1035 

§  134   (5b)    Notice  to  Bank  of  Adverse  Claim :.  .  .1037 

§  134  (5c)   Money  Placed  to  Credit  of  Debtor  Through  Mistake. 1038 
§  134   (5d)   Application  of  Special  Deposit  by  Agent  to  Debts  of 

Third      Persons 1038 

§   134   (6)   Applying  Funds  of  Principal  or  Consignor  to  Debt  of  Agent, 

Fac.tor   or    Broker 1038 

§  134   (6a)   Application   to    Debt   of   Agent 1038 

§  134   (6b)   Application   to   Debt   of   Factor  or   Commission   Mer- 
chant      1040 

§  134   (6c)   Funds    Deposited  by    Agent  or    Broker  in    Name    of 

Third    Person     1043 

§  134   (6d)   Funds  Placed  by  Mistake  to  Credit  of  Local   Dealer.1044 

§  134   (6J^)   Applying   Funds   of  Agent  to   Debt  of   Principal 1044 

§  134   (7)   Application   of   Fund    Deposited   by    One   as   Trustee 1044 

§   134   (7a)   Application   to   Debts   of  Trustee 1044 

§  134   (7b)   Application    to    Debts    of    Beneficiary 1050 

§  134   (8)   Applying  Individual   Deposit  to   Firm   Debt  and  Vice  Versa. 1051 

§  134   (8a)   Individual  Deposit  to  Firm   Debt 1051 

§  134   (8aa)   In     General 1051 


TABLE   OF   CONTEXTS.  XXXVII 

§  134  (Sab)   Deposit  of  Partner  Continuing  Business  after 

Dissolution     1051 

§  134   (_8ac)   Deposits   by   Surviving  Partner 1051 

§  134   (Sb)   Applying    Firm    Deposit    to    Individual    Debt 1052 

§  134   (8ba)    In    General 1052 

§   134   (8bb)    Dormant    Partner    Individually    Using    Trade 

Name    1052 

§  134   (9)   Moneys    Fraudulently   Obtained   by    Depositor 1052 

§  134   (10)   Application  after  Assignment   of   Deposit 1053 

§  134   (10a)   In    General 1053 

§  134   (10b)   Assignment    for    Benefit    of    Creditors 1053 

§  134   (lOba)    In    General 1053 

§  134  (lObb)   Debts    Not    Matured 1054 

§  134   (11)   Right  of  Surety,  Indorser  or  Guarantor  to  Have   Deposit  of 

Principal    Applied 1054 

§   134   (I2j    Right  of  Acceptor  of  Bill  to   Have  Deposit  of  Drawer  Ap- 
plied      1058 

§   134   (13)   Application   of   Deposit   of   Public   Officer 1059 

5;  135.  Set-Off   by    Depositor .1059 

§  135   (1)    Nature   and    Extent   Generally 1059 

§  135   (la)   General    Rule 1059 

§  135   (lb)   Descriptio    Personre 1060 

§  135   (Ic)    Depositor   Attorney    for    Public    Officer 1061 

§  135   (Id)   Deposit  of  Trustee 1061 

§  135   (le)   Partnership     Deposit 1061 

§  135   (2)   Appropriation   by   Check   to   Payment   of   Indebtedness 1061 

§  135   (3)   Right    of    Depositor    in    Insolvent    Bank 1061 

§  135   (3a)   In  General 1061 

§  135   (3b)   Debts  and  Claims  Which  May   Be  Set  Off lOGl 

§  135   (3ba)   Direct    and    Ascertained    Indebtedness 1061 

§  135   (3bb)   Matured  and   Unmatured   Debts 1062 

§   135   (3bc)   Particular    Claims    and    Obligations 1063 

§  135   (3bca)   Notes     1063 

§  135   (3bcaa)   In    General 1063 

§  135   (3bcab)    Bank   a    State    Depositary 1063 

§  135   (3bcac)   Church     1063 

§   135   (3bclj)    Bond   and   Mortgage 1064 

§   135   (3bcc)   Claim    for    Dividends    Wrongfully    l-Jc- 

ceived  1064 

§   135   (3bcd)    Funds    Received    for    Use    of    Commis- 
sioners      1064 

§  135   (3c)   Funds  and   Deposits  Which   May  Be   Set  Off 1064 

§  135   (3ca)   Demand    or    Notice 1064 

§   135    (3cb)    Unmatured    Deposits 1065 

§  135  (3cc)  Deposit  Made  after  Suit  and  before  Insolvency .  1065 
§  135  (3cd)  Proceeds  f)f  Note  against  Liability  Thereon ..  10()5 
§   135   (3ce)    Proceeds  of   Draft  against   I,iai)ility  after   Dis- 

iionor     1 0(15 

55  135  (3cf)  Deposit  as  'i'rustee  against  Indixidu.il  1  )ilil .  .  lOCiCi 
§   135   (3cgj    Pactnersiiip    Deposit    against    ln<li\i(Uia!    Debt 

and   Vice   Versa 1066 

8   135   (3ch)   Deposit    of    Public    Officers'    Attorney 10()7 

S   135   (3ci)   Wife's  Money  Credited  by  Mistake  to  Husband.  10(i7 


XXXVin  TABLE   OF    CONTENTS. 

§   135   (ocj )   Amount    Paid    on    Proposed    Increased    Capital 

Stock     1067 

§   135   (3d)    Person    against    Whom    Set-Ofif    Available 1067 

§   135   (3da)   Assignee  for   Benefit   of   Creditors 1067 

§  135   (3db)    Receiver    1067 

§   135   (3dc)   Administrator    of    Insolvent    Private    Banker.. 1068 

§   135   (3dd)   Transferee   or   Pledgee   of   Bank 1068 

§   135   (3e)    Loss  of   Right  of  Set-Off  by  Payment   of   Debt 1070 

§  135   (3f)    Interest   and   Costs 1071 

§   135   (4)   Right   of   Endorser   or   Surety   on   Note 1071 

§  135    (5)   Right  of  Principle   to   Have  Deposit  of  Guarantor  Applied ..  1072 

§   135   (6)    Right  of  Guarantor  for  Repayment  of  Deposit 1073 

§   145   (7)    Right   of  Assignee   of  Depositor  after   Insolvency  of   Bank..  1073 

§   136.   Lien   of    Bank    on    Deposits 1075 

§  137.   Payment    of    Checks 1079 

§   138.  Duties  and  Liabilities   of   Bank   to   Depositor 1079 

§  138   (1)    General    Rules    and    Definitions    and    Terminology 1079 

§  138   (2)    Degree   of   Care    Required 1080 

§  138   (3)    Right    to    Close    Account   and    Terminate    Relation 1080 

§  138   (4>  Necessity,    Form    and    Contents    of    Check 1081 

§   138   (4a)    Necessity    and    Form    Generally 1081 

§   138    (4b)    Date     1081 

§  138   (4ba)    Postdated    Checks 1081 

§   138   (4bb)   Checks   Altered   as   to    Date 1081 

.  §   138    (4c)    Signature    and     Countersign 1081 

§    138    (4ca)    In     General 1081 

§  138   (4cb)   Unsigned   Checks    1081 

§   138   (4cc)   Joint    Deposits 1082 

§  138   (4cd)    Partnership    or    Firm    Deposit 1082 

§   138    (4ce)    Countersigning     1082 

§   138   (4cea)    Partnership    Check 1082 

§   138   ( 4ceb  )   Corporation     1082 

§   138   (4cec)    Receiver's     Check,     Countersigning    by 

Judge     1084 

§   138   (4d)    Memoranda   on   Margin   or    Body   of   Check 1084 

§   138   (4e)   Checks    against    Deposit    of    City 1084 

§   138    (5)    Consideration      1085 

§   138    (6)    Purpose     1085 

§   138   (Ga)   Checks   Given   for   L^nlawful   Purpose   Generally 1085 

§   138   (6b)   Checks   Drawn   in   Connection   with   Gambling  Trans- 
action      1085 

§   i:;8   (  7)   Sanity   of   Drawer 1085 

§   138   (8)    Person    Who    May    Draw 1086 

§  138   (8a)   Depositor     1086 

§   138   (8aa)   Depositor   Not    Having    Beneficiary    Interest ..  1086 

§  138   (8aaa)    In     General 1086 

§   138   (8aab)   Duty     to     Investigate      Destination     of 

Money     1087 

§  138   (8aac)    Bank      Having       Notice      of      Intended 

Breach    of    Trust 1088 

§  138   (8aad)   Acceptance    in    Payment    of    Individual 

Debt     1088 

§   1.38    (8aae)    Charging     Individual     Check     to     Trust 

Account     1088 


TABLE  OF  COXTKXTS.  XXXIX 

§  138   (Sab)   In  Case  of  Adverse  Claim  to  Deposit 1089 

§  138   (Saba)    Right    of    Depositor   to    Notice 1089 

§   138   (8abb)   Payment    Pendente    Lite 1089 

§  138   (8ac)   Deposits    bj'    Agent 1089 

§   138   (8ad)   Deposits    by    Corporation 1089 

§  138   (8b)   Agent  of  Depositor  or  Third   Person 1089 

§   138   (8ba)   Agent   Having  Authority  to  Draw  Checks. ...  1089 

§   138   (8bb)   Checks  Drawn  by  Unautliorized  Person 1090 

§  138   (9)   Presentment    1092 

§  138   (9a)   Stipulation    as    to    Presentment 1092 

■   §  138   (9b)   Time   of   Presentment 1092 

§  138   (10)   Person   to   Whom    Payment    May    Be    Made 1092 

§  138   (10a)    In     General 1092 

§  138   (10b)    Identification    of    Payee 1093 

§  138   (lOba)   Check   in    Favor   of   Named   Payee   or   Order. 1093 

§  138   (lObb)   Bearer    Check 1095 

§   138   (lObc)   Checks    Indorsed   in    Blank 1095 

§  138   (lOc)   Right  to   Require   Endorsement  of  Holder 1095 

§   138   (11)   Checks    Paj^able    to    Fictitious    Payee 1095 

§  138   (11a)   In     General 1095 

§  138   (lib)   Cashier's     Checks 1096 

§  138   (lie)   Checks    Fraudulently    Procured 1096 

§  138   (Ilea)    In     General 1096 

§   138   (llcb)    Payment  upon    Forged    Endorsement   of   Fic- 
titious    Payee 1096 

§  138   (12)   Checks   Procured  by  Forgery  of  Other   Documents 1098 

§  138   (13)   Knowledge    of    Outstanding    Drafts    or    Checks 1098 

§   138   (14)    Matters   Accruing  after   Issuance   of   Check 1098 

§  138   (14a)   Insolvency    of    Drawer 1098 

§   138   (14aa)   In     General 1098 

§   138    (14ab)    Effect  of   Filing   Petition   in    l^.ankruptcy 1098 

§   138   (14b)    Death    of   Drawer 1098 

§  138   (14c)   Deatli    of    Payee 1099 

§   138   (15)   Presumption     and    I'urden    of     Showing     Payment    to    Bona 

Fide    Holder 1099 

§  138   (16)    Estoppel  of  Depositor  to  Contest  Wrongful   Payment 1100 

§   138   (16a)    In     General 1100 

§  138   (16b)    Examination   of   Bank  Statement  or    Passbcok lioo 

§  139.  Notice  Not  to  Pay  or  Revocation  of  Check l  101 

§  139   (1)   Customer's     Checks 110 1 

§   139    (la)    Right    to   Countermand 1101 

§   139   (laa)    In     General 1101 

§   139   (lab)   Checks   Operating  as   Assignment    Pro   Tanti-.lini 
•  §   139   (lac)    Intention   of    I'arties  to  Assign   All   or    I'art   oi 

Depr)sit      I  104 

i^    i:;!)    (lb)    OlTicer  lo   Whom    .\otice   Given 1104 

§    i:i!)    (Ic)    l'',lTert  on    Rights  of   I  IoKKt  ami   Liabilities  of   Drawer.  .  I  Id  1 

§    13!)    (Id.)    I'.ffect    of    Payment    alter    l\e\ocation I  101 

§   139    (2)    Cashier's     Checks IKi:. 

§    140.  Obligation    f)f    I'.ank   to    I'ayee   or    Holder I  Hi:. 

§    140    (I  )    Duly  of   Hank   to   I'ay  in   Gi  neral I  lo:. 

§    140    (la)    General      Rule UK.") 

§    140    (lb;    Re<|ui^ites,    I'onn   and   ContentN  of  Check IHiC. 


XI.  TABLE    OF    CONTENTS. 

§  140   (Iba)    Signature  and  Countersigning HOG 

§   140   (Ibb)   Memoranda    on    Checks 1106 

§  140   (Ibc)    Declarations     in    Check 1106 

§  140   (Ibd)   Postdated    Check 1107 

§   140   (Ibe)    Delivery    of    Check 1107 

§   140    Uc;    Particular    Check 1107 

§   140   (lea)   Check    against    Conditional    Deposit 1107 

§  140   (Icb)   Checks    for    Purchase    Money 1108 

§   140   Clcc)   Overchecks   to   Be   Secured   by   Draft   and   Bill 

of    Lading 1108 

§  140   (led)   Duplicate    Checks .1108 

§  140   (Id)   Time    When    Payable 1109 

§   140   (Ida)    In    General 1109 

§  140   (Idb)   Presentment    and    Demand 1109 

§   140   (le)   Protest     1109 

§  140   (If)   Right   to    Require    Indorsement 1^10 

§   140   (Ig)   Check  as   Lien  on   Deposit 1110 

§   140   (Ih)   Check  as  Transfer  or  Assignment  of  Funds  in  Bank..  1110 

§  140   (Iha)    Doctrine     Generally IHO 

§  140   (Ihb)    Right   of   Payee   to   Sue    Bank 1114 

§  140   (Ihba)   Rule   in    Favor   of    Right 1114 

§140   (Ihbb)    Rule    Denying    Right 1115 

§   140   (Ihbba)    Statement     and     Effect     Gener- 
ally       1115 

§   140   (Ihbbb)    Privity    of    Contract 1118 

§  140   (Ihbc)   Check    Charged    against    Drawer 1119 

§   140   (Ihbd)   Check    Containmg    Words    of    Assign- 
ment  or   Transfer 1118 

§   140   (Ihbe)    Payee   of  Check   Deposited  for   Collec- 
tion      1119 

§  140   (Ihbf)   Check   Payable   in    Exchange 1119 

§   140   (Ihbg)   Check   against    Deposit   of    Draft,-,    Not 

Yet    Paid 1120 

§   140   (Ihbh)    Deposit      Levied     on       by      Execution 

against      Drawer 1120 

§   140   (Ihbi)    Deposit   of   Drawer   Garnished 1120 

§  140   (li)    Duty   to   Retain   Deposit   to   Meet   Check 1120 

§  140   (Ij)    Priorities     1121 

§  140   (Ija)   As  to  Assignment  of   Deposit 1131 

§   140   (Ijb)    Priorities  between   Check   Holder  and  Attach- 
ing  Creditor    1121 

§   140   (Ijc)    Priority   as   to   Assignee   for   Creditor 1122 

§   140   (Ijca)   Assignee    of    Drawer 1122 

§   140   (Ijcb)   Assignee    of    Bank    1122 

§   140   (Ik)    Effect   of  Agreement,   Rules   and    Customs    of    Clear- 
ing House    1122 

§  140   (ll)    Death   of   Payee    1123 

§  140   (Im)   Assignment   by    Drawer   for    Creditors 1123 

§  140   (In)    Drawers    Filing    Petition    in    Bankruptcy.. 1123 

§  140   (lo)   Assignment   by    Bank   for   Creditors 1123 

§  140   (Ip)   Right   of   Receiver   of   Payee 1124 

§   140   (2)   Check   Paid   on   Unauthorized   Indorsement 1124 

§  140   (3)   Acceptance    of    Check 1125 


TABLE   OF   CONTEXTS.  XLI 

§  140   (3a)   In    General    1125 

§  140  (3b)   What    Constitutes,    Form    and    Sufficiency 1125 

§  140  (3ba)   Definition    and  '  Requisites 1125 

§  140   (3bb)   Form    Generally 1126 

§  140   (3bc)   Verbal   Acceptance 1126 

§  140   (3bd)   Statement  That  Check  "Good,"   etc 1127 

§  140  (3be)  Acceptance  by  Telegraph  or  Telephone 1127 

§  140  (3bf)  Acceptance  Subject  to  Clearing  House  Rules..  1128 

§  140   (3bg)   Inferred  Acceptance    1129 

§  140   (3bga)   In   General    ;i29 

§  140  (Sbgb)  Detention  or  Failure  to  Return  Check..  1120 

§  140   (3bgc)   Cancelling    Check   by    Mistake 112'.) 

§  140  (3bgd)   Marking  Check  "Paid" 1129 

§  140  (3bge)    Holding   Check  to   Await   Deposit ....  1129 
§  140  (3bgf)   Payment   on    Forged    or    Unauthorized 

Endorsement    1130 

§  140   (3bgg)   Retaining      Amount      at      Request      of 

Drawer    1131 

§   140   (3bgh)   OfTer   to   Pay   in   Depreciated   or   Con- 
federate   Funds    1131 

§   140   (3c)    Efifect   of   Acceptance    1131 

§  140   (3d)   Necessity    1132 

§   140   (3e)    Promise  to  Accept 1132 

§  140   (4)   Estoppel  of  Bank  to  Resist  Liability  to  Pay 1133 

§  140   (5)   Obligation  of  Bank  Where  Check  in  Excess  of  Deposit 1134 

§   140   ( 6)    Setting  Oflf  Debts  Owing  to  Bank  by  Drawer 1135 

§  140   (6a)   Matured   Demands    1135 

§  140   (6b)   Unmatured    Demands    1137 

§  140   (6c)   General  Deposit  against  Individual  Debt  of  Partner ..  1 137 

§  140   (6d)   Application    of    Collateral 1137 

§  140  (6]E^)  Application  to  Debt  of  Payee  or  Holder 1  138 

§  140   (7)   Order  of  Payment  and   Priority  between   Checks 1138 

§   140   (7a)    In    General    1138 

§   140   (7b)    Checks   Simultaneously   Presented 1i:!0 

§   140   (7ba)   Checks    Presented    by    Different    Check    Hold- 
ers      1139 

§  140   (7bb)    Checks   Presented  Through   Clearing   House..  1139 

§  140   (8)   Order  of  Application   of   Deposits 1139 

§   141.  Mode   and    Sufficiency    1 140 

§  141    (1)   Placing  to   Credit  of   Holder 1 140 

§  141    (la)   In    Genera!    l  140 

§  141    (II))    Effect  as   Payment  of  Check 1140 

§  141    ( Ic)   Rescission   or   Recalling 1141 

§  141   (2)    Sending    Money    by    Mail 1  142 

§  141    (3)   Payment  by  Check  on   .\nf)ther   Rank 1142 

§  141    (4)   Offer   to    Pay    Confederate    Ininds 1142 

§  141   (5)   Retention  of  Check 1 142 

§  141    (6)   Payment  to  Agent   of   Holder 1113 

§  141   (6a)   In    General    1113 

§  141    (6b)   Check    Endorsed    to    Bearer 1114 

§   141   (7)   Payment    by    Insolvent    Bank I  111 

§  141    (8)    Presumption    of    I'ayiiunl    from     I'ossession    by    Drawee ....  1  144 


xi,ii  table:  of  contents. 

§   143.  Rights  of  Bank  Paying  Check 11-14 

§  142   (1)   Rights    against    Drawer 1144 

§  142   (2)    Rights   against   Payee   or    Holder 1144 

§  143   (2a)    Payment     Wher;-    Insolvent     Depositor    Indebted     to 

Bank     1144 

§   142   (2b)   Depositor    Having    Insufficient    Funds 114.") 

§  142   (2ba)    In    General    114.) 

§   142   (2bb)    Check    Paid    without    Authority    from    Direct- 
ors      1145 

§  142   (2bc)    Payment   Obtained   l)y   Fraud  of   Holder 114.1 

§  142   (2bd)    Mistake    as   to   Amount    of    Deposit 114.") 

§  142   (2be)   Stale    Checks     1146 

§  142   (,3 )    Payment    by    Mistake 1147 

§   142   (3a)   In    General    1147 

§   142   (3b)    Mistake    as    to   Amount 1147 

§   142    (3c)   After    Clieck    Countermanded 1147 

§  142   (4)    Payment    from    Trustee    Account 1148 

§  142   ( .5 )    Check   Obtained   by    Fraud 1148 

§  142   (6)    Check  Put  Through   Clearing   House 1148 

§  142   (7)   Liabilities    between    Banks 1149 

§  142   (8)    Knowledge    of    Personal    Transaction    of    Officer    as    Knowl- 
edge   of    Bank 1150 

§   143.  Liability  of  Bank  to  Drawer  for  Refusal   to   Pay 1151 

§   143    (1)    In     General     1151 

§  143   ( la)    General    Rule    1151 

§   143   (lb)   Check   of    Former   Convict 1151 

§   143   (Ic)   Nature   and    Sufficiency   of   Deposit 1152 

§  143   (Id)   Form,  Requisites  and  Sufficiency  of  Check 1153 

§   143   (le)    Indorsement   and    Presentment 1154 

§  143   (If)   Acts   Constituting  a   Refusal   to   Pay 1154 

§   143   (2)    Nature  and   Form  of  Action   Therefor 1154 

§   143    (3)   Time    to    Sue    and    Limitation 1155 

§   143    (4)    Pleading     1155 

§  143   (4^)    Issues   and    Proof 1157 

§   143    (5)    Evidence     1158 

§  143   (5a)    Presumptions    and    Burden    of    Proof 1158 

§   143    (5b)   Admissibility     1158 

§   143   (5c)   Weight    and     Sufhciency 1159 

§   143    (6)    Trial     1160 

§   143    (6a)    Instructions     1160 

§   143    (6b)    Questions     for    Jury 1161 

§  143   (7)    Damages     1162 

§  143   (7a)   Compensator}-   or   Temperate   and    Nominal    Damages.  ..  1162 

§  143   (7aa)    Liability     1162 

§   143   (7ab)    Measure    and    Elements 1162 

§   143   (7aba)    In    General     1162 

§   143   (7a]-)l:))    Showing     of    Actual    or    Special     Loss 

of    Injury     1 162 

§   143   (7abba)    Depositor       a       Alercliant       or 

Trader     1162 

§    143    (7ald)b)    Depositor    Not    a    Merchant    or 

Trader    1 163 


TABLE  OF  CONTENTS. 


XLIII 


§   14:>   (7alic)    Items  'of    Loss    or    Injury    for    Wliicli 

Damage   Allowed    1  lOG 

§   14;:   (7b)    Exemplary    or     Punitive     Damages 11  Hi 

§   14;)   (7c)   Special    Damages    IIGS 

§   14;?   (7d)   Set-Off    l)y     Bank llCS 

§  143    (8)    Liability    of    Bank    for    Interest 1168 

§  143,'/2.   Cashier's    Checks     1 168 

§   144.   Notes    Payable   at    Bank 1168 

§   14.5.  Certified    Checks    or    Xotes 1171 

§   14,5   (1)    Checks     1171 

§  14.5   (la)    Certified    Check    Defined 1171 

§   14.5   (lb)   Certification    Distinguished    from   Acceptance 1171 

§   145   (Ic)   Certification    Distinguished    from    Guaranty 1171 

§   145   (Id)    Mode    of    Certification 1171 

§   145   ( le)   01)ject    of    Certification 1172 

§   145    (If)    Authority     to     Certify 1172 

§   145    (  1  fa  )    In     General     1172 

§   145    (Ifb)    President     1172 

§   145    (Ifc)    Cashier     117;! 

§   145    (Ifd)    Assistant    Cashier     1174 

§   145    (Ife)    Teller     1174 

§  145   (Ig)   Time    of    Certification 11 74 

§  145   (lh)   Certification    of    Postdated    Checks 1175 

§   145    (li)    Efifect  of  and  Implications  Arising  fmni  Certification .  1 175 

§   145   (lia)   In    General     1175 

§   145   (lib)    Holder's   Position  That   of  a   Depositor 1178 

§   145    (lie)    A      Certified     Check     Xot      Afoney— Does     Not 

Operate    as    Payment 117!) 

§   145   (lid)    Bank     Bovnid     without     Regard     to     State     of 

Drawe-'s    Account    11  SO 

§   145   (lie)    Implication     That     Check     Has     Passed     from 

Bank's    Custody     .1181 

§   145    (lif)    Certification    Creates    No    Tru-t    and    Gives    No 

Lien     1181 

§    145    dig)    Bank's    Liability    Continues    Indefinitely Iisi 

§   145   (lib)    Liability  of   Bank  aftej"   Drawer's   ImhuIs    Have 

Been    .\ttaciied     IISI 

§    145    (lii)    Certification    iiy    Mistake lisi 

§    145    (lij)    Certification    Obtained    by    iM-aud 11S2 

§    145    (lik)    Certificaticin    of    iMirged   and    .\Uered    Chi'cks .  .  1  1S3 
§    145    (lil)    Certificatif)n     Ity     Agent     or     Officer     of     l^ank 

without    .\nthi)ril\    i.r   in    Viiilatinn   of    I  )nt.\  .  .  .  1  1 S4 
§    145    (lim)    Certification      ,,\     C'liecks     Obtained      l'"raudu- 

lently  or   in   a    I'ictitious   Name 1  IS5 

i;    145    (lin)    l'"<)rged     Certilication IIS5 

§   145    (Ij)    I'.ffect    of    Over    Certification    of    Cliecks    by    National 

I' ■inks     1  185 

§    145    Ilk)    Cancellation    of   Check    on    Applicati-n    of    Drawer.  ..  1  ISC. 
§    145    til)    |>:rfcct    of    I'.ank's    .Mi-take    in    I'rot, •sting  Cerlifu-d    an<l 

Pay  in'.;     I  ■nccrl  ilicd     (."beck II  St> 

§    145    (  hn  )    Time    of    l)enianding    P.iymenl    of    (,'beek 11S6 

§145    (In)    Kighls    and     Linbibtie^     .•(     li.nik     ll-ilding    Certified 

Ciieck    Drawn    on    Anothir    l'.aid< I  I S7 


XLIV  TABLE   OF    CONTENTS. 

§   145   (,lo)    Certification    Not    within     Inhibition   against   Issuing 

Notes  to   Circulate  as  Money 1187 

§  145   (Ip)    Indebtedness  of  Holder  Can   Not  Be  Set  Ofif  against 

Check     1187 

§  145   (Iq)   Actions  upon   Certified  Checks 1187 

§   145   (Iqa)    By   Whom   Action   May   Be   Brought 1187 

§   145   (Iqb)    Demand   an    Essential   Prerequisite 1187 

§   145    (2)    Notes     ^ 1188 

§  145   (2a)    Efitect    of    Certification 1188 

§  145   (2aa)   In    General    1188 

§  145   (2ab)   Certification    by    Mistake 1188 

§  145   (2b)    Effect  of   Holder's   Delay   in   Obtaining   Payment ....  1189 

§  146.   Payment  of  Lost  or  Stolen   Paper 1189 

§  146   (1)   Certificates    of    Deposit 1189 

§   146   (2)    Checks     1189 

§  147.  Payment   of   Forged    or   Altered    Paper 1190 

§   147   (1)   Right  of  Bank  to  Recover  Back  Money  Paid 1190 

§  147   (la)   Where     Signature     Forged 1190 

§147   (lb)   Where     Indorsement     Forged 1193 

§  147   (Ic)    Raised    or   Altered    Checks 1195 

§  147   (2)   Right  of  Bank   Paying   Paper   to   Bona   Fide   Holder 1196 

§  147   (2a)   In    General    1196 

§   147   (2b)   Recovery    of    Payment    on    Forged    Checks    to    Ficti- 
tious   Payees     1200 

§  147   (3)   Laches   as   Affecting  Right   of   Recovery 1201 

§  147   (4)    Estoppel   of   Bank   to   Resist   Liability   on   Forged   Check 1202 

§  147   (5)    Procedure    to    Recover    Back 1203 

§  148.  Liabilities   of   Bank  to   Depositor,   Payee   or   Ow^ner 1203 

§  148   (1)   Liability  of  Bank  to  Depositor  on  Paying 1203 

§  148   (2)   Liability   of   Bank    Paying   Check   on    Forged    or    Fraudulent 

Indorsement     1209 

§  148   (3)    Negligence    of    Depositor,    and    Ratification    of    Forgery    or 

Fraudulent    Alteration     1221 

§  148   (3a)    Negligence    of    Depositor     as    Relieving    Bank     from 

Liability     1221 

§  148   (3b)    Estoppel    or    Ratification 1227 

§  148   (4)   Laches    of    Depositor    in    Discovering    Forgery    or    Notify- 
ing   Bank   Thereof 1229 

§  148   (5)    Necessity  of  Returning  Forged   Paper  and   Demanding   Pay- 
ment      1239 

§  149.   Rights   and   Liabilities   as   between    Banks 1239 

§  150.  Overdrafts     1249 

§  150   (1)   In     General     1249 

§  150   (2)   By   Whom   Overdrafts   Made 1250 

§  150   (3)   Right   to   Make   or   Refuse   Overdrafts 1251 

§  150   (4)    Right    to    Recover    Overdrafts 1251 

§  150   (5)   Interest    on    Overdrafts 1254 

§   150   (6)   Application    of    Depositors    to    Overdrafts 1255 

§  150   (7)   Action    to    Recover    Overdrafts 1256 

§   151.   Depositors'    Passbooks   and   Accounts 1257 

§  152.  Certificates    of    Deposit 1262 

§  152   (1)   In    General    1262 

§   152   (2)    Power   of    Bank    to    Issue    Certificates 1265 


TABLE  OF   CONTEXTS.  XLV 

§  152   (3)    \alidity    of    Certificates 1266 

§  152   (4)   Interest-Bearing    Certificates    1269 

§  152   (5)   Renewal    Certificates    1270 

§  152   (6)   Construction    of    Certificates 1271 

§  152  (7)  Title    to    Funds    Deposited 1271 

§  152   (8)   Transfer    of    Certificates 127i 

§  152   (8a)   In    General    1271 

§  152   (8b)   Mode    of    Transfer 1273 

§  152   (8c)   Rights    and    Liabilities    of    Parties 1274 

§   152   (8ca)   Of     Bank     1274 

§   152   (8cb)    Of    Depositor     1277 

•  §   152    (8cc)    Of    Indorser    1277 

§  152   (8cd)    Of    Transferee 1277 

§  152   (8d)    Efife.ct    of    Transfer 1281 

§  152   (9)   Redemption.    Payment    and    Cancellation 1281 

§   152   (10)   Actions    on    Certificates 1285 

§  153.  Special    Deposits    1286 

§  153   (1)   In    General     1286 

§  153   (2)   What    Deposits    Are     Special 1287 

§  153   (2a)    Deposit   Made   under   Special    Agreement 1287 

§   153   (2b)    Deposit    for    Particular    Purpose 1291 

§  153   (2c)   Deposit    by    Particular    Person 1293 

§  153   (2d)    Deposit  to  Be  Paid  to  Particular  Person 1293 

§  153   (2e)    Deposit    Credited    to    Account 1293 

§  153   (2f)    Deposit    Subject    to    Check 1296 

§  153   (2g)   Deposit    Mingled   with    Other    Funds 1296 

§  153   (2h)    Evidence    to    Prove    Deposit    Special 1297 

§  153   (3)   What   May    Be    Specially    Deposited 1297 

§  153   (4)   Title   and   Interest   of   Bank 1297 

§  153   (5)    Power    of    Bank    to    Accept 1298 

§  153   (6)   Duty   and    Liability   of    Bank 1298 

§  153   (6a)   In    Genera!     1298 

§  153   (6b)    Degree    of    Care    Required 1300 

§  153   (6c)   Liability  of  Bank  as   Gratuitous   Bailee 1302 

§  153   (6d)   Liability    of    Bank    as    Bailee    for    Mutual    Benefit    or 

Hire     1303 

§  153   (6e)   Liability   for  Acls   of   Officers 1303 

§  153   (6f)    Liability  of  Bank   for   Loss   by  Theft 1303 

§  153   (6g)   Liability   of   Bank   for   Delivering   Deposit   to   Wrong 

Person     1306 

§   153   (6h)    Liability   for   Transfer   to    Branch    Bank 1308 

•    §  153   (6i)   Action   against    Bank 1308 

§  153   (7)   Preference  of  Depositor  on  Insolvency  of  Bank 1309 

§  153   (8)   Repayment   and   Revocation   of   Deposit 1309 

§  153   (9)   Proceedings    to    Recover    Deposit 1311 

§  154.  Actions  by   Depositors  or  Others   for   Deposits 1313 

§  154  (1)   In    General    1313 

§  154   (2)  Time   to   Sue   and    I, imitations 131('( 

§  154   (2a)   In    General i;!16 

§  154   (2b)   Accrual    of   Cause   of   Actions 1318 

§  154   (2c)   Accrual  of  Cause  of  .^ction  on  Certificate  of   Deposit.  .  1320 

§  154  (2d)  Action    to    Recover    Interest 1320 

§  154   (2e)   Suspension    of    Operation 1320 


XL  VI 


TABLE   OF    CONTEXTS. 


S    l^i 


§    15-t 
§    154 


§  la-4 
§  154 
§  154 
§  154 
155.  Actio 
§  155 
§  155 
§  155 
§  155 


§  155 
§  155 
§    155 


3)  Coiulillons    Preceuent 1321 

154   (3a )   Deposit    in     General 1321 

154   ( 3b  )    Certificate    of    Deposit 1326 

4 )  Parties     1328 

5)  Pleading    1333 

154   (5a)    Petition    or    Complaint 1333 

154  (5b)    Plea     1335 

6)  Presumptions    and    Burden    of    Proof 1338 

7)  Admissibility    of    Evidence 1344 

8)  Weight   and    Sufficiency   of    Evidence 1351 

9)  Trial    and    Judgment 1359 

s  by   Payee   or   Holder   of   Check   against   Bank 1367 

1)  Form     of    Action 1367 

2 )  Limitation    of    .\ction 1367 

3)  Substituting    Drawer    as    Plaintiff 1367 

4)  Pleading    1367 

155  (4a)    Declaration.    Petition    or    Complaint 1367 

155    (4b)    Answer     1368 

155    (4c  )    Reply     1368 

5)  Issues    and     Proof 1368 

G)    Question     for    Jury 1369 

7)    Evidence     1369 

§  155   (7a)    Burden    of    Proof 1369 

§   155   (  7l) )   Admissibility    and    Competency 1370 

§  155   (7c)   ^^'eig■ht   and    Sufficiency    1370 


CHAPTER  X. 


§  157. 
§  158. 
§   159. 


D.   Collections. 

§  156.   Relation   between   Bank   and   Depositor   for   Collection 1374 

§   156    ( 1  )    In    General     1374 

§  156   (2)   Consideration  for   Bank's  Undertaking 1376 

§  156   (3)    By    What    Law    Contract    Governed 1376 

§   156   (4)   Revocation   of   Agency    1377 

Power  and   Duty   to   Make   Collections    1377 

Making,    Receipt,   and    Entry   of    Deposit   for    Collection 1378 

Title   to   Paper   Received   for   Collection 1380 

§   159   ( 1 )    In    General     1 380 

§159   (2)    EfTect    of    Restrictive     Indorsement 1385 

§  159   (3)   Lien   of   Collecting   Bank 1389 

§  159   (4)   Right  to  Set  Off  Paper  against  Debt  Owing  liy  Bank' 1390 

§   159   (5)    Effect  of  Pledge  or  Transfer  to  Third   Person 1391 

Authority    and    Acts    in    Making    Collection 1391 

Banks    in    General 1391 

§  161    (1)    General    Rules    as    to    Powers    and    Duties 1391 

§   161   (2)    Effect    of   Customs    and   Usages 1392 

§  161    (3)   Taking   Things    Other   than    Money   in    Payment 1395 

§   161   (4)   Acceptance    of    Payment    of    Overdue    Paper 1399 

§  161   (5)   Acceptance    of    Part    Payment 1399 

§  161    (6)   Surrender   of   Collateial   before   Making  Collection 1399 

§   161   (7)   Right   of  Action  upon   Paper   Deposited  for  Collection 1403 

§   161    (S)   Liability  of  Bank  to  Maker  of  Note  Left  for  Collection ....  1404 


§   160 
5j  161 


TABLE  OF   CONTENTS.  XLVII 

g   Igo.  Assents   and   Correspondents 1404 

§   1()2    (1)    Autliorit}-   to   Appoint   Agents   to   Make   Collection 1-104 

§   lf)2   (la)    In     General     1404 

§    162    (lb)    Propriety    of    Appointment    of    ih-a\vee    as    Agent ....  1405 
§   162    (Ic)    Authority  of  Bank  to   Employ    Notary   or  .\ltorney .  .  1408 

§   162   (2)   Nature   of   Agency   Created   by   Such   Appointment 1409 

§   162   (3)   Continuance    and   Termination    of    Agency 1411 

§  162   (4)   Duties,    Powers   and    Liabilities    of   Agents   and    Correspond- 
ents  1411 

§  163.  What    Constitutes    Collection 1412 

§   164.   Rights    and    Liabilities    as   to    Proceeds 1415 

§  165.  In     General     ' 1415 

§  106.  Insolvency   of   Collecting    Bank 1417 

§  166   (1)    Holding    Bank    as    Trustee 1417 

§  166   (2)   Title    of   Bank   to    Paper   and    Collections    Made   after    insol- 
vency      1432 

§   166   (3)   Liability  Where  Collection  is  Made  by  Charging  to  Account 

of    Depositor    1434 

§  166   (4)    Liability   of    Transmitting     P.ank   on     Insolvency    of    Corre- 
spondent    Bank     1437 

§  167.  Insolvency    of   Transmitting   Bank 143S 

§   167   (1)   General   Rule   as   to  Liability   of   Collecting   Bank    to   Owner 

of     Paper     1438 

§   167   (2)    Right   of  Correspondent   to   Retain   Proceeds   on   Account   of 

Debt    Due    from    Remitting    Bank 1442 

§  168.  Payment    of    Proceeds 1447 

§  169.  Liability    in     General 1 447 

§  169   (1)   Duty   to  Account  to   Principal   for    F'roceeds 1447 

§  169   (2)   Duty  to   Obey  Instructions  as  to   Disposition  of   Proceeds ..  1451 

§  169   (3)   Duty    as    to    Remittance    of    Proceeds 1451 

§  169   (4)   Sufficiency    and    Medium    of    Payment 1451 

§  169   (5)   Recovery   Back   of   Payment   Made   under   Mistake ....1453 

§  170.  Negligence  or  Default  of  Agents  or  Correspondents 1455 

§  171.   Failure    to    Collect 1463 

§  171    (1)   Liability    of    Bank    in    General 1463 

§  171   (2)   Negligence    of    Collecting    Bank    in    General 1464 

§  171    (:'.)   Negligence   in    Sending   Paper   Directly   to    Debtor 1460 

§  171   (4)    Failure   to   Present  or    Delay   in    Presenting   Paper   for    .Ac- 
ceptance   and     Payment 1466 

§   171    (.'"))    Duty    to    Give    Notice    of    Non])ayment    or    Dishonor 1471 

§   171    (6)    Liability    of   Transmitting    i'.ank    for    Default    of   Correspond- 
ent        H'<5 

§   171    (7)    Liability    Where    Checks    or    Drafts,     iveceived    in     i'ayment, 

Are    Not     Paid 1480 

§   171    (8)    Notes,  Checks,  or  Drafts  Lost  in  Course  of  Transmission ..  1483 
§   171    (9)    I'ailure   to   Apply   Deposit  to   Note   Due   from   Depositor ....  1484 

5^   171    (10)    Permitting   Paper   to    Be    Renewed ..1485 

§   171    (11)    h'ailure    to    Collect    Interest '  <^"' 

§   171    (12)    Waiver    of    Right    of   Action    against    i'.ank,    or    Ratilicalion 

of    Bank's     Acts '•!«•'> 

§  172.   Failure  to   I'^ix   Liability  of  Indorscr  or  of  Drawer  of  Note,  Check   or 

Draft    1486 

§    172    (1)    In     General MSI" 


XLVIU  TABLE   OF   CONTENTS. 

§   172   (2)    Duty  of  Collecting  Bank  to   Protest  Paper 1488 

§  172   (3)   Liability  for  Default  or  Negligence  of  Correspondents,   Sr.b- 

agents,    or    Notaries 1490 

§  172   (4)    Recovery  Back  by  Indorser  ef  Payment  Made  in  Ignorance 

of    Bank's    Negligence 1495 

§   173.  Collection    of    Lost    or    Stolen    Paper 1495 

§  174.  Collection   of   Forged   or  Altered   Paper 1495 

§  174^.  Suits  by  Collecting  Bank  to  Enforce  Payment  of  Paper  Transmitted 

by  Correspondent    1501 

§  174->4.  Action   against   Bank   for  Collection   of   Forged   Paper 1501 

§  175.  Actions    for    Negligence    or    Default 1501 

§   175   (1)   Nature  and   Form   of   Remedy 1501 

§   175    (V/i)    Who    May    Sue 1502 

§   175   (2)    Pleading    1503 

§   175   (2a)   Declaration,   Petition   or   Complaint 1503 

§   175    (2b)    Answer     1505 

§   175   (2c)   Sufficiency  of  Pleadings  to   Raise   Issue 1507 

§   175   (3)    Evidence     1507 

§   175   (3a)    Presumptions    and    Burden    of    Proof 1507 

§   175   (3b)   Admissibility  of   Evidence    1510 

§   175    (3c)   Weight   and    Sufficiency    of    Evidence 1513 

§  175   (4)   Instructions     1514 

§  175   (5)    Questions    for   Jury    1515 

§  175   (6)    Measure   of   Damages    1517 

CHAPTER  XL 
E.   Loans  and  Discounts. 

§  175>1   In   General    1523 

§  176.   Power    to    Make    Loans    in    General 1527 

§  177.  Power  to   Discount    1530 

§  178.  Requisites  and   Validity   of   Loan   or   Discount 1534 

§  178   (1)    In    General     1534 

§  178   (2)   Where    Statute    Violated    1536 

§  178   (3)   Particular    Loans    or    Discounts    1541 

§   179.   Collateral    Security    1544 

§   179   (1)    Power    of    Bank     1544 

§   179   (2)   Conflict    of    Laws    1544 

§   179   (3)   Persons    Liable   on   Security 1544 

§  179   (4)   Manner   of   Making   and   Validity   of    Pledge 1545 

§  179   (5)   What   May    Be   Taken   as   Collateral 1547 

§   179   (6)   Title,    Lien    and    Priorities 1548 

§   179   (7)    Right   to    Take    Several    Securities 1557 

§   179    (8)    Equities    of    Third     Persons 1557 

§   179   (9)   Custody   and    Surrender   of    Security 1558 

§   179   (10)   Collections    on    Securities 1563 

§   179   (11)    Sale    of    Security 156:! 

§  179   (12)   Termination    and    Release 1564 

§   179   (i;;)    Renewal    of    Security     1565 

§   179    (14)    EfTect    of   Taking    Improper    Security      ; 1566 

;5   180.   Loans    to    Stockholders,    and    Stock    as    Securitv 1566 


TABLE   OF    CONTEXTS.  XLIX 

§  181.  Interest  or   Rate   of  Discount,  and  Usury 1569 

§  181   (1)   In    General     1569 

§  181   (2)   Controlled   by   General   Law   or   Charter 1572 

§  181   (3)   Manner    of    Calculating    Interest 1575 

§  181   (4)   What    Constitutes    Usury lo76 

§  181   (5)   Defenses    to    Usurious    Contract    and    Recovery    of    Interest 

Paid    1 583 

§  181   (6)   Eflfect    of   Usury    1586 

§  182.  Application   of   Proceeds    1589 

§  183.   Rights   and   Liabilities   as   to    Paper    Discounted 1589 

§  183   (1)   Of    Bank     1589 

§  183   (2)    Of    Maker     1593 

§  183   (3)   Of    Indorsers    1593 

§  183   (4)   Of   Third    Persons    1593 

§  184.  Renewal  of  Loan  or  of  Paper  Discounted 1594 

§  185.  Repayment    of    Loans    1596 

§  185   (1)   What    Amounts    to    Payment 1596 

§  185   (2)   Medium    of    Payment     1597 

§  185   (3)   Particular    Loans     1601 

§  185   (4)   Application    of    Payments    1602 

§  186.  Discount   of   Forged  or  Fraudulent   Paper 1603 

§  187.  Actions  on   Loans   or  on   Paper   Discounted 1605 

§  187   (1)    In    General     1605 

§  187   (2)   Defenses 1607 


CHAPTER  XII. 
F.   Exchange,  Money,  Securities,  and  Investments. 

§  ISiy..  In     General     1610 

§  188.   Power   to    Deal    in    Exchange,    Money,    and    Securities 1611 

§  189.  Issue   and   Payment   of   Drafts 1611 

§  189   (1)   In    General    1611 

§  189   (2)    Rights    and    Liabilities    of    Parties 1612 

§  189   (2a)   Of   Drawee    ItJl- 

§  189   (2b)   Of  Payee    161-^ 

§   189   (3)    Forged    and    Fraudulent    Draft 161'-f 

§   190.  Payment    of    Forged    or    Altered    Paper "'1'' 

§  190  (1)   In    General    1'"''^ 

§  190   (2)    Recovery    of    Payment    ^'^'^ 

§  190  (2a)   In    General    ^^^^ 

§  190   (2b)   From    Drawee    '*'l^ 

§   190   (2c)   From    Indorser    "'-O 

§   190   (2d)    From    Bank    Certifying     '622 

§   190   (2e)   From    Holder    for    Value ...1623 

§   100   (2f)   Procedure     '*'-■* 

§  191.  Letters    of    Credit    '''~;| 

§  192.  Purchase    and    Sale    of    Exchange '^"' 

§  193.   Purchase   and   Sale   of   Money   or    Bullion 1627 

§  194.  Purchase  and  Sale  of  Stock  or  Securities • 1627 

§  195.   Loans   and    Investments   by    Bank   for   Others 1628 

1  B  &  B— d 


I,  TAHLE   OF    CONTENTS. 

CHAPTER  XIII. 
G.   Circulating  Notes. 

§  196.  Nature    and    Requisites l^-^^ 

§  196   (1)   Definitions    and    Distinctions     1634 

§   196   (2)    Banknotes    as    Money    1635 

§  196   (2a)    In    General     16^5 

§  196   (2b)   As    Medium   of   Payment 1640 

§  196   (2ba)    In     General     1640 

§  196   (2bb)    Debts    Due    Bank 1641 

§  196   (2bc)   Taxes    or    Other    Money    Due    State 1641 

§   196   (2bd)   Offer   to    Pay— Tender    1646 

§  196   (2c)   As    a    Bill    of    Credit 1646 

§   196    (3)    Requisites     1617 

§  196   (3a)   Signing    and    Countersigning    1647 

§   196    (3b )    Date    1618 

§   196    ( :ic )    Xuml)er    1648 

§   196   (3d)   Time    of   Taking    Effect 1648 

§  196   (3e)   Transferability   and   Circulation   of   Xotes 1648 

§  196   (3f)   Warranty     1649 

§  196   (3g)   Value    of    Bank    Notes 1650 

§  196   (3h)    Right  of   Lender  to   Bank   to   Lien   on   Notes 1650 

§   197.   Power   to    Issue    or    Circulate 1650 

§   197    (1)    Power    to    Regulate    and    Control 1  <>•">" 

§  197   (2)    Right    to    Exercise    Function 16.32 

§  197   (2a)    In    General    1652 

§  197   (2b)   Prohibiting    Particular    Circulating    Mediums 1655 

§  197   (2c)   With    Reference   to    Paper   Issued   in   General 1655 

§  197   (2d)    Issuing    Paper    in    Similitude    of    Bank    Notes 1656 

§  197   (2e)   Post   Notes   and    Paper   Not   Payable   on   Demand.  ..  .1657 

§   197   (2f)    Immediate    Unrestricted    Circulation 1660 

§   197   (2g)    Instrument   in    Form    of    Due    Bills 1660 

§  197   (3)    Wlhat   Constitutes   Issuance   as   Circulating   Currency 1660 

§   197    (4 )    Presumption    of    Legality     1660 

§  197   (5)    Statutory    Invalidation    of    Issue 1661 

§  198.   Restrictions    upon    Issue    or    Circulation 1661 

§   199.   Deposit    of    Security 1662 

§   199    (1)    Deposit    of    Security    in    General 1662 

§   199   (2)    Interest    on    Deposited    Securities 1664 

§  200.  LTnauthorized    Issue 1664 

§  201.  In   General    1664 

§  201   (1)   Issuing,    Passing    and    Receiving   as    Constituting   Crime ....  1664 
.    §  201   (2)    Issuing,    Passing   or    Receiving   as    Creating   Obligations.  ...  1666 

§  201    (3)   Testing    Right    to    Issue 1666 

§  202.  Operation    and    Effect    of    Bank    Notes 1667 

§  202   (1)    Rights    of    Holders     1667 

§  202   (2)    Right  of   Bank    1669 

§  202   (3)    Notes   Issued   without   Authority    of    Bank 1671 

§  203.  Penalties    and    Actions    Therefor 1672 

§  204.  ■  Criminal   Prosecutions    1 672 

§  204   (1)    Indictment     1672 

§  204    (2)    Evidence     1673 

§  204   (3)   Variance     1 674 


TABLE   OF   CONTEXTS.  Lf 

§  205.  Taxation     1674 

§  206.  Penalties   for   Failure   to   Keep   Xotes   at   Par 1674 

§  207.   Payment    or    Redemption 1675 

§  208.  In   General 1675 

§  208   (1)   Obligation    of    Bank    in    General 1675 

§  208   (2)   Presentation    and    Demand    1676 

§208   (3)   Payment    of    Lost    or    Destroyed    Xotes 1677 

§  208   (4)   Payment    of    Stolen    Bills 1678 

§  208   (5)   Payment    of    Mutilated    Xotes 1679 

§  208    (5a)    In     General 1679 

§  208   (5b)   Negotiability   of   Half   of   Xote 1681 

§  208   (6)   Forgery    or    Alteration 1682 

§  208   (6a)    Forged     Notes     1682 

§  208   (6b)   Alteration    1682 

§  208   (7)   Right    of    Person    Taking   after    Payment    Refused 1683 

§  208   (8)   Redemption   of   Overissue 1683 

§  208   (9)   Payment   of    Depreciated    Bills 1683 

§  208   (10)   Sufficiency   and   Medium   of   Payment 1683 

§  208   (11)   Rights  of  Purchaser  at   Discount 1685 

§  208   (12)   Interest   on    Notes 1685 

§  208   (13)    Right  of   Bank   to   Set   Off  Debt 1687 

§  208   (14)    Funding    Past    Notes 1687 

§  208   (15)   Contract  by  Third  Person   to  Redeem   Xotes 1687 

§  208   (16)   Bank  Notes  Issues  without  Authority   of  Bank 1687 

§  208   (17)   Exchange    on    Substitution   of   Securitj' 1688 

§  208   (18)   Special   Preference  and   Lien   of  Bill   Holders 16S8 

§  209.  From    Funds   Deposited    as    Security 1689 

§  210.  • Penalties  for   Failure   to   Pay 1689 

§  210   (1)   In     General     1689 

§  210   (2)   What    Amounts    to    Refusal    or    Neglect 1692 

§  210  (3)   Failure  to   Indorse   Refusal  on   Bills 1692 

§  210   (4)   Sufficiency  of  Tender  to  Stop  Running  of  Penalty 1693 

§  210   (5)    Procedure    to    Recover 1''04 

§  211.   Liability   of   Stockholders   or   Officers 1694 

§  211    (1)   Members    of    Association 1<>94 

§  211    (2)    Stockholders     1694 

§  211    (2a)   In    General    16{>4 

§  211    (21:))    Necessity   for    Insolvency    or    Exhaustion    of    Dep<isit 

with    State     H'''->'-' 

§211    (2c)    Efifcct    of    Forfeiture    of    Charter 1699 

§211    (2d)   Liability     for     Interest l"*^*^ 

§211    (2e)    Lial)ility    for    Bills    Wrongfully    Issued 1700 

§  211   (2ea)    In    General    1700 

§  211    (2eb)   Effect  of  Release  of  Directors  or  Stockholders.  .  1701 

§  211    (2f)    Liability    on    Bond 1*01 

§211    (2g)   Liability    of    State    as    Stockhobler 1702 

§  211    (2h)    Liability   of   Stockholders   of    I'oreign    C()ri).>rati..iis .  .  1702 

§  21  I    (?.)   Officers     "7<>~ 

§211    (4)   Action    to    Enforce    Liability - '""•'^ 

§  211    (4a^    In    General    17"^ 

§211    (4b)    Limitation     of    Actions 1703 

§211    (4c)   Attachment    of    Bank's    Property 1703 

§211    (4d)    Pleading    and     Kvidence 1704 


I^II  TAIiLE   OF    CONTENTS. 

§  211    ( 4e)   Judgment     1705 

§  211   (5)   Liens    and    Priorities 1705 

§  212.  Actions   on   Notes   or  for   Nonpayment  Thereof 1705 

§  212   (1)   Jurisdiction     1705 

§  212   (2)    Mode  of   Procedure — Form   of  Action 1705 

§  212   (3)    Enforcing   Payment   of   Lost   or   Destroyed    Notes 1706 

§  212   (4)   Limitation    of    Actions 1707 

§  212   (5)    Necessity   and   Sufficiency   of   Demand 1708 

§  212   (6)    Parties     1710 

§  212   (7)   In  Whose   Name   Action   Brought 1710 

§  212   (8)   Pleading    1711 

§  212   (8a)   In    General    1711 

§  212   (8b)   To  Recover  Value  of  Destroyed  Note> 1711 

§  212   (9)    Filing   Bills   or   Notes 1711 

§  212   (10)    Bill    of    Particulars 1712 

§  212   (11)    Evidence     1712 

§  212   (11a)    Burden    of    Proof. 1712 

§  212   (lib)   Admissibility    of    Evidence 1712 

§  212   (lie)   Weight   and    Sufficiency 1713 

§  212    (12)    Costs     1714 

§  212^4.   Foreign    Bank    Bills 1714 

§  212^    (1)    Notes  of  Foreign   Bank  Doing  Domestic   Business 1714 

§212^    (2)   Circulation    of    Foreign    Currency 1714 

§  2121/    (9a)    In    General     1714 

§212^    (2b)   Laws    Prohibiting    Circulation 1714 

§  212V2    (2c)    Statutes      Applicable      to     Particular     Persons     and 

Transactions     1716 

§  212'/<    (2d)   Unlawfully  Issuing  Foreign   Bills  for  Circulation ..  1717 
S  21214    (2e)   Criminal    Prosecution    1717 


CHAPTER  XTV. 
H.  Actions. 

§  213.  Capacity   to   Sue  and   Be   Sued 1720 

§  213   (1)    Capacity    to     Sue 1720 

§  213   (la)    In    General    1720 

§  213   (lb)   Suits   by    Foreign    Banks 1721 

§  213   (2)   Capacity    to    Be    Sued 1722 

§  213   (3)   Abatement   of   Actions 1722 

§  215.   Conditions    Precedent    1 723 

§  215    ( 1)    In    General     1723 

§  215    (2)  -Demand     1723 

§   216.   Nature    and    Form    of    Remedy 1724 

§  217.   Summary    Remedies    1724 

§  217   (1)   In    General    1724 

§   217    (2)    Parties     1725 

§  217   (2a)    Parties    Plaintiff    1725 

§  217   (2b)   Parties    Defendant    1725 

§  217   (3)    Notice    of    Motion 1725 

§  217   (3a)   Functions    of    Notice 1725 

§  217   (3b)   Form   and    Requisites 1726 

§  217   (4)   WHio    May    Give 1727 


TABLE   OF   CONTEXTS.  I.I  II 

§  217   (5)   Length    of    Notice 1727 

§  217   (6)   Service   of   Notice   and   Time   of   Motion  for  Judgment 1727 

§217   (7)   Raising  and   Waiving  Objections  to   Notice 1728 

§  217   (8)   Amending   Notice   or   Curing   Defects   Therein 1728 

§217   (9)    Execution    and    Return    of    Process 1728 

§217   (10)   Certificate    as    to    Indebtedness    to    Bank 1728 

§217(11)    Defenses    Available    to    Debtor 17:'9 

§  217   (12)    Burden    of    Proof 172« 

§  217   (13)    Record    and    Judgment 1730 

§  217   (13a)   Matters   to   Be   vShown   by   the   Record 1730 

§  217   (13b)   The   Judgment    1731 

§217    (14)    Execution    without    Judgment 1731 

§217   (15)   Affidavit    to     Procure     Execution 1732 

§  217    ( 16)    Review    on    Appeal 1732 

§  218.  Jurisdiction    and    Venue 1732 

§  218    (1)   Jurisdiction     1732 

§  218   (la)   At   Law   or  in   Equity 1732 

§  218   (lb)    Particular    Courts    1733 

§  218   (2)   Venue     1^:53 

§  219.  Time    to    Sue,    and    Limitations 1734 

§  220.   Parties     '"•'■< 

§  221.  In    General    1~34 

§  2211,4.  Parties    by    Representation 173:) 

§  222.  Use   of   Name   of   Bank   or   Officer 173") 

§  222   (1)    Suing    in    Name    of    Bank... 173") 

§  222    (2)    Suing   in    Name    of    Officer. 1737 

§  222   (3)    In  .Vctions  by  or  against  Branch   Banks 1738 

?  222   (4)    Raising    and    Waiving    Objections 1738 

§  223.   Process    and    Appearance l"-^^' 

§  223    (1)    Process     "'"•^•^ 

§  223   (la)   Domestic    Corporations    1'<'39 

§  223   (laa)    Form    and    Requisites 1739 

§223   (lab)   Upon    Whom    Served 1"30 

§  223   (lac)    Place    of    Service 1~-10 

§223   (lad)   Raising   and    Waiving    01)jections 1740 

§  223    (lb)    Foreign    Corporations     '"-I'^ 

§  223   (2)   Appearance l"-*' 

§  224.  Attachment    and    Garnishment 1"^^ 

§  224   (1)   Attachment     1"-*' 

§224    (la)    Right    to    Sue    Out    .Attachment 1~-11 

§  224   (lb)    Territorial     Limits 1"-*1 

§  224   (Ic)    ]'V)rm    and    Requisites '741 

§  224   (Id)    Lien    of   Attachment '"•" 

§  224   (2)    Garnishment     ''^" 

§  224   (2a)   Who    May    Be    Garnished '~" 

§  224   (2b)    Liability    of   Garnishee I'^-'*' 

§  224   (2c)   Service    of    Garnishment !'''•'" 

§  224   (2d)   .Answer    of    Garnishee '''''•♦2 

§  22.").   Tnjuneli'in    and    Receiver i74« 

§  226.   Pleading     ^"■*-'' 

§226   (1)   The    Declaration.    Petition    or    Comi)l:iinl '"-l-^ 

§  226   (la)    iMM-ni    and    Ref|uisites '~'*^ 


LIV  TABLE   OF    CONTENTS. 

§  226   (laa)    Definiteness    and    Certainty 1743 

§  226   (laaa)   In    General     174:i 

§  226   (laab)   Conclusion    of    Counts 1744 

§  226   (laac)    Prayer    for    Relief 1744 

§  226   (lab)    Surplusage     1744 

§  226   (11))    Necessary    Allegations 1745 

§  226    (Iba)    In     General     1745 

§  226   (Ibb)    In    Actions    by    Banks 1746 

§  226   (Ibba)    In    General    1746 

§  266   ( Ibbb )   Amendments    1746 

§  226   (Ibc)    In    Actions    against    Banks 1746 

§  226   (Ibca)    In    General    1740 

§  226   (Ibcb)   Averment   of    Demand    1748 

§  226   (2)    Plea    or    Answer    1748 

§  226   (2a)    In    General     1748 

§  226   (2b)   Actions    by    or    against   Assignees 1749 

§  226   (2c)   Traversing   Bank's   Capacity    to   Sue 1750 

§  226   (2d)    Nul    Tiel    Corporation 1750 

§  226   (2e)   Conclusion     of     Plea 1750 

§  226   (2f)    Matters   Provable   under   General    Issue 1750 

§  223    (3)    Replication     1750 

§  226   (4)   Construction    of    Pleadings    1751 

§  226   (5)   Issues,    Proof    and    V'ariance 1751 

§  227.   Evidence     1752 

§  227   (1)    Presumptions   and   Burden   of   Proof 1752 

§  227    (la)    Presumptions    1752 

§  227    (1  b )    Burden   of   Proof 1752 

§  227    (2)    Admissibility  of  Evidence    1753 

§  227   (2a)    General    Rules   as   to    Admissibility 1753 

§  227    (2b)    Collateral     Evidence     1755 

§  227   (2c)    Best    and    Secondary    Evidence 1755 

§  227    (2d)   Judicial    Notice    1755 

§  227   (2e)    Documentary    Evidence    1756 

§  227   (2f )    Declarations   and   Admissions   1757 

§  227   (2g)    Parol   Evidence    1757 

§  227   (2h)   Usages   and   Customs    1758 

§  227   (3)   Weight   and    Sufficiency   of    Evidence 1758 

§  228.  Trial    1759 

§  228   (1)   Time   of   Trial    1759 

§  228   (2)   Reception    of    Evidence    1760 

§  228    (3)    Instruction     1760 

§  228    (3a)    Duty    to    Instruct    1760 

§  228   (3b)   Validity    of    Instructions    1760 

§  228    (3c)    Further   Instructions    1761 

§  228   (3d)   Construction    of    Instructions    1761 

§  228   (4)    Questions    of   Law   and    Fact 1761 

§  228   (5)   Verdict  and   Findings    1762 

§  228   (5a)   Directing   Verdict    1762 

§  228    (5b)    Findings  of   Court    1763 

§  229.  Judgments     1763 

§  229   (1)    In    General    1763 

§  229    (2)    Judgment   by    Default    1763 


TAP.LK   OF    CdXTKXTS.  LV 

§  229   (3)   Parties     1763 

§229    (4)    Operation    and    Effect    of    Judgment 1764 

§  230.  Execution   and    Enforcement   of   Judgment 1764 

§  230   (1)    Execution     1764 

§  230   (2)    Enforcement    of   Judgment    1764 

§  230   (2a)    Supplementary   Proceedings    1764 

§  230   (2b)    Limitations    1765 

§  231.   Costs     1765 

§231    (1)    Right    to    and    Liability    for    Costs 1765 

§  231   (2)    Items    Taxable     1765 

§  231J4.  Appeal   and   Error    1765 


VOLUME  III 

■   CHAPTER  XV. 

IV.  National   Baxks. 

§  232.   Nature    and    Status 1777 

§  233.   Power    to    Control    and    Regulate 1779 

§  233   (1)    Power   of   Congress 1779 

§  233   (2)   Power    of    States ■• 1780 

§  233   (3)   Power   of   Comptroller   and   Bank    Examiner 1785 

§  233   (4)   National    Bank    Examiner •  •  . .  1786 

§  235.  Regulation   and   Supervision   in   General 1786 

§  236.   Organization   and    Corporate    Existence 1786 

§  236   (1)   In    General    1786 

§  236   (la)   Power    to    Create 1786 

§  236   (lb)   Articles  or  Agreement  and  Comptroller's  Certificate.  1787 
§  236  (Ic)   Corporate  Existence  Necessary  to  Validity  of  Trans- 
actions      ^787 

§  236    (Id)   Time    Limit    '789 

§  236   (le)   Corporate  Existence  Continued  after  Time   Limit 1789 

§  236   (2)   Evidence    of    Corporate    Existence 1789 

§  236   (2a)    In     General     '789 

§  236   (2b)   Certificate    of    Comptroller 1790 

§  236   (2ba)   In   General    '"i'O 

§  236   (2bb)   Admissibility   of   Certificate 1701 

§  236   (2c)    Parol    Evidence    as    to    Engaging    in     General     Bank 

Business     ••....  1792 

§  230   (3)   Estoppel    to   Deny   Corporate    Existence 1792 

§236(4)   Collateral    Impeachment    of    Organization 1792 

§  237.   Reorganization  of  State  Banks  as  National   Banks 1792 

§  238.  Name     • '••^''' 

§  239.   Location   and    Place   fjf   Business ■  • ^"^^ 

§  240.   By-Laws     •• 'J"^ 

§  241.  Capital    and    Shares •• '~''''' 

§  241    (1)    Definition    and    Nature '"'•''' 

§  241    (2)    Increase  of  Cajjital   Stock ^''^^ 


LVI  lABLE  OF    CONTENTS. 

§  241   (2a)   Requisites    and    Validity 1798 

§  241   (2aa)   In    General    1798 

§  241   (2ab)   Assent   of   Stockholders 1798 

§  241   (2ac)    Payment  in  Full  in  Whole  of  Amount  of  Sub- 
scription      1799 

§  241   (2aca)   In    General    1799 

§  241    (2acb)    Reduction  of  Amount  of  Proposed   In- 
crease      1799 

§  241    (2acc)   Waiver   of    Right   to   Insist   upon    Pay- 
ment of  Full  Amount •  • ISOU 

§  241   (2ad)   Approval    and    Certificate    of    Comptroller ....  1801 

§  241   (2ae)   Delivery  of  Certificate  of  Stock 1803 

§  241    (2b)    Recovery   Back  of   Payment   Where    Increase   Fails..  180:5 

§  241   (2c)   Estoppel   to   Question   Regularity 1804 

§  241   (2d)   Action   to    Enforce    Payment 1804 

§  241   (3)    Reduction   of   Stock 1804 

§  241   (4)   Conversion  of  Stock  by   Bank 1806 

§  242.   Subscription   to  and   Issue  of   Stock 1806 

§  242   (1)    Effect  and  Purpose  of  Issue  of  Certificate 1806 

§  242    (2)    Payment     1806 

§  242    (3)    Rescission     1807 

§  242   (4)   Issuance  of  Duplicate   in   Place  of  Lost  Certificate 1807 

§  242   (5)   Actions   to    Enforce ..1808 

S  243.  Transfer    of    Stock -.1808 

§  243   (1)    Power    to    Transfer 1808 

§  243   (la)    In  General   1808 

§  243    (lb)    Executor 1808 

§  243   (2)   Persons  and  Corporations   to   Whom  Transferable 1809 

§  243   (2a)    In    General     1809 

§  243   (2b)    Purchase  by  Bank  of  Its  Ow^n  Stock 1809 

§  243   (2c)    Purchase   of  Shares   of  Another   National   Bank 1809 

§  243   (3)   Mode   and    Sufficiency    1809 

§  243    (3a)    In    General     1809 

§  234   (3b)    Payment   and    Delivery   of   Certificate 1810 

§  243    (3c)    Deed     1811 

§  243   (3d)   Recording  Transfer   1811 

§243   (3da)    Power    of    Bank    to    Refuse 1811 

§  243    (3db)    Necessity    1811 

§  243   (3dba)    In   General    181] 

§  243   (3dbb)   As  between  the  Parties   1811 

§  243   (3dbba)   In   General    1811 

§  243   (3d])l3b)    Priority     as      to     Assignee      in 

Bankruptcy    1812 

§  243   (3dbbc)    Priority    as    to    Attachment 1812 

§  243   (3dbc)   Pledge   of  Stock 1812 

§  243   (3dc)    Mode  and   Sufficiency 1813 

§  243   (3dca)   Production  or  Surrender  of  Certificate.  1813 

§  243   (3dcb)   Issuance   of   New   Cqftificate 1813 

§  213   (4)   Operation   and   Effect  of  Transfer 1813 

§  243   (4a)   Notice  of  Provisions  of  Articles  of  Association 1813 

§  243   (4b)    Right,   Title   and    Liabilities   of    Purchaser   or   Trans- 
feree  1813 


TAI?LE   OF   CONTEXTS.  LVII 

§  243   (4cj    Effect  on  Title  to  Assets  of  Corporation 1S14 

§  243   (4d)   Pledge     1814 

§  243   (4e)   Transfer    in    Trust 1814 

§  243   (5)   Damages  for  Breach   of  Agreement  to   Transfer 1815 

§  243   (6)   Enforcement    against    Bank 1815 

§  243   (7)   Remedy  in   Equity  to   Set  Aside   'i'ransfer 1815 

§  244.  Dividends      •■...■. 1816 

§  245.  Lien  of  Bank  on  Stock  or  Dividends 1817 

§  245   (1)   Lien  on  Stock  for   Debts  Due   Bank 1817 

§  245   (la)   In    General    1817 

§  245   (lb)   Provisions    in    Cliarter,    By-Laws,   and    Stock    Certifi- 
cates      1818 

§  245   (Ic)   Express    Agreements     1820 

§  245   (Id)    Liquidation   of   Bank 1821 

§  245   (2)   Setting   Off   Debts   from   Stockholder   against    Dividends ....  1821 

§  246.  Rights  and  Liabilities  of  Stockholders  in  General 1821 

§  246   (1)    Right   to    Examine    Bocks.    Papers,   etc 1821 

§  246  (2)  Assessment  to   Restore    Impaired   Capital    Stock 1824 

§  246   (2a)   Who    May    Make 1824 

§  246   (2b)   Enforcement     1825 

§  246   (2c)   Rights  of  Paying  and   Nonpaying  Shareholders  upon 

Liquidation   of   Bank 1825 

§246   (2d)    Collateral    Agreements    between     Shareholders 1826 

§246  (3)   Withdrawal    upon    Renewal    of    Charter 1826 

§  246   (4)   Right  of  Voting  Trust  to  Divert  Funds 1826 

§  247.  Liability  of  Stockholders  for  Debts  of  Bank 1827 

§  248.  Nature    and    Extent •  •  1827 

§  248   (1)   In    General    1827 

§  248   (la)   Nature  and  General   Rule  as  to  Liability 1827 

§  248   (lb)    Persons   Deemed   to   Be   Shareholders  for  Purpose  of 

Assessment     1830 

§  248   (Ic)   Obligations    for    Which    Stockholders    Lialdc 1834 

§  248    (Id)    Amount    of   Lial)ility 1835 

§  248   (le)   Facts   Relieving  from  Liability 1836 

§  248   (If)    Persons    Who    May    Enforce 18:^6 

§248   (Ig)   Release,    Satisfaction    and    Discharge 1837 

§  248   (Ih)   Right  of  Stockholder  to   Prefer  Creditors  of  Bank.. 1837 

§248   (2)   Decision   of   Comptroller   of   Currency 1837 

§  248  (2a)  Authority,  Time  and   Data 1837 

§  248  (2b)   Necessity     ^^'^^ 

§  248   (2c)   Operation     and     Effect 1838 

§  248   (2ca)   In    General    ^^^^ 

§248   (2cb)   Conclusiveness    of    Decision    18^8 

§  248   (2cc)   Liquidated  Claim  Subject  to  Assignment  Sale, 

etc..     •• 1«'" 

§248   (2d)    Second    nr    Successive    Assessment 18-10 

§  248   (3)    Liability   of   Out-    Holding   Stock  as  Trustee 18-I0 

§  248   (4)   Liability    of    Pledges •• ^^"^^ 

§  248   (4a)   In    General    '"''*" 

§  248   (4b)   Unregistered    Pledgee     ^843 

§  248   (4c)   Transfer   to   Pledgee   Absolute   in    Form 18-13 

§  248   (4d)   Transfer   to    Pledgee   "as    Pledgee" I^-'-'"' 


LVIII  TABLE   OF    CONTENTS. 

§  248   (4e)   Transfer  to   Third   Person  to   Secure   Unpaid   Debt   Due 

Pledgee     IH^o 

§  248   (4f)    Pledgee  Forced  by  Failure  of   Pledgor  into  Position  of 

Ownership     1846 

§  248   (4g)   Pledgee    Becoming   Real    Owner  of    Stock 1847 

§  248   (4h)    National    Bank    a    Pledgee 1848 

§  248   (5)   Liability    of    Married    Women 1848 

§  248   (6)   Deceased    Stockholders     1852 

§  248   (fia)    Liability  of   Estate  in   Hands  of  Executor  or   Adminis- 
trator      1852 

§  248   (eh)   Liability  of   Devisee  and   Legatee  or  of   Heir  and   Dis- 
tributee      1855 

§  248   (7)    Estoppel   to   Deny    Liability   of    Shareholder 1856 

§  248   (8)    Failure   of   Some    Stockholders   to   Pay   Assessments 1859 

§  248   (9)    Liability    for    Interest I860 

§  249.  Effect   of  Transfer   of   Stock I860 

§  249   (1)    Liability    of    Transferror ■ I860 

§  249   (la)   In    General    I860 

§  249   (lb)    Knowledge   of   Insolvency   and   Intent   to   Evade   Lia- 
bility      I860 

§  249   (Ic)   Capacity    and    Solvency    of    Transferee 1863 

§  249   (Id)   Colorable    Transfer    1864 

§  249   (Ida)    In   General    1864 

§  249   (Idb)   Transfer   1iy    Executor 1865 

§  249   (le)   Transfer    on    Books    of    Bank 1865 

§  249   (2)   Liability   of   Both   Transferror  and   Transferee 1867 

§  249   (3)   Liability    of    Transferee 1868 

§  250.  Actions    and    Proceedings    to    Enforce 1870 

§  250   (1)    Nature    and    Form 1870 

§  250   (la)   Voluntary    Liquidation    1870 

§  250   (lb)   Involuntary    Liquidation     1873 

§  250   (Iba)   Receivership    1873 

§  250   (Ibaa)   Necessity  for  and  Powers  Generally. ..1873 

§  250  (Ibab)   Right   of   Receiver  to   Sue 1873 

§  250   (Iliac)    Sale   or  Assignment  by  Receiver 1874 

§  250   (Ibad)    Compromising   or    Compounding    Stat- 
utory  Liability   of   Stockholder 1874 

§  250   Clbb)    Action  at  Law  or  Suit  in  Equity 1874 

§  250   (Ibc)    Courts    and    Venue 1876 

§  250   (Ibd)    Set-Ofif  by  Receiver  in   Suit   on   Stockholder's 

Deposit    Claim     1876 

§  250   (Ibe)    Enjoining    Assessment    1877 

§  250   (2)   Time  to  Sue  and   Limitations 1878 

§  250   (3)   Conditions   Precedent  and   Defenses 1881 

§  250  (3a)  Action    of    Comptroller 1881 

§  250   (3aa)   Involuntary   Liquidation    of    Bank 1881 

§  250   (3ab)   Voluntary   Liquidation   of   Bank 1882 

§  250   (3b)   Defenses  and  Facts   Relieving  from   Liability 1882 

§  250  (3ba)   Nonexistence  or  Invalidity  of  Corporation... .  1882 
§  250   (3bb)    Fraud,  Irregularity  or  Illegality  in   Organiza- 
tion, Management  or  Issue  of  Stock 1882 

§  250   (3bc)    Fraud  or  Irregularity  in  Purchase  or  Transfer 

of    Stock    1886 


TABLE   OF   COXTEXTS.  HX 

§  250   (3bd)   Withdrawal  or  Renewal  of  Charter 1886 

§  250   (3be)    Payment    of    Assessment    to    Restore    Capital 

Stock    1886 

§  250   (3bf)   Voluntary    Liquidation    188T 

§250   (3bg)   Illegality    of    Receiver's    Appointment 1887 

§  250   (3bh)   Suit  Conducted  by  Private  or  Special  Counsel. .  1887 
§  250   (3bi)   Failure   to   Collect    First    Assessment   and    Re- 
alize   on    Assets 1887 

§  250   (3bj)   Sale  or  Assignment  of  Claim  by  Receiver. ...  1888 

§  250   (3bk)   Set-Oflf  and   Counterclaim 1888 

§  250   (3bka)   Counterclaim     1888 

§  250   (3bkb)    Set-Ofif    1889 

§  250   (3bl)   Compromise   by   Receiver 1890 

§  250   (4)    Parties    and    Pleading 1890 

§  250   (4a)    Parties     1890 

§  250   (4aa)    Persons  Who  May  Sue  and  Parties  Plaintiflf ... .  1890 

§  250   (4aaa)   Involuntary   Liquidation    1890 

§  250   (4aab )   Voluntarj'    Liquidation     1892 

§  250    ( 4ab )    Defendants     1892 

§  250   (4b)    Pleading    1893 

§  250   (4ba)    Bill,    Petition   or    Complaint 1893 

§  250   (4baa)   Involuntary    Liquidation    1893 

§  250   (4bab)   Voluntary   Liquidation    1895 

§  250   (4bb)    Answer     1897 

§  250   (5)    Evidence     1897 

§  250   (6)   Trial    and   Judgment 1899 

§  250   (6a)   State  Laws  as  Rules  of  Decision  in  Federal  Courts..  1S99 

§  250   (6b)  Judgment     1899 

§  250   (6ba)   Validity,  Form  and  Sufficiency 1899 

§  250   (6bb)   Operation  and   EfTect 1S99 

§  250  (7)   Liability   for   Costs 1900 

§  251.  Election   or  Appointment   of   Officers 1900 

§  251^.  Qualifications   of    Officers 1902 

§  251>^.  Resignation  and   Removal  of  Officers 1903 

§  252.   Rights   and    Liabilities    of    Officers 1 903 

§  253.  Nature    and    Extent 1903 

§  253   (1)    President    1903 

§  253    (2)    Directors     1904 

§  253   (2a)   In   General    1904 

§  253   (2b)   For    Particular    Acts 1905 

§  254.  Actions    to    Enforce    Liability 1013 

§  255.   Criminal   Responsibility  of  Ofiicers  or  of  Persons  Aiding  or  .'Mietling 

Them    1010 

§  256.  Offenses     1019 

§  256   (1)   Making  False   Entries  or   Reports 1010 

§  256  (la)   In   General    1010 

§  256   (lb)   What   Amounts   1o   False   Entry   or   Rcfiort 1022 

§  256   (Ic)    By    Whom    Entry    Made 1020 

§  256   (2)   Wrongfully    Certifying    Check 1028 

§  256   (3)   Misapplication,  Abstraction,  or   EnibczzlemtMit   of   Funds. ...  1030 

§  256   (3a)   In    General     1030 

§  250   (31))   Means    of   Commission    of   Offense 1037 


LX  TABLE  OF   CONTENTS. 

§  2o6   (4)   Receiving    Deposits    after    Insolvency 1940 

§  256   (5)   Aiding   or    Abetting 1941 

§  257.  Prosecution    and    Punishment 1943 

§  257   (1)   Requisites  and   Sufficiency  of  Indictment 1943 

§  257   (la)    Necessity    for    Indictment 1943 

§  257   (lb)    Embezzlement,    Abstraction   and    Alisapplication 1944 

§  257   (Ic)   False    Entries   or   Reports 1954 

§  257   (Id)   Wrongfully    Certifying    Check 1960 

§  257   (le)   Aiding    and    Abetting 1961 

§  257   (If)   Quashing    Indictment    1963 

§  257   (Ig)   Construction    of    Indictment 1963 

§  257   (2)   Issues,   Proof   and   Variance 1964 

§  257    (2a)    Issues     1964 

§  257    (2b)    Proof     1964 

§  257   (2c)   Variance     1966 

§  257   (3)    Evidence     1967 

§  257    (3a)   Admissibility     1967 

§  257   (3aa)   As    to    Misapplication 1967 

§  257   ( 3ab)   As    to    Abstraction 1969 

§  257   (Sac)   As   to   False    Entries 1969- 

§  257   (3ad)   As  to  Unlawfully   Certifying  Check 1970 

§  257   (3b)   Weight    and    Sufficiency 1970 

§  257    (4)   Trial     1972 

§  257    (4a)   Jurisdiction     1972 

§  257    (4b)    Instructions     1973 

§257   (4c)   Questions    of    Law    and    Fact 1977 

§  258.   Banking   Powers    1977 

§  259.   Property    and    Conveyances •  ■ 1 982 

§  259   (1)   Right   to  Acquire   Property   or   Interest   Therein 1982 

§  259   (la)    Real    Property    1982 

§  259   (laa)   In    General    1982 

§  259   (lab)   As   Security   for  Debt 1985 

§259   (lab:i)   Where    Taken    Directly 1985 

§  259   (labb)   Where   Taken   by   Assignment 1988 

§  259   (labc)   Where   Taken   by    Subrogation ..1989 

§  259   (lac)    Power   to    Lease    Land 1989 

§  259    (lb)    Personal   Property 1990 

§  259   (2)    Right    to    Improve    Property 1991 

§  259   (3)    Right    to    Convey    Property 1992 

§  260.   Contracts    and    Dealings •  •  1992 

§  260   (1)   In     General     •  •  .  .1992 

§  260   (2)   Acquiring  or  Dealing  in  Stock  of  Other  Corporations 1993 

§  260   (2a)   In    General    1993 

§  260   (2b)   As   Investment   or   Speculation 1993 

§  260   (2c)   As    Satisfaction    of    Debt •  • 1995 

§  260   (2d)   As    Security    for    Loan 1996 

§  260   (2e)   As  Agent  or  Broker 1997 

§  260   (2f)    Effect    of   Ultra   Vires    .\ct 1997 

§  260   (3)   Purchase  by  Bank  of  Its  Own   Stock  or  Loaning  Money  on 

Security  Thereof   1998 

§  260   (4)   Guaranty    or    Indemnity 1999 

§  260   (5)   Acquiring  or  Dealing  in  State  and  Municipal  Securities 2004 

§260  (6)   Purchase    and    Discount    of    Negotiable    Paper 2005 


TABLE   OF    COXTKXTS.  LXI 

§  261.  Effect  of  Acts  Ultra  Vires ••..2005 

§  262.   Representation  of  Bank  hj-  Officers 2012 

§  262   (1)    Power  of  Bank  to  Entrust  Authority  to  Its  Agents 2012 

§  262   (2)   When    Officer    Regarded    as    Representing    Bank 2012 

§  262   (2a)   As  Dependent  upon  Scope  or  Apparent  Scope  of  Duties. .2012 

§  262   (2aa)   In    General     2012 

§  262   (2ab)   Applications   of    Rules 2014 

§  262   (2ac)   Liability  of  Bank  for  Mistakes.  Fraud,  or  Mis- 
representations  of   Agents •■ 2021 

§  262   (2ad)    Notice   to   Officer   as   Notice   to    Bank 2022 

§  262   (2h)   Ratification  of  Acts,  or  Estoppel  to   Deny   .\uthority  of 

Officer .  .  ; 2023 

§  262   (3)    Effect  of  Acts  of  Officers   before   Organization   of   Bank 202.i 

§  262   (4)   Power  after  Bank  Has  Gone  into  Liquidation 2025 

§  263.   Deposits    in    General 2025 

§  264.   Payment,  Acceptance   or   Certifirrtion   of  Cliecks 2027 

§  265.  Certificates    of    Deposit 2027 

§  266.   Special    Deposits    2028 

§  267.  Deposits   of    Public    Money 2032 

§  268.   Collections    2035 

§  269.   Loans  and  Discounts 2033 

§  269   (1)   Power   of   Bank    in    General 2035 

§  269   (2)   What    Constitutes    Discount 2037 

§  269    (3)    Power   with    Regard    to    Security    Taken 2037 

§  269   (4)    Failure    to    Exact    Security 2039 

§  269   (.-,)   Loan  to   Officers 2039 

§  269   (6)   Loans   Made  in   Excess  of  Prescribed   Limit 2039 

§  269   (6a)   In    General    2039 

§  269   (6b)   Who    May    Raise    Question 2040 

§  269   (7)   Repayment    of    Loan 2041 

§  270.   Interest  or  Rate   of   Disccunt,   and   Usury 2041 

§  270   d)   What  Law  Governs — Application  of  State  Laws 2041 

§  270   (2)   When    Liability   to    Penalty   for   Taking   Usury    Incurred. ..  .2043 

§  270  (3)  Application   of   Statute   to    Discount 2048 

§  270  (4)   Renewal    of    Usurious    Note    at    Legal    Rate 2048 

§  270   (5)   What   Rate   of   Interest    May    Bo   Charged 2048 

§  270   (6)    Remedies    for    Taking    Usury 2051 

§  270   (7)   Usury  as   Defense  or   Set-Off  or   Counterclaim   in   Action   by 

Bank     2(i.-.l 

§  270   (7a)   Where    Actually     Paid 2051 

§  270   (7b)   Where    Not    Paid 2053 

§  270   (8)    Whethe.-   Payments   Made   Shall    Be   Applied   to   Principal   or 

Forfeited  Interest   2().i.) 

§  270   (9)   Amount  or  Extent  of  Penalty  for  Taking  Usury 2056 

§  270  (9a)   In    General    -"•"•''' 

§270   (9b)   Where    Interest   Actually    Paid 2057 

§  270   (9c)    Where    Interest    Not    Paid 2059 

§  270   (Oca)    In    General    2059 

§270   (9cb)    Interest     Discounted 2059 

§  270   (9cc)   Interest    on    Renewal    Note 2059 

§270   (9cd)    Interest    on    Overdrafts 2060 

§  270   (9ce)   Period    for    Which    Forfeited 2060 

§  270   (10)    Effect  of  Taking  Usury  upon  Contract 2061 


I^XII  TABLE    OF    CONTENTS. 

§  270   (11)   Action  for  Penalty  or  to   Recover  Back  Usury   Paid 2062 

§  270   (11a)   Jurisdiction    2062 

§270    (lib)    Who    May    Maintain    Action 2064 

§  270    (lie)    Prerequisites    to    Bringing    Suit 2066 

§270   (lid)    Form    of   Action 2067 

§  270    (lie)    Pleadings     2068 

§  270   (llf)    Defenses   to  Action   for   Penalty 2068 

§  270   (llg)    Limitation    of    Actions 2069 

§  270   (llh)    Burden    of    Proof 2071 

§  270   (Hi)    Effect   of   Recovery   of   Penalty 2071 

§270    (llj)    Compromise    and    Settlement 2071 

§  270   (12)   Criminal   Prosecution  under   State    Statute 2072 

§  271.   Dealings   in   Exchange,  Money   and   Securities 2072 

§  272.   Circulating    Notes    2072 

§  273.  Actions  by  or  against   National   Banking  Associations 2073 

§  273^.  Scope   of  Treatment 2073 

§  274.  Capacity   to   Sue   and    Be   Sued 2074 

§  275.  Jurisdiction   and   Venue 2075 

§  275   (1)   Jurisdiction    in    General 2075 

§  275   (la)   Jurisdiction   of   Federal    Courts 2075 

§  275   (laa)   Rule   Prior   to  Act   of   1882 2075 

§  275    (lab)    Rule    under    Act    of    1882 2079 

§  275   (lac)    Rule   under   Acts   of   1887   and   1888 2084 

§  275   (lb)   Jurisdiction    of   State    Courts 2086 

§  275    (2)    Suits    by    and    against    Receivers 2091 

§275    (3)    Suits    by    and    against    Agents 2094 

§  276.  Parties     2094 

§  277.  Process    and    Appearance 2095 

§  278.  Attachment    and    Garnishment    2095 

§  279.  Injunction     2104 

§  280.  Pleading     2104 

§  280'/..  Execution    and    Enforcement   of   Judgment 2108 

§  281.  Voluntary    Liquidation     2108 

§  281    (1)    In    General     2108 

§  281    (2)    Effect    of    Liquidation     • 2110 

§  282.   Reorganization    2111 

§  283.   Consolidation     2112 

§  284.   Forfeiture    of    Franchise    and    Dissolution 2113 

§  284    (1)    Grounds    • 2113 

§  284   (2)    Effect  of  Act   of  Comptroller   of   Currency   in   Closing   Bank 

and  Appointing  Receiver 2114 

§  284   (3)    Proceedings    to    Enforce    Forfeiture 2114 

§  284   (4)    Effect   of   Decree   of   Dissolution   and    Forfeiture 2115 

J-  285.   In.-^olvency  and   Its   Effect   in   General 2116 

§  286.  Transfers    and    Preferences    Affected    by    Insolvency 2120 


§286   (1)    Statutory    Prohibition    of    Preferences 2120 

§  286   (2)    Statute    Construed    and    Applied 2120 

§  286   (3)    Right  of  Debtor  to   Set  Off  Claim  against   Bank 2126 

§  287.   .Assets    and    Receivers    on    Insolvency 2128 

§  287    (1)    In    General     212y 

§  287    (2)    A]ipointment    or    Election    of    Receivers,    or    Agent   of    Stock- 
holders       2130 


TABLE  OF   CONTENTS.  LXIIl 

§  287   (2a)   Manner     2VM 

§  287   (2aa)   Appointment    of    Receiver    by    Comptroller    of 

Currency     2130 

§  287   (2ab)   Appointment  of  Receiver  l)y  Court  of  Equity.. 2132 

§  287   (2b)    Eflfect    of    Appointment    of    Receiver...- 2135 

§  287   (3)   Status;  Powers   and   Duties   of   Receiver  or   Agent 2137 

§  287   (3a)    Receivers    2137 

§  287   (3b)   Agent    of    Stockholders 2144 

§  287   (4)   Actions   by    or    against    Receiver    or    Agent 2144 

§  287   (4a)   Authority   to   Sue   or   Defend 2144 

§  287    (4b)   Jurisdiction    2147 

§  287   (4c)    Parties 2148 

§  287   (4d)   Conduct   of    Suits 214D 

§  287    (4e)    Pleading     2149 

§  287   (4f)    Proof    2150 

§  287    (4g)    Province    of   Court   and  Jury 2151 

§  287    (4h)   Judgment     2153 

§  287    (4i)    Costs     2153 

§  288.  Presentation.  Allov^-ance,  and   Payment   of   Claims 2154 

§  288   (1)   In    General     2154 

§  288   (2)   Allowance  or   Rejection  by  Comptroller 2154 

§  288   (3)   Claims    Provable     2155 

§  288   (4)    Basis    of    Distribution    of    Assets 2156 

§  288   (5)    Priorities     2153 

§  288   (6)   Allowance    of    Interest   on   Claims 21G1 

CHAPTER  X\'I. 

\\    S.wixGS  Banks. 

§  289.   Nature    and    Status    2165 

§  290.  Control    and    Regulation    in    General 2167 

§  292.   Incorporation    and    Organization 2l()7 

§  293.  Corporators    and    Stockholders 2168 

§  294.   Officers    and    Agents    ~'~0 

§  294   (1)   Eligibility   for   Office 2170 

§  294   (2)    Election     2170 

§  294   (3)   Tenure    of    Office 2171 

§  294    (4)    Compensation     2171 

§  294   (5)    Duties    and    Liabilities    •-'*• 

§  294   (5a)    In    General    2171 

§  294   (5b)    Lial)ility   for   Losses   on   Loans   and    Investments :.'ir2 

§  294   (.")c)    Liability     for     Ln])rovi(U'nce     and     Reckless    Extrava- 
gance      2176 

§  294    (5d)    Liability     for      Paying     Dividends     or     Interest    Not 

Earned     2176 

§  294   (5e)    Liability  of  Direcmrs  for  Cashier's   Misapplication  ni 

iMinds     2176 

§  294    (.-.f)    Liability   of  Trustees   Who   Do    Nothing   in    I'.xecution 

of   the   Corporate   Power 2176 

§  294   (.-,g)    Diligence  and   Good   Faith   Required   in   Selling  Prop- 
erty      2'-''' 


LXIV  TABLE   OF   CONTENTS. 

§  294   (oh)    Method   of   Determining   Liability 2177 

§  294   (5i)   Mode    of   Enforcing   Liability 2177 

§  294   (6)   Prohibition  against  a  Trustee   Becoming  a  Surety 2177 

§  294    (7)    Prosecutions    217? 

§  295.   Powers    in    General    2177 

§  295   (1)    Power   to   Choose    Of^cers   and   Admit    New   Memliers 2177 

§  295   (2)    Power   to   Contract   in   General 2177 

§  295   (3)   Power    to    Acquire    Property 2178 

§  295   (4)    Power    to    Sell    Property 2179 

§  295   (5)   Power  to  Borrow  Money  and  Give  Security 2179 

§  295   (6)    Power   to   Loan    Money 2180 

§  296.  Rules   of   Bank 2180 

§  297.' Representation    of    Bank   by    Officers   and   Agents 2180 

§  297   (1)   In    General    2180 

§  297   (2)    President    2181 

§  297   (3)   Treasurer     2181 

§  297   (4)   Cashier    2184 

§  297    (5)    Clerk    2184 

§  297   (6)    Estoppel   of   Bank   to   Deny   Authority 2184 

§  298.   Deposits     2185 

§  299.  In   General    2185 

§  300.   By-Laws,   Rules   or   Passl^ooks   as   Part   of   Contract 2187 

§301.  Title    to    and    Disposition    of    Deposits 2189 

§  301    (2)   To   Whom    Payments   to    Be   Made 2189 

§  301    (3)    Negligence    in    Paying   to    Wrong    Person 2191 

§  301    (4)    Payment   to   One   Wrongfully  in   Possession   of   Passbook.  .  .2193 

§  301    (5)    Payment    on    Death    of    Depositor 2201 

§  301    (6)   Contributory    Negligence    of    Depositor 2208 

§  3011/-.  Assignment  of   Deposits 2209 

§  302.  Investments.  Loans,  and  Discounts 2211 

§  302   (1)   In    General    2211 

§  302   (2)    Investments     2211 

§  302   (3)   Loans    and     Discounts 2212 

§  302   (3a)   Power  to   Loan  and   Discount 2212 

§  302   (3b)    Loans   and    Disccunts   in   Contravention   of   Statutory 

Prohibitions     2214 

§  302   (3c)   Amount  That  May   Be   Loaned 2215 

§  302   (3d)   Time    for    Which    Loans    May    Be    Made. 2215 

§  302   (3e)   Requirements  as  to  Value  of  Real  Estate  Security .  .2'il5 
§  302   (3f)    Requirement   as   to   Additional    Security   When   Funds 

Are   Loaned   on    Stocks   or   Mortgages 221") 

§  302    (3g)    Usury    221G 

§  303.   Interest    and    Dividends    on    Deposits — Dividends    Distinguished    from 

Interest     2216 

§  304.   Losses     • 2218 

§  305.   Repayment    of    Deposits 2219 

§  306.  Actions     2223 

§  306   (1%)    Prerequisites    to    Action 2223 

§  306   (V/s)   Whether  Remedy  Is  at  Law  or  in   Equity 2223 

§  306   (1^4)   Whether  a  Joint  Action  or  Separate   Action   Proper 2223 

§  306   (12^)   When    Cause    of   Action    Accr.'es 2224 

§  306   (1^)   Statute    of    Limitations 2224 


TABLE    OF    CONTENTS.  LXV 

§  306   (2)   Parties    2224 

§  306   (2a)   To    Actions    against    Bank 2224 

§  306   (2b)   To  Actions  against  Officers  of  Bank 2224 

§  306   (3)   Interpleader   and    Substitution    of    Parties 2225 

§  306   (4)    Pleading     2227 

§  306   (4a)   In    Actions    against    Bank 2227 

§  306   (4aa)   Complaint    2227 

§  306    (4ab)   Answer     2227 

§  306   (4b)   In  Actions  against  Officers  or  Stockholders  of  Bank. 2228 

§  306   (4ba)   Complaint    or    Bill 2228 

§  306   (4bb)   Demurrer     2228 

§  306   (4^)   Demand   for  an  Accounting 2228 

§  306   (5)    Evidence   2228 

§  306   (5a)   Presumptions    and    Burden    of    Proof 2228 

§  306   (5b)   Admissibility     2229 

§  306   (5c)   Weight    and     Sufficiency 2230 

§   306   (6)    Trial     2231 

§  306   (6a)   Province    of    Court    and   Jury 2231 

§  306   (6b)   Instructions    to    Jury 2236 

§   306    (61/^)    Costs      2236 

§  306   (7)   Appeal    and    Error 2236 

§  306   (7^)   Custody    of    Deposits    Pending    Suit 2237 

S  308.  Forfeiture    of    Charter    and    Dissolution 2237 

§  309.   Insolvency    and     Receivers 2238 

§  309   (1)   Power   of    Bank   to   Make   Assignment    for   Benefit   of   Cred- 
itors      2238 

§  309   (2)   When  a   Receiver   Will   Be  Appointed 2238 

§  309   (25^)   Duties  and  Powers  of  Trustees 2233 

§  309   (3)   Transfer   of    Property   or    Payment    of    Debts    Prior    to   .-Vp- 

pointment    of    Receiver    22:'0 

§  309   (4)   Power    of    Court    to    Scale    Down    Deposits    and    Authorize 

Resumption    of    Business 2240 

§  309   (5)   Liability    of    Stockholders 2240 

§  309   (6)    Enforcement   by   Receiver   of   Liability   of   Officers   2240 

§  309   (7)    Recovery   by   Receiver   on    Bond    Given    to    Enable    Bank   to 

Continue     Business     2240 

§  309   (8)   Action   by   Receiver   to    Protect    Bank   against   Unauthorized 

Assignment    of    Mortgage 2240 

§  309   (9)   Receiver's    Sales    22 II 

§  309   (10)   Presentation    of    Claims 224 1 

§  309   (11)   Distribution   and  Application  of  .Assets :-:-n 

§  309   (12)   Order    of    Payment— Preference 2242 

§  309   (12a)   As    between     Depositor: 2242 

§  309   (12aa)   In     General     2242 

§  309   (12ab)   General     or     Special     and     Stockiiolding     or 

Nonstockholding   Depositors    2243 

§  309   (12ac)      Depositors    in     a    Corporation     Doing   Botli 
a    Savings    Bank    and    a    Commercial    Hank 

Business     ''•-•'■* 

§  309   (12b)   As    between    Creditors --'•'> 

§  309   (12c)   As    between    Depositors    and    Creditors 224.'; 

1  B  &  B— e 


LXVI  TABLE    OF    CONTEXTS. 

§  309   (13)    Right    of    Depositor    When    Bank    Receivers    Deposit    with 

Knowledge   of   Its   Insolvency 2246 

§  309   (14)    Set-Off   of    Deposit    against    Debt    Due    Bank 2246 

§  309   (15)   Effect     of     Agreement    to    Credit     Debt     Due    Bank     with 

Amount    Paid    to    a    Depositor 2247 

§  309   (16)    Set-Off    of    Stockholder's    Indebtedness    to    Bank    against 

Amount  Appropriable  to  His  Stock 2248 

§  309   (17)   Assessments   on   Stockholders    2248 

•  §  309   (18)    Parties    to    Actions 2248 

CHAPTER  XVII. 
VI.   Loan,  Trust,  and  Investment  Companies. 

§  310.   Control  and   Regulation   in   General 22.51 

§  312.  Incorporation    and    Organization 2253 

§  3121^.   Merger     22.54 

§  313.   Stockholders     2254 

§  314.   Officers    and    Agents 2257 

§  314   (1)   Compensation     2257 

§  314    (2)    Liability     2257 

§  314   (2a)   Liability    of    Officer   on    Accommodation    Note    Paya- 

l)le    to    the    Company 2257 

§  314   (2b)   Liability   for   Converting   Money   Collected 2258 

§  314  (2c)   Liability  of   Directors   for   Losses   Occasioned   by  an 

Ultra    Vires    Act 2258 

§  314  (2d)   Liability    of    Directors    for    Losses    Resulting    from 

Their    Negligence     2258 

§  314   (2e)   Liability  of  Executive  Committee  for  Failure  to  Ex- 
amine   Loans     2258 

§  314   (2f)   Directors    Can    Not    DelcAate    Their    Responsibility .  .2259 

§   314    (2g)    Criminal    Liability     2259 

§  315.  Functions    and    Dealings 2259 

§   315    (1)    In    General     225:> 

§  315   (2)   Representation    by    Officers    an  1    Agents 2260 

§   315    (2a)    In    General     2260 

§  315    (2b)    President     2261 

§  315   (2c)   Secretary    2262 

§  315   (2d)   Treasurer     2262 

§  315   (2e)   A    Director   Who   Is    Manager   of   the    Bond    Depart- 
ment      ■ 2262 

§   315    (2f)    Cashier    and    Bookkeeper    2262 

§  315   (2g)    Paying   Teller    2263 

§  315    (2h)    Actuary     2263 

§  315   (2i)   Dealings   Through    a    Mutual    Agent 226.^ 

§  315    (3)    Deposits     2264 

§  315   (3a)    Powers    in    Relation    to 2264 

§  315   (3b)    Estoppel   to  Plead   Incapacity   to   Certify   Checks. ..  .2264 

§  315   (3c)  To  Whom  Payments  May  Be   Made 2264 

§  315   (3d)    Rights    of    Depositor    and    Company    When    a    Check 

Is    Deposited     2265 

§  315   (3e)   Interest     on     Deposits 2265 


TABLE  OF  CONTENTS.  LXVII 

§  315   (3f)   Admissibility    of    Evidence 2266 

§  315   (4)   Loans     and     Discounts 2266 

§  315   (4a)   Power   to   Loan    and    Discount 2266 

§  315   (4b)   To    Whom   the    Power    Is    Entrusted 2266 

§  315   (4c)    Loans   and   Discounts   in   Contravention   of   Statutory 

Prohibitions     2267 

§  315   (4d)    Contracts   for   Loans   Construed 2268 

§  315   (5)    Purchases    and    Sales 2268 

§  315   (6)   Investments     for    Customers 2269 

§  315   (7)   Contracts    of    Suretyship 2269 

§  315   (8)    Guaranty    of    Securities 2269 

§  315   (9)   Issuance    of    Notes 2270 

§  315   (10)   Dealings  with  Trust  Funds   Belonging  to  Separate   Estates 

and    Parties     2270 

§  315   (11)   Trust    Companies    as    Receivers 2270 

316.  Forfeiture   of   Franchise   and   Dissolution 2270 

317.  Insolvency    and     Receivers 2271 

§  317   (1)   Collection    of    Assets 2271 

§  317   (2)   When    Receiver    Is    Entitled    to    Receive     Fund     Deposited 

with    State    Treasurer 2271 

§  317   (3)    Receiver's     Sales     2271 

§  317   (4)   Distribution   and   Application   of   Assets 2271 

§  317   (4a)   What    Law    Governs    Distribution 2271 

§  317   (4b)   What    Claims    Will    Be    Allowed 2272 

§  317   (4c)    Order   of   Payment — Preferences   and   Secured   Claims.. 2272 

§  317   (4ca)   Trust    Companies     2272 

§  317   (4caa)   Where     Company     Held     Property     as 

Trustee  or  in  a  Fiduciary  Capacity  .2272 

§  317   (4cab)   As    between    Depositors 2274 

§  317   (4cac)   As  between   Depositors  and  Creditors.  .  .2274 
§  317   (4cad)   As  between  Savings  Depositors,  Hold- 
ers  of  Debenture   Bonds   and   Unse- 
cured   Creditors     2274 

§  317   (4cae)   Amount    Recoverable    by    Secured    De- 
positors   and    Creditors 2275 

§  317   (4caf)   Rights   of   Receiver  upon   Whose   Bond 

Company    Is    a    Surety 2275 

§  317   (4cb)   Investment   and   Loan    Companies 2275 

§  317   (4d)    Money  Received  by  Trust  Company  When  Insolvent 

to  the  Knowledge  of  Its   Officers 2270 

§  317   (4e)  Application  of  Funds  Collected  in  One  State  by  Re- 
ceiver   Appointed    in    .Another 2276 

§  317   (5)   Interest     2276 

§  317   (6)    Expenses  of  Administration  and  Compensation  of  Receivers.  .  .2277 

§  317    (7)   Actions     2278 

§  317    (7a)    Right     to     Sue 2278 

§  317   (7b)   Jurisdiction     2278 

§  317   (7c)   Intervention    2279 

§  317   (7d)    Evidence^Sufticicncy     2279 

§  317   (7e)    Defenses     2279 


LXVIII  TABLE  OF  CONTENTS. 

CHAPTER   XVIII. 
MI.  Clearing  Houses. 

^  318.   Nature   and    Status 2280 

§  320.  Settlements  and  Transactions  through   Clearing  House 2281 

§  320   (1)   When     Practice     of     Collecting     Checks     through     Clearing 

House    Is    a    General    Custom : 2281 

§320   (2)   Payment    through     Clearing    House 2281 

§  320   (3)   Contract   by    Bank 'to    Pay    Checks    on    Another    Bank    Pre- 
sented through   Clearing   House 2282 

§  320   (4)    Effect  of  Indorsements  on  Checks  Passing  through  Clearing 

House 2282 

§  320   (5)    Presumption  of  Good   Faith  in  Bank  in  Taking  up   Check.. 2283 
§  320   (6)    Rule  That  Errors  in  Exchanges  Shall  Be  Adjusted  by  Banks 

Concerned    2283 

§  320   (7)    Rule    or    Custom    Limiting    Time    within    Which    Receiving 

Bank  Can  Return  Notes  or  Checks  That  Are  Not  Good.. 2284 

§  320   (7a)   Validity     2284 

§  320   (7b)   Construction   2284 

§  320   (7c)   W^aiver    2286 

§  320   (8)   Mutual  Credits  Given  by  Banks  on  Settlement  Alade  through 

Clearing    House    2286 

§  320   (9)    Reclamation    by    Bank   Charged   with   Amount    of    Drafts    or 

Checks    Returned    as    Not    Good 2286 

§  320   (10)   Who  Is  Liable  Where  Bank  Pays  Check  through   Clearing 

House    by    Mistake    2286 

§  320   (11)   What  Amounts  to  Negligence  in  a  Clearing-House  Agent.. 2286 
§  320   (12)    Effect  of  Insolvency  of  Bank,  a  Member  of  Clearing  House.. 2287 

§  321.   Rights   and   Liabilities   of   Banks   and   Individuals   Not   Members 2287 

§  321   (1)   Upon   Whom   Clearing  House   Rules   Are    Binding 2287 

§  321   (2)   Clearances  Made  by  a  Non-Member  through  a  Member 2288 

§  321   (3)    Payment   to   Clearing   House   of   a   Draft   Where   the   Owner 

Is    Not    a    Member 2289 

§  322.   Security   for    Payment   of    Balances 2289 

§  323.   Actions     ' 2291 

§  323   (1)   When  Action  upon  an  Account  Stated  Will   Not   Lie 2291 

§  323    (2)    Parties     2291 

§  323   (3)    Pleading   2291 

§  323   (4)    Evidence 2291 

§  323   (5)   Laches    as    a    Defense 2292 

CHAPTER  XIX. 
VIII.  Taxation. 

§  324.   Nature   and    Extent   of    Power   to   Tax    Banks 2295 

§  324  (1)   Power   of   State    2295 

§  324  (2)   Power  of  United  States 2298 

§  324  (3)   Power    of    Territories 2298 

§  324  (4)    Purposes   of   Taxation 2298 

§  324  (5)   Delegation    of    Power    2299 

§  324  (6)    Power    to    Cure    Defects    or    Irregularities 2300 


TABLE  OF  CONTENTS.  LXIX 

§  325.  Constitutional   Requirements  and   Restrictions 2301 

§325   U)   Constitutional    Provision    as    to    Situs 2301 

§  325   (2)   General  Laws,   Equality  and  Uniformity 2302 

§  325   (2a)   In    General     2302 

§  325   (2b)   Classification  of  Subjects  and  Uniformity  as  to  Same 

Subject    2305 

§  325   (3)   Double    Taxation     2312 

§  325   (4)  Taxation    According    to    Value 2317 

§  325   (5)   Method  of   Determining  Value 2318 

§  326.  Liability  of  Banks  and  Their  Property  to  Taxation 2318 

§  326   (1)   Of   Banks    Other   than   National 2318 

§  326   (la)   In    General    2318 

§  326   (lb)   Franchises    and    Privileges 2323 

§  326   (Ic)   Capital    and    Stock 2324 

§   326    (lea)    Capital     2324 

§  326   (Icb)   Capital    Stock     2326 

§  326   (Id)   Share   of   Stock   in    Hands   of   Stockholders 2330 

§326   (le)   Dividends,    Surplus    and    L'ndivided    Profits 2336 

§  326   (If)    Deposits    2340 

§  326   (Ig)   Loans,   Investments   and   Securities 2344 

§  326   (Ih)   Ownership   or   Possession   of    Property 2347 

§  326   (li)   Taxation    on    Circulation 2348 

§  326   (lia)    In    General     2348 

§  326   (lib)   Purpose    of    Provisions    Taxing    Circulation .  .2-348 

§  326   (lie)   Provisions    Construed    and    Applied 2349 

§  326  (2)   Of    National    Banks 2350 

§  326  (2a)   Federal   Taxation    2350 

§  326   (2b)   State    Taxation     2350 

§  326   (2ba)   In    General    2350 

§  326   (2bb)   Real    Property     2353 

§  326  (2bc)   National    Bank    Shares 2354 

§  326   (2bca)   In    General    2354 

§  326   (2bcb)   Prohibition   of   Discrimination   between 
National     Bank     Shares     and     Other 

Moneyed    Capital    2361 

§  326   (2bcc)   Limitation  as   to   Place   of  Taxation   of 

Shares    of    Nonresidents    2380 

§  326   (2bcd)   Validity  of  Statute   Requiring  Payment 

by  Bank  as  Agent  of  Stockholders.  .2380 

§  326   (2bd)    Deposits    in    National    Banks 2382 

§  326   (2be)   Taxation    on    Circulation 2383 

§  327.   Exemptions     2383 

§  327   (1)    In    General     2383 

§  327   (2)    Irrevocability   of   Statutes    Providing   for    Mode   of   Taxation 

and    Exemptions    2390 

§  327   (3)    Exemption    Granted    by    Charter    Personal    and    Not    Trans- 
ferable   by    Sale    of   Charter 2391 

§  327   (4)   Waiver   of   or   Estoppel   to   Claim    Exemptions 2391 

§  327   (5)   Acquisition    of    Exempt    ProiJcrty    to    Evade    Taxation 2392 

§  328.  Place    of    Taxation 2392 

§  328   (1)    Banks  and   Bank   Property  and   Stocks   in    General 2392 

§  328   (2)   National    Bank    Shares 2395 

§  329.  Levy    and    Assessment 2398 


I,XX  TABLE  OF   CONTENTS. 

§  329   (1)    Mode    of    Assessment 2398 

§  329   (la)   As   Determined   by   Statute   and   Charter 2398 

§329   (lb)   Report    or    Statement    by    Bank 2400 

§  329   (Ic)    Proceedings  for  Discovery  and  Valuation  of  Property. 2404 

§  329   (Id)   Valuation    of    Bank's    Property.. 2404 

§  329   (Ida)   In    General 2404 

§  329   (Idb)   Valuation   of   Franchises   and   Privileges 2407 

§  329   (Idc)   Valuation    of    Capital    or    Capital    Stock 240S 

§  329   (Idd)   Determination    of    Amount    of    Deposits 2409 

§  329   (Ide)   Valuation  of  Surplus  and  Undivided   Profits.. 2410 

§  329   (Idf)   Valuation    of    Shares 2410 

§  329   (Idfa)   In    General     2410' 

§  329   (Idfb)   Valuation    of    National    Bank    Shares.. 2415 

§  329   (le)   Amendment    or    Alteration 2420 

§  329   (If)   Additional    or    Supplemental    Assessment 2420' 

§  329   (Ig)    Notice   of   Assessment    2423 

§  329   (2)   Assessment   Rolls   or   Books 2424 

§  329   (3)    Equalization   of   Assessments 2426 

§  329   (4)   Review,  Correction,  or  Setting  Aside  of- Assessment 2428 

§   329    (4a)    In    General     2428 

§  329    (4b)    Grounds    of     Review 2429 

§   329    (4c)    Right    of    Review ' 2429 

§  329   (4ca)   Persons    Entitled     2429' 

§  329   (4cb)    Estoppel    or    Waiver 2431 

§  329   (4d)   Creation    and    Organization    of    Board    of    Review    or 

Other    Special    Tribunal 2433 

§  329   (4e)   Authority,  Powers  and  Duties  of  Board  or  Officers..  2433 

§  329   (4f)   Place   and    Time    of    Meeting    of    Board 2434r 

§  329   (4g)    Notice   to    Parties    Interested 2435 

§  329   (4h)   Complaint    or    Petition 2437 

§  329   (4i)    Determination    or    Decision 2437 

§  329   (4j)   Review    of    Decision    of    Board 2437 

§  329   (4ja)   On    Appeal    from    County    to    State    Board. ..  .2437 

§  329   (4jb)   Review    by   Courts    2438 

§329   (4k)   Certiorari    to    Review    Assessment 2439 

§  329   (41)   Mandamus  to  Correct  Assessment 2441 

,.  §  329   (4m)   Injunctions   to    Restrain   Assessment 2441 

§  329   (4n)   Actions   to    Reduce    Assessment   or   Abate    Tax 2442 

§  329   (4o)   Actions    to    Set    Aside    Assessment    or    for    Reassess- 
ment      2442 

§  330.  Lien    and    Priority 2443 

§  331.  Payment   and   Refunding   or   Recovery   of  Tax   Paid 2443 

§   331    (1)    Payment 2443 

§  331   (la)   In    General    2443- 

§  331   (lb)    Mode  of  Making  and   Medium   of   Payment 2443 

§  331   (Ic)   Operation    and    Effect    of    Payment 2443 

§  331   (2)   Tender     2444 

§  331    (3)    Recovery   of   Taxes    Paid 2445- 

§  331   (3a)   In    General    : 2445. 

§  331   (3b)   Actions  and  Proceedings  for  Recovery  of  Taxes  Paid. 2446 

§  331   (4)   Release    or    Abatement.    Rebates    and    Discounts 2447 

§  332.  Collection    and     Enforcement 2447 

§  332   (1)    Manner    244T 


TABIvE  OF  CONTENTS.  I^XXI 

§  332   (la)   In    General     ~-l^~ 

§  332   (lb)   Summary    Remedies     2447 

§  332   (Ic)   Actions   for   Unpaid   Taxes 2448 

§  332   (lea)   In    General    2448 

§  332   (Icb)   Defenses     2449 

§  332   (Ice)   Time   to   Sue   and    Limitations 24r)0 

§  332  (led)   Parties 24.-)() 

§  332   (Ice)   Pleading     2451 

§  332   (let)    Evidence     2451 

§  332   (2)   Remedies   for   Wrongful    Enforcement 2451 

§  332    (2a)    Injunction     2451 

§  332   (2aa)   When    Proper     2451 

§  332   (2ab)   Jurisdiction      2450 

§  332   (2ac)   Conditions    Precedent    2456 

§  332   (2ad)   Parties     245(J 

§  332   (2ae)   Pleading     2458 

§  332   (2af)   Scope    of    Inquiry 2459 

§332   (2ag)   Scope    and    Extent    of    Relief 2459 

§  332   (2ah)   Imposition  of  Terms   on   Granting   Injunction  2459 

§  3.".2   (2b)   Actions   for   Damages 24G0 

§  333.   Forfeitures     and    Penalties 2400 

Table    of   Cases 2401 

Index    2627 


BANKS  AND  BANKING 


CHAPTER  I. 
I.  Control  and  Regulation  in  General. 

§     1.   Right  of  Banking  in   General. 

§     2.  What  Are  Banks. 

§     3.   Power  to  Control  and   Regulate. 

§     4.  Constitutional  and   Statutory   Provisions. 

§     5.  Charter  Provisions. 

§     6.  Authority  or  License  to  Do   Business. 

§     7.  Unauthorized  Banking. 

§     8.  In    General. 

§     9.  Validity  of  Transactions  and  Liabilities   Incurred. 

§  10.  Penalties  and  Actions  Therefor. 

§  10  (1)   Statutory   Provisions  and   Construction. 

§  10   (2)    Enforcement. 

§  10   (2a)    Petition — Sufficiency. 
§  10  (2b)   Replication  to  Plea. 
§  10  (2c)   Quo  Warranto. 
§  10  (2d)  Jurisdiction  and  Venue. 
§  10  (2e)   Service  of  Process  and   Execution. 
§  11.  Criminal   Prosecutions. 

§  11   (1)   Offense    a    Statutory    One. 

§  11   (2)   Indictment. 

§   11   (3)    Information. 
§  12.   License    Fees   and   Taxes. 

§  12   (1)   Power  to   Impose. 

§  12   (2)    Exemptions. 

§  12   (3)   Interest. 

§  12   (4)    Effect   of   Payment. 
§  13.   Limitation    of    Indebtedness. 
§  14.   Reserves. 
§  15.   Safety   Funds   and   Deposits   of   Securities. 

§   15   (1)    Necessity   and   Constitutionality. 

§  15   (2)   Obligation  Therefor  and  Payment. 

§  15   Ci)    Lien   of  State — Substitution   of  Other  Securities. 

§  15   (4)    Effect   of   Failure    to    Deposit. 

§  15   (5)   Loss. 

§   15    (6)    Custody,   Title   and    Control. 

§  15   (7)    Payment   of   Debts   Therefrom. 

§  15   (8)   School    Funds. 
§  10.  Reports   and   Statements. 

§  If)  (1)   Duty  to   Make  and   Effect  of  Failure. 

§   16   (2)   Time    to    Make. 

§  16   (3)   Form   and    Contents. 

§  If)   (4)   Verification. 

§  16   (5)    Returns   as   Notice   of   Bank's   Condition. 


BANKS    AND    BANKING. 


§    1 


§  17.   Public   Examiners. 

§  17   (1)   Appointment. 

§  17   (2)   Compensation. 

§   17   (3)   Removal. 

§   17   (4)    Powers. 

§  17   (5)    Effect   on  Title   to   Property  and   Rights   of  Action. 
§   18.   Foreign   Banks. 

§   19.   Penalties    for   Violations   of   Regulations. 
§  20.   Offenses  by  Banks  or  Bankers. 
§  21.   Offenses  by   Persons  Dealing  with   Bank^. 

I.   CONTROL  AND   REGULATION   IN   GENERAL.^ 

§  1.  Right  of  Banking  in  General.- — As  Franchise. — At  common 
law  the  business  of  banking  was  not  a  franchise,  but  a  common-law  right 
of  any  individual.-'  But  it  can  be  made  a  franchise  by  restraining  legisla- 
tion, although  the  contrary  has  been  held  by  the  supreme  courts  of  South 
Dakota  and   Nevada."'     It  seems  to  be  universally  conceded  that  absolute 


1.  Of  loan,  trust  and  investment 
companies,  see  post.  "Control  and 
Regulation  in  General."  §  310. 

Of  national  banks,  see  post, 
"Power  to  Control  and  Regulate," 
§   233. 

As  of  assessment  on  stock  to  make 
good  the  impairment  of  capital,  see 
post,  "Rights  and  Liabilities  as  to 
Bank,"  §  43. 

2.  Rights  of  foreign  banks,  see  post, 
"Foreign    Banks,"    §    18. 

Stockholder's  liability  depending  on 
determination  of  question,  see  post, 
"Constitutional  and  Statutory  Pro- 
visions,"  §   44. 

Banking,  franchises  and  powers  and 
their  exercise  in  general,  see  post, 
§§    86-101. 

3.  A  common-law  right  not  a  fran- 
chise.— Attorney  General  v.  Utica  Ins. 
Co.  (X.  Y.),  2  Johns.  Ch.  371;  S.  C, 
(N.  Y.),  15  Johns.  353,  8  Am.  Dec.  243; 
Nance  v.  Hemphill,  1  Ala.  551;  State  v. 
Granville  Alexandrian  Soc,  11  O.  1; 
Ohio  Life  Ins..  etc.,  Co.  v.  Merchants' 
Ins.,  etc.,  Co.,  30  Tenn.  (11  Humph.)  1,  53 
Am.  Dec.  742;  Hazen  v.  Union  Bank, 
33  Tenn.  (1  Sneed)  115;  State  v. 
Lookout  Bank,  89  Tenn.  (5  Pickle) 
278.  14  S.  W.  801;  Curtis  v.  Leavitt, 
15  N.  Y.  9;  State  v.  Scougal,  3  S.  D. 
55,  51  X.  W.  858,  44  Am.  St.  Rep.  756, 
15  L.  R.  A.  477;  Bank  v.  San  Fran- 
cisco, 142  Cal.  276,  75  Pac.  832,  100 
Am.    St.    Rep.    130.   64   L.    R.    A.    918. 

Banking  is  a  lawful  business,  in 
which  it  is  the  inherent  right  of  every 
citizen  to  engage.  Ex  parte  Pittman, 
31   Nev.   43,   99   Pac.   700;    ^Marymont  v. 


Xevada  State,  etc.,  Board,  33  Nev.  333, 
111    Pac.   295. 

The  business  of  banking  "by  dis- 
counting and  negotiating  promissory 
notes,  bills  of  exchange,  drafts,  and 
other  evidences  of  debt,  by  receiving- 
deposits,  by  buying  and  selling  ex- 
change, coin,  and  bullion,  and  by- 
loaning  money  on  personal  security,"' 
was  not  a  franchise  at  common  law, 
and  has  not  been  made  such  by  the 
state  of  national  constitutions;  the 
only  banking  privilege  that  is  made  a 
franchise  being  the  privilege  of  issu- 
ing bank  notes  intended  to  circulate 
as  money.  State  z\  Scougal,  3  S.  Dak. 
55,  51  X.  W.  858,  44  \m.  St.  Rep.  756, 
15   L.   R.  A.  477. 

No  special  authority  necessary  for 
private  banking. — But  the  business  of 
banking,  in  its  most  enlarged  signifi- 
cation, never  required  any  special  au- 
thority, except  as  to  the  issuing  of 
notes  and  bills  to  circulate  as  money, 
and  as  to  the  right  of  corporations  to 
do  a  banking  business,  and  hence  all 
natural  persons  may  engage  therein. 
Exchange  Bank  v.  Hines,  3  O.  St.  1. 
See,  also,  Dearborn  v.  Northwestern 
Sav.  Bank,  42  O.  St.  617,  51  Am.  Rep. 
851;  Pickaway  County  Bank  v.  Pra- 
ther,  12  O.  St.  497;  Bonsai  v.  State.  11 
O.  72;  State  v.  Washington  Social  Li- 
brary Co..  11  O.  96;  State  v.  Urbana, 
etc..    Ins.    Co.,    14    O.    6. 

4.  Subsequently  made  a  franchise 
by  restraining  legislation. — .\ttorney 
General  z\  Utica  Tns.  Co.  (N.  Y.).  2 
Johns.  Ch.  371;  S.  C,  (X.  Y.),  15 
Johns.  353.  8  Am.  Dec.  243. 

Although    this   was   an   expression   of 


§  1 


CONTROL   AND   REGULATION    IN    GENERAL. 


prohibition,  not  merely  prohibition  except  on  coniphance  with  certain  con- 
ditions prescribed  as  regulations  of  banking,  is  not  within  the  constitutional 


opinion  unnecessary  to  the  decision  of 
Attorney  General  v.  Utica  Ins.  Co.  (N. 
Y.),  2  Johns.  Ch.  371,  the  right  of  a 
legislature  to  make  hanking  a  fran- 
ciiise  and  to  confine  its  exercise  to 
those  who  can  produce  a  grant,  seems 
to  have  been  assumed  in  many  cases. 
See  Bristol  v.  Barker  (N.  Y.),  14 
Johns.  205;  People  v.  Brewster  (N. 
Y,),  4  Wend.  498;  People  v.  Bartow 
(N.  Y.),  4  Cow.  290;  Pennington  v. 
Townsend  (X.  Y.),  7  Wend.  276;  Hal- 
lett  V.  Harrower  (N.  Y.),  33  Barb. 
537;  Austin  v.  State,  10  Mo.  591; 
Nance  v.  Hemphill,  1  Ala.  551;  State 
V.  Williams,  8  Tex.  255;  Goodsill  v. 
Woodmanse,  1  N.  Dak.  246,  46  N.  W. 
970,  11  L.  R.  A.  420,  direct  authority 
therefor.  Indeed  the  right  never 
seems  to  have  been  questioned  until 
the  decision  of  State  v.  Scougal,  3  S. 
Dak.  55,  51  \.  W.  858,  44  Am.  St.  Rep. 
756,  15  L.  R.  A.  477.  Here  it  was  held 
that  it  is  not  a  constitutional  exercise 
of  legislative  power  to  deprive  in- 
dividual citizens  of  the  right  to  carry 
on  the  business  of  banking,  other  than 
the  issue  of  "bills  or  paper  credit 
designed  to  circulate  as  money,"  which 
is  made  a  franchise  by  Const.,  art.  18, 
§  3,  and  confer  the  exclusive  privilege 
of  carrying  on  such  business  upon 
corporations  organized  as  provided  by 
an  act  of  the  legislature,  on  the 
ground  that  such  business  is,  or  may 
be  made,  a  franchise  by  legislative  au- 
thority. This  case  was  approved  and 
follovved  in  Ex  parte  Pittman,  31  Nev. 
43,  99  Pac.  700,  and  Marymont  v.  Ne- 
vada State,  etc.,  Board,  33  Nev.  333, 
111  Pac.  295,  and  in  the  latter  case  it 
was  held,  that  a  similar  Nevada  act 
was  in  conflict  with  Const.,  art.  1,  §  1, 
asserting  rights  to  liljerty,  property, 
and  happiness:  with  article  1,  §  8, 
guaranteeing  due  process  of  law;  and 
with  article  1,  §  20.  under  which 
rights  not  enumerated  are  saved  to 
the   people. 

In  Goodsill  7'.  Woodmanse,  1  N. 
Dak.  246,  46  N.  W.  970,  11  L.  R.  A. 
420,  it  is  said:  ".^.s  a  matter  of  prece- 
dent and  authority,  the  legislative  pre- 
rogative, in  the  exercise  of  its  police 
power  in  promoting  the  public  safety, 
not  only  to  regulate  and  restrict  the 
business  of  'i;)anking,  l)Ut  also  to  grant 
the  right  to  one  class,  and  tf)  prohil)it 
it  to  others,  or  even  to  forbid  it  alto- 
gether, has  never  been  questioned  in 
the  courts,  and  the  legislatures  of 
other   states   have   frequently   exercised 


tlie   right   of  supreme   control   over  the 
business." 

The  general  expression  as  to  the 
untrammeled  right  of  a  citizen  to  pur- 
sue any  lawful  business  or  vocation, 
lound  in  the  Slaughter- House  Cases, 
83  U.  S.  36,  109,  21  L.  Ed.  394,  and 
Butchers'  Union  Slaughter-House, 
etc.,  Co.  v.  Crescent  City,  etc.,  Co., 
Ill  U.  S.  746,  28  L.  Ed.  585,  4  S.  Ct. 
652,  must  be  construed  not  to  apply 
to  iaanks,  because  of  the  danger  of  in- 
jury to  the  public  from  free  banking. 
See,  also,  Lawton  :■.  Steele,  152  U.  S. 
133,  38  L.  Ed.  385.  14  S.  Ct.  501; 
Allgeyer  v.  Louisiana,  165  U.  S.  578, 
41  L.  Ed.  832,  17  S.  Ct.  427;  Chicago 
V.  Netcher,  183  111.  104,  55  N.  E.  707, 
75  Am.  St.  Rep.  93,  48  L.  R.  A.  261; 
People  V.  Steele,  231  111.  340,  83  N.  E. 
236,  14  L.  R.  A.,  N.  S.,  361;  121  Am. 
St.  Rep.  321;  In  re  Jacobs,  98  N.  Y. 
98,  50  Am.  Rep.  636;  People  v.  Marx, 
99  N.  Y.  377,  2  N.  E.  29,  52  Am.  Rep. 
34;    Cooley   on   Torts,   page    277. 

The  first  restraining  law  in  Ohio, 
affecting  the  power  of  individuals  and 
associations  to  engage  in  the  business 
of  banking,  was  the  Act  of  February 
8,  1815.  prohibiting  the  issue  of  un- 
authorized bank  paper.  Bonsai  7'. 
State,  11  O.  72;  State  v.  Granville 
Alexandrian  Soc,  11  O.  1.  See  post, 
"In    General,"    §   201. 

Ohio  constitution,  1851,  art.  13,  §  7. 
providing  that  no  act  of  the  general 
assembly,  "authorizing  associations 
with  banking  powers,  shall  take  ef- 
fect until  it  shall  have  been  sub- 
mitted to  the  people"  for  approval, 
did  not  deprive  unincorporated  asso- 
ciations of  joint  partners  of  the  right 
to  exercise  banking  functions,  includ- 
ing the  issuing  of  notes  and  bills  to 
circulate  as  money;  the  right  to  exer- 
cise the  latter  function,  however,  be- 
ing conditional  as  indicated  in  such 
section.  Ivxrhange  Bank  ?'.  liines.  :! 
O.   St.   1. 

'rcniicsscc. — The  business  of  b;ink- 
ing  was  a  common-law  right,  wliich 
any  person,  at  his  discretion,  might 
lawfully  exercise,  until  it  was  re- 
strained l)y  the  Act  of  1827,  upon  con- 
siderations of  public  policy  and  con- 
venience. Dliio  Life  Ins.,  etc.,  Co.  v. 
Merclianls"  Ins.,  etc.,  Co.,  30  Tenn.  (l1 
Humph.)  1,  .">:;  Am.  Dec.  742;  Hazen 
.-'.  I'nion  I'ank.  :v.\  Tenn.  Cl  Snced) 
115:  State  ?■.  Lookout  P.ank,  89  Tenn. 
(5   Pickle)  278,   11   S.  W.  SOl. 


BANKS    AND    BANKING. 


§    1 


powers  of  a  state  legislature/'  and  it  is  also  conceded  that  regulation  is  not 
only  the  right  but  the  duty  of  the  legislative  power.*^  And  it  is  for  the  leg- 
islature to  determine,  primarily,  what  regulations  are  proper  and  needful.' 
The  important  question,  and  the  one  on  which  the  courts  differ,  is  as  to 
whether  regulation  carried  into  prohibition  of  private  banking  comes  within 
the  police  power.  If  it  does  not,  then  it  would  seem  that  the  legislature 
could  not  make  a  franchise  of  a  right  which  belongs  to  citizens  of  the  coun- 
try generally  by  common  right.  But  the  police  power  is  broad  enough  to 
cover  such  legislation,  and  in  view  of  the  modern  tendency  to  broaden  that 
power,  the  case  of  State  v.  Scougal  must  be  regarded  as  sporadic  and  not 
likely  to  be  followed  by  many  courts.  And  the  decision  by  the  supreme 
court  of  the  United  States  of  the  bank  guaranty  fund  cases,  and  what  was 
there  said  on  this  point,  confirms  this  conclusion.  In  this  case,  and  the  com- 
panion cases  cited  in  the  note,  state  legislation  forbidding  private  banking 
and  making  incorporation  a  necessary  prerequisite  to  engaging  in  the  bank- 
ing business,  is  upheld  as  constitutional  under  the  police  power.^     Requir- 


5.  Prohibition  and  regulation  com- 
pared.— As  said  in  a  Wisconsin  case: 
"There  are  some  fundamental  propo- 
sitions so  well  settled  that  it  is  only- 
necessary  to  state  them.  Among 
these  are  the  following:  First,  bank- 
ing is  a  common-law  right  pertaining 
equally  to  every  member  of  the  com- 
munity; second,  being  a  common-law 
right,  it  can  not  be  prohibited  under 
a  constitution  like  ours,  which  recog- 
nizes the  right,  and  grants  power  to 
the  legislature  to  regulate  and  super- 
vise it;  third,  under  such  a  constitu- 
tion as  ours,  banking  may  be  regulated 
so  far  as  may  be  reasonably  neces- 
sary to  secure  the  public  welfare  and 
safety,  but  it  must  ho.  true  regulation, 
not  prohibition  under  the  guise  of 
regulation.  1  Morse,  Banks  and  Bank- 
ing, §  13."  Weed  v.  Bergh,  141  Wis. 
569,  124  N.  W.  664,  25  L.  R.  A.,  N.  S., 
1217.  See  Marymont  v.  Nevada  State, 
etc..  Board,  33  Nev.  333,  111  Pac.  295; 
State  V.  Scougal,  3  S.  Dak.  55.  51  N.  W. 
■858,  44  Am.  St.  Rep.  756,  15  L.  R.  A. 
477. 

6.  Regulation  a  right  and  a  duty.— ^ 
■"While  the  business  of  banking  may 
not  be  prohibited,  it  may  be  regulated, 
and  it  is  of  the  highest  importance  to 
the  pul^lic  welfare  that  it  be  regulated 
by  wise  legislation."  Ex  parte  Pitt- 
man,  31  Nev.  43,  99  Pac.  700.  See  State 
V.  Richcreek,  167  Ind.  217,  77  N  E 
1085,  5  L.  R.  A.,  N.  S.,  874,  119  Am.  St. 
Rep.  491,  citing  Bank  v.  Earle,  13  P^t 
519,  10  L.  Ed.  274;  State  Stebbins  (Ala.), 
1  Stew.  299;  Nance  v.  Hemphill,  1  .A.la. 
551 ;  Blaker  v.  Hood,  53  Kan.  499,  36  Pac. 
1115,  24  L.  R.  A.  854;  Curtis  v.  Leavitt, 


15  N.  Y.  9;  People  v.  Bartow  (N.  Y.), 
4  Cow.  290;  Attorney  General  v.  Utica 
Ins.  Co.  (N.  Y.),  15  Johns.  353,  8  Am. 
Dec.  243;  S.  C,  (N.  Y.),  2  Johns.  Ch. 
371;  Goodsill  v.  Woodmanse,  1  N. 
Dak.  246,  46  N.  W.  970,  11  L.  R.  A. 
420;  State  v.  Williams.  8  Tex.  255;  1 
Morse,  Banks  and  Banking,  4th  Ed., 
§  13;  Zane,  Banks  &  Banking,  §§  9, 
10.  See,  also,  Marymont  v.  Nevada 
State,  etc..  Board,  33  Xev.  333,  111 
Pac.  295;  State  ^'.  Scougal,  3  S.  Dak.  55, 
51  N.  W.  858,  44  Am.  St.  Rep  756 
15   L.    R.   A.   477. 

7.  "The  question  as  to  what  regula- 
tions are  proper  and  needful  is  prima- 
rily for  legislative  decision;  yet, 
when  the  police  power  is  used  to  regu- 
late a  business  or  occupation  which 
in  itself  is  lawful  and  useful  to  the 
community,  the  courts,  if  called  upon, 
must  determine  finally  whether  such 
regulations  as  may  have  been  pre- 
scribed are  so  far  just  and  reasonable 
as  to  be  in  harmony  with  constitu- 
tional guaranties.  Republic  Iron,  etc., 
Co.  V.  State,  160  Ind.  379,  66  N.  E.  1005, 
62  L.  R.  A.  136."  State  v.  Richcreek, 
167  Ind.  217,  77  N.  E.  1085,  5  L.  R.  A., 
N.  S.,  874,  119  Am.  St.  Rep.  491.  See, 
also,  Marymont  v.  Nevada  State,  etc.. 
Board,  33  Nev.  333,  111  Pac.  295; 
Noble  State  Bank  v.  Haskell,  22  Okl. 
48,  97  Pac.  590;  Goodsill  v.  Wood- 
manse, 1  N.  Dak.  246,  46  N.  W.  970, 
11    L.    R.    A.    420. 

8.  Regulation  carried  into  prohibi- 
tion.—Noble  Stale  Bank  v.  Haskell, 
219  U.  S.  104,  55  L.  Ed.  112,  31  S.  Ct. 
186.  In  this  case  it  is  said:  "The 
question    that    we    have    decided   is    not 


§  1 


CONTROL   AND   REGULATION    IN    GENERAL. 


ing  incorporation  as  a  condition  to  doing  a  l)anking  business  is  regulation, 
and  not  prohibition,  and  therefore  does  not  unconstitutionally  interfere  with 
the  right  to  transact  such  business.'-* 


much  helped  by  propounding  the 
further  one,  whether  the  right  to  en- 
gage in  banking  is  or  can  be  made  a 
franchise.  But  as  the  latter  question 
has  some  bearing  on  the  former  and 
as  it  will  have  to  be  considered  in  the 
following  cases,  if  not  here,  we  will 
dispose  of  it  now.  It  is  not  answered 
by  citing  authorities  for  the  existence 
of  the  right  at  common  law.  There 
are  many  things  that  a  man  might  do 
at  common  law  that  the  states  may 
forbid.  He  might  embezzle  until  a 
statute  cut  down  his  liberty.  We  can 
not  say  that  the  public  interests  to 
which  we  have  adverted,  and  others, 
are  not  sufficient  to  warrant  the  state 
in  taking  the  whole  business  of  bank- 
ing under  its  control.  On  the  con- 
trary we  are  of  opinion  that  it  inay 
go  on  from  regulation  to  prohibition 
except  upon  such  conditions  as  it 
may  prescribe.  In  short,  when  the 
Oklahoma  legislature  declares  by  im- 
plication that  free  banking  is  a  pub- 
lic danger,  and  that  incorporation,  in- 
spection and  the  above-described  co- 
operation are  necessary  safeguards, 
this  court  certainly  can  not  say  that  it 
is  wrong.  Goodsill  T'.  Woodmanse,  1  N. 
Dak.  246,  46  N.  W.  970,  11  L.  R.  A. 
420;  Brady  v.  Mattern,  125  Iowa  158, 
100  N.  W.  358,  106  Am.  St.  Rep.  291; 
Weed  V.  Bergh,  141  Wis.  569,  124  N. 
W.  664,  25  L.  R.  A.,  N.  S.,  1217;  Com- 
monwealth V.  Vrooman,  164  Pa.  306,  30 
Atl.  217,  44  Am.  St.  Rep.  603,  25  L.  R. 
A.  250;  Myers  v.  Irwin  (Pa.).  2  Serg. 
&  R.  368;  Myers  7'.  Manhattan  Bank, 
20  O.  283;  Attorney  General  v.  Utica 
Ins.  Co.  (N.  Y.).  2  Johns.  Ch.  371." 
Xoble  State  Bank  v.  Haskell,  219  U. 
S.    104,    55    L.    Ed.    112,    31    S.    Ct.    186. 

See  Shallenberger  v.  First  Nat. 
Bank,  219  U.  S.  114,  55  L.  Ed.  117.  31 
S.  Ct.  189,  following,  and  on  the  au- 
thority of.  Noble  State  Bank  v.  Has- 
kell, 219  U.  S.  104,  55  L.  Ed.  112,  31 
S.  Ct.  186.  sustaining  the  Bank  De- 
positors' Guaranty  Fund  Acts  <  of 
Oklahoma,  which  held  that  a  similar 
act  of  Ne])raska,  providing  for  a 
guaranty  fund  and  prohil)iting  bank- 
ing except  by  corporations  formed  un- 
der the  act,  is  not  unconstitutional. 
First  State  Bank  t'.  Shalhiibergcr,  172 
Fed.   999. 

9.  Weed  v.  Bergh,  141  Wis.  569,  124 
N.  W.  664,  25  L.  R.  A.,  N.  S.,  1217; 
Shallenberger  v.  First  Nat.  Bank,  210 
U.   S.   114.  55   L.  Ed.  117,  31    S.   Ct.  189; 


Noble  State  Bank  v.  Haskell,  219  U.  S. 
104,  55  L.  Ed.  112,  31  S.  Ct.  186;  Good- 
sill  V.  Woodmanse,  1  N.  Dak.  246,  46 
N.  W.  970,  11  L.  R.  A.  420.  See  contra, 
Ex  parte  Pittman,  31  Nev.  43,  99  .Pac. 
700;  Marymont  v.  Nevada  State,  etc.. 
Board,  33  Nev.  333,  111  Pac.  295;  State 
V.  Scougal,  3  S.  Dak.  55,  51  N.  W.  853, 
44  Am.   St.   Rep.  756,  15   L.   R.  A.  477. 

As  said  in  Weed  v.  Bergh,  141  Wis. 
569,  124  N.  W.  564,  25  L.  R.  A.,  N.  S., 
1217:  "If,  as  matter  of  fact,  the  re- 
quirement of  incorporation  is  a  form 
of  regulation  reasonably  calculated  to 
meet  and  remedy  these  difficulties, 
though  not  in  the  wisest  way.  it  must 
be  sustained  as  an  exercise  of  the  po- 
lice power.  We  have  been  referred  to 
but  one  case  which  holds  the  contrary 
doctrine,  viz.  State  v.  Scougal,  3  S. 
Dak.  55,  51  N.  W.  858,  44  Am.  St.  Rep. 
756,  15  L.  R.  A.  477;  which  indeed 
holds  that  an  act  requiring  incorporation 
as  a  condition  of  doing  banking  is  un- 
constitutional. The  discussion  of  the 
question  there  is  long  and  learned,  but 
not  convincing  to  us.  It  is  to  be  noted, 
further,  that  the  constitution  of  South 
Dakota  contains  an  unusual  provision 
which  figures  largely  in  the  result. 
This  provision  is  to  the  effect  that  no 
law  shall  grant  to  any  citizen,  class  of 
citizens,  or  corporations,  privileges  or 
immunities  which  on  the  same  terms 
shall  not  equally  belong  to  all  citizens 
or  corporations.  The  weight  of  de- 
cision as  well  as  text-book  authority 
is  the  other  way,  however.  1  Morse, 
Banks  &  Banking,  §  13;  5  Cyc.  Law 
&  Proc,  p.  433;  Boone,  Banks  &  Bank- 
ing, §  10;  Goodsill  V.  Woodmanse,  1 
N.  Dak.  246,  46  N.  W.  970.  1 1  L.  R.  \. 
420;  Myers  v.  Manhattan  Bank,  20  O. 
283." 

Such  a  statute  was  upheld  by  the 
supreme  court  of  North  Dakota,  not 
contravening  either  §  1  of  art.  1  of 
the  state  constitution  or  §  1  of  the 
fourteenth  amendment  to  the  federal 
constitution,  in  Goodsill  v.  Wood- 
manse.  1   N.   Dak.  246,    H)    .V.   W.  970.    11 

L.  R.  A.  420. 

The  Pennsylvania  statute  of.  1810. 
prohil)iting  all  existing  unincorporated 
l)anking  companies  from  doing  bank- 
ing business,  was  constitutional  and 
valid.  White  v.  Comnionwealtli  (Pa."), 
4  Bin.  418;  Myers  v.  Irwin  (Pa.),  2 
Serg.   (fc   R.   36S. 

Statute     discriminating     against      in- 


BANKS    AND    BANKING. 


§2 


The  prohibition  of  private  banking  necessarily  results  from  the  in- 
auguration of  a  banking  system  for  the  state  in  which  the  business  is  made 
an  exckisive  corporate  franchise. ^"^ 

Banking  Through  Agency  of  Corporation  a  Franchise. — But  the 
right  to  carry  on  the  business  of  banking  through  a  corporation  is  a  fran- 
chise.^^ 

Authority  of  Corporations  for  Particular  Purposes.— It  has  been 
held  that  insurance  companies  have  no  authority  to  engage  in  banking,^-  nor 
have  incorporated  rehgious  societies.^"' 

Authority  of  Corporation  Organized  under  General  Laws. — Xo  cor- 
poration organized  under  the  general  incorporation  act  is  permitted  to  en- 
gage in  the  banking  business. ^^ 

§  2.    What  Are  Banks. i"' — Bank  or  Banker  and  Banking  Defined. 

— A  bank  is  a  quasi  pubhc  institution,^'^  for  the  custody  and  loan  of  money, 


dividual  bankers  held  unconstitutional. 

— "In  Alal)ama  a  statute  which  made 
it  a  misdemeanor  for  an  individual 
banker  to  discount  negotiable  paper  at 
a  higher  rate  of  interest  than  8  per 
cent  was  declared  to  be  unconstitu- 
tional because  this  restriction  could 
not  be  placed  upon  the  individual 
banker  when  it  did  not  apply  to  incor- 
porated banks.  Carter  7'.  Coleman,  84 
Ala.  256,  4  So.  151;  Youngblood  v. 
Birmingham  Trust,  etc.,  Co.,  95  Ala. 
521,  12  So.  579,  3G  Am.  St.  Rep.  245,  20 
L.  R.  A.  58,  10  Am.  &  Eng.  Ann.  Cas. 
904,  note."  Marymont  v.  Nevada 
State,  etc..  Board,  33  Nev.  333,  111 
Pac.  295. 

10.  Prohibition  of  private  banking. 
' — Goodsill  z'.  Woodmanse.  1  N.  Dak. 
246,  46  N.  W.  970.  11  L.  R.  A.  420.  See 
post,  "Unauthorized  Banking,"  §  7,  et 
seq.  As  to  regulation  generally,  see 
post.  "Power  to  Control  and  Regu- 
late,"  §   3. 

11.  Banking  through  agency  of  cor- 
poration.— While  the  right  to  do  a 
banking  business  is  not  a  franchise, 
and  belongs  to  all  citizens  generally, 
yet  the  right  to  carry  on  such  business 
"through  the  agency  of  a  corporation  is 
a  franchise,  dependent  on  a  grant  of 
corporate  powers  by  the  state.  Bank 
v.  San  Francisco.  142  Cal.  270,  75  Pac. 
832.  100  Am.  St.  Rep.  130,  64  L.  R.  A. 
918. 

12.  Insurance  companies. — A  cor- 
poration created  for  insurinor  property 
has  no  authority  to  engage  in  banking. 
Blair  :•.  Perpetual  Ins.  Co.,  10  Mo.  559, 
47    Am.    Dec.    129. 

13.  Incorporated  religious  socie- 
ties.— A  religious  society  incorporated 
under   ihe  .Act  of  Marcli  5,  1836,  is  not 


empowered  to  engage  in  the  lousiness 
of  banking,  and  to  receive  on  deposit, 
keep,  and  circulate  the  money  or  bank 
paper  of  others.  Huber  f.  United 
Protestant,  etc..  Congregation,  16  O. 
St.  371. 

14.  Corporation  organized  under 
general  laws. — Workingmen's  Accom- 
modation Bank  z'.  Converse,  29  La. 
Ann.   369. 

15.  See  post,  "Foreign  Banks,"  §  18, 
as  to  foreign  banks. 

What  is  a  bank,  within  statute  re- 
quiring a  license,  see  post,  "Authority 
or    License    to    Do    Business,"    §    6. 

Construction  of  charter  provisions 
as  conferring  banking  powers,  or  no, 
see  "Construction  of  Charters  and 
Banking   Laws,"   §   87. 

Savings  banks. — See  post,  "Savings 
Banks,"    §§    2S0-309. 

National  banks. — See  post.  "National 
Banks,"    §§    232-288. 

Bank  money  and  banknotes. — See 
post,   "Circulating   Notes,"   §   196. 

Bank  stock. — See  post,  ".\mount  of 
Capital   and   Shares,"   §   36. 

Capital  stock. — See  post.  "Amount 
of    Capital    and    Shares,"    §    36. 

16.  Bank  or  banker  defined. — Knick- 
erbocker Life  Ins.'  Co.  z:  Pendleton,* 
115  U.  S.  339,  29  L.  Ed.  432,  6  S.  Ct. 
74;  Guthrie  z:  Harkness,  199  U.  S.  148, 
50  L.  Ed.  130,  26  S.  Ct.  4;  Patterson  v. 
Marine  Nat.  Bank,  130  Pa.  419,  18  Atl. 
632,  17  Am.  St.  Rep.  778;  American 
Nat.  Bank  z:  Morey,  113  Ky.  857,  69 
S.    W.    759. 

Although  the  mere  business  of  bank- 
ing is  a  private  business.  Osl:)orn  z'. 
Bank,   9   Wheat.   738,   6   L.   Ed.   204. 

.\nd  a  bank,  when  the  stock  is 
owned  by  individuals,  is  a  private  cor- 


§2 


CONTROL   AND   REGULATION    IN    GENERAL. 


the  exchange  and  transmission  of  the  same  by  means  of  bills  and  drafts, 
and  the  issuance  of  its  own  promissory  notes,  payable  to  bearer,  as  currency, 
or  for  the  exercise  of  one  or  more  of  these  functions, ''  not  always  necessa- 
rily chartered. ^^  but  sometimes  so,^'*  created  to  subserve  public  ends,-^  or  a 
financial  institution  regulated  by  law.-^ 

And  state  banks  are  public  corporations  and  state  institutions 
for  certain  iHn'poses,--  but  the  bank  and  the  state  are  different  enti- 
ties,-^* and  in  assuming  to  carry  on  the  business  and  to  exercise  the  functions 


poration.  State  Bank  r.  Knoop  (U. 
S.),  16   How.  309,   14  L.  Ed.  977. 

A  bank  is  an  institution  organized 
for  private  business,  and  with  a  view 
to  individual  profit,  although  it  may 
serve  a  public  purpose  and  such  pub- 
lic purpose  justify  its  creation.  Tal- 
bott  V.  Silver  Bow,  139  U.  S.  438,  35 
L.   Ed.  210,   11   S.   Ct.   594. 

"Mr.  Justice  Story,  in  his  learned 
and  able  remarks  in  Dartmouth  Col- 
lege T'.  Woodward,  4  Wheat.  518,  4  L. 
Ed.  629,  says:  'A  bank  created  by  the 
government  for  its  own  uses,  where  the 
stock  is  exclusively  owned  by  the  gov- 
ernment is,  in  the  strictest  sense,  a  pub- 
lic corporation.'  'But  a  bank  whose 
stock  is  owned  by  private  persons  is 
a  private  corporation,  although  it  is 
erected  by  the  government,  and  its 
objects  and  operations  partake  of  a 
public  nature.' "  Stale  Bank  v.  Knoop 
(U.  S  ),   16  How.  369,  14  L.  Ed.  977. 

Free  banks  under  Tennessee  Act  of 
1851-52.— Xeiffer  2:  Bank,  38  Tcnn.  (1 
Head)    162. 

17.  Kiggins  c'.  Munday,  19  Wash. 
■233,    52    Pac.    855. 

18.  Not  necessarily  chartered. — The 
term  "bank"'  does  not  necessarily  re- 
fer to  a  chartered  banking  institution, 
though  it  includes  all  such;  and  is  used 
in  the  Indiana  constitution  simply  in 
reference  to  that  class  of  banks.  Davis 
V.  Mc Alpine.  10  Ind.  137;  Norton  z'. 
Jewett,    12    Tnd.    426. 

19.  Sometimes  so. — Massachusetts. — 
The  word  "l)ank"  has  long  had  a  well- 
defined  signilication  in  this  common- 
wealth, and  lias  been  applied  to  in- 
stitutions incorporated  for  banking 
purposes,  but  not  to  offices  kept  by 
individuals  or  copartnerships  for  the 
purpose  of  doing  such  banking  l)usi- 
ness  as  such  persons  have  been  au- 
thorized to  do.  Way  7'.  Butterwortli, 
lOf)  Mass.  75;  S.  C,  108  Mass.  509,  51:'.. 

Georgia. — A  concern,  nf)t  chartered, 
advertising  as  bankers,  lending  money, 
discounting  notes,  bills,  etc.,  but  not 
receiving  deposits,  there  being  no 
other  evidence  of  the  concern  ])er- 
forming  any  oilier  functions  of  a  Iiank 


than  that  indicated  above,  is  not  a 
bank  within  the  meaning  of  Civil 
Code,  §  3G88,  doing  away  with  the 
necessity  for  protest  in  certain  cases 
in  order  to  bind  indorsers.  Davis  ■:•. 
West  &  Co..  127  Ga.  470,  56  S.  E.  403. 
As  meaning  incorporated  institu- 
tions with  banking  powers  under  Ohio 
constitution. — Exchange  Bank  v.  Hines, 
3   O.    St.   1. 

20.  Purpose  of  creation. — A  bank  is 
created  upon  public  considerations,  to 
subserve  public  ends,  and  not  for  pri- 
vate purposes  only.  Williams  i'.  Union 
Bank,   21   Tenn.    (2    Humph.)    339. 

21.  Cannon  z'.  Apperson,  82  Tenn. 
(14  Lea)   553. 

22.  State  banks. — The  Bank  of  Ten- 
nessee is  in  its  nature  and  character  a 
public  corporation,  chartered  for  the 
benefit  of  the  state;  the  faith  and 
credit  of  the  state  are  pledged  for  its 
support.  Nashville  Z'.  Bank,  31  Tenn. 
(1  Swan)  269;  Bank  z\  Woodson,  45 
Tenn.  (5  Coldw.)  170,  citing  Furman. 
etc.,  Co.  v.  Nichol,  43  Tenn.  (3  Coldw.) 
432.  See,  also,  Vanzant  v.  Waddel, 
10  Tenn.  (2  Yerg.)  200;  Bonner  v. 
Burke,  41  Tenn.  (1  Coldw.)  623;  State 
Bank  v.  Knoop,  16  How.  369,  14  L. 
Ed.   977. 

But  not  so  within  the  meaning  of  a 
statute  giving  the  state  priority  over 
certain  other  claims.  Fields  z'.  Credit- 
ors,  3:!   'I'enn.    (1    Sneed)    350. 

"The  Bank  of  Tennessee  is  a  stale 
institution,  chartered  liy  a  public  lav,'." 
Shaw  z:   Stale,   35   Tcnn.    (3   Sneed)    80. 

23.  "The  bank  and  the  state  are  en- 
tirely different  entities.  While  the 
state  owned  all  the  stock  in  the  bank, 
appointed  its  officers,  received  the 
benefit  of  the  profits  it  made,  and  dic- 
tated its  management;  yet  it  was 
merely  a  private  corporation,  and  it  is 
to  l)e  lield  and  treated  accordingly. 
This  was  expressly  determined  i)y  this 
court  in  the  case  of  Watson  7'.  Bank." 
Keith  ?■.  Clarke,  72  Tenn.  (4  Lea)  718. 
See,  also.  Bank  7'.  Dil)rell,  ,{5  Tenn.  (3 
Sneed)  379;  State  7'.  Bank,  64  Tenn. 
(5   Baxt.)    1. 


8 


BANKS    AND    BANKING. 


§2 


of  banking,  the  government,  thus  far,  divests  itself  of  its  sovereign  charac- 
ter, and  takes  that  of  a  private  citizen,  or  corporation. ^^  Banking  associa- 
tions are  moneyed  corporations. ^^ 

Banks,  in  the  commercial  sense,  are  of  three  kinds,  to  wit:  1.  of 
deposit;  2,  of  discount;  3,  of  circulation.  All  or  any  two  of  these  func- 
tions may,  and  frequently  are,  exercised  by  the  same  association ;  but  there 
are  still  banks  of  deposit,  without  authority  to  make  discounts  or  issue  a 
circulating  medium. -'^      Although,   under   the    legislation   and   decisions   of 


24.  Fields  r.  Creditors,  33  Tenn.  (l 
Sneed)  350,  citing  Bank  r.  Planters" 
Bank  (U.  S.),  9  Wheat.  904,  6  L.  Ed. 
244;  Bank  v.  Wister  (U.  S.),  2  Pet. 
3]  8,  7  L.  Ed.  437;  Turnpike  Co.  v. 
Wallace    (Pa.),    8   Watts   316. 

25.  General  laws. — Banking  associa- 
tions organized  under  Laws.  1838,  c. 
260,  are  "moneyed  corporations,"  and 
are  therefore  embraced  by  the  "Bank- 
ing Act."  Hirschfeld  v.  Bopp,  27  App. 
Div.  180,  50  N.  Y.  S.  676,  reversed 
on  another  point  in  Hirshfeld  v.  Fitz- 
gerald, 157  N.  Y.  166.  46  L.  R.  A.  839, 
51  N.  E.  997.  Sle,  also,  Robinson  v. 
Bank,  21  N.  Y.  406. 

26.  Bank  defined.— Bank  z:  Col- 
lector, 3  Wall.  495,  512,  18  L.  Ed.  207; 
Oulton  V.  Savings  Institution  (U.  S.), 
17  Wall.   109,  21   L.   Ed.  618. 

Strictly  speaking  the  term  bank  im- 
plies a  place  for  the  deposit  of  money, 
as  that  is  the  most  obvious  purpose  of 
such  an  institution.  Originally  the 
business  of  banking  consisted  only  in 
receiving  deposits,  such  as  bullion, 
plate,  and  the  like,  for  safekeeping 
imtil  the  depositor  should  see  fit  to 
draw  it  out  for  use,  but  the  business, 
in  the  progress  of  events,  was  ex- 
tended, and  bankers  assumed  to  dis- 
count bills  and  notes  and  to  loan 
money  upon  mortgage,  pawn,  or  other 
security,  and  at  a  still  later  period  to 
issue  notes  of  their  own  intended  as  a 
circulating  currency  and  a  medium  of 
exchange  instead  of  gold  and  silver. 
Modern  bankers  frequently  exercise 
any  two  or  even  all  three  of  those 
functions,  but  it  is  still  true  that  an 
institution  prohibited  from  exercising 
any  more  than  one  of  those  functions 
is  a  bank  in  the  strictest  commercial 
sense.  Oulton  z:  Savings  Institution 
(U.  S.),  17  Wall.  109,  21  L.  Ed.  618; 
Bank  v.  Collector,  3  Wall.  495,  512,  18 
L.   Ed.  207. 

"Associations  engaged  in  moneyed 
transactions,  whether  incorporated  or 
not.  having  a  place  of  business  where 
credits  are  opened  by  the  deposit  or 
collection   of  money   or   currency,   sub- 


ject to  be  paid  or  remitted  upon  draft, 
check,  or  order;  or  where  money  is 
advanced  or  loaned  on  stocks,  bonds, 
bullion,  bills  of  exchange,  or  promis- 
sory notes;  or  where  stock,  bonds, 
bullion,  bills  of  exchange,  or  promis- 
sory notes  are  received  for  discount 
or  for  sale,  are  regarded  as  banks." 
Oulton  z'.  Savings  Institution  (U.  S.), 
17  Wall.  109,  21  L.  Ed.  618;  Richmond 
f.  Blake,  132  U.  S.  592,  33  L.  Ed.  481, 
]0  S.  Ct.  204;  Selden  v.  Equitable  Trust 
Co.,  94  U.  S.  419.  24  L.  Ed.  249;  West- 
ern Invest.  Banking  Co.  v.  Murray,  6 
.Ariz.   215,   56   Pac.   728. 

"  'A  bank,'  says  Morse  (§  2,  Banks 
and  Banking),  'is  an  institution  usually 
incorporated  with  power  to  issue  its 
promissory  notes  intended  to  circulate 
as  money  (known  as  bank  notes);  or 
to  receive  the  money  of  others  on 
general  deposit  to  form  a  joint  fund 
that  shall  be  used  by  the  institution 
for  its  own  benefit,  for  one  or  more 
of  the  purposes  of  making  temporary 
loans  and  discounts;  of  dealing  in 
notes,  foreign  and  domestic  bills  of 
exchange,  coin,  bullion,  credits  and 
the  remission  of  money;  or  with  both 
these  powers,  and  with  the  privileges 
in  addition  to  these  basic  powers,  of 
receiving  special  deposits  and  making 
collections  for  the  holders  of  nego- 
tiable paper,  if  the  institution  sees  fit 
to  engage  in  such  business.'  "  Auten 
z\  United  States  Nat.  Bank,  174  U.  S. 
125,   43   L.   Ed.  920,   19  S.   Ct.  628. 

"McCulloch,  in  his  Commercial  Dic- 
tionary (vol.  1,  p.  63),  under  tlie  word 
'Banking,'  says:  'Banks  are  estab- 
lishments intended  to  serve  for  the 
safe  custody  of  money;  to  facilitate  its 
payment  by  one  individual  to  another; 
and  sometimes  for  the  accommodation 
of  the  public  with  loans.' "'  Niagara 
County  Bank  z:   Baker,   15   O.   St.  68. 

Reception  of  money  of  others  and 
doing  banking  business  thereon — Ohio 
Act  of  1845. — Pickaway  County  Bank 
r.  Prather.  12  O.  St.  497;  Huber  v. 
United  Protestant,  etc..  Congregation, 
16   O.   St.   371;   Medill  z\   Collier,"l6   O. 


§2 


CONTROL   AND   REGULATION    IN    GENERAL. 


Oliio  and  California,  and  those  of  other  states,  banking  purposes  necessa- 
rily include  issue  of  notes.-"  And  receiving  deposits  in  small  sums  to  be 
sent  to  another  state  or  foreign  countries  is  banking,-'*  and  so  as  to  receipt 


St.  599;  United  Protestant,  etc.,  Con- 
gregation  V.    Stegner,   21    O.    St.   488. 

Intention  to  do  banking  business 
sometimes  essential. — Bonsai  f.  State, 
11  O.  72. 

Receiving  deposits  under  Ohio  Act 
of  1851.— Meclill  V.  Collier,  16  O.  St. 
599. 

A  corporation  engaged  in  loaning 
its  own  money  upon  note  and  mort- 
gage is  not  a  banking  corporation. 
Oregon,  etc..  Invest.  Co.  z'.  Rathburn, 
Fed.  Cas.  No.  10.555,  5  Sawy.  32.  See, 
also,  Davis  v.  West  &  Co.,  127  Ga. 
407,  56  S.  E.  403,  where  it  is  intimated 
that  the  receipt  of  deposits  was  neces- 
sary to   constitute   a  bank. 

Foreign  corporation. — A  foreign  cor- 
poration organized  under  a  statute  en- 
titled "An  act  to  provide  for  the 
formation  of  corporations  for  certain 
purposes,"  and  providing  that  corpora- 
tions for  manufacturing,  mining,  or 
chemical  purposes  or  for  the  purpose 
of  engaging  in  any  species  of  trade  or 
commerce  may  be  formed,  and  that  no 
corporation  organized  under  the  act 
shall  possess  the  power  of  issuing  bills, 
notes,  or  other  evidences  of  debt  for 
circulation  as  money,  possesses  no 
power  to  carry  on  the  business  of 
banking,  though  the  certificate  of  in- 
corporation discloses  that  it  is  created 
for  the  purpose  of  carrying  on  the 
business  of  banking  to  such  an  extent 
as  may  be  legally  done  under  the  con- 
stitution and  laws  of  the  state  of  its 
organization.  Bank  v.  Collins  (N. 
Y.),    7    Hun    336. 

27.  Although,  under  Ohio  legisla- 
tion, "Ijanking  inslilutiuns"  (jr  "l>anks" 
appear  to  be  confined  to  corporations 
authorized  to  issue  bills  or  notes  for 
circulation  as  currency.  Ohio  Life 
Ins.,  etc.,  Co.  v.  Debolt  (U.  S.),  16 
How.  416,  14  L.  Ed.  997;  Exchange 
Bank  v.  Ilines,  3  O.  St.  1;  State  v. 
Granville  Alexandrian  Soc,  11  O.  1; 
Lougee  v.  State,  11  O.  68:  I-.onsal  v. 
State,  11  O.  72;  State  v.  Urbana,  etc., 
Ins.  Co.,  14  O.  6,  12;  Porter  v.  Kepler, 
14  O.  127;  Porter  v.  Porter,  14  O.  220; 
Watson  V.  Brown,  14  O.  473;  Johnson 
V.  Bentley,  16  O.  97;  Lawler  v. 
Walker,  18  O.  151;  Myers  v.  Manhat- 
tan Bank,  20  O.  283;  Dearborn  v. 
Northwestern  Sav.  Rank,  42  O.  St. 
617.  51  Am.  Rep.  851;  2  Bates'  Stat., 
§   3821-1. 


The  term  "banking,"'  as  used  in  the 
Act  of  :\larch  12,  1845  (2  Bates'  Anno. 
Stat.,  §  3821-6),  entitled  "An  act  to 
prohibit  unauthorized  banking,''  and 
providing  "That  no  body  politic  or 
corporate  shall  establish  a  bank,  or 
engage  in  the  business  of  banking,  to 
receive  on  deposit,  keep  and  circulate 
the  money  or  bank  paper  of  others, 
without  express  authority  of  a  law  of 
this  state,"  does  not  refer  to  unau- 
thorized banking  as  such,  but  only  a 
particular  function  or  department  of 
banking,  to  wit,  the  reception  on  de- 
posit of  the  money  or  bank  paper  of 
others  and  the  doing  of  a  bankin.g 
business  thereon.  Huber  f.  United 
Protestant,  etc.,  Congregation,  16  O. 
St.  371;  United  Protestant,  etc..  Con- 
gregation V.  Stegner,  21  O.  St.  488; 
Medill  7'.  Collier,  16  O.  St.  599;  Picka- 
way County  Bank  r.  Prather,  12  O.  St. 
497. 

It  is  no  violation  of  a  charter  which 
contains  a  clause  prohibiting  the  ex- 
ercise of  banking  powers  to  receive 
monev  on  deposit.  State  v.  Urbana, 
etc.,  Ins.  Co.,  14  O.  6. 

Individuals  issuing  notes  to  pass  as 
money  not  included  in  Ohio  statute  of 
1816. — Steedman  7'.  State,  1 1  C).  s;>. 
But    see    Act    of   February    K),    183S. 

Banking  purposes  as  necessarily  in- 
cluding issue  of  notes  under  California 
constitution. — The  word  "lianking"  as 
used  in  Const.,  art.  4,  §  34.  prohibiting 
the  legislature  from  passing  any  act 
granting  any  charter  "for  banking  pur- 
poses," and  Id.,  §  35,  commanding  the 
legislature  to  prohibit  any  person,  as- 
sociation, or  corporation  from  "exer- 
cising the  privilege  of  banking  or 
creating  paper  to  circulate  as  money," 
refers  merely  to  the  issuance  of  bank 
bills  or  paper  to  circulate  as  money. 
Bank  7-.  Hemme,  etc..  Land  Co.  105 
Cal.  376.  38  Pac.  963;  Bank  ?•.  Fair- 
banks,  52   Cal.   196. 

loti'a. — State  7'.  Union  Stork  Yards, 
etc..  B.-ink,  103  Iowa  549,  70  N.  W.  753, 
72  N.  W.  1076.  See  post,  "Incorpora- 
tion,"  §   23. 

Pennsylvania. — Mercliants'  Bank  t'. 
Shouse,  102  Pa.  488;  Dreisbacli  7'. 
Price,  133  Pa.  500,  19  Atl.  569;  In  re 
Lebanon  Trust,  etc..  Estate.  3  Pa. 
Dist.  R.  286.  See  post.  "Constitu- 
tional   and    Statutory    Provisions."    §    t. 

28.  Receiving  deposits  to  be  sent 
to    another    state. — r)f    national    banks. 


10 


BANKS    AND    BANKING. 


§2 


of  deposits  by  department  store. ^^ 

But  trust  companies  are  not  banks  in  the  commercial  sense  of  the 
word/'" 

A  banker  is  one  who  has  a  place  of  business  where  deposits  are  received 
and  paid  out  on  checks,  and  where  money  is  loaned  upon  security.-^  ^ 


see  post,  "Power  to  Control  and  Regu- 
late,"  §   233. 

The  business  of  receiving  deposits 
■of  money  in  small  sums  from  time  to 
time  until  they  reach  an  amount  suffi- 
cient to  be  sent  to  other  states  or  for- 
eign countries  is  banking,  and  as  such 
is  a  proper  subject  for  regulation  in 
the  exercise  of  the  police  power  of  the 
state.  Engel  v.  O'Malley,  219  U.  S. 
128,  55  L.  Ed.  128,  31  S.  Ct.  191,  af- 
firming decree   (C.  C),  182  Fed.  365. 

29.  Receipt  of  deposits  by  depart- 
ment store. — Under  Laws  1909,  c.  285, 
§  2024 — 78l,  declaring  the  receiving  of 
money  on  deposit  as  a  regular  busi- 
ness by  a  person  or  corporation  to  be 
a  banking  business,  whether  the  de- 
posit is  made  subject  to  check  or  is 
evidenced  by  a  certificate  of  deposit, 
passbook,  note,  receipt,  or  other  writ- 
ing, a  department  store  which  received 
deposits  up  to  a  certain  amount,  is- 
sued passbooks,  paid  interest  on  the 
aniounts  deposited,  and  paid  the  prin- 
cipal, with  interest  thereon,  on  de- 
rnand,  in  money  or  goods  at  the  elec- 
tion of  the  depositor,  was  engaged  in 
the  banking  business,  and  subject  to 
the  laws  regulating  it.  McLaren  7'. 
State,   141   Wis.   577,   124   N.   W.   667. 

30.  Trust  companies  not  banks. — 
Mercantile  Bank  v.  New  York,  121  U 
S.  138,  30  L.  Ed.  895,  7  S.  Ct.  826. 

Since  the  decision  in  Mercantile 
Bank  ?'.  New  York,  121  U.  S.  138,  30 
L.  Ed.  895,  7  S.  Ct.  826,  there  has  been 
no  change  in  the  legislation  of  New 
York  in  respect  to  the  powers  of  trust 
companies  which  calls  for  any  limi- 
tation of  that  decision.  Jenkins  z\ 
Neff,   ]S6   U.    S.  230,   46   L.   Ed.   1140. 

31.  Banker  defined. — The  substance 
of  the  business  of  a  banker,  as  defined 
by  the  acts  of  congress  approved  June 
30,  1864  (13  Stat.  252),  and  March  3, 
1865  (13  Stat.  472),  is  having  a  place 
of  business  where  deposits  are  re- 
ceived and  paid  out  on  checks,  and 
where  monev  is  loaned  upon  security. 
Warren  v.  Shook,  91  U.  S.  704,  23  L. 
Ed.   421. 

When  a  corporation  or  natural  per- 
son receives  from  another  person,  for 
discount,  bills  of  exchange  or  promis- 
sory notes  belonging  to  that  other,  he 
is  acting  as  a  banker.     Selden  t'.  Equi- 


table Trust  Co..  94  U.  S.  419,  422,  24 
L.  Ed.  249;  Richmond  v.  Blake,  132 
U.    S.   592,   33   L.   Ed.   481,   10   S.    Ct.   204. 

"A  banker,  Macleod  says,  is  a  trader 
who  buys  money,  or  money  and  debts, 
by  creating  other  debts,  which  he  does 
with  his  credit — exchanging  for  a  debt 
payable  in  the  future  one  payable  on 
demand.  This,  he  says,  is  the  essen- 
tial definition  of  banking.  'The  first 
business  of  a  banker  is  not  to  lend 
money  to  others  but  to  collect  money 
from  others.'  (Macleod  on  Banking, 
vol.  1,  2d  Ed.,  pp.  109,  110.)  And  Gil- 
bart  defines  a  banker  to  be  'a  dealer 
in  capital,  or  more  properly  a  dealer  in 
money.  He  is  an  intermediate  party 
between  the  borrower  and  the  lender. 
He  borrows  of  one  party  and  lends  to 
another.'  (Gilbart  on  Banking,  vol.  1, 
p.  2.)"  Auten  v.  United  States  Nat. 
Bank,  174  U.  S.  125,  43  L.  Ed.  920,  19 
S.    Ct.    628. 

"A  banker  is  one  who  keeps  a  place 
for  the  traffic  in  money;  who  there  re- 
ceives it  from  others,  and  keeps  it 
with  his  own,  using  the  whole  fund  as 
his  own,  or  remits  it  at  request  to 
other  places;  who  repays  it  at  the  will 
and  call  of  his  customer;  who  fur- 
nishes money  to  others  on  the  dis- 
count of  their  obligations,  or  on 
securities  brought  by  them;  and  who 
buys  and  sells  bills  of  exchange.  To 
these  is  sometimes  added  the  issuing 
of  his  notes  to  pass  as  money,  when 
allowed  by  law  to  do  so."  People  z'. 
Doty,    80    X.    Y.     (35    Sickles)     225. 

Attorneys  at  law,  partners  in  a 
business  held  forth  to  the  pul^lic,  by 
their  notes,  checks,  letter  heads,  etc., 
as  the  "Perry  County  Bank,"  and  who 
receive  deposits,  etc.,  are  bankers. 
Commonwealth  z'.  Sponsler,  1  Lack. 
Leg.    N.    61. 

Private  Banker. — The  business  of 
"private  banker"  is  one  which  may  be 
carried  on  m  the  banker's  individual 
capacity.  Exchange  Bank  v.  Hines,  3 
O.   St.   1. 

This  term  has  been  commonly  used 
in  Ohio  to  distinguish  money  brokers, 
or  dealers  in  money,  who  did  not  is- 
sue bills  or  notes  to  circulate  as 
money,  from  "associations  with  bank- 
ing powers."  or  banks  of  issue  and  cir- 
culation.     Dearborn    z'.     Northwestern 


§2 


CONTROL   AND    REGULATION    IX    GKXERAL. 


11 


The  business  of  banking,  as  defined  by  law  and  custom,  consists  in  the 
issue  of  notes  payable  on  demand,  intended  to  circulate  as  money  where  the 
banks  are  banks  of  issue;  in  receiving  deposits  payable  on  demand;  in  dis- 
counting commercial  paper;  making  loans  of  money  on  collateral  security; 
buying  and  selling  bills  of  exchange;  negotiating  loans,  and  dealing  in 
negotiable  securities  issued  by  the  government,  state  and  national,  and  mu- 
nicipal and  other  corporations.'*-    Or  the  exercise  of  any  banking  function.-*^ 


Sav.   Bank,   42   O.   St.  617,  51   Am.   Rep. 
825. 

"The  proper  phrase  for  a  banker 
who  exercises  in  his  business  no  more 
than  the  rights  and  privileges  com- 
mon to  all  men.  as  distinguished  from 
.a  bank  or  association  or  person  who 
has  taken  advantage  of  the  provisions 
of  statutes,  and  by  a  compliance  with 
the  conditions  of  them  has  privileges 
not  natural  and  common,  is  not  in- 
dividual banker,  it  is  private  banker. 
He  is  private  in  his  business,  inas- 
much as  he  may  conduct  it  as  he 
pleases  within  law,  is  not  subject  to 
visitation  or  scrutiny  by  the  state; 
while  those  who  have  started  a  bank- 
ing business  under  an  enabling  stat- 
ute are  public  inasmuch  as  the  public 
have  given  them  the  right  and  have 
the  power  to  demand  securities  and 
have  reports,  and  to  make  inquiry  into 
the  business  and  how  it  is  conducted. 
The  individual  banker  of  the  statutes 
is  a  public  banker,  but  he  is  different 
from  persons  associated  for  the  pur- 
pose of  liecoming  public  bankers." 
People  7'.  Doty.  80  N.  Y.  (35  Sickels) 
225. 

Banker    under    Ohio    tax    laws. — The 

term  "banker,"  as  used  in  the  constitu- 
tional provision  relating  to  the  taxa- 
tion of  "banks  and  bankers,"  denotes 
unincorporated  "associations  with 
banking  powers,"  as  distinguished 
from  incorporated  institutions  having 
the  same  powers.  Exchange  Bank  z'. 
Hincs,   .'}    O.    St.    1. 

Statutory    term    "individual    banker" 
held   not   to    include   private   banker. — ■ 

In  Laws  1875,  c.  ;!71,  §  49,  forbidding 
"any  l)ank.  banking  association,  or  in- 
<lividual  I)ankcr  to  advertise  or  put 
fortli  a  sign  as  a  savings  bank,"  the 
term  "individual  l)ankcr"  does  not  ap- 
ply to  a  private  banker,  who  exercises 
in  his  Ijusiness  no  more  than  the  privi- 
leges common  to  all  as  an  individual 
banker  is  one  who  has  availed  himself 
of  the  banking  statutes  and  l)ecome 
empowcrerl  to  do  banking  business 
thereunder.  People  z:  Doty,  80  X.  Y. 
••■!5    Sickles)    225. 


Under    statutes    requiring    reports, — 

See    post,    "Reports     and     Statements," 

32.  Banking  defined. — Mercantile 
Bank  v.  New  York.  121  U.  S.  138,  30 
L.  Ed.  895.  7  S.  Ct.  826;  Auten  7'. 
United  States  Nat.  Bank.  174  U.  S. 
125,  43  L.  Ed.  920.  19  S.  Ct.  628;  Ex- 
change Bank  v.  Hines.  3  O.  St.  1; 
Holladay  r.  Faurot,  9  W.  L.  Bull.  92, 
8  O.  Dec.  Reprint  633;  Ohio  Life  Ins., 
etc.,  Co.  7'.  Merchants'  Ins..  etc.,  Co.,  30 
Tenn.  (11  Humph.)  1,  53  Am.  Dec. 
742.  See  to  the  same  effect,*  State  v. 
Lookout  Bank,  89  Tenn.  (5  Pickle) 
278,    14    S.    W.    801. 

By  §  3407  of  the  Revised  Statutes  of 
the  United  States,  relating  to  revenue, 
it  is  provided  that  "every  incorporated 
or  other  bank,  and  every  person,  firm 
or  company  having  a  place  of  busi- 
ness where  credits  are  opened  by  the 
deposit  or  collection  of  money  or  cur- 
rency, subject  to  be  paid  or  remitted 
upon  draft,  check,  or  order,  or  where 
money  is  advanced  or  loaned  on 
stocks,  bonds,  bullion,  bills  of  ex- 
change or  promissory  notes  or  where 
stocks,  bonds,  bullion,  bills  of  ex- 
change or  promissory  notes  are  re- 
ceived for  discount  or  for  sale,  shall 
be  regarded  as  a  bank  or  a  banker." 
i;j  Stat.  251,  c.  173,  §  79;  14  Stat.  115, 
c.  184,  §  9.  Richmond  v.  Blake,  132 
U.  S.  592,  33  L.  Ed.  481.  10  S.  Ct.  204; 
Selden  7'.  Equitable  Trust  Co.,  94  U. 
S.   419,   24   L.    Ed.   249. 

A  corporation  whose  business  is 
confined  to  the  investment  of  its  capi- 
tal   in    bonds    secured    l)y    mortgage    on 

33.  Exercise  of  any  banking  func- 
tion.— Any  person  engaged  in  the  I)usi- 
ness  carried  on  by  l^anks  of  deposit 
or  of  discount  or  of  circulation  is  do- 
ing a  lianking  l)usiness,  although  but 
one  of  these  functions  is  exercised. 
MacLaren  7'.  State,  141  Wis.  577,  124 
N.  W.  667;  Peojik-  r.  B.artow  ( N.  Y.), 
()    Cow.   2i»0. 

Making  loans  on  collateral. — 'I'he 
"banking  l)usiness,"  as  defined  by  laws 
and  customs,  consists,  among  otlier 
things,    in    making   loans    of   monej'    <u\ 


12 


BANKS    AND    BANKING. 


§2 


The  business  of  a  stock  broker  is  ordinarily  distinct  from  the  business 
of  a  banker,  or  according  to  the  common  understanding  a  stock  broker  is 


real  estate,  and  to  the  negotiation, 
sale,  and  guaranty  of  them,  is  not  a 
bank  or  a  banker  within  the  meaning 
of  §  3407  of  the  Revised  Statutes. 
Selden  v.  Equitable  Trust  Co.,  94  U. 
S.  419,  24  L.  Ed.  249;  Kiggins  v.  Mun- 
day,  19  Wash.  233,  52  Pac.  855;  Ore- 
gon, etc..  Invest.  Co.  v.  Rathburn,  Fed. 
Cas.    No.    10,555,    5    Sawy.    33. 

It  is  the  business  of  advancing  or 
lending  in  the  mode  usual  M^ith  bank- 
ers— that  is,  on  collaterals  or  on  the 
pledge  of  personal  property — that,  by 
the  statute,  is  defined  to  be  banking, 
within  the  intention  of  congress,  and 
lending  upon  mortgages  of  real  estate 
is  not  intended.  Selden  v.  Equitable 
Trust  Co.,  94  U.   S.   419,   24   L.   Ed.  249. 

A  firm  which  keeps  a  deposit  ac- 
count with  a  bank  in  a  foreign  city, 
and  draws  checks  thereon  when  neces- 
sary, but  is  not  in  any  way  held  out 
to  the  public  as  a  banking  institution, 
and  does  not  loan  money  except  on 
landed  security,  discount  commercial 
paper,  or  buy  or  sell  drafts  in  tlie 
course  of  business,  is  not  engaged  in 
the  banking  business.  Clark  t'.  Wal- 
lick,   56   111.   App.   30. 

collateral  security.  Earle  v.  Ameri- 
can Sugar  Refin.  Co.,  74  N.  J.  Eq.  (4 
Buck.)    751,    71    Atl.    391. 

Dealing  in  money,  securities  and 
stocks. — A  bank  is  an  institution 
whose  object  is  to  make  gain  by  deal- 
ing in  money.  It  trades  in  notes, 
bonds,  bills  and  other  securities  for 
money,  and  unless  restrained  by 
charter  it  deals  in  stocks  of  other 
companies  of  whatever  description. 
Goddin  V.  Crump,  35  Va.  (8  Leigh) 
120. 

Dealing  in  bills  of  exchange  for 
profit. — Ohio  Life  Ins.,  etc.,  Co.  t". 
Merchants'  Ins.,  etc.,  Co.,  30  Tenn. 
(11    Humph.)    1,    53    Am.    Dec.    742. 

The  issue  of  paper  designed  to  cir- 
culate in  the  form  and  similitude  of 
bank  notes  is  an  act  of  banking.  Peo- 
ple V.  River  Raisin,  etc.,  R.  Co.,  12 
Mich.   389.    86   Am.   Dec.   64. 

Issue  of  bonds  transferable  by  de- 
livery not  banking. — Bonds  of  a  rail- 
road corporation,  payable  at  a  certain 
day  after  date,  are  not  in  violation  of 
the  act  to  restrain  unauthorized  bank- 
ing, although  they  be  transferable  by 
delivery.  They  can  not  be  considered 
to  circulate  as  money,  since  obliga- 
tions so  circulating  are  payable  on 
demand.      Hubbard   :•.   New   York,   etc.. 


R.    Co.,    14    Abb.    Prac.    275,    36    Barb. 
286. 

A  merchants'  exchange  company,  in 
order  to  make  loans  for  the  comple- 
tion of  their  building,  issued  several 
hundred  bonds,  some  for  £200  ster- 
ling, and  the  residue  for  $1,000  each, 
under  the  seal  of  the  corporation,  and 
payable  to  the  obligee  or  his  assigns 
in  ten  years  after  date,  with  interest 
half-yearly,  coupons  for  which,  pay- 
able to  bearer,  were  annexed  to  each 
bond;  and  mortgages  on  the  real  es- 
tate were  given  to  a  trustee  to  secure 
the  payment  of  the  bonds,  which  were 
described  in  the  mortgages.  Held, 
that  these  bonds  were  not  within  the 
prohibition  of  the  statute  relative  to 
"unauthorized  banking."  Barry  v^ 
Merchants'  Exch.  Co.  (N.  Y.),  1 
Sandf.    Ch.   280. 

"In  the  case  of  the  Attorney  •  Gen- 
eral V.  Life,  etc.,  Ins.  Co.  (X.  Y.),  9 
Paige  470,  the  notes  adjudged  to  fall 
within  the  restraining  laws  were 
promissory  notes,  payable  to  a  clerk 
of  the  corporation  and  by  him  en- 
dorsed in  blank,  and  were  engraved 
with  vignettes  and  other  devices  of 
l->ank  notes.  .A.nd  see  on  this  subject, 
SafTord  V.  Wyckoff  (N.  Y.).  4  Hill  442. 
The  bonds  in  question  clearly  are  not 
within  the  provisions  of  the  statute 
against  unauthorized  banking."  Barry 
z\  ^lerchants'  Exch.  Co.  (X.  Y.),  1 
Sandf.   Ch.   2S0. 

Discounting. — The  charter  of  a  cor- 
poration established  for  the  purpose  of 
loaning  money  provided  that  "nothina 
therein  contained  should  be  construed 
to  authorize  the  company  to  discount 
notes,  or  exercise  any  banking  privi- 
leges whatever."  Held,  that  the  tak- 
ing of  a  note  for  the  sum  loaned,  and 
the  receiving  the  interest  on  that  sum 
in  advance,  for  the  period  of  the  loan, 
was  thereby  prohibited,  and  that  there 
could  be  no  recovery  on  a  note  thus 
discounted.  Philadelphia  Loan  Co.  v. 
Towner,   13    Conn.   249. 

.\  statu^^e  giving  an  insurance  com- 
pany power  to  loan  its  money  and  im- 
prove its  profits  in  the  purchase  of 
mortgages  and  stocks  is  not  in  viola- 
tion of  the  provisions  of  the  constitu- 
tion relating  to  discounting  privileges. 
Lycomins'  Fire  Ins.  Co.  v.  Newcomb, 
1    Lee.    Chron.   9,   4   Leg.    Gaz.    409. 

Literary,  scientific  and  charitable 
corporations. — The  provisions  of  the 
act  relating  to  illegal  banking  (Rev. 
Code    1855,    p.    286)    do    not     apply      to- 


§3 


CONTROL   AND   REGULATION    IN    GENERAL. 


13 


not  a  banker.  A  stock  broker  may  do  some  of  the  kinds  of  business  that 
are  usually  done  by  bankers,  and  many  hanks  and  bankers  do  business 
which,  as  a  general  rule,  is  only  done  by  stock  brokers.-*-* 

And  a  bank  is  a  person  under  the  usury  laws.^^ 

Insurance  Company. — An  insurance  corporation  differs  radically  from 
a  banking  corporation,  and  the  powers  given  to  one  can  not  be  exer- 
cised by  the  other  without  some  authority  granted  by  the  state  through  its 
legislature.  The  power  to  receive  in  trust  for  any  person  moneys  or  other 
valuable  thing,  and  of  giving  its  acknowledgment  therefor,  and  to  loan  its 
surplus  funds  as  provided  in  its  original  charter,  in  no  sense  authorizes  an 
insurance  company  to  conduct  a  general  banking  business. s" 

Express  Company. — It  has  been  held  that  an  express  company  is  not  a 
banking  corporation,  although  authorized  to  draw  and  deal  in  bills  of  ex- 
change."' 

State  and  National  Bank  Distinguished. — In  every  respect,  except  the 
issuing  of  bills  to  circulate  as  money,  state  banks  carry  on  a  similar  busi- 
ness, and  operations  and  investments  of  a  like  character  as  national  banks.^^^ 

§  3.  Power  to  Control  and  Regulate.— In  General.— The  police 
power  of  a  state  extends  to  the  regulation  of  the  banking  business,  and  even 


literary,  scientific,  and  charitable  cor- 
porations. The  evil  the  act  designed 
to  prevent  was  the  introduction  into 
this  state,  by  moneyed  corporations, 
or  corporations  engaged  in  business 
of  profit,  of  the  circulation  of  foreign 
and  worthless  bank  notes,  to  the  in- 
jury of  the  people  of  the  state.  Chris- 
tian  University  7'.   Jordan,   3?)    Mo.   528. 

Statute  against  keeping  office  of  de- 
posit does  not  preclude  individual 
loans. — Act  April  21,  1818,  imposing 
a  penalty  of  $1,000  upon  any  person 
or  association  carrying  on  a  banking 
business  unless  specially  authorized, 
does  not  preclude  individuals  and  cor- 
porations from  lending  their  money  on 
promissory  notes  by  way  of  discount 
or  otherwise.  People  v.  Brewster  (N. 
Y.),    4    Wend.    498. 

Banking  partnerships  and  joint-stock 
companies. — Sec  post,  "Partncrsliips 
anrl    Joint-Stock    Comijanies,"    §    24. 

34.  Distinguished  from  stock  brok- 
ing.—Richmond  V.  Blake,  132  U.  S. 
r>'r.i.  33  L.   Hd.  481,  10  S.  Ct.  204. 

35.  A  person. — The  word  "person," 
as  used  in  the  statute  against  usury, 
embraces  banks.  Stribbling  v.  Bank, 
20  Va.  (.5  Rand.)  132,  followed  and 
approved  in  liank  z'.  Merchants'  Bank, 
40  Va.  (1  Rob.)  .'573,  .lOO;  Crafi'ord  z: 
Warwick,  87  Va.  110,  12  S.  E.  147,  10 
L.  R.  A.  129;  Crump  7'.  Nicholas,  32 
Va.    (5    Leigh)     2.51.       See     post,     "In- 


terest   or      Rate       of      Discount,      and 
Usury,"   §    181. 

36.  Insurance  company  distin- 
guished.— Alempliis  City  Bank  v.  Ten- 
nessee, 161  U.  S.  186,  40  L.  Ed.  664, 
16  S.  Ct.  468;  Memphis  v.  Memphis 
City  Bank,  91  Tenn.  574,  19  S.  W.  1045. 
See,  also,  Ohio  Life  Ins.,  etc.,  Co.  z\ 
Merchants'  Ins.,  etc.,  Co.,  30  Tenn. 
(11   Humph.)   1,  53  Am.  Dec.  742. 

The  investment  of  the  profits  of  in- 
surance companies  m  loans  secured  by 
mortgage  can  not  l)e  considered  as 
banking  business.  Life  Ass'n  e'.  Levy, 
33    La.   Ann.   120,3. 

37.  Express  company. — A  corpora- 
tion, created  under  a  special  act  of 
Colorado,  whereby  it  is  authorized  to 
engage  in  the  express  business,  and 
to  draw  drafts  and  bills  of  exchange, 
or  sell  and  buy  the  same,  in  the  course 
of  such  business,  is  not  prohiliited 
(Rev.  St.  U.  S.,  §§  1889,  1924)  from 
carrying  on  such  business  in  Wash- 
ington Territory,  on  the  ground  that 
it  is  a  l)anking  corporation,  or  that  it 
was  not  organized  under  a  general  in- 
corporation law.  Wells,  etc.,  Co.  7'. 
Northern  Pac.  R.  Co.,  23  Fed.  469,  10 
Sawy.    441. 

38.  Cleveland  Trust  Co.  7'.  Lander, 
02  O.  St.  266,  56  N.  E.  1036,  affirming 
19  O.  C.  C.  271.  10  O.  C.  D.  452.  As 
to  national  l)anks,  see  post,  "Nature 
;in(l    Status,"   §   232. 


14 


BANKS    AND    BANKING. 


§3 


to  its  prohibition  except  on  such  conditions  as  the  state  may  prescribe;-*'* 
and  is  sometimes  substantially  reserved  in  constitution  or  charter.-"'  From 
this  a  bank  can  not  claim  exemption  under  its  charter.^  ^  Although  the  au- 
thorities agree  that  banking  may  not  be  absolutely  prohibited,  were  such  leg- 
islation conceivable.-'-  As  to  whether  a  legislature  may  constitutionally 
make  the  right  of  banking  a  franchise,  and  limit  it  to  certain  classes  only, 
such  as  corporations,  there  is  a  conflict  of  authority,  but  by  the  weight  of 
authority  it  may  be  done.  The  supreme  court  of  the  United  States  has  so 
declared.^^ 


39.    Power   to    control   and   regulate. 

—Noble  State  Bank  v.  Haskell.  219  U. 
S.  104,  55  L.  Ed.  112,  31  S.  Ct.  186,  af- 
firming decree  in  22  Okl.  48,  97  Pac. 
590;  Shallenberger  z\  First  Nat.  Bank, 
219  U.  S:  114,  55  L.  Ed.  117,  31  S.  Ct. 
189,  reversing  decree  in  First  State 
Bank  v.  Shallenberger,  172  Fed.  999: 
State  V.  Richcreek,  167  Ind.  217,  77  N. 
E.  1085,  119  Am.  St.  Rep.  491,  5  L.  R. 
A.,  N.  S.,  874;  Marvmont  v.  Nevada 
vState,  etc..  Board,  33  Nev.  333,  111 
Pac.  295;  Lee  v.  O'Malley,  126  N.  Y.  S. 
775,  69  Misc.  Rep.  215,  order  reversed 
in  140  App.  Div.  595,  125  N.  Y.  S.  772; 
Goodsill  V.  Woodmanse,  1  N.  Dak.  246, 
46   N.  W.  970,   11   L.   R.  A.  420. 

The  business  of  banking  is,  by  rea- 
son of  the  nature  of  the  business  and 
the  relation  which  it  bears  to  the 
fiscal  affairs  of  the  people  and  the 
revenues  of  the  state,  within  the  police 
power  of  the  state,  and  subject  to  leg- 
islative control.  State  v.  Richcreek, 
167  Ind.  217,  77  N.  E.  1085,  5  L.  R.  A., 
N.  S..  874,  119  Am.  St.  Rep.  491. 

As  to  right  of  banking  in  general, 
see  ante,  "Right  of  Banking  in  Gen- 
eral."  §   1. 

Banking  business  conducted  by  de- 
partment store. — The  legislature  may 
define  as  banking  a  business  con- 
ducted by  a  department  store  in  which 
it  received  deposits,  issued  passbooks, 
and  paid  the  principal,  with  interest  on 
demand,  in  money  or  goods,  these 
things  clearly  constituting  a  perform- 
ance of  some  of  the  functions  of  a 
bank,  and  subject  it  to  regulations 
provided  for  the  banking  business 
proper.  MacLaren  v.  State,  141  Wis. 
577.    124    N.   W.   667. 

Penalizing  conduct  of  business  by 
an  insolvent  bank. — The  legislature  as 
an  exercise  of  police  power  can  im- 
pose a  penalty  for  the  conduct  of  busi- 
ness by  an  insolvent  bank.  Ex  parte 
Pittman.    31    Nev.    43,    99    Pac.    700. 

Enforcement  of  regulation  against 
panics. — "A  periodical  madness  seems 
to  pervade   every   section   of  the   coun- 


try in  the  business  of  banking,  leading, 
necessarily,  to  over  issues  and  conse- 
quent depreciation.  It  is  the  duty  of 
ihe  government  to  guard  against  this 
mischief;  and  the  regulations  pro- 
vided by  law  for  this  purpose,  instead 
of  being  relaxed,  should  be  rigidly 
enforced  by  the  courts.''  Hightower 
V.  Thornton,  8  Ga.  486,  52  Am.  Dec. 
412. 

Constitutional  provision  as  to  banks 
of  circulation  not  exclusive. — Const., 
art.  13,  authorizing  the  organization 
and  control  of  banks  of  circulation, 
does  not  prevent  the  enactment  of 
laws  (Laws  1891,  c.  43),  imposing  rea- 
sonable regulations  on  banks  of  de- 
posit and  discount.  Blaker  v.  Hood, 
53  Kan.  499,  36  Pac.  1115,  24  L.  R.  A. 
854. 

40.  Substantial  reservation. — State 
2'.    Hastings,    12    Wis.    47. 

New  York  Savings  Bank. — Under 
the  laws  applicable  to  the  Bank  for 
Savings  in  the  City  of  New  York,  and 
its  charter,  granted  in  1819,  it  was 
held,  in  1865,  that  the  bank  commis- 
sioners had  the  power  to  visit  and  in- 
spect the  bank  under  existing  laws 
whenever  they  deemed  it  necessary, 
or  whenever  thereto  required  by  the 
comptroller  of  the  state,  and  they 
were  required  to  report  the  general 
condition  of  the  bank  to  the  legisla- 
ture once  at  least  in  every  three  years. 
Bank  t-.  Collector,  3  Wall.  495,  510,  18 
L.    Ed.    207. 

41.  Not  exempted  by  charter. — 
Cummings  z\  Spaunhorst,  5  Mo. 
App.    21." 

42.  Regulation,  not  prohibition,  al- 
lowed.— The  l)anking  business  can  be 
regulated,  but  not  prohibited,  and  it 
is  not  only  the  legislature's  power,  but 
its  duty,  to  regulate  the  business  so  as 
to  reduce  failures  to  a  minimum.  Ex 
parte  Pittman,  31  Nev.  43.  99  Pac.  700. 
See  ante.  "Right  of  Banking  in  Gen- 
eral,"   §    1,    for    full   treatment. 

43.  Right  of  legislature  to  prohibit 
any  but  certain  classes  from  engaging 


§4 


COXTROL   AXD   REGULATIOX    IX    GEXERAL. 


15 


Requiring"  Reserve. — Legislation  in  effect  requiring  the  maintenance  of 
a  reserve  is  valid. ^"^ 

Requirement  of  Residency. — A  requirement  that  an  individual  or  a 
member  of  a  banking  firm  must  be  a  resident  of  the  state  is  valid.^-"* 

Restriction  on  Investment  in  Real  Estate  and  Fixtures. — A  restric- 
tion of  the  amount  that  can  be  legally  investetl  in  real  estate,  bank  furniture 
and  fixtures,  to  a  certain  proportion  of  the  capital,  is  constitutional,  and  does 
not  take  property  without  just  compensation.-*'^ 

§  4.  Constitutional  and  Statutory  Provisions.^" — It  has  been  found 
convenient  to  treat  of  the  specific  constitutional  and  statutory  provisions 
where  the  branches  of  the  subject  to  wdiich  they  severally  relate  are  treated 
of.     Only  some  general  considerations  will  be  found  here. 

Submission  of  General  Banking  Law  to  People— Amendment. — 
Where  a  banking  law  has  been  adopted  in  accordance  with  the  constitu- 
tional provision  taking  from  the  legislature  the  power  to  create  banks,  but 
permitting  it  to  submit  the  cjuestion  to  the  people,  and,  if  they  shall  vote  for 
banks,  to  stibmit  to  them  a  general  banking  law  for  their  adoption  or  re- 
jection, such  law  can  not  be  materially  amended  by  a  statute  not  submitted 
to  the  people.^** 


in  banking. — See  ante,  "Right  of  Bank- 
ing in  General,"  §  1,  where  this  ques- 
tion is   treated   fully. 

44.  Acts  190.5,  p.  183,  c.  109,  §  3, 
subd.  5,  requiring  a  banker  to  make 
oath  that  the  net  worth  of  individual 
members  of  the  firm,  partnership,  or 
individual,  engaged  in  the  banking 
business  is  equal  to  an  amount  at 
least  double  the  amount  of  capital 
paid  into  the  bank,  is  valid,  it  not  pro- 
hibiting a  banker  from  using  all  of  his 
capital  in  his  business,  but  merely  for- 
bidding him  from  treating  his  entire 
holcHngs  as  capital  and  in  effect  re- 
quiring him  to  maintain  a  reserve. 
State  f.  Richcreek.  167  Tnd.  217,  77  N. 
E.  1085,  119  .\m.  St.  Rep.  491,  5  L. 
R.  A..  X.  S.,  874.  See  post,  "Re- 
serves," §   14. 

45.  Requirement  of  residency.—^ 
State  V.  Richcreek,  ICT  Tnd.  217,  77 
X.  E.  108.5.  119  Am.  St.  Rep.  491,  5  L. 
R.  A..  \.  S.,  874. 

46.  Restriction  on  investment  in 
real  estate  and  fixtures. — Slate  v. 
Richcreek,  107  Tnd.  217,  77  X.  E.  1085, 
5  L.  R.  A.,  X.  S..  874.  119  Am.  St.  Rep. 
491,  cited  approvingly  in  Xoble  State 
Bank  v.  TTaskell.  22  Okl.  48,  97  Pac. 
590.  that  case  affirmed  in  219  X.  S. 
104.    55    L.    Ed.    112,    31    S.    Ct.    180. 

47.  As  to  unauthorized  banking. — 
Scf    iK)St.    "In    r.cncr.-il."    S    s. 

Usury  laws. — See  post.  "Interest  and 
Rate    of    Discount,    and    Usury."   §    isi. 


Statutes  regulating  right  of  bank- 
ing.— See  ante.  "Right  of  Banking  in 
General,"  §  1;  "Power  to  Control  and 
Regulate,"   §   3. 

Constitutional  restrictions  on  power 
of  legislature  to  incorporate. — See 
post,    "Incorporation,"    §    23. 

Tax  and  license  laws. — See  post, 
"License    Fees    and   Taxes,"   §    12. 

Provisions  for  stockholders'  in- 
dividual liability. — See  post,  "In  Gen- 
eral,"   i^    47    (1  ). 

Bank  depositors'  guaranty  act. — 
See  post,  "Safety  Funds  and  Deposits 
of  Securities,"  §  15. 

48.  Porter  v.  State,  46  Wis.  375.  1 
X.  W.  78.  See,  also.  Rusk  v.  Van  Xor- 
strand,  21  Wis.  159,  where  this  prin- 
ciple was  applied  to  a  law  which  pro- 
vides that  a  bank  comptroller  may, 
in  his  discretion,  permit  the  original 
stockholders'  bond  to  be  withdrawn, 
and  a  new  bond  substituted  in  its 
stead,  which  was  held  invalid,  because 
it  affected  materially  the  principle  of 
the  l)anking  law,  and  might  thus  work 
an   ininry    t<i   \\\v   liill   liolders. 

General  banking  laws. — Minnesota 
Laws  1895,  c.  145  (an  act  entitled  ".\n 
act  to  revise  the  laws  relating  to 
l)anks  of  discount  and  deposit"),  is 
not  invalid  as  not  complying  with 
const.,  art.  o,  §  13,  as  to  the  issuance 
or  regulation  of  circulating  notes,  or 
as  impairini^-  tlic  obligation  of  the  con- 
tract    brtweeii     banks     tlieretoforc     e.\- 


16 


BANKS    AND    BANKING. 


§5 


Scope  of  Statutes.— Legislation  applicable  in  terms  to  banks  has  been 
held  to  apply  only  to  banks  of  issue,^^  and  a  requirement  of  payment  of  a 
certain  proportion  of  the  capital  stock  has  been  held  inapplicable  to  existing 
banks. ^*'  An  act  to  restrain  unincorporated  banking  associations  has  been 
held  inapplicable  to  individuals.^^  And  "institution"  has  been  held  to  in- 
clude a  private  banker  in  law  relating  to  bank  inspection. ^^ 

§  5.  Charter  Provisions.— Charter  provisions,  and  their  construction 
and  operation,  will  be  treated  under  the  sections  where  the  subject  matter 
of  such  provisions  is  considered. ^-^ 


isting  and  the  state,  or  upon  the 
ground,  if  it  be  applicable  to  such 
banks,  that  it  impairs  the  contract 
obligations  between  its  stockholders 
and  creditors  whose  claims  arose  prior 
to  the  day  such  law  took  effect,  or 
upon  the  ground  that  due  process  of 
law  was  not  provided  for  in  insol- 
vency proceedings  against  banking  cor- 
porations, or  upon  the  ground  that  the 
act  itself  is  in  violation  of  art.  4,  §  33, 
of  the  constitution.  Anderson  t'.  Sey- 
mour,   70    Minn.    358,    73    N.    W.    171. 

As  to  general  banking  laws  and 
their  repeal,  see  the  following  cases: 
Wilson  V.  Tesson,  12  Ind.  285;  Cas- 
cade Bank  v.  Yoder,  39  Mont.  202,  103 
Pac.  499;  Smock  v.  Farmers'  Union 
State  Bank,  22  Okl.  825,  98  Pac.  945. 

But  Wisconsin  Laws  1S91,  c.  263, 
§  6,  as  amended  by  Laws  1895,  c.  160, 
authorizing  the  formation  of  corpora- 
tions to  engage  in  the  usual  l)usiness 
of  trustees,  and  providing  that  noth- 
ing therein  shall  be  construed  to  give 
the  right  to  issue  bills  to  circulate  as 
money,  or  deal  in  bank  exchange,  or 
to  do  a  banking  business,  confers  no 
banking  powers,  and  is  not  void  be- 
cause not  submitted  to  vote  of  the 
people  as  required  by  Const.,  art.  11, 
§  5.  Roane  Iron  Co.  r.  Wisconsin 
Trust  Co.,  99  Wis.  273,  74  N.  W.  818. 
And  Rev.  St.,  Wis..  §  3245,  direct- 
ing a  preference  to  the  United  States, 
the  state,  and  any  county,  city,  town, 
or  village  therein,  out  of  the  assets 
of  an  insolvent  corporation  in  process 
of  being  closed  up  under  the  statutes, 
is  applicable  to  banking  corporations, 
and  is  not  in  contravention  of  this 
constitutional  provision.  Northwest- 
ern Nat.  Bank  r.  Superior,  103  Wis. 
43,   79   N.  W.   54. 

Sulimission  of  incorporating  statute 
to  popular  vote,  see  post,  "Incorpora- 
tion,"  §   23. 

49.  Act  April  16,  1850,  entitled  an 
"Act  regulating  l)anks,"  does  not  ap- 
ply  to   savings   and   deposit   banks,   but 


only  to  banks  of  issue.  Merchants' 
Bank  r.  Shouse,  102  Pa.  488;  Dreisbach 
V.  Price,  133  Pa.  560,  19  Atl.  569;  In 
re  Lebanon  Trust,  etc.,  Estate,  3  Pa. 
Dist.  R.  286.  See,  also,  ante,  "What 
Are    Banks,"    §    2. 

50.  Laws  1891,  c.  43,  providing  for 
the  organization  and  regulation  of  all 
banks  thereafter  to  be  created,  and 
for  the  regulation  of  all  banks  which 
continue  to  do  business  for  a  longer 
time  than  six  months  thereafter,  and 
declaring  that  a  bank  thereafter  cre- 
ated shall  have  50  per  cent  of  its 
capital  stock  paid  in  before  it  shall  be 
entitled  to  do  business,  does  not  pro- 
hibit a  banking  corporation  in  exist- 
ence at  its  passage  from  continuing  in 
business  with  only  20  per  cent  of  its 
capital  stock  paid  in.  Putnam  z'. 
Hutchison,  4  Kan.  App.  273,  45  Pac. 
931. 

51.  Bristol  z:  Barker  (N.  Y.),  14 
Johns.  205.  See,  also,  post,  "Increase 
of  Capital  Stock,"  §  37;  "Subscription 
to   and    Issue   of   Stock,"   §   39. 

52.  Laws  1903,  p.  81,  c.  79,  §  2,  re- 
lating to  bank  inspection,  provides 
that  where  reference  is  made  to  banks, 
bankers,  or  banking  in  the  act,  the 
same  shall  be  construed  as  applying 
to  any  corporation,  association,  firm, 
or  individual  engaged  in  such  business; 
and  §  26  (page  88)  declares  that  every 
officer,  agent,  or  clerk  of  any  banking 
institution  within  the  title,  who  sub- 
scribes or  makes  any  false  statement, 
or  enters  or  subscribes  or  exhibits  any 
false  paper,  etc.,  shall  be  subject  to 
imprisonment,  etc.  Held,  that  the 
term  "institution"  as  so  used,  included 
a  private  banker,  and  hence  the  sec- 
tion was  not  unconstitutional,  as  con- 
ferring a  special  privilege  on  private 
liankers.  State  z:  Struble,  19  S.  Dak. 
646.    104    N.    W.    465. 

As  to  bank  examiners,  see  post, 
§    17    (1)    to    17    (5). 

53.  Charter  provisions. — As  to  con- 
struction of  charters  as  granting  bank- 


§8 


CONTROL  AND   REGUIvATlON   IN    GENERAL. 


17 


§  6.  Authority  or  License  to  Do  Business. ^^ — Prescriptive  Right. 
— It  has  been  held  that  a  corporation  might  obtain  the  right  to  exercise  bank- 
ing franchises  by  prescription. '5"' 

Necessity  for  License  or  Grant  from  State. — The  occupation  ot 
banking  can  be,  and  usually  is.  forbidden  except  upon  license  issued.^^ 

Before  Issuance  of  Certificate. — A  bank  which  has  not  received  a  cer- 
tificate from  the  bank  commissioner  authorizing  it  to  transact  business  may 
negotiate  notes,  so  as  to  bind  itself,  and  pass  a  valid  title  thereto. ^"^ 


§  7.  Unauthorized  Banking — §  8. 


In  General. — Where  an  as- 


sociation or  corporation,  not  endowed  with  the  power  to  receive  deposits 
and  contract  to  pay  interest  thereon,  does  so,  its  acts  are  ultra  vires. ^^ 
Where  a  corporation  which  is  prohibited  by  its  charter  from  engaging  in 
the  business  of  banking,  dealt  in  bills  of  exchange  for  profit  as  a  business 
or  pursuit,  it  engaged  in  the  business  of  banking  and  its  acts  were  ultra 


Power  of  Legislature  to  Restrain  from  Banking.— Under  a  clause, 
in  an  act  of  incorporation,  providing  that  the  action  of  the  corporation  shall 
be  "subject  to  such  rules  and  regulations  as  the  legislature,  from  time  to 
time,  may  think  proper  to  make,"  the  general  assembly  may  restrict  such 


ing  powers  or  not,  see  post,  "Construc- 
tion of  Charters  and  Banking  Laws," 
§   87. 

As  to  suspension  of  specie  pay- 
ments, "Constitutional  and  Statutory 
Provisions,"  §  63. 

54.  Authority  or  license  to  do  busi- 
ness.— See  the  following  sections 
treating   of   unauthorized   banking. 

License  -fees  and  taxes,  see  post, 
"License   Fees  and   Taxes,"   §   12. 

55.  Prescriptive  right. — It  seems 
that  a  corporation  may  obtain  the 
right  to  exercise  banking  franchises 
by  prescription,  the  term  of  prescrip- 
tion being  twenty  years.  See  State  z'. 
Miami  Exporting  Co.,  11  O.  12G; 
Miami  Exporting  Co.  v.  Clark,  13  O. 
1;    Morris  v.   Way,   Ifi   O.    409. 

56.  Banking  charter — Domestic — 
Necessity  for. — The  occupation  of 
banking  is  forl)idden,  except  upon  li- 
cense issued.  National  Bank  v.  Chat- 
tanooga,   55    Tenn.     (8      Heisk.)       814. 

Under  the  Act  of  1827,  no  person 
has  the  right,  unless,  indeed,  he  have 
a  grant  from  .the  state,  to  establish 
any  banking  institution,  or  to  issue  any 
notes,  Ijills,  or  other  paper  for  such 
purpose.  Ohio  Life  Ins.,  etc.,  Co.  v. 
Merchants'  Ins.,  etc.,  Co.,  30  Tenn. 
Cll    TTnniph.)    1,   53   Am.    Dec.    742. 

''"'  it  lias  never  been  considered 
tliat    tlu-    laws   containing    these    excln- 

B  &  B— 2 


sive  privileges  of  banking,  are  repug- 
nant to  the  constitution  as  not  being 
"laws  of  the  land,"  of  general  applica- 
tion. Hazen  v.  Union  Bank,  33  Tenn. 
(1  Sneed)  115.  See  ante,  "Right  of 
Banking  in  General,"  §  1. 

Common-law^  right  of  banking  re- 
stored by  Tenn.  Act  of  1859-60,  Ch. 
129,  in  form  of  a  licensed  privilege. — 
State  V.  Lookout  Bank,  89  Tenn.  (5 
Pickle)  278,  14  S.  W.  801;  Ohio  Life 
Ins.,  etc.,  Co.  V.  Merchants'  Ins.,  etc., 
Co.,  30  Tenn.  (11  Humph.)  1,  53  Am. 
Dec.  742;  Hazen  v.  Union  Bank,  33 
Tenn.  (1  Sneed)  115. 

57.  Before  issuance  of  certificate. — 
Kellogg  V.  Douglas  County  Bank.  58 
Kan.  43,  48  Pac.  587,  62  Am.  St.  Rep. 
596. 

As  to  constitutional  and  statutory 
provisions,  see  ante,  "Constitutional 
and  Statutory  Provisions,"  §  4. 

As  to  incorporation  and  necessity 
therefor,  see  post,  "Incorporation,"  § 
23,  and  its  su1)divisions. 

58.  Unauthorized  banking. — Stefan 
?'.  Brennan,  92  111.  Apji.  291;  Chapman 
7'.    Lynch,   156   N.   Y.   551,   51    N.    E.  275. 

59.  Ohio  Life  Ins.,  etc.,  Co.  v.  Mer- 
chants' Ins.,  etc.,  Co.,  30  Tenn.  (11 
Humph.)   1,  53  Am.   Dec.  742. 

As  to  constitutional  and  statutory 
provisions  generally,  see  ante,  "Con- 
stitutional and  Statutory  Provisions," 
§  4. 


18 


BANKS    AND    BANKING. 


§  8 


company  from  exercising  the  franchise  of  banking.*'" 

Statutory  Provisions  and  the  Repeal  Thereof. — The  prohibition  of 
a  particular  kind  of  banking,  such  as  the  receipt  on  deposit  of  the  money  or 
bank  paper  of  others,  does  not  prohibit  unauthorized  banking  as  such.*^! 
Statutes  against  unauthorized  banking  are  not  imphedly  repealed  by  other 
statutes  in  pari  materia  where  not  necessarily  inconsistent.*''- 

Acts  must  be  done  in  banking  business  to  fall  under  prohibitive  stat- 
ute.63 

Transaction  of  Business  by  Incomplete  Organization. — The  trans- 
action of  business  by  an  incompletely  organized  banking  association  is  an 
evasion  of  the  statute  against  unauthorized  banking.*^^ 

Foreign  Corporations — Effect  of  Restraining  Acts. — Incorporation 
under  the  laws  of  another  state  will  not  relieve  a  bank  from  the  operation 
of  the  laws  of  a  state  wdiere  it  operates  relating  to  unauthorized  banking.^'^ 

Necessity  for  Ouster. — But  to  prevent  a  bank  from  continuing  illegally 


60.  Restraining  power  of  legislature. 

— State    z\    Granville    Alexandrian    Soc, 
11  O.  1. 

61.  The  Ohio  act  to  prohibit  unau- 
thorized banking  by  corporations, 
passed  March  12,  184.5,  and  providing, 
"That  no  body  politic  or  corporate 
shall  establish  a  bank,  or  engage  in 
the  business  of  banking,  to  receive  on 
deposit,  keep  and  circulate  the  money 
or  bank  paper  of  others,  without  ex- 
press authority  of  a  law  of  this  state,'' 
does  not  prohibit  unauthorized  bank- 
ing as  such,  but  merely  a  particular 
kind  of  banking,  to  wit,  the  receipt  on 
deposit  of  the  money  or  bank  paper  of 
others  and  the  doing  of  a  banking  busi- 
ness thereon.  Huber  v.  United  Prot- 
estant, etc.,  Congregation,  16  O.  St. 
371.  See  also,  Pickaway  County  Bank 
V.  Prather,  12  O.  St.  497.  See,  also. 
Medill  v.  Collier,  16  O.  St.  599;  United 
Protestant,  etc..  Congregation  z'.  Steg- 
ner,  21  O.  St.  488,  consfruing  this  act, 
and  State  x'.  Urbana,  etc..  Ins.  Co., 
14  O.  6. 

62.  Repeal  by  implication. — Wilson 
r.  Spencer,  22  Va.  (1  Rand.)  76.  10  Am. 
Dec.  491;  Bank  z-.  Stegall,  41  Miss  142; 
Mills  V.  State,  23  Tex.  295. 

63.  The  prohibition  in  the  Tennes- 
see Act  of  1827  goes  to  the  business 
and  occupation  of  banking,  and  not  to 
any  one  or  more  of  the  acts  in  detail, 
which  are  banking  functions,  and 
therefore,  any  person  may,  without  be- 
coming a  banker,  borrow  or  loan 
money,  and  be  a  depository  of  money, 
buy  or  sell  exchange,  and  be  the  drawer 
or  holder  of  any  kind  of  commercial 
paper,  as  notes,  bills,  and  drafts,  pro- 
vided,   that   it  be    not  in    the    business 


and  pursuit  of  banking.  The  same  may 
be  said  of  a  corporation.  Ohio  Life 
fns.,  etc.,  Co.  v.  Merchants'  Ins.,  etc., 
Co.,  30  Tenn.  (11  Humph.)  1,  53  Am. 
Dec.   742. 

64.  Incomplete  organization. — 
Where  "seven  (or  more)  citizens  of 
this  state''  associated  to  establish  an 
otlice  of  discount,  deposit,  and  circula- 
tion, under  the  act  to  authorize  the 
business  of  banking,  approved  Febru- 
ary 27,  1850,  and  executed,  acknowl- 
edged, and  recorded,  in  the  offices  of 
the  secretary  of  state  and  the  clerk  of 
the  county  where  said  office  was  pro- 
posed to  Ije  located,  the  certificate  re- 
(juired  by  the  sixteenth  section  of  the 
act,  which  certificate  also  stated  that 
the  associates  had  elected  one  of  their 
number  to  be  president  of  the  associa- 
tion, and  the  association  went  into  op- 
eration without  further  organization, 
except  the  election  of  a  cashier,  the 
transaction  of  banking  business  by 
said  association,  or  by  the  president 
alone  whom  they  had  selected,  was  an 
evasion  of  the  statute.  Kinsela  z'.  Cat- 
aract City  Bank,  18  N.  J.  Eq.  158. 

65.  Foreign  corporation — Effect  of 
restraining  acts. — Mj-ers  ?•.  Manhattan 
Bank,  20   O.  283. 

But  these  acts  were  not  intended  to 
exclude  foreign  capital  or  to  prevent 
the  exercise  of  all  banking  functions 
by  foreign  banks  in  Ohio,  but  only 
such  functions  as  the  legislature  deemed 
advisable  to  confine  to  banks  mcorpo- 
rated  under  the  laws  of  Ohio.  Pick- 
away County  Bank  ?•.  Prather,  12  O. 
St.  497.  See  also.  State  f.  Urbana.  etc., 
Ins.  Co.,  14  O.  6.  See,  also,  post,  "For- 
eign  Banks,"'   §   18. 


§9 


CONTROL   AXD   REGULATION    IN    GENERAL. 


19 


to  exercise  its  franchise  after  repeal  of  its  charter,  there  must  be  a  judg- 
ment of  ouster  upon  an  information  in  quo  warranto.'^" 

§   9.  Validity  of  Transactions  and  Liabilities  Incurred.''' — In 

General — Effect  on  Securities. — All  securities  given  to  an  unauthorized 
banking  company  are  void/'^^  But  a  note  given  as  collateral  security  for  a 
loan  of  small  checks,  intended  to  circulate  as  banknotes,  is  not  affected  with 
invalidity.6»  Mortgages  to  a  bank  organized  under  an  unconstitutional 
statute  are  unenforcible.'" 

Construction  of  Statutes. — A  statute  to  suppress  private  banking  has 
been  held  to  prohibit  all  transactions  and  contracts  connected  with  estab- 
lishing such  a  bank  and  its  illegal  operations.' ^     Such  penal  provisions  can 


66.  Necessity  for  ouster. — Upon  in- 
formation in  the  nature  of  a  quo  war- 
ranto, calling  upon  the  president,  di- 
rectors, and  company  of  the  Miners' 
Bank  of  Dubuque  to  show  by  what 
warrant  they  claimed  the  right  to  use 
the  franchise;  plea,  referring  to  an  act 
of  incorporation;  replication,  that  the 
act  of  incorporation  had  been  repealed; 
rejoinder,  that  the  repealing  law  was 
passed  without  notice  to  the  parties, 
and  without  any  evidence  of  misuse  of 
the  franchise;  demurrer  to  the  re- 
joinder, and  joinder  in  demurrer,  sus- 
taining the  demurrer,  without  any  fur- 
ther judgment  of  the  court,  did  not 
prevent  the  parties  from  continuing 
to  exercise  the  franchise.  Miners' 
Bank  v.  United  States  (U.  S.),  5  How. 
21.3.  12  L.  Ed.  121. 

67.  Validity  of  transactions  and  lia- 
bilities incurred. — See  post,  "Effect  of 
Ultra  Vires  Acts."  §  261,  et  seq. 

Fraudulent  organization  as  barring 
recovery  on  note  against  stockholder. 
— See  post,  "Lial)ility  of  Stockholders 
or  Officers,"  §  211. 

Of  foreign  banks  doing  business  in 
state  without  authority,  see  post,  "'P'or- 
eign   Banks,"  §   18. 

Effect  of  failure  to  deposit  securi- 
ties, see  post,  "Safety  Funds  and  De- 
posits of  Securities,"  §  1'). 

68.  Securities  generally. — Myers  v. 
-Manhattan    Bank,   20   O.   28.!. 

69.  Note  as  collateral  for  checks 
used  as  bank  notes. — 2  Rev.  Laws,  p. 
2.i4,  invalidates  all  securities  given  to 
any  company  which,  without  authority 
of  law,  shall  issue  notes  or  transact 
any  other  business  which  incorporated 
banks  may  transact  l)y  virtue  of  their 
corporate  powers.  Plaintiff  loaned  de- 
fendant money,  collaterally  secured  by 
the  deposit  of  a  promissory  note  in- 
drjrscd    by    dcfenflant.      Tlie    sum    ad- 


vanced consisted  of  small  checks  drawn 
by  plaintiff  on  a  bank  where  he  had  no 
funds;  the  checks  having  the  general 
appearance  of  bank  notes,  and  being 
intended  to  circulate  as  such.  The 
checks  were  redeemed  at  plaintiffs 
own  office.  Held,  that  the  giving  of 
the  checks  was  not  a  banking  transac- 
tion, and  hence  plaintiff  could  recover 
on  the  note.  Utica  Ins.  Co.  v.  Pardow, 
2   X.   Y.   Super.   Ct.  .552. 

70.  Mortgage  to  unauthorized  bank. 
— The  general  banking  law  of  Mich- 
igan (Sess.  Laws  1837,  p.  76)  being  un- 
constitutional and  void  in  so  far  as  it 
purports  to  confer  corporate  powers, 
no  foreclosure  could  be  maintained 
upon  a  mortgage  executed  to  a  bank 
organized  under  its  provisions.  Hurl- 
but  V.  Britain   (Mich.),  2   Doug.  191. 

71.  Illegal  private  banking. — A  sta^t- 
ttte  declared  by  its  title  to  be  "an  act 
to  suppress  private  banking,"  and 
making  it  penal  to  "erect,  establish,  in- 
stitute, or  put  in  operations  or  to  is- 
sue any  bills  or  notes  for  the  purpose 
of  erecting,  establishing,  or  putting  in 
operation  any  banking  institution,  as- 
sociation, or  concern,"  covers  with  its 
prohibition  not  only  the  primary  steps 
in  establishing  and  putting  into  opera- 
tion the  bank,  but  also  the  whole  range 
of  its  transactions,  by  which  illegiti- 
mate currency  is  imposed  on  a  com- 
munity; and  contracts  made  in  furtlier- 
ance  of  such  transactions  are  as  void 
as  those  made  to  give  it  original  oper- 
ation. Davidson  v.  Lanier  (U.  S.),  4 
Wall.   417,   18  L.   Ed.  .377. 

It  applies  to  contracts  for  the  pur- 
pose of  carrying  on  such  business, 
made  after  it  has  been  put  in  opera- 
tion, such  as  the  acceptance  and  pay- 
ment of  the  l)ins  of  sucli  banking  com- 
l)any  witli  tlie  intention  of  promoting 
their  circulation:  and  money  so  ad- 
vanced   can    not    l)e    recovered.     David- 


20 


BANKS    AND    BANKING. 


§9 


not  be  extended  beyond  their  terms,  and  a  prohibition  of  the  purchase  of 
bills  of  exchange  does  not  extend  to  notes."- 

Transactions  and  instruments  growing  out  of  but  not  tainted  with 
the  illegality  are  legal  and  valid  and  can  be  enforced."^ 

Distinction  between  Dealings  of  Authorized  and  Unauthorized 
Banks. — There  is  a  distinction  between  the  unauthorized  dealings  of  an 
authorized  bank  and  the  dealings  of  an  unauthorized  bank,  in  that  the  un- 
authorized dealings  of  an  authorized  bank  may  be  valid  as  against  every 
one  except  the  state,  as  where  a  bank  which  is  authorized  to  purchase  and 
hold  only  so  much  land  as  may  be  necessary  for  its  immediate  use  and  oc- 
cupation purchases  more  than  is  necessary  for  such  purpose;,  the  title  to 
the  property  in  such  case  vests  in  the  bank  and  a  purchaser  from  the  bank 
can  not  set  up  the  fact  of  the  bank's  violation  of  the  charter  prohibition.'^'* 

Relation  Created  by  Deposit  in  Unauthorized  Bank. — Money  de- 
posited with  a  concern    which    has    not    banking    powers,  under  contract 


son  z'.  Lanier  (U.  S.),  4  Wall.  447,  18 
L.  Ed.  377. 

In  Brown  z'.  Tarkington  (U.  S.),  3 
Wall.  377,  18  L.  Ed.  255,  it  was  held  that 
notes  given  for  a  balance  found  due 
on  a  settlement  of  accounts  with  an 
illegal  banking  company,  and  for  ad- 
vances to  redeem  its  circulation,  could 
not  be  enforced  in  favor  of  a  payee 
who  had  been  participant  in  the  illegal 
business.  Davidson  v.  Lanier  (U.  S.), 
4  Wall.  447,   18   L.   Ed.  377. 

But  at  common  law,  individuals 
needed  no  legislative  authority  to  ex- 
ercise the  right  of  banking.  Bank  v. 
Earle  (U.  S.),  13  Pet.  519,  10  L.  Ed. 
274. 

72.  Prohibition  of  purchase  of  bills 
not  extended  to  notes. — By  the  Re- 
straining Act  (1  Rev.  St.  p.  712),  cor- 
porations other  than  banking  institu- 
tions are  prohibited  from  "making 
discounts  of  bills  and  notes,"  and  by 
another  section  from  "buying  and  sell- 
ing bills  of  exchange."  Held,  that 
this,  being  a  penal  statute,  can  not 
be  extended  to  the  purchase  of  notes, 
even  if  such  prohibition  would  fall 
within  the  same  reason  as  that  against 
bills  of  exchange.  American  Life  Ins. 
Co.  z'.  Dobbin  (N.  Y.),  Lalor's  Supp. 
(Hill  &  Denio)   252. 

73.  Transactions  and  instruments 
not  tainted  with  illegality. — A  bank- 
ing institution  organized  under  the 
general  banking  law,  which  was  held 
imconstitutional,  drew  certain  drafts 
on  A.  to  the  amount  of  $12,000.  which 
A.  accepted  for  the  accommodation  of 
'the  bank,  on  its  depositing  with  him 
$15,000  of  its  own  bills  to  secure  and 
indemnify   him.     The    drafts   were    dis- 


honored at  maturity.  B.,  C,  and  D., 
who,  with  others,  were  by  the  terms 
of  the  banking  law  liable  for  the 
debts  of  the  bank,  in  consideration  of 
the  delivery  to  them  by  A.  of  the 
$15,000,  in  bills,  made  and  delivered 
to  E.  a  promissory  note  for  $1,000, 
and  also  assigned  to  him  certain  other 
securities,  upon  the  trust  that  he 
should  collect  the  moneys  due  and  to 
become  due  thereon,  and  apply  the 
same  to  the  payment  of  the  drafts 
drawn  upon  A.,  and  in  indemnifying 
A.  against  his  acceptances  thereof. 
Held,  that  although  the  general  bank- 
ing law  was  unconstitutional,  and  the 
bills  of  the  bank  and  the  drafts  were 
illegal  and  void,  yet  the  notes  and  as- 
signment in  trust  were  not  tainted  with 
the  illegality,  but  were  legal  and  valid, 
and  that  E.  could  recover  upon  the 
note,  without  showing  that  A.  had 
been  damnified  by  reason  of  his  ac- 
ceptances of  the  drafts.  Smith  v. 
Barstow    (Mich.).    2    Doug.    155. 

74.  Dealings  of  authorized  and  un- 
authorized banks  distinguished. — 
Banks  v.  Poitiaux.  24  Va.  (3  Rand.^i 
136,  15  Am.  Dec.  706,  distinguishing 
Wilson  T'.  Spencer,  22  Va.  (l  Rand.) 
76,  10  Am.  Dec.  491,  in  which  case  it 
was  held  that  an  unincorporated  bank 
which  issued  notes  contrary  to  law 
could  not  enforce  payment  of  a  bond 
given  in  exchange   for  such   note. 

A  person  taking  the  notes  of  an 
unchartered  bank  doing  business  con- 
trary to  a  penal  statute  is  not  neces- 
sarily in  pari  delicto  with  the  bank  in 
the  sense  that  he  can  be  granted  no 
equitable  relief  from  his  contract  with 
the  bank.  Wilson  z\  Spencer,  22  Va. 
(1  Rand.)   76,  10  Am.  Dec.  491. 


§9 


CONTROL   AND   REGULATION    IN    GENERAL. 


21 


whereby  such  concern  promises  to  pay  the  amount  so  deposited  with  in- 
terest, at  a  certain  place  and  time,  is  not  a  technical  deposit,  but  a  loan  upon 
interest."^ 

Paper  Discounted  by  Unauthorized  Bank. — W  hile  a  note  given  to 
and  discounted  by  a  bank  engaged  in  the  business  of  banking  in  violation 
of  law  is  void,"^  yet  a  note  of  the  treasurer  of  such  corporation,  given  to 
secure  the  same  loan,  is  not  illegal.'^' 

Rights  of  Third  Persons. — A  bill  discounted  by  a  bank  within  the  pro- 
hibition of  a  law,  will  be  valid  in  the  hands  of  a  bona  fide  holder.'^     And 


75.  Deposit  in  unauthorized  bank. — 

State  r.    Buttles,   3    O.   St.   309. 

76.  Notes  taken  and  discounted. — 
Huber  v.  United  Protestant,  etc.,  Con- 
gregation, 16  O.  St.  371;  United  Prot- 
estant, etc.,  Congregation  v.  Stegner, 
21  O.  St.  488;  In  re  Jaycox,  Fed.  Cas. 
No.  7,237,  12  Blatchf.  209. 

An  insurance  company  not  being 
authorized  by  law  to  become  pro- 
prietors of  any  bank  or  fund,  for  the 
purpose  of  issuing  notes,  receiving 
deposits,  making  discounts,  or  trans- 
acting any  other  business  which  in- 
corporated banks  may  lawfully  do, 
any  note  discounted  by  them,  or 
security  taken  for  money  lent,  etc.,  is 
void,  within  the  meaning  of  that  stat- 
ute. Utica  Ins.  Co.  v.  Scott  (N.  Y.), 
19  Johns.  1;  Utica  Ins.  Co.  v.  Hunt 
CN  Y.).  1  Wend.  56;  Utica  Ins.  Co.  v. 
Caldwell  (N.  Y.),  3  Wend.  296. 

But  the  principal  case  was  reversed 
in  Utica  Ins.  Co.  v.  Scott  (N.  Y.),  8 
Cow.  709,  on  the  ground  that  the 
pleading  raised  the  issue  of  the  le- 
gality of  a  loan,  not  a  discount,  and 
that  the  insurance  company  did  have 
authority  to  loan  its  surplus  funds  on 
bond,   note    or   mortgage. 

Validity  of  paper  issued  and  dis- 
counted without  authority. — To  an  ac- 
tion of  debt  on  a  note  alleged  to  have 
been  made  and  discounted  by  the 
plaintiffs  in  Virginia,  but  made  pay- 
able at  a  bank  out  of  the  state,  a  plea 
that  tlie  plaintiffs  are  an  unchartered 
banking  company,  issuing  and  cir- 
culating their  own  paper  notes  or  bills 
as  currency,  contrary  to  law  and  pub- 
lic policy;  and  that  they  as  a  banking 
company  discounted  the  said  note, 
contrary  to  law  and  public  policy, 
sets  up  a  good  defense  to  the  action. 
So  in  such  a  case,  a  plea  that  the  con- 
sideration of  the  note  declared  on  was 
the  bank  paper  of  the  plaintiffs  un- 
lawfully issued  by  them  as  currency, 
they  being  an  unchartered  lianking 
company,   presents   a    good    defense    to 


the  action.     liamtiamck  v.  Selden,  etc., 
Co.,  53  Va.   (12  Gratt.)  28. 

77.  Note  to  secure  same  loan. — 
While  a  promissory  note  given  to  and 
discounted  by  a  corporation  for  a 
loan  of  money,  in  the  course  of  an 
unauthorized  banking  business,  con- 
trary to  the  Act  of  March  12,  1845, 
could  not  be  enforced,  yet  where  the 
treasurer  of  such  corporation  took 
and  appropriated  to  his  private  use 
moneys  deposited  with  it  contrary  to 
such  act,  and  being  unable,  when 
called  on,  to  refund  the  same,  secured 
it  by  his  promissory  note,  such  note 
would  not  be  held  to  have  been  given 
in  the  course  and  furtherance  of  an 
illegitimate  business,  and  an  action 
will  lie  thereon.  United  Protestant, 
etc.,  Congregation  v.  Stegner,  21  O. 
St.   488. 

78.  Rights  of  third  persons. — The 
bank  of  K.,  a  banking  institution  of 
the  state  of  Virginia,  and  authorized 
by  its  charter  to  buy,  sell  and  nego- 
tiate bills  of  exchange,  etc.,  acting  by 
its  cashier  at  C,  in  Ohio,  loaned 
money  on  the  discount  of  such  bills, 
and,  among  others,  discounted  a  bill 
drawn  by  P.,  and  others,  upon  L.,  in 
the  city  of  New  York,  which  bill  was 
assigned  bj'  said  bank,  before  its  ma- 
turity, to  a  third  party,  without  notice, 
actual  or  constructive,  of  the  manner 
in  which  the  bill  was  acquired  by  the 
bank.  After  protest  for  nonpayment, 
the  indorsee  brought  suit  thereon 
against  the  drawers.  It  was  lield  that 
such  indorsee  might  maintain  an  ac- 
tion upon  said  bill  against  the  draw- 
ers, and  that  his  right  to  do  so  was 
not  affected  by  §  1  •  of  the  .^ct  of 
March  12,  1845  (1  S.  &  C.  Stat.  152), 
"to  prohibit  unauthorized  banking," 
etc.  Pickaway  County  Rank  :•. 
Prather,  12  O.  St.  407.  This  decision 
was  based  upon  the  assumption  that 
the  discount  of  the  bill  was  within  the 
prohilution  of  the  statute,  and  that 
therefore  the  hill  would  have  lieon  in- 
valid  in   tlie  hands  ot   the   brink. 


22 


BANKS    AND    BANKING. 


§  10  (1) 


so  of  a  note  put  in  circulation  without  authority.'"  The  fraudulent  organi- 
zation of  a  bank  can  not  be  set  up  as  a  defense  against  the  payment  of  an 
acceptance. ■'^" 

Rights  of  Action— May  Compel  Accounting  from  Cashier.— A  pri- 
vate unchartered  company,  associated  for  the  purpose  of  carrying  on  busi- 
ness as  a  bank,  though  such  associations  are  contrary  to  law,  will  be  enter- 
tained in  a  court  of  chancery,  in  a  suit  against  its  cashier,  for  an  account 
of  his  agency. •''1  Where  the  restraining  act  avoids  merely  the  security,  not 
the  contract  of  loan,  an  action  for  money  lent  will  lie.'^- 

Curative  Legislation. — Notwithstanding  a  bank  may  have  been  organ- 
ized contrary  to  law,  still,  it  is  competent  for  the  legislature  to  pass  a  stat- 
ute of  pardon,  waiving  the  wrong;  and  in  such  case,  the  omission  or  abuse 
of  authority  can  not  be  set  up  as  a  defense  by  the  defaulting  corporation; 
nor  relied  upon  as  absolving  it  from  the  performance  of  its  obligations.^s 

Liability  of  Officers. — This  is  treated  elsewhere  in  this  work.*-* 

§   10.  Penalties  and  Actions  Therefor^5—§  10  (1)  Statutory 

Provisions  and  Construction. — One  statute  against  illegal  banking  will 
not  be  held  to  have  been  repealed  by  another  which  applies  to  a  different 
type  of  the  mischief  at  which  both  were  aimed.^*^ 


79.  Circulating  noteholders. — Con- 
ceding that  a  bank  was  organized  and 
bills  issued,  without  the  actual  pay- 
ment of  the  $250,000  in  specie,  re- 
quired by  the  charter,  and  that  by  rea- 
son thereof,  the  state  might,  at  any 
time,  have  recalled  its  corporate  fran- 
chises, or  a  stockholder  have  resisted 
the  payment  of  stock,  or  a  debtor  his 
liability  to  the  bank,  provided  the 
rights  of  third  persons  were  not  prej- 
udiced, it  was,  nevertheless,  a  valid 
corporation,  so  as  to  make  it  liable  to 
creditors  for  its  own  acts;  and  its 
stockholders  liable  to  bill-holders,  un- 
der the  charter,  for  the  ultimate  re- 
demption of  the  bills  put  in  circula- 
tion by  the  bank.  McDougald  v.  Bel- 
lamy,  18   Ga.   411. 

80.  Liability  on  acceptance. — South- 
ern  Bank  r.   Williams,  2.5   Ga.  534. 

81.  Rights  of  action. — Berkshire  f. 
Evans,   31   Va.    (4   Leigh)    223. 

82.  Action  on  loan  independent  of 
security. — The  charter  of  the  Utica 
Insurance  Company  authorizes  the 
loan  of  the  company's  surplus  funds 
not  required  in  the  business  of  insur- 
ance. In  an  action  on  a  note  dis- 
counted by  it,  the  defendant  pleaded 
that  the  company  had  engaged  in 
banking  business  contrary  to  the  law 
restraining  unauthorized  banking,  and, 
while  so  engaged,  had  discounted  the 
note  sued  on.  The  second  count  of 
the  declaration  was  for  money  lent. 
It  was  held   that,   conceding   that  tak- 


ing the  note  was  an  illegal  exercise  of 
the  right  to  loan,  and  that  it  is  pro- 
hibited by  the  restraining  act,  still  the 
contract  of  lending  afifords  a  good 
cause  of  action.  Utica  Ins.  Co.  v. 
Kip  (N.  Y.),  8  Cow.  20;  Utica  Ins. 
Co.  V.  Scott  (N.  Y.),  19  Johns.  1,  case 
reversed  on  another  point  in  (N.  Y.), 
8  Cow.  709;  Utica  Ins.  Co.  v.  Cadwell 
(N.  Y.),  3  Wend.  296.  See,  however, 
Curtis  z'.  Leavitt,  15  N.  Y.  9;  In  re 
Jaycox,  Fed.  Cas.  No.  7,237,  12  Blatch. 
209;  New  York,  etc..  Trust  Co.  v. 
Helmer,  77  N.  Y.  64,  where  this  prin- 
ciple of  the  Utica  Ins.  Co.  cases  is 
questioned. 

Although  an  association  may  not 
have  power  to  do  a  general  banking 
business,  if  a  person  borrows  money 
from  such  association  such  money 
may  be  recovered  in  an  action  for 
money  had  and  received,  although  an 
action  could  not  be  maintained  upon 
the  discount  technically.  Central 
Trust  Co.  V.  Cook  County  Xat.  Bank, 
15   Fed.   885. 

83.  Curative  legislation. — McDougald 
i:    Bellamy,   IS   Ga.   411. 

84.  Liability  of  officers. — See  post. 
"Liability  for  Debts  and  Acts  of 
Bank,"    §    56. 

85.  Penalties  and  actions  therefor. 
— Penalties  for  violation  of  regula- 
tions, see  post,  "Penalties  for  Viola- 
tions  of   Regulations,"   §   19. 

86.  See   ante,   "In   General,"    §   8. 


§  10  (2b) 


CONTROL    AND   REGULATION    IN   GENERAL. 


23 


Liability  of  Directors  and  Stockholders. — Where  a  state  law  sub- 
jects to  a  penalty  any  one  who  became  interested  in  any  banking  association 
unauthorized  by  law,  and  banks  are  formed  under  an  unconstitutional  law, 
the  obligations  of  such  bank  are  not  enforceable  against  the  directors  and 
stockholders,  the  transactions  being  illegal,  and  the  parties  particeps 
criminis."^' 

§   10    (2)  Enforcement— §  10   (2a)  Petition— Sufficiency.— Where 

a  statute  imposed  a  penalty  on  the  exercise  of  "banking  or  discounting  priv- 
ileges," a  petition  which  charges  that  the  defendants  "exercised  banking 
privileges,"'  is  insufficient  in  law  to  authorize  a  judgment  against  the  de- 
fendants."^"^ 

§  10  (2b)  Replication  to  Plea. — When  the  plea  to  an  action  against 
the  endorser  of  a  note  is  that  it  was  illegally  discounted  by  an  unauthorized 
association,  the  replication  that  it  was  an  authorized  loan  of  surplus  funds, 
as  was  lawful,  need  not  deny  the  illegal  banking.'^'' 


87.  Xessmith  t'.  Shelden,  Fed.  Cas. 
No.  10,125.  4  McLean  375.  See  post, 
"Liability  for  Debts  and  Acts  of 
Bank,"  §  46;  "Nature  and  Extent," 
§   57. 

88.  Sufficiency  of  petition. — State  v. 
Williams,    8    Tex.    255. 

Where  the  statute  imposes  a  penalty 
on  the  use  and  exercise  of  banking  or 
discounting  privileges,  and  also  on  the 
issue  of  each  bill,  check,  proinissory 
note,  or  other  paper  to  circulate  as 
monc}',  and  prescribing  that  each 
month  that  any  one  should  use  or  ex- 
ercise banking  or  discounting  privi- 
leges sliould  be  a  distinct  offense,  and 
each  bill  also  a  distinct  offense,  and 
prescril)ing  one  penalty  for  the  use 
or  exercise  of  banking  or  discounting 
privileges,  and  a  different  penalty  for 
the  issue  of  bills,  a  petition  in  an  ac- 
tion for  using  or  exercising  banking 
or  discounting  privileges  must  specify 
the  particular  facts  intended  to  be 
proved  as  constituting  the  offense,  and 
it  is  not  sufficient  to  allege  that  de- 
fendant, "without  authority  of  law, 
did  use  and  exercise  banking  privi- 
leges in  this  state  on  and  from  the 
first  day  of  April,  A.  D.  1852,  ff)r  and 
during  the  term  of  one  month,  fully 
completed  and  ended."  State  ■:•.  Wil- 
liams,  8   Tex.   255. 

Where  a  subsequent  section  of  tiic 
same  statute  declared  that  each  and 
every  month  during  which  the  same 
should  be  exercised  sliould  be  a  sepa- 
rate offense,  a  petition  is  defective 
vvhich  fails  to  allege  with  great  par- 
ticularity,   tlie    specific    fact     or      facts 


constituting  the  offense  charged,  the 
person  or  persons  who  had  obtained 
the  discount  or  discounts,  and  thus 
to  raise  the  foundation  for  proof  that 
it  had  been  so  continued  for  the  space 
of  one  month.  State  v.  Williams,  8 
Tex.  255. 

89.  Replication  to  plea. — In  an  ac- 
tion by  an  insurance  company  incor- 
porated by  statute  (Sess.  Laws  1816, 
c.  52),  against  the  indorser  of  a  promis- 
sory note,  defendant  pleaded  that 
plaintiff,  contrary  to  Sess.  Laws  1812, 
c.  71,  §  2  (forbidding  such  institutions 
from  joining  an  association,  etc.,  for 
the  purpose  of  exercising  banking 
powers),  became  a  member  of  such 
an  association,  and  became  proprietor 
of  a  bank  for  the  purpose  of  transact- 
ing business  which  incorporated  banks 
may  transact;  that  for  this  purpose 
they  established  a  banking  house,  and 
issued  notes,  received  deposits,  and 
made  discounts  as  incorporated  banks 
may  do;  and  that  the  note  in  question 
was  made  for  the  purpose  of  being, 
and  was,  discounted  at  their  office, 
tiicy  knowing  for  what  purpose  it  was 
made.  Plaintiffs  replied,  setting  up 
the  act  constituting  them  a  corpora- 
tion, which  authorized  them  to  loan 
their  surplus  funds,  and  alleged  that 
they  lent  a  part  of  their  surplus  funds 
(,u  the  security  of  the  note,  showing 
tlie  i)articulars,  and  that  the  plaintiffs 
liad  subscribed  and  became  members 
of  an  association  for  the  purposes  in 
the  plea  set  forth.  Defendant  de- 
murred specially,  assigning  for  cause 
that   ])laintiffs  had   not   in   their   replica- 


24 


BANKS    AND    BANKING. 


§  10  (2d) 


§  10  (2c)  Quo  Warranto. — When  It  Lies. — An  information,  in  the 
nature  of  a  quo  warranto,  lies  against  an  incorporated  company,  for  carry- 
ing on  banking  operations  without  authority  from  the  legislature.^*^ 

Sufficiency  of  Rejoinder. — A  rejoinder  admitting  the  facts  alleged  as 
to  insolvency  and  cessation  of  business,  but  which  avers  recommencement 
of  business,  is  sufficient. '^i 

Plea  of  Not  Guilty  and  Disclaimer  of  Right — Effect. — In  a  proceed- 
ing in  quo  warranto  charging  defendants  with  illegally  exercising  a  banking 
franchise,  defendant  can  plead  not  guilty,  and  a  disclaimer  of  any  right  to 
do  the  acts  complained  of.^-  And  in  such  case  the  state  is  not  entitled  to 
judgment  without  proof  of  the  charges  denied  by  the  plea  of  not  guilty.^^ 

Burden  of  Proof. — An  information  in  the  nature  of  a  quo  warranto 
against  a  corporation  for  illegally  carrying  on  a  banking  business  need  not 
show  title  in  the  people  to  a  franchise.  It  is  the  duty  of  the  defendant  to 
show  authority  for  exercising  the  right. ^"^ 

§  10  (2d)  Jurisdiction  and  Venue. — This  depends  upon  the  terms  of 
the  local  statutes  and  is  treated  entirely  in  the  notes. ^^ 


tion  denied  that  they  illegally  estab- 
lished an  office  or  banking  house,  and 
issued  notes,  received  deposits,  and 
made  discounts,  as  stated  in  the  plea. 
Held,  that  plaintififs  were  entitled  to 
judgment  on  the  demurrer.  Utica  Ins. 
Co.  V.   Scott    (N.   Y.),  8   Cow.   709. 

90.  When  quo  warranto  lies. — Peo- 
ple ZK  Utica  Ins.  Co.  (N.  Y.),  15  Johns. 
353,  8  Am.  Dec.  243. 

91.  Sufficiency  of  rejoinder. — On  an 
information  in  the  nature  of  a  quo 
warranto  against  an  incorporated  bank 
for  exercising  banking  privileges  with- 
out _  warrant,  the  respondent  pleaded 
setting  forth  its  act  of  incorporation 
and  organization  under  it.  To  this  it 
was  replied  that  the  bank  had  become 
insolvent  by  the  fraud,  negligence,  and 
mismanagement  of  some  of  its  of- 
ficers, had  stopped  payment,  and  dis- 
continued and  closed  their  banking 
operations,  for  several  years.  It  was 
held,  that  a  rejoinder  admitting  the 
facts  alleged,  but  averring  that  the 
bank,  on  a  certain  date,  had  resumed 
payment,  and  continued  it  ever  since, 
was  sufficient.  People  z/.  Niagara 
Bank  (N.  Y.),  6  Cow.  196. 

92.  Plea  of  not  guilty  and  disclaimer 
of  right.— State  7>.  Brown,  34  Miss. 
088. 

93.  State   v.    Brown,   34    Miss.   688. 

94.  Burden  of  .  proof. — People  v. 
Utica  Ins.  Co.  (N.  Y.),  15  Johns.  353, 
8  Am.   Dec.   243. 

In  a  proceeding,  in  the  nature 
of   a   writ    of    quo     warranto,      against 


individuals,  alleging  that  they  had 
exercised  and  enjoyed,  without  le- 
gal authority,  the  franchise  of  being 
a  banking  corporation,  it  is  not  suffi- 
cient for  the  defendants  merely  to 
show  that  by  an  act  of  the  legislature 
a  banking  corporation  was  established, 
of  which  they  are  members,  and  by 
virtue  of  which  they  exercise  the  said 
franchise;  but  they  must  also  show 
that  the  corporation  was  in  such  a 
state  of  organization  that  it  could  use 
the  privileges  of  a  bank,  and  that  they 
are  authorized  to  bind  the  corporation 
by  their  acts  according  to  the  terms 
of  the  charter.  State  v.  Brown.  33: 
Miss.  500. 

Proceedings  to  forfeit  bank  charter, 
see  post,  "Proceedings  to  Enforce  Dis- 
solution," §  70. 

95.  Jurisdiction. — The  district  court 
of  the  county  where  an  ''association 
of  individuals"  for  illegal  banking,  etc. 
(Hart.  Tex.  Dig.,  art.  88),  keep  their 
office,  has  jurisdiction  to  tr\'  and  de- 
termine a  suit,  in  behalf  of  the  state, 
to  recover  the  penalty  prescribed,  for 
a  violation  of  the  Texas  Act  of  1848. 
Williams    v.    State.    23    Tex.    264. 

Nature  of  prohibition. — In  Common- 
wealth V.  Scott,  250  Va.  (4  Rand.) 
143,  it  was  held  that  the  act  of  1816, 
2  Rev.  Va.  Code,  111,  providing  that 
it  shall  not  be  lawful  for  an  unor- 
ganized company  to  engage  in  bank- 
ing, and  that  members  of  such 
company  shall  be  guilty  of  a  misde- 
meanor,   was    penal,    and    that    there- 


§  11  (1) 


CONTROL   AXD  REGULATION    IN    GENERAL. 


25 


§  10  (2e)  Service  of  Process  and  Execution. — The  Texas  statute 
provides  for  service  of  citation  on  the  officers  of  the  concern,^^  and  for 
execution  against  the  officers  in  default  of  estate  of  the  concern  on  which 
to  levy.9" 


§   11. 


Criminal  Prosecutions — §  11   (1)  Offense  a  Statutory- 


One. — The  unauthorized  exercise  of  banking  or  discounting  privileges  is 
a  statutory  offense,  unknown  to  the  common  law.'-*'^  All  the  stockholders 
need  not  be  proceeded  against  under  a  statute  to  suppress  illegal  banking; 
to  proceed  against  the  officers  is  enough.'''-^     And  a  proceeding  to  recover 


fore  the  court  of  appeals  had  no 
jurisdiction  in  the  case  of  an  informa- 
tion against  the  members.  See,  also, 
construing  this  act,  Commonwealth  v. 
Horner,  37  Va.  (10  Leigh)  700;  Wil- 
son V.  Spencer,  22  Va.  (i  Rand.)  7(5, 
10  Am.   Dec.  491. 

Venue. — The  Texas  statute  of  1848 
to  suppress  illegal  banking,  provided 
that  suit  may  be  brought  in  the  county 
where  the  company,  corporation  or 
association  keep  their  office.  Mills  v. 
State,   23    Tex.    295. 

96.  Service  of  process. — The  stat- 
ute of  1848  intended  to  suppress  illegal 
banking  provides,  that  service  of  cita- 
tion upon  the  officers  shall  be  deemed 
sufficient  service  upon  the  corporation, 
company  or  association.  Mills  v. 
State,   23   Tex.   295. 

97.  Execution. — The  statute  of  1848, 
to  suppress  illegal  banking,  provides 
that  where  the  state  recovers  judg- 
ment in  any  suit,  for  a  violation  of  the 
statute,  execution  may  be  levied  on 
the  estate  of  the  corporation,  company 
or  association  against  whom  judg- 
ment may  be  rendered,  and  in  default 
of  such  estate,  then  execution  may  be 
levied  on  the  estate  of  the  officers  of 
such  corporations,  company  or  asso- 
ciation.     Mills   V.    State,   23   Tex.   295. 

98.  Offense  a  statutory  one. — State 
V.  Williams,  8  Tex.  255;  S.  C,  14  Tex. 
98;   Williams   v.    State,   23   Tex.   264. 

Under  Texas  statutes. — The  Texas 
Act  of  March  20,  1848,  entitled  ".A.n 
act  to  suppress  illegal  banking."  is  in- 
tended to  apply  only  to  such  com- 
panies, corporations,  and  associations 
as  act  through  officers.  Mills  v.  State, 
23  Tex.   295. 

A  proceeding  against  a  banking  as- 
sociation, under  the  Act  of  1848  (Hart. 
Dig.  art.  87),  to  suppress  illegal  bank- 
ing, does  not  call  in  question  the 
power  of  the  bank  to  exercise  cor- 
porate powers,  except  on  the  subject 
of  issuing  notes.  Williams  v.  State, 
23   Tex.   264. 


Institution       of        prosecution. — The 

statute  of  1848,  intended  to  suppress 
illegal  banking,  did  not  authorize  in- 
dictments by  the  grand  juries  against 
those  who  violate  its  provisions,  al- 
though the  offense  is  called,  in  the 
statute,  a  misdemeanor.  It  required 
suit  to  be  instituted  by  the  attorney 
general  of  the  state.  Mills  v.  State, 
23  Tex.  295;  Williams  v.  State,  23 
Tex.  264. 

Under  Hart.  Dig.,  art.  87,  Act  of 
1848,  "to  suppress  illegal  banking," 
the  state  had  power  to  test  the  right 
of  a  corporation  to  issue  notes  as  a 
circulating  medium  by  the  proceed- 
ings therein  provided,  and  it  was  not 
necessary  to  bring  a  direct  proceeding 
by  quo  warranto.  Williams  v.  State, 
23  Tex.  264. 

Under  Virginia  statutes. — Under  the 
Act  of  1816,  2  Rev.  Va.  Code,  §  3,  it 
was  unlawful  for  any  unincorporated 
company  to  engage  in  banking.  Com- 
monwealth V.  Horner,  37  Va.  (10 
Leigh)  700;  Commonwealth  n.  Scott, 
25  Va.  (4  Rand.)  143;  Wilson  v. 
Spencer,  22  Va.  (1  Rand.)  76,  10  Am. 
Dec.  491;  Moses  v.  Trice,  62  Va.  (21 
Gratt.)  556,  citing  Farmers'  Bank 
V.  Reynolds,  25  Va.  (4  Rand.)  186;  Ex- 
change Bank  v.  Morrall,  16  W.  Va. 
546. 

Under  New  Jersey  statute. — Per- 
sons are  not  guilty  of  carrying  on  the 
business  of  private  banking  without 
authority,  in  violation  of  Gen.  St.,  pp. 
135-137,  §§  70-77,  because  as  president 
and  treasurer  of  a  New  Jersey  build- 
ing association  they  participate  in  its 
lawful  business.  State  7'.  Ncwberrv, 
71    N.   J.    L.    (42   Vr.)    18,   58   Atl.   163. 

99.  Proceedings  agfainst  officers 
enough  without  stockholders. — In  an 
action  under  llarl.  Dig.,  art.  87,  to 
suppress  illegal  banking,  it  is  not 
necessary  to  prosecute  all  the  stock- 
holders composing  such  an  associa- 
tion, and  it  is  sufficient  to  proceed 
against   the   president,   cashier,   and   di- 


26 


BANKS    AND    BANKING. 


§  12   (1) 


the  capital  stock  of  an  offending  banking  company  for  the  benefit  of  the 
state  has  been  held  to  be  a  criminal  proceeding.  ^ 

§  11  (2)  Indictment.-— It  is  sufficient  to  charge  the  offense  in  the 
words  of  the  statute. ■= 

Joint  Indictments.— Several  persons  may  be  jointly  indicted  for  viola- 
tion of  the  statute  to  prevent  illegal  banking.^ 

§   11    (3)   Information. — See  note.^ 

§  12.  License  Fees  and  Taxes"— §  12  (1)  Power  to  Impose.— In 
General. — The  power  to  impose  a  license  tax  on  a  bank  must  be  exerted 
by  legislation,  in  order  that  payment  may  be  required,  and  it  must  be  im- 
posed in  clear  and  unambiguous  terms,'  but  the  police  power  of  the  state 
justifies  such  an  imposition,'^  and  the  fact  that  national  banks  are  exempt 


rectors.      Williams    v.    State,    23    Tex. 
264. 

Effect  of  nonjoinder. — The  liability 
of  defendants  (the  ot^cers  of  an  illegal 
banking  association)  is  not  afifected  by 
the  nonjoinder,  as  defendants  of  other 
members  and  stockholders,  besides 
themselves,  of  what  is,  by  them, 
claimed  to  l)e  a  corporation,  of  which 
they  are  officers;  because  it  is  a  crimi- 
nal action.  Williams  r.  State.  23  Tex. 
264. 

1.  Proceeding  to  recover  capital 
stock  a  criminal  one. — Act  of  1816, 
§  1,  provides  that  it  shall  not  be  law- 
ful for  any  unauthorized  company  to 
engage  in  banking,  and  that  every 
member,  officer,  or  agent  of  such  com- 
pany that  may  engage  in  banking 
shall  be  held  to  be  guilty  of  a  mis- 
demeanor, and  shall  be  liable  to  be 
fined.  Section  2  declares  that  all  the 
capital  stock  of  such  company  shall 
l3e  held  in  trust  for  the  benefit  of  the 
commonwealth,  and  that  it  shall  be 
the  duty  of  the  attorney  genera!  to 
institute  suit  to  recover  the  capital 
•stock  aforesaid;  that  any  or  all  the 
members  of  such  company  may  be 
iTiade  defendants,  and  they  shall  be 
severally  liable  to  the  commonwealth 
for  their  respective  proportions  of  the 
capital  stock.  It  was  held,  ^that  pro- 
ceedings under  said  sections  are 
criminal,  and  therefore  the  court  of 
appeals  has  no  jurisdiction  thereof. 
Commonwealth  v.  Scott,  25  Va.  (4 
T^and.)    143. 

2.  For  acting  as  officer  of  unau- 
tliorized  bank,  see  post,  "Prosecution 
and    Punishment,"   §    62. 

3.  Charge  in  words  of  statute  suffi- 
cient.— Tn  an  indictment,  under  the 
fourth  section  of  the  statute,  "to  pre- 
vent illegal  banking,"  it  is  sufficient  to 


charge  the  offense  in  the  words  of  the 
act;  and  an  acquittal  on  an  indictment 
so  charging  the  offense  will  bar  a  sub- 
sequent indictment  for  an  offense 
against  the  act  within  the  time  covered 
by  the  former  indictment.  State  v. 
Presbury,   13   Mo.   342. 

4.  Joint  indictments. — State  z'.  Pres- 
bury,  13    Mo.   342. 

'  5.  Against  officers  of  illegal  bank- 
ing associations,  see  post,  "Prosecu- 
tion   and    Punishment,"    §    62. 

In    the    nature    of    a    quo    warranto, 
see   post,   "Quo   Warranto,"   §   10    (2c). 
6.     See    post,    "Taxation,"    §    324,    et 
seq. 

Authority  or  license  to  do  business. 
— See  ante,  "Authority  or  License  to 
Do   Business,"   §   6. 

Application  of  statute  to  foreign 
corporation,  see  post,  "Foreign  Banks," 
§   18. 

Savings  bank  defined. — See  post, 
"Nature   and   Status,"    §  28y. 

Business  of  banker  and  banking  de- 
fined.— The  Inisiness  of  a  banl>;er,  as 
defined  by  the  acts  of  congress  (13 
Stat.  252,  472)  providing  for  a  license 
to  carry  on  the  business  of  banking, 
is  having  a  place  of  business  where 
money  is  received  on  deposit,  paid  out 
on  checks,  and  loaned  upon  security. 
Warren  i-.  Shook,  91  U.  S.  704.  23  L. 
Ed.  421.  See  ante.  "What  Are  Banks," 
§   2. 

7.  Power  to  impose  generally. — 
State  z:  Bank.  48  La.  Ann.  1020.  20 
So.    201. 

8.  Justified  under  police  power. — 
The  police  power  of  the  state  iustifies 
the  requirements  of  Laws  N.  Y.  1910, 
c.  348,  that  a  license  from  the  comp- 
troller be  obtained  by  individuals  or 
partnerships  desiring  to  engage  in  the 
business      of     receiving     deposits       of 


§  1-^  (1) 


CONTROL    AND    REGULATION    IN    GENERAL. 


27 


therefrom  does  not  offend  against  the  requirement  of  equahty  and  uni form- 
it  v.'^  And  there  is  no  right  to  a  reduction  after  the  tax  is  levied,  altliough 
the  law  has  been  changed  so  as  to  prohibit  so  large  a  levy.^*^  A  bank  au- 
thorized to  deal  in  securities  is  not  liable  to  a  broker's  tax  for  buying  and 
selling  stocks  and  bonds. ^^  Where  a  license  tax  is  required  of  the  presi- 
dent, such  tax  may  be  collected  of  him  for  each  bank  of  which  he  is  presi- 
dent.^- A  change  in  the  settled  construction  of  a  statute  should  not  be  made 
retroactive,  so  as  to  impose  a  tax  for  past  years. ^-^ 

Municipal  License  Tax. — Under  a  charter  power  to  tax  all  persons 
exercising  within  the  city  any  profession,  trade,  or  calling,  or  business,  a 
city  may  tax  chartered  banks  in  said  city  on  their  business  therein  to  the 
extent  that  private  bankers  are  taxed  therein. ^^     The  good  faith  and  rea- 


money  lor  safekeeping,  or  for  the  pur- 
pose of  transmission  to  another,  or 
for  any  other  purpose.  Kngel  r. 
O'Malley,  219  U.  S.  128,  55  L.  Ed.  128, 
31  S.  Ct.  191,  attirming  decree  (C.  C), 
182    Fed.    365. 

9.  Equality  and  uniformity. — Pol. 
Code,  §  4061,  imposing  a  license  on 
banks,  is  not  in  conflict  with  Const., 
art.  15,  §  11,  providing  that  "no  com- 
pany or  corporation  formed  under  the 
laws  of  any  other  country,  state  or 
territory,  shall  have  *  *  *  any  greater 
rights  or  privileges  than  those  pos- 
sessed or  enjoyed  by  corporations  of 
the  same  or  similar  character  created 
under  the  laws  of  the  state,"  though 
the  national  banks  organized  under 
ihe  United  States  laws  are  not  sub- 
ject to  the  payment  of  such  license. 
State  V.  Thomas  Cruse  Sav.  Bank,  21 
Mont.  50,  52   Pac.  733,  45   L.   R.  A.  760. 

10.  No  reduction  after  levy. — 2 
Sayles'  Civ.  St.  of  Texas,  art  5049, 
-subd.  1,  requires  occupation  taxes  to 
Ijc  paid  in  advance.  An  occupation 
lax  was  levied  on  defendant,  a  banker, 
a  few  days  prior  to  the  passage  of 
Gen.  Laws  (Called  Sess.)  25th  Leg., 
p.  50,  which  amended  the  act  under 
which  such  tax  was  levied  by  prohibit- 
ing so  large  a  levy  as  that  made  on 
defendant.  Held,  that  the  defendant 
was  not  entitled  to  a  reduction  of  the 
tax  already  levied.  lirooks  v.  Texas 
(Civ.    App.),    58    S.    W.    10:i2. 

11.  Not  liable  to  broker's  tax. — 
State  T'.  Nashville  Sav.  I'ank,  si  Tenn. 
(10   Lea)    111. 

12.  Tax  on  president  for  each  bank 
over  which  he  presides. — Act  Dec.  16, 
190:>  (Act  1902,  p.  20),  §  2,  par.  2,  pro- 
vides that  the  specific  tax  of  $10  for 
each  of  the  fiscal  years  of  190:;  and 
1904  shall  lie  levied  on  the  presidents 
■of  certain  corporations  doing  business 
1n     the    stale,    including    l)anks.       Held 


that,  under  the  act,  where  the  same 
person  is  president  of  two  or  more 
banks,  a  tax  of  $10  may  be  collected 
from  him  for  each  bank  for  which  he 
was  president,  and,  where  plaintiff  was 
the  president  of  several  banks,  he  is 
liable  to  be  taxed  for  each  bank. 
Witham  v.  Stewart,  129  Ga.  48,  58  S. 
E.    463. 

13.  Construction — Change  not  re- 
trospective.— The  words,  "That  for 
each  business  of  carrying  on  a  bank, 
banking  company,  association,  cor- 
poration or  agency,"  as  used  in  the 
Louisiana  license  law  (Act  No.  150  of 
1890),  having  for  a  number  of  years 
been  construed  by  those  charged  with 
its  execution  as  not  entitled  the  state 
to  exact  a  license  for  "the  business 
of  carrying  on  a  bank,''  etc.,  from  an 
agency  in  New  Orleans  of  a  foreign 
bank,  where  such  agency  received  no 
deposits,  and  discounted  no  commer- 
cial paper,  but  confined  its  business 
lo  making  advances  on  cotton  and 
grain  en  route  to  Europe,  and  to  the 
dealing  in  exchange  incidental  and 
necessary  to  that  business;  and  the 
general  assembly  having,  in  1898,  im- 
posed a  license  on  the  specific  busi- 
ness done  l)y  such  agency — tlie  con- 
struction of  the  Act  of  1890  will  not 
lie  changed  so  as  to  require  the  agency 
to  pay  back  licenses,  with  heavy  pen- 
alties, for  "the  business  of  carrying 
on  a  l)ank,"  etc.,  during  the  years 
wlien  the  previous  construction  ol)- 
tained.  State  v.  Comptoir  Nat.,  etc., 
Do    Paris,   51    La.    Ann.    1272,   26   So.   91. 

14.  Municipal  license  tax. — Under  a 
grant  in  its  charter  to  tax  brokers  and 
"all  other  persons  exercising  within 
the  city  any  profession,  trade,  or  call- 
ing, or  l)usiness  of  any  nature  what- 
ever," the  city  of  Macon  may  tax 
chartered  banks  in  said  city  on  their 
luisiness    tiierein    to    the     oxient       tliat 


28 


BANKS   AND    BANKING. 


§  12  (4> 


sonableness  of  a  charge  against  banks  imposed  by  a  city  ordinance  under 
a  law  authorizing  the  Hcensing  of  banks  being  conceded,  it  will  be  presumed 
to  be  a  license  as  it  purports  to  be,  and  not  a  tax  for  revenue.^^ 

Amount.— A  license  tax  of  $200  imposed  by  a  municipal  corporation  on 
banks  is  not  unreasonable.^^ 

§  12  (2)  Exemptions. — Some  free  banking  acts  have  been  held  to 
exempt  banks  from  any  license.^'  But  an  exemption  of  bank  stock  from 
taxation  did  not  exempt  it  from  payment  of  a  license  tax.^^  A  bank  is  not 
exempt  from  the  provisions  of  a  municipal  ordinance,  taxing  every  one  en- 
gaged in  any  form  of  business  or  trade,  because  it  is  incorporated  under 
act  of  the  legislature,^^  or  because  it  has  paid  a  state  license  tax.^o 

§  12  (3)  Interest. — The  rule  is  that  interest  is  not  recoverable  unless 
the  statute  authorizes  it.^i 

§  12  (4)  Effect  of  Payment.— The  payment  of  a  privilege  tax  may 
be  made  in  lieu  of  all  other  taxes. 22 


private  bankers  are  taxed  therein. 
Macon  v.  Alacon  Sav.  Bank,  60  Ga. 
133. 

Under  a  charter  authorizing  it  to 
license  and  tax  money  changers,  a  mu- 
nicipal corporation  may  require  bank- 
ers to  take  out  a  license.  Hinckley  v. 
Belleville,   43    111.   183. 

15.  Presumed  to  be  license  and  not 
a  tax.— Oil  City  v.  Oil  City  Trust  Co., 
151  Pa.  454,  25  Atl.  124,  31  Am.  St. 
Rep.  770. 

16.  Amount. — State  v.  Columbia,  6 
S.  C.  1. 

17.  Exemptions — Louisiana. — Banks 
organized  under  the  free  banking  law 
of  Louisiana  are  exempt  by  that  act 
from  paying  to  the  state  or  any  of  its 
municipal  corporations  a  license  for 
carrying  on  the  business  of  banking. 
State  V.  Southern  Bank,  23  La.  Ann. 
271. 

Banking  institutions,  incorporated 
under  the  banking  law^s  of  the  state, 
with  a  capital  less  than  the  minimum 
expressed  in  paragraph  13  of  the  reve- 
nue license  law\  can  not  be  required  to 
pay  license.  State  v.  Bank,  48  La.  Ann. 
1029,   20    So.    201. 

But  no  act  or  charter  can  exempt 
any  bank  from  license  taxation,  un- 
der the  constitution  of  1868.  New  Or- 
leans V.  New  Orleans,  etc..  Banking 
Co..  32  La.  Ann.   104. 

The  "New  Orleans  Savings  Institu- 
tion" was  at  least  a  bank  of  deposit, 
and,  as  such,  liable  to  the  payment  of 
the  annual  license  tax  imposed  by  the 
city   of   New    Orleans,    under   its    ordi- 


nances, on  "banks,  banking  houses, 
banking  companies,  or  banking  agen- 
cies." New  Orleans  v.  New  Orleans 
Sav.    Inst.,    32    La.    Ann.    527. 

And  a  banking  corporation  which 
organized  in  the  year  1873  under  the 
free  banking  law,  which  had  been  re- 
enacted  in  1870,  is  liable  for  the  same 
license  tax  as  that  imposed  on  other 
banking  institutions.  State  v.  South- 
ern   Bank,    31    La.   Ann.    519. 

18.  Exemptions  from  taxation. — 
New  Orleans  v.  New  Orleans,  etc.. 
Banking  Co..  33  La.  Ann.  104;  New 
Orleans  v.  State  Nat.  Bank,  34  La. 
Ann.   892. 

19.  Incorporation  does  not  exempt 
from  municipal  license  tax. — State  v. 
Columbia,   6   S.    C.   1. 

20.  In  payment  of  state  license. — 
A  bank  is  not  relieved  from  paying 
local  license  taxes,  which  have  been 
imposed  by  a  municipal  corporation, 
because  it  has  also  paid  the  license  tax 
imposed  by  the  state  government. 
State  V.   Columbia,  6  S.   C.  1. 

21.  Interest. — In  Brooks  v.  Texas 
(Civ.  App.).  5S  S.  W.  1032.  an  action  to 
collect  a  delinquent  occupation  tax, 
levied  under  2  Sayles'  Civ.  St.  of 
Texas,  art.  5049,  subd.  5,  authorizing 
such  tax  on  banks,  it  was  held  error 
to  allow  interest  thereon,  as  not  au- 
thorized by  statute. 

22.  Privilege  tax  in  lieu  of  all  other 
taxes.— Miss.  Code  1880,  §§  557,  585, 
as  amended  by  Laws  1888,  which_  pro- 
vide for  a  privilege  tax  to  be  paid  by 
banks,    and    vary     the      amount      with 


§  1-^ 


CONTROL    AND   REGULATION   IN    GENERAL. 


29 


§  13.  Limitation  of  Indebtedness.-- — Scope  of  Constitutional 
Provision. — A  constitutional  provision  that  banks  shall  not  increase  their 
indebtedness  can  not  be  applied  to  a  bank  incorporated  before  adoption  of 
the  constitution,  and  which  has  not  accepted  any  legislation  under  it.-^  And 
for  bank  directors  to  give  a  mortgage  to  a  depositor  to  secure  repayment 
of  his  deposits  does  not  violate  a  prohibition  that  the  directors  shall  not 
increase  the  indebtedness  of  the  bank  without  consent  of  the  stockholders. -'^ 

§  14.  Reserves. — As  to  validity  of  legislation  therefor,  see  ante,  "Power 
to  Control  and  Regulate,"  §  3. 

Construction  of  Statute.-'^ — A  statutory  requirement  of  the  retention  of 
a  certain  per  cent  of  net  profits  as  a  reserve  fund,  with  a  provision  allowing 
the  bank  to  dispose  of  any  excess  thereof  over  $100,000,  does  not  prevent 
the  creation  of  a  larger  reserve  than  that.-"  And  the  discretion  of  the  di- 
rectors as  to  the  maximum  will  not  be  controlled  by  the  courts,  unless  un- 
fairly or  wantonly  exercised.-^ 


reference  to  the  capital  stock  or  as- 
sets, and  declare  that  such  tax  "shall 
be  in  lieu  of  all  otlier  taxes,  state, 
county,  and  municipal,  upon  the  shares 
and  assets  of  said  banks,"  are  not  un- 
constitutional, under  Const.,  art.  12, 
§  13,  which  declares  that  "the  prop- 
erty of  all  corporations  for  pecuniary 
profits  shall  be  subject  to  taxation, 
the  same  as  that  of  individuals,"  as 
the  legislature  has  the  power  to  ex- 
empt property  from  taxation  whether 
the  owners  be  corporations  or  natural 
persons;  nor  do  they  violate  section 
16,  which  declares  that  "no  county 
shall  be  denied  the  right  to  raise,  by 
special  tax,  money  sufficient  to  pay 
fQj.  *  *  *  conveniences  for  the  people 
nf  the  county,  *  *  *  provided  the  tax 
thus  levied  shall  be  a  certain  per  cent 
on  all  tax  levied  by  the  state,"  as  by 
this  section  the  right  of  the  counties 
under  it  is  limited  to  the  levy  of  "a 
certain  per  cent  on  all  tax  levied  by 
the  state,"  and  the  subjects  of  taxa- 
tion are  to  l)e  determined  by  the  leg- 
islature. Vicksburg  Bank  v.  Worrell, 
07    Miss.   47,   7    So.   219. 

Under  Act  March  8,  1888,  §  4,  pro- 
viding that,  if  a  proper  privilege  tax 
had  been  paid  before  its  passage,  it 
should  protect  the  priviletre  to  the  ex- 
piration of  the  license,  where  a  bank 
paid  its  privilege  tax  for  the  years 
1888  and  1S89  it  was  protected  so  far 
as  the  privilege  was  concerned.  Vicks- 
burg Rank  7-.  .'Xdams,  74  Miss.  179,  21 
So.   401. 

Real  estate  owned  by  a  bank  con- 
stitutes part  of  its  assets,  witliin  the 
meaning    of    Code.    §§     .5.')7.      ",8:),      as 


amended  by  Laws  18S8,  providing  that 
banks  shall  pay  a  privilege  tax,  whose 
amount  varies  with  their  ■"capital 
stock  or  assets,"  in  lieu  of  all  other 
taxes.  Vicksburg  Bank  v.  Worrell,  67 
Miss.    47,    7    So.   219. 

23.  Borrowing  money. — See  post. 
"Borrowing  ]\Ioney,"  §  9T. 

As  to  liability  of  directors  for 
wrongful  increase  of  indebtedness,  see 
post.   "Nature   and   Extent,"   §   57. 

24.  Scope  of  constitutional  pro- 
vision.— Alil  T'.  Rhoads,  84  Pa.  319. 

25.  Mortgage  to  depositor  to  secure 
deposits. — Ahl   t'.    Rhoads,    84    Pa.    319. 

26.  As  to  safety  funds  and  deposits, 
see  post.  "Safety  Funds  and  Deposits 
of  Securities,"   §   15. 

27.  Construction  of  statute, — St. 
1862,  p.  200,  c.  187.  §  11,  providing  that 
banking  corporations  having  no  capi- 
tal stock  shall  retain  on  each  dividend 
day  at  least  5  per  cent  of  the  net 
profits  of  the  corporation,  to  con- 
stitute a  reserve  fund,  to  be  used  in 
paying  any  of  the  losses  which  the  cor- 
poration may  sustain,  and  that  the 
corporation  may  provide  by  its  by- 
laws for  the  disposal  of  any  excess  in 
the  reserve  fund  over  $100,000.  and 
the  final  disposal  upon  the  dissolution 
of  the  corporation  of  the  reserve  fund 
or  remainder  thereof  after  payment  of 
losses,  does  not  prevent  a  corporation 
from  creating  a  reserve  fund  in  excess 
of  $100,000.  Mulcahy  v.  TTibernia  Sav., 
etc..   Sor..  144  Cal.  219,  77  Pac.  910. 

28.  Discretion  of  directors. — Mul- 
cahy 7'.  llibernia  Sav..  etc.,  Soc,  144 
Cal.  219.  77   Pac.  910. 

Tn    a    suit    to    compel    ;i    blinking    cor- 


30 


BANKS    AND    BANKING. 


15   (1) 


Proceeding  to  Enforce  Distribution  of  Reserve. — In  a  suit  to  com- 
pel a  banking  corporation  to  distribute  part  of  its  reserve  fund,  the  maxi- 
mum amoimt  of  which  is  lodged  in  the  discretion  of  its  directors,  an  aver- 
ment in  the  complaint  that  the  directors  acted  in  bad  faith  in  endeavoring 
to  exclude  the  plaintiff  as  a  member  of  the  corporation  has  no  bearing  on 
any  question  as  to  the  reserve  fund.-^  /\nd  an  averment  in  the  complaint 
that  it  was  imnecessary  for  the  corporation  to  keep  in  the  reserve  fund  an 
amount  specified  as  that  kept  by  the  corporation,  because  it  was  not  in- 
debted to  any  one  except  its  depositors,  and  had  no  unpaid  losses  in  its 
business,  and  because  no  banking  corporation  in  the  state  carried  a  reserve 
of  the  size  carried  by  defendant,  is  a  mere  conclusion  of  the  pleader,  in 
the  absence  of  a  statement  of  the  amount  of  the  indebtedness  of  the  cor- 
poration to  its  depositors.-"^*^* 

§  15.  Safety  Funds  and  Deposits  of  Securities-'^ — §  15  (1)  Ne- 
cessity and  Constitutionality. — Xo  deposit  of  money  or  stock  need  be 
made  unless  expressly  required  by  the  terms  of  some  statute.-^- 

Bank  Guaranty  Funds. — Legislation  subjecting  state  banks  to  assess- 
ments for  a  depositors'  guaranty  fund  has  been  held  to  be  a  valid  exercise 
of  the  police  power,-^-'   although   contribution   thereto   is  not  made  obliga- 


poration  to  distribute  part  of  its  re- 
serve fund,  the  maximum  amount  of 
which  is  in  the  discretion  of  its  di- 
rectors, the  court  can  not  interfere 
with  the  discretion  of  directors,  and 
compel  a  distribution,  in  the  absence 
of  a  showing-  that,  in  violation  of 
plaintiff's  rights,  the  directors  had  re- 
fused to  declare  dividends  to  which 
he  was  entitled,  without  just  reason, 
and  notwithstanding  they  had  in  their 
hands  ample  funds  which  should  be 
devoted  to  that  purpose.  Mulcahy  v. 
Hibernia  Sav.,  etc.,  Soc,  144  Cal.  219, 
77   Pac.   910. 

Where,  under  a  statute  creating  a 
banking  corporation,  the  minimum 
amount  of  reserve  fund  to  be  accumu- 
lated by  it  is  $100,000,  and  the  ma.xi- 
mum  is  lodged  in  the  discretion  of  the 
board  of  directors,  the  accumulation 
of  a  reserve  of  $2,500,000  does  not  of 
itself  render  the  accumulation  fraudu- 
lent. Mulcahy  v.  Hibernia  Sav.,  etc., 
Soc,  144   Cal.   219,  77   Pac.   910. 

29.  Proceeding  to  enforce  distribu- 
tion of  reserve. — Mulcahv  v.  Hibernia 
Sav.,  etc.,  Soc.  144  Cal."  219.  77  Pac. 
910. 

30.  Averment  of  legal  conclusion. — 
Mulcahy  v.  Hibernia  Sav.,  etc.,  Soc, 
144    Cal.    219,    77    Pac.    910. 

31.  Reserves. — See  ante,  "Reserves," 
§   14. 

32.  Necessity. — Marion  Sav.  Bank 
V.    Dunkin,    54   Ala.   471. 


Under  the  .\labama  free-banking 
law  of  1868  (Rev.  Code,  pt.  2,  tit.  1, 
c  1,  §  1644,  et  seq.) ;  an  association, 
not  claiming  the  right  to  issue  or  cir- 
culate its  own  notes,  need  not  deposit 
money  or  transfer  stock  to  the  auditor, 
to  authorize  it  to  carry  on  other  bank- 
ing business.  Marion  Sav.  Bank  v. 
Dunkin,    54    .\la.    471. 

33.  Bank  guaranty  funds. — The  Acts 
of  December  17,  1907,  and  March  11, 
1909,  of  Oklahoma,  subjecting  state 
banks  to  assessments  for  a  depositors' 
guaranty  fund  are  within  the  police 
power  of  the  state  and  do  not  deprive 
banks  assessed  of  their  property  with- 
out due  process  of  law  or  deny  to 
them  the  equal  protection  of  the  law. 
nor  do  they  impair  the  obligation  cf 
the  charter  contracts.  Noble  State 
Bank  7'.  Haskell,  219  U.  S.  104,  55  L. 
Ed.  112,  31  S.  Ct.  186,  affirming  22 
Okl.    48,    97    Pac    590. 

Such  legislation  is  not  in  violation 
of  the  constitutional  provision  that 
"all  persons  have  the  inherent  right 
to  life,  liberty,  the  pursuit  of  happi- 
ness, and  the  enjoyment  of  the  gains 
of  their  own  industry;"  or  that  which 
provides  that:  "No  private  property 
shall  be  taken  or  damaged  for  private 
use,  with  or  without  compensation, 
unless  by  the  consent  of  the  owner, 
except  for  private  ways  of  necessity, 
or  for  drains  and  ditches  across  bnds 
of    others    for    agricultural,    mining    or 


§  13  (1) 


CONTROL   AND   REGULATION    IN    GENERAL. 


31 


tory.-^-'     And  the  permission  to  national  banks  to  avail  themselves  of  such 
a  state  law  does  not  invalidate  it,  even  if  inetiectual/"'''  and  it  is  no  objec- 


sanitary  purposes,  in  sucli  manner  as 
may  be  prescribed  by  law;"  or  which 
provides  that  "private  property  shall 
not  be  taken  or  damaged  for  public 
use  without  just  compensation." 
Xoble  State  Bank  z:  Haskell,  22  Okl. 
48,   97    Pac.   590. 

The  police  power  extends  to  all  the 
great  public  needs,  Camfield  z'.  United 
States,  167  U.  S.  .518,'  42  L.  Ed.  260, 
and  includes  the  enforcement  of  com- 
mercial conditions  such  as  the  protec- 
tion of  bank  deposits  and  checks 
drawn  against  them  by  compelling  co- 
operation so  as  to  prevent  failure  and 
panic.  Xoble  State  Bank  z:  Haskell, 
219  U.  S.  104,  55  L.  Ed.  112,  31  S.  Ct. 
186,   affirming  22   Okl.   48,   97   Pac.   590. 

The  dividing  line  between  what  is, 
and  what  is  not,  constitutional  under 
the  police  power  of  the  state  is  pricked 
cut  by  gradual  approach  and  contact 
of  decisions  on  opposing  sides;  and 
while  the  use  of  public  credit  to  aid 
individuals  on  a  large  scale  is  uncon- 
stitutional, a  statute  compelling  banks 
to  contribute  to  a  guarantee  fund  to 
protect  deposits,  such  as  that  of 
Oklahoma,  under  consideration  in  this 
case,  is  constitutional.  Noble  State 
Bank  v.  Haskell,  219  U.  S.  104,  55  L. 
Ed.  112,  31  S.  Ct.  186,  affirming  22  Okl. 
48,  97  Pac.  590. 

"The  power  to  compel,  beforehand, 
co-operation,  and  thus,  it  is  Ijelieved, 
to  make  a  failure  unlikely  and  a  gen- 
eral panic  almost  impossible,  must  be 
recognized,  if  government  is  to  do  its 
proper  work,  unless  we  can  say  that 
the  means  have  no  reasonable  rela- 
tion to  the  end.  Gundling  z:  Chicago, 
177  U.  S.  183,  44  L.  Ed.  725.  So  far 
IS  that  from  being  the  case  that  the 
device  is  a  familiar  one.  It  was 
adopted  by  some  states  the  better 
part  of  a  century  ago,  and  seems 
never  to  have  been  questioned  until 
now.  Danby  Bank  z'.  State  Treasurer, 
••;':'  Vt.  92;  People  v.  Walker,  17 
X.  Y.  502.  Recent  cases  going  not 
less  far  are  Lemieux  r.  Young,  211 
U.  S.  489,  496,  53  L.  Ed.  295,  29  S. 
Ct.  174;  Kidd,  etc.,  Co.  v.  Mussel- 
man  Grocer  Co.,  217  U.  S.  401,  54 
L.  Ed.  839,  30  S.  Ct.  606."  Noble 
State  Bank  v.  Haskell,  219  U.  S.  104, 
■"'5  E.  Ed.  112,  31  S.  Ct.  186,  af- 
Tirming  22  Okl.  48.  97  Pac.  590.  See, 
;'lso,  .Attorney  General  v.  North 
American  TJfe  Tns.  Co.,  82  X'.  Y.  172: 
ElwoofI    7'.    'I'reasurer,    23    Vt.    701,    in 


which  similar  statutes  of  New  York 
and  Vermont  were  sustained.  See, 
also.  People  v.  Walker,  17  N.  Y.  502; 
In  re  Reciprocity  Bank,  29  Barb.  369, 
17  How.  Prac.  323,  reversing  22  X.  Y. 
9,  where  the  appellate  courts  in  X'ew 
York  construed  the  provisions  of  said 
act  without  the  question  of  their  con- 
stitutionality ever  being  raised.  And 
see  Dolley  z'.  Abiline  Xat.  Bank,  102 
C.  C^  A.  607,  179  Fed.  461,  32  L.  R.  A., 
X.  S..  1065,  and  Assaria  State  Bank 
z:  Dolley,  219  U.  S.  121,  55  L.  Ed.  123, 
31  S.  Ct.  189,  affirming  Larabee  z'. 
Dolley,  175  Fed.  365,  sustaining  a 
similar   Kansas   statute. 

34.  Contribution  need  not  be  obli- 
gatory.— A  state  statute  creating  a 
bank  depositors'  guaranty  fund  for 
the  purpose  of  securnig  the  full  repay- 
ment of  deposits  in  case  of  the  in- 
solvency of  any  bank  contributing  to 
the  fund  is  no  less  a  valid  exercise  of 
the  police  power  because  contribution 
to  such  fund  is  not  absolutely  re- 
quired. Assaria  State  Bank  z\  Dolley, 
219  U.  S.  121,  55  L.  Ed.  123,  31  S.  Ct. 
189,  affirming  Larabee  f.  Dolley,  175 
Fed.    365. 

35.  Effect  of  permitting  national 
banks  to  avail  of  law. — The  sectiorr 
permitting  national  banks  to  avail 
themselves  of  the  privileges  of  the 
protection  of  this  depositors'  guaranty 
fund  law  does  not  permit  an  injustice 
against  the  state  banks,  as  the  na- 
tional banks  which  might  avail  them- 
selves of  the  benefit  of  the  law  could, 
if  they  desire,  repudiate  the  contract 
as  ultra  vires,  and  refuse  to  continue 
to  pay  their  assessments,  thereby  en- 
dangering the  assessment  fund  '  paid 
pro  rata  by  the  state  banks,  in  the 
event  of  the  failure  of  national  l)anks 
which  have  availed  themselves  of  the 
privileges  of  said  law.  Concede  that 
such  a  contract  is  ultra  vires  as  to 
national  banks,  that  does  not  render 
the  law  invalid  as  to  state  banks.  Tf 
the  contract  of  the  l)anking  board  is 
not  binding  upon  the  national  banks, 
the  converse  of  the  proposition  is  also 
true,  that  it  is  not  binding  upon  the 
slate  lianking  board.  X^either  party 
could  claim  any  independent  benefit 
under  a  void  law  or  statute.  .\t  most. 
all  the  national  bank  could  recover,  in 
such  event,  would  l)c  the  money  paid 
under  the  same  in  good  faitli,  when 
Ddl  atrainst  i)ublic  jiolicv.  Xoble 
State  Bank  .-.  IIa<krll.  22  Okl.  4s.  97 
Pac.    590. 


32 


BANKS  AND  BANKING. 


§  15  (4) 


tion  to  such  legislation  that  it  may  incidentally  increase  competition  with 
national  banks.^^ 

§  15  (2)  Obligation  Therefor  and  Payment.— The  charter  of  a 
bank  expired  on  December  31,  1849.  Held,  that  it  was  not  bound  to  pay 
its  proportion  for  that  year  of  the  state  safety  fund  due  "on  or  before" 
January  1,  1850.3'  The  state,  under  an  early  New  York  statute  (1829). 
was  held  to  become  a  trustee  of  the  whole  fund,  for  the  benefit  of  all  who 
might  have  claims  on  it,  and  the  people  were  the  proper  party  plaintiff  in 
an  action  to  compel  a  bank  to  contribute.-^^ 

§  15    (3)    Lien   of    State— Substitution    of    Other    Securities.— 

Where  a  bank  purchased  state  bonds,  giving  a  bond  for  30  per  cent  of  the 
purchase  price,  and  agreed  to  deposit  bonds  as  security  for  circulation,  and 
these  bonds  were  afterwards  withdrawn  and  other  securities  substituted, 
in  the  absence  of  any  agreement  for  any  lien  or  claim  on  other  securities 
than  the  bond  given  for  unpaid  installments,  the  state  had  no  lien  on  the 
securities  substituted,  for  unpaid  installments  due  it  from  the  bank.s^ 

§   15    (4)    Effect  of  Failure  to  Deposit. — When  a  banking  company 


36.  As   affecting     national     banks. — 

The  Bank  Depositors'  Guaranty  Act 
of  Kansas  (Laws  1909,  c.  61),  which 
authorized  banks  incorporated  under 
the  laws  of  the  state  and  possessing 
prescribed  quaHfications  to  join  in  con- 
tributing to  and  maintaining  a  fund 
for  certain  classes  of  their  depositors 
against  loss  in  case  of  the  insolvency 
of  any  of  their  number,  is  not  uncon- 
stitutional on  the  ground  that  its  ef- 
fect may  be  to  attract  depositors  from 
the  national  to  the  guaranteed  banks, 
and  thus  increase  competition  with  the 
national  banks,  and  impair  their  effi- 
ciency as  instrumentalities  of  the  na- 
tional government;  such  effect,  if  any, 
being  merely  indirect  and  incidental. 
Dolley  V.  Abiline  Nat.  Bank,  102  C.  C. 
A.  607,  179  Fed.  461,  33  L.  R.  A.,  N.  S., 
1065,  reversing  order,  Larabee  v. 
Dolley,    175    Fed.    365. 

37.  Obligation  therefor  and  pay- 
ment.—People  r.  Walker,  17  N.  Y.  502. 

38.  State  as  trustee — Party  plaintiff. 
—People  7'.  Walker,  21  Barb.  630,  re- 
versed in  17  N.  Y.  502,  but  on  another 
point. 

The  state  comptroller  notified  a 
bank  liable  to  contribute  to  the  safety 
fund  that  the  fund  was  reduced  below 
the  amount  required  by  law,  and  that 
the  bank  was  required  to  pay  to  the 
treasurer  of  the  state,  on  or  before 
the  1st  of  January  then  next,  half  of 
1    per  cent  on  its  capital  stock.    Held, 


that  that  sum  continued  to  be  payable 
each  year,  without  any  subsequent 
notice  from  the  comptroller,  till  the 
fund  was  reimbursed.  People  v. 
Walker,  21  Barb.  630,  reversed  in  17 
N.   Y.   502,   but  on  another  point. 

39.  Lien  of  state — Substitution  of 
other  securities. — State  v.  .  Rusk,  21 
Wis.    212. 

A  bank  purchased  state  bonds,  pay- 
ing 70  cents  on  a  dollar,  and  giving 
its  bond  conditioned  for  the  payment 
of  30  per  cent  more,  in  semiannual  in- 
stallments, with  an  agreement  that 
the  bonds  so  purchased  should  be  de- 
posited with  the  bank  comptroller  as 
security  for  the  circulation  of  the 
bank,  and  that  the  state  treasurer,  in 
case  of  default  in  payment  of  any  of 
these  installments,  might  retain  for  the 
use  of  the  state,  in  payment  of  such 
unpaid  installments,  the  amount 
thereof  out  of  the  interest  falling  due 
on  the  state  bonds  so  deposited,  if  in 
the  opinion  of  the  comptroller  the  cir- 
culation of  the  bank  should  be  fully 
secured.  These  bonds  being  after- 
wards withdrawn  by  the  bank,  and 
other  securities  substituted,  according 
to  provisions  of  law,  it  was  held  that, 
in  the  absence  of  any  agreement _  for 
any  lien  or  claim  on  other  securities 
than  the  bond,  the  state  had  no  lien  on 
the  securities  substituted  for  unpaid 
installments  due  it  from  the  bank. 
State   v.    Rusk,   21    Wis.    212. 


§  13  (6) 


COXTROL   AXD   REGULATION    IX   GEXERAL. 


33 


has  commenced  business  without  depositing  the  securities  required  by  the 
statute,  those  stockholders  who  engage  in  or  authorize  and  sanction  such 
business  assume  its  habihties,-*"  and  the  contracts  of  the  corporation  will 
be  void.^^ 

§  15  (5)  Loss. — The  state  is  not  liable  for  loss  of  bonds  deposited 
with  the  state  treasurer  in  compliance  with  statute,  in  absence  of  an  express 
guarantee  or  contract,  or  for  any  deficiency  in  their  amount."* - 

§  15  (6)  Custody,  Title  and  Control. — In  General. — Such  trans- 
fers are  not  absolute,  but  merely  pledges  for  the  purpose  of  guaranty ."*•* 

Sinking  Funds. — Where  by  the  charter  of  a  bank,  a  sinking  fund  was 
provided  for,  to  pay  the  holders  of  the  bonds  of  the  state,  issued  to  pur- 
chase stock,  such  bondholders  have  no  control  over  the  appointment  of  the 
trustees  of  such  fund,  nor  over  the  trustees  in  their  management  of  it.  If 
they  can  object  to  its  management  at  all,  they  can  do  so  only  in  a  court  of 
equity ;  and  there,  it  seems,  only  for  an  improper  exercise  of  authority.-*^ 
Where  the  charge  of  the  fund  had  been  given  to  a  "state  commissioner," 
the  state  held  the  fund  in  trust  and  should  appoint  a  trustee  to  fill  any 
vacancy,^^  and  the  commissioners  of  such  a  sinking  fund  may  loan  the 
same  at  interest.^*^ 

Withdrawal. — A  statute  providing  that,  on  giving  a  certain  bond,  a  bank 


40.  Effect    of    failure    to    deposit. — 

Medill   c'.    Collier.   16   O.   St.   599. 

41.  Contracts  void. — A  banking  cor- 
poration organized  under  the  .-Vet  of 
March  21,  1851,  can  not  lawfully  trans- 
act its  business  until  it  has  complied 
with  that  clause  of  the  banking  act 
requiring  the  deposit  of  securities  with 
the  auditor  of  the  state,  before  com- 
mencing business;  and  a  failure  to 
comply  with  the  law  will  render  the 
contracts  of  the  corporation  void. 
Medill  v.  Collier,  16  O.  St.  599.  See, 
also,  post,  "Conditional  Incorporation 
— Conditions  Precedent  and  Beginning 
of   Corporate    ICxistence,"   §   23    (2). 

42.  Liabilities  of  state  for  loss. — 
Clark  <•.  State,  47  Tenn.  (7  Coldw.)  30G. 

A  bank  comptroller  holds  the  securi- 
ties deposited  with  him  under  the 
banking  laws  as  trustee  for  the  banks 
and  bill  holders,  and  there  is  no  lia- 
bility on  the  part  of  the  state  to  the 
banks  for  such  deposits.  State  t'. 
Rusk,    21    Wis.    212. 

43.  Transfers  not  absolute  but  in 
pledge.— Citizens'  Rank  f.  Gay,  47  La. 
Ann.    551,    17    So.    148. 

Foreclosure  of  mortgage. — Mort- 
gages assi'jned  to  tlu-  treasurer  of  the 
state  as  security  under  the  statute  to 
authorize   banking   (Xix.   Dig.  48)    may 

B   &   B— 3 


be  foreclosed  by  the  treasurer,  and  the 
debt  collected  by  a  sale  of  the  prem- 
ises. Townsend  v.  Smith,  12  N.  J. 
Eq.   (1   Beasl.)   350,   72  Am.   Dec.  403. 

44.  Sinking  funds. — Young  v. 
Hughes    (Miss.),    12    Smedes    &   M.   93. 

And  where  the  charge  of  the  fund 
was  by  a  subsequent  legislative  enact- 
ment given  to  a  "state  commissioner," 
who  was  authorized  to  coerce  pay- 
ment of  debts  by  suit  or  otherwise, 
the  state  commissioner  was  a  proper 
party  to  sue  to  recover  a  debt  lielong- 
ing  to  the  fund.  Young  v.  Hughes 
(Miss.),   12   Smedes   &   M.   93. 

45.  Fund  held  by  state  commis- 
sioner.— In  an  action  in  tlie  name  of 
the  commissioner,  to  recover  a  debt 
belonging  to  the  fund,  it  was  held, 
on  demurrer  to  the  declaration,  that 
the  state  held  the  fund  in  trust,  and 
that  it  was  her  duty  to  appoint  a  trus- 
tee in  case  any  vacancy  occurred. 
Young  7'.  Hughes  (Miss.),  12  Smedes 
c"^   M.  93. 

46.  Power  to  loan. — The  commis- 
sioners of  the  sinking  fund  of  the 
Planters'  Bank  have  the  right  to  loan 
llie  same  at  interest,  and  to  sue  for 
jHul  collect  it.  Montgomery  v.  Com- 
missioners (Miss.),  7  How.  13;  Com- 
missioners 7'.  Walker  (Miss.),  (>  How. 
143,    38    Am.    Dec.    433. 


34 


BANKS  AND   BANKING. 


§  15   (7) 


shall  thereafter  be  exempt  from  all  payments  required  to  be  made  to  the 
bank  fund,  and  from  all  the  provisions  for  the  establishment,  preservation, 
and  regulation  of  said  fund,  gives  a  bank  no  right,  by  reason  of  giving  such 
bond,  to  withdraw  from  the  bank  fund  what  it  has  previously  paid  into 
said  fund,  pursuant  to  chapter  84>'  But  the  inference  is  drawn  from  this 
case  that  each  contributor  has  a  reversionary  interest  entitling  it  to  a  re- 
turn of  what  remained  if  the  purpose  were  given  up.^^ 

§  15  (7)  Payment  of  Debts  Therefrom.— When  a  bank  ceases  to 
do  business  in  consequence  of  its  insolvency,  the  balance  of  the  indebted- 
ness of  the  bank  in  excess  of  its  property  and  effects  must  be  paid  by  the 
bank  fund,49  without  regard  to  who  contributed  the  fund,^"  including  the 
notes  of  the  bank,^'i  ^nd  the  duty  may  be  enforced  by  mandamus  against 
the  state  treasurer. •'- 

Action  by  Single  Creditor. — A  single  creditor  may  sue  upon  the  bond 
for  prompt  repayment  of  deposit,  where  it  does  not  appear  that  there  are 
others  entitled  to  the  security.^^ 


47.  Withdrawal. — Danby  Bank  v. 
State   Treasurer,   39   Vt.   93. 

A  bank,  organized  under  St.  1851, 
has  no  title  to  maintain  an  action  on 
a  security  assigned  to  the  state  treas- 
urer till  after  a  reassignment.  South 
Royalton  Bank  v.  Downer,  28  Vt.  635. 

48.  Reversionary  interest. — Noble 
State  Bank  v.  Haskell,  219  U.  S.  104, 
110,  55  L.  Ed.  112,  31  S.  Ct.  186,  af- 
firming  22    Okl.    48,   97    Pac.    590. 

49.  Payment  of  debts  therefrom. — 
Danbv  Bank  v.  State  Treasurer,  39  Vt. 
92;   Elwood  z:  Treasurer,  23  Vt.  701. 

50.  Where,  under  the  general  bank- 
ing law  the  entire  safety  fund  was 
made  liable  for  the  payment  of  all  the 
debts  of  any  insolvent  bank,  exclusive 
of  capital  stock;  and  this  without 
reference  to  the  time  when  the  debts 
accrued,  or  when  the  insolvency  ac- 
crued, or  at  what  time  any  particular 
bank  began  to  contribute,  hence,  that 
part  of  the  fund  contributed  by  anv 
particular  bank  could  not  be  withheld 
from  being  appropriated  for  the  pay- 
ment of  the  debts  of  an  insolvent 
bank,  upon  the  crround  that  the  liank 
for  the  payment  of  whose  debts  it  was 
required  became  insolvent  previous 
to  the  rime  when  the  bank  contribut- 
ing such  part  of  the  fund  came  into 
existence  under  its  charter.  Elwood 
7'.   Treasurer,   23   Vt.   701. 

51.  Notes  of  a  bank,  received  as 
collateral  security  after  such  bank  has 
suspended  specie  nayments.  but  after- 
wards gone  on  for  a  time  under  a 
specific  arransrement,  are  embraced  bv 
a   bond    given    to    secure    the    notes    of 


the  bank,  if  the  creditors  on  notes 
issued  before  the  suspension  omitted 
to  issue  process  of  execution  under 
the  bond,  when  forfeited,  and  gave  no 
notice  to  receivers  of  notes  after- 
wards issued.  In  re  Dj'ott  (Pa.),  2 
Watts  &  S.  463. 

A  person  establishing  a  bank  gave 
to  certain  trustees  a  bond  to  secure 
promissory  notes  that  might  be  is- 
sued. Held,  that  it  embraced  all  notes 
whatever  in  the  nature  of  bank  notes, 
whether  payable  on  demand,  or  post 
notes  payable  at  a  future  day.  In  re 
Dyott    (Pa.),   2   Watts    &   S.    463. 

52.  Mandamus. — A  receiver  of  an 
insolvent  bank  is  entitled  to  a  man- 
damus to  compel  the  state  treasurer 
to  pay  to  him  from  the  bank  fund  a 
sum  sufficient  to  discharge  the  excess 
of  the  bank's  indebtedness  beyond  its 
effects,  provided  such  fund  is  large 
enough.  But  the  writ  should  not  re- 
quire payment  of  any  money  of  the 
state,  as  distinguished  from  the  bank 
fund;  nor  should  it  require  the  treas- 
urer to  pay  money  of  his  own,  on 
the  score  of  his  having  subjected  him- 
self to  liability  for  the  deficit  of  the 
fund  by  reason  of  his  having  wrong- 
fully made  payments  from  the  fund 
to  banks  not  entitled  to  such  pay- 
ments. Danby  Bank  7'.  State  Treas- 
urer,  39  Vt.   92. 

53.  Action  by  single  creditor. — 
Where  a  banker  executed  a  bond  as 
required  by  Laws  1907.  c.  185,  as 
amended  by  Laws  1908,  c._  479.  pro- 
vidiuQ-  for  a  bond  conditioned  for 
prompt    repayment    of     deposits,      and 


16  (1) 


CONTROL    AND   REGULATION    IN    GENERAL. 


35 


§  15  (8)  School  Funds.— (Okl.)  Comp.  Laws  1909,  §  7943,  pro- 
vides a  specific  system  for  the  protection  of  any  part  of  the  permanent 
school  fund  temporarily  deposited  in  banks  or  trust  companies,  and  the  pro- 
tection extended  to  general  depositors  by  section  323,  providing  for  the 
depositors'  guaranty  fund,  does  not  apply  to  deposits  of  the  permanent 
school  fund."^^^ 

§  16  Reports  and  Statements'^^ — §  16  (1)  Duty  to  Make  and 
Effect  of  Failure."'^' — Only  reports  and  statements  expressly  required  of 
the  banks  by  law  can  be  demanded  of  them.'^s 

Statutory  Provisions  and  Repeal. — Where  a  statute  requires  reports 
to  be  filed  in  a  certain  office  and  published  in  newspapers,  it  is  not  repealed 
by  a  subsequent  statute  creating  a  board  of  bank  commissioners  not  incon- 
sistent with  it.^' 


that  a  suit  may  be  brought  thereon  by 
any  party  aggrieved,  a  depositor  may 
sue  alone  at  law  on  the  bond  in  the 
absence  of  any  proof  of  the  existence 
of  other  creditors,  or  that  the  money 
of  any  other  person  has  been  em- 
bezzled. Alessandro  z:  People's 
Surety  Co.,  143  App.  Div.  145,  127  N. 
Y.  S.  572.  See,  also,  Gufifanti  v.  Na- 
tional Surety  Co.,  133  App.  Div.  610, 
118  X.  Y.  S.  207,  affirmed  in  196 
X.  Y.  4.J2,  90  X.  E.  174,  134  Am.  St. 
Rep.    848. 

53a.  School  funds. — Columbia  Bank 
and  Trust  Co.  z'.  United  States  Fidel- 
ity, etc..   Co.   (Okl.),  176  Pac.  556. 

54.  Falsification  of  by  bank  offi- 
cers, see  post,  "Offenses,"  §  61; 
"Prosecution    and    Punishment,"    §    62. 

By  trust  companies,  see  post,  "Con- 
trol and  Regulation  in  General,"  §  310. 

55.  As  ground  of  forfeiture  of  char- 
ter, see  post,  "Grounds  for  Forfeiture 
of    Franchise    or    Dissolution,"    §    68. 

Effect  on  right  to  sue,  see  post,  "Ca- 
pacity to   Sue   and   Be    Sued,"   §   213. 

Liability  of  officers  for  failure  to 
make  reports,  see  post,  "Nature  and 
Extent,"  §   57. 

56.  Express  authority  of  law  essen- 
tial to  requirement  of  reports. — State 
r,  Unifjn  Rank  CLa.),  4  Rob.  499,  con- 
struing Louisiana  statute  of  Feb.  5, 
1842. 

Banking  partnership  not  within  stat- 
ute.—Sfciinns  lOS,  100,  ni  .Act  99  O. 
L.  209,  the  former  reciuiring  "every 
banking  company,  saving  l)ank,  *  *  * 
and  every  person  or  copartnership  do- 
ing a  l)anking  business,"  to  make  cer- 
tain reports,  and  the  latter  requiring 
the  president,  vice  president,  cashier, 
secretary  or  treasurer  to  verify  such 
rfi)r)rts,     neither      expressly      nrir      l)y 


necessary  implication  require  a  bank- 
ing partnership  to  make  reports  as  re- 
quired by  §§  3817,  3818,  Rev.  Stat., 
which  required  certain  reports  to  be 
made  to  the  auditor  of  the  state.  Guil- 
bert  V.  Kilgour,  8  N.  P.,  N.  S.,  617.  19 
O.  D.  N.  P.  670  (see  8  X.  P.,  N.  S., 
81,  19  O.  D.  X.  P.  837).  See  ante, 
"Right   of   Banking  in   General,"   §   1. 

A  banking  partnership  is  not  an  "in- 
stitution" within  the  meaning  of 
§§  3817,  3818,  Rev.  Stat.,  requiring 
"every  banking  institution,  or  corpora- 
tion engaged  in  the  business  of  bank- 
ing," to  file  certain  reports,  verified 
by  its  officers.  Guilbert  7'.  Kilgour,  8 
X.  P.,  N.  S.,  617,  19  O.  D.  X.  P.  670 
(see  8  N.  P.,  N.  S.,  81,  19  O.  D.  N.  P. 
837). 

57.  Statutory  provisions  and  repeal. 
— By  Act  .\pril  1,  ISTC).  cacli  lianking 
company  was  required  to  file,  with  the 
recorder  of  the  county  wherein  its 
principal  office  was,  certain  sworn 
statements,  showing  the  amount  of 
capital  employed  by  it,  and  the  con- 
dition of  its  assets  and  lialiilities, 
wliich  statements  should  be  pulilishcd 
semiannually  in  a  local  newspaper. 
Any  bank  failing  to  comply  with  these 
provisions  was  debarred  from  suing  in 
any  court  of  the  state.  .\cts  1877-78, 
p.  740,  created  a  lionrd  of  l)ank  com- 
missioners, whose  office  was  to  be  at 
San  PVancisco,  and  whose  duty  it  was 
to  investigate  and  report  upon  viola- 
tions of  the  banking  law.  All  lianks 
were  required  to  report  to  them  semi- 
annuall}'  on  the  state  of  their  business, 
and  tliese  stateinents  were  to  1)e  pre- 
served and  kept  for  inspection.  No 
mention  was  made  of  filing  statements 
in  the  recorder's  office,  or  of  nulilish- 
iiig    tliem    in    newspapers.      .All    incon- 


36  BANKS   AND   BANKING.  §    16    (3) 

Denial  of  Access  to  State  Courts. — Where  the  statute  merely  denies 
access  to  the  state  courts  to  banks  failing  to  comply  therewith,  they  may 
still  transact  banking  business  in  the  state. ^'^ 

Liability  to  Be  Proceeded  against  as  Insolvent. — Sometimes  failure 
to  comply  makes  the  banking  association  liable  to  be  proceeded  against  as 
insolvent. •'"'^ 

Untrue  Returns  to  Governor. — Charges  in  a  bill  that  a  small  sum  was 
paid  in  money  for  bank  stock,  and  the  balance  paid  in  notes  for  stock  notes, 
and  that  the  purchasers  became  president  and  directors  and  reported  to  the 
governor  that  one-fourth  of  the  capital  stock  was  paid  in,  when  the  report 
was  known  to  be  untrue,  require  an  answer  and  explanation.  The  charges 
uncontradicted  warrant  the  strongest  conclusions  against  the  parties.*''^ 

§  16  (2)  Time  to  Make. — While  a  quarterly  statement  must  be  made 
at  the  time  required  by  law,  or  it  need  not  be  received,^^  yet,  where  an  act 
(Cal.  St.  1876,  p.  729),  provides  that  banking  corporations  shall  publish  in 
January  and  July  of  every  year  statements  of  their  financial  condition,  yet, 
in  view  of  the  fact  that  the  only  penalty  provided  for  failure  to  so  publish 
is  that  no  corporation  can  maintain  an  action  "until"  such  statement  has 
been  published,  a  publication  of  a  statement  before  the  time  named  in  the 
statute  for  the  publication  of  the  next  statement  is  sufficient,''-  where  in- 
tended in  good  faith  as  a  compliance  with  its  requirements.*'-^ 

§  16  (3)  Form  and  Contents. — Substantial  Compliance  with 
Statute. — Substantial  compliance  with  the  requirements  of  the  statute  re- 
c|uiring  the  report  or  statement  is  necessary.'^'*     But  substantial  compliance 

sistent  acts  were  repealed.     Held,  that  plaintifif    could    not    get    its    statements 

there  was  no  inconsistency  in  the  acts,  from    London    before    about    the    niid- 

and   that   the   former   was   not   repealed  die    of    February   and   August,    and    did 

by   the   latter.      Bank   v.    Cahn,    79    Cal.  not    publish    them    until    the    following 

463,  21   Pac.  863.  July    or    January,    respectively.      Held 

58.  Denial  of  access  to  state  courts.  that,  though  it  would  have  been  a 
— Barling  v.  Bank,  50  Fed.  260,  1  C.  C.  more  substantial  compliance  with  the 
A.  510,  construing  Cal.  Act  April  1,  statute  to  have  published  the  state- 
1876    (St.   1876,   p.   729).  ments    as    soon    as    received,   yet   with- 

59.  Liability  to  be  proceeded  against  holding  them  until  the  recurrence  of 
as  insolvent. — Boisgerard  i'.  New  York  the  next  July  or  January  would  not  of 
Banking  Co.  (N.  Y.),  2  Sandf.  Ch.  23,  itself  have  been  considered  a  fatal  de- 
affirmed  in  4  Ch.  Suit,  20,  construing  feet,  since  it  would  have  been  pre- 
Statute   of  1841.  sumed    that    the    delay   was    caused    by 

60.  Untrue  returns  to  governor. —  the  supposition  that  the  publication 
Schley  7'.  Dixon,  24  Ga.  273,  71  Am.  could  he  legally  made  only  in  the 
Dec.    121.  months   named  m  the  statute,   and  was 

61.  Quarterly  statement. — People  therefore  intended  in  good  faith  as  a 
z:    Campbell,    14    TU.    400.  compliance      with       its      requirements. 

62.  Publication  before  time  named  Bank  i'.  Alaska  Imp.  Co.,  97  Cal.  xvii, 
for  publication  of  next  statement. —  31  Pac.  729;  S.  C,  97  Cal.  28,  31  Pac. 
Bank  z'.   Madison,   99   Cal.   125,   33   Pac.       726. 

762.  64.       Substantial      compliance      with 

63.  Intention  to  comply  in  good  statute. — Bank  z>.  Alaska  Imp.  Co.,  97 
faith.— The  statute  requires  that  the  Cal.  28,  31  Pac.  726;  S.  C,  97  Cal. 
statements    he    published    each    year    in  x^m.  31    Pac.   729. 

January    and    July.      It    appeared    that  St.  1875-6,  p.  729,  provides  that  bank- 


§  16  (4) 


CONTROL   AND    REGULATION    IN   GENERAL. 


Z7 


is  sufficient,  as,  where  the  statute  provides  for  the  publication  of  two  state- 
ments, the  publication  of  the  two  statements  in  one  document  is  sufficient ;"-''' 
and  under  a  provision  of  the  statute  that  the  published  statement  shall  con- 
tain "the  actual  condition  and  value  of  the  assets"  of  the  corporation,  a 
statement  showing  the  amount  of  cash  on  hand  and  at  bankers,  the  amount 
of  cash  at  call  and  short  notice,  the  amount  of  investments,  the  amount  of 
bills  receivable  and  other  securities,  and  the  value  of  the  corporation's 
premises,  is  sufficient.f'c  Under  a  statute  requiring  returns  to  be  made  by 
the  officers  of  banks,  the  return  of  the  cashier  must  be  founded  on  the 
books  of  the  bank,  and  must  contain  a  true  statement  of  the  condition  of 
the  bank  at  the  time  of  making  the  return.'^'  Under  a  statute  requiring  a 
quarterly  report  of  the  condition  of  the  bank  in  various  particulars,  includ- 
ing loans  and  discounts  due  from  the  directors,  the  bank  may  be  required 
to  state  in  a  general  way,  the  largest  amount  due  any  one  individual,  firm, 
or  corporation,  and  also  the  aggregate  of  loans  upon  paper  made,  accepted 
or  indorsed  by  the  directors  as  individuals  or  as  members  of  firms.*'^ 

§   16    (4)    Verification. — The  primary  meaning  of  "verify"  is  to  af- 
firm under  oath,  and  a  statute  requiring  a  firm  doing  a  banking  business  to 


ing  corporations  shall  publish  and  re- 
cord statements  each  year  in  January 
and  July;  that  one  of  such  statements 
shall  show  the  amount  of  capital 
stock  actually  paid  in,  and  the  other 
shall  show  the  actual  condition  and 
value  of  its  assets  and  liabilities,  and 
where  the  assets  are  situated.  Plain- 
tiff filed  a  statement  which,  omitting; 
the  figures,  was,  imder  the  head  of 
■■Lial)ilities:''  "Capital,"  $ ;  "Cir- 
culation,"    $ ;      "Deposits,"      $ ; 

"Bills    payable    and     other    liabilities." 

$ ;    "Undivided    net   profits,"    $ ; 

"Total,"  $ ;   and   under  the  head   of 

"Assets:"   "Specie    on    hand    and    cash 

at    banker's,"    $ ;    "Bills    receivable 

and  other  securities,"  $ ;  "Invest- 
ments,"      $ ;       "Bank        premises," 

S ;  "Total,"  $ , — a  sum  equaling 

the  liabilities.  Held,  that  the  state- 
ment was  not  a  substantial  compliance 
with  the  statute.  Bank  v.  Alaska 
Imp.  Co.,  97  Cal.  28.  31  Pac.  726,  S. 
C  !)?   Cal.   xvii.   :!1    Pac.  729. 

65.  Publication  of  two  statements 
in  one  document. —  P.ank  :•.  .Madison, 
99    Cal.    12.5.    •{.'}    Pac.    762. 

Though  the  statute  provides  for  the 
l)ublication  of  two  statements — one  of 
the  capital  stock,  and  the  other  of  the 
assets  and  liabilities,  of  the  corpora- 
tion— the  publication  of  the  two  state- 
ments as  one  document  is  sufficient, 
whore  the  amount  of  the  capital  stock, 
''md  the  actual  ronditif)n  and  value  of 
the    assets    and    1i;ibibtics,    ar<'    mM     out 


in    the    document.      Bank    v.    Madison, 
99    Cal.    125,    33    Pac.    762. 

66.  Statement  of  condition  and 
value  of  assets. — Bank  t'.  Madison,  99 
Cal.    12j,   33   Pac.   762. 

Under  a  provision  that  the  pul)- 
lished  statement  shall  contain  '"tiie 
actual  condition  and  value  of  the  lia- 
l)ilities"  of  the  corporation,  a  state- 
ment showing  the  amount  of  capital, 
the  amount  of  reserve  fund,  tlic 
amount  due  depositors,  the  amount  of 
circulation,  the  amount  of  bills  payable 
and  other  liabilities,  the  amount  of 
rebate,  and  the  amount  of  undivided 
net  profits,  is  suflicient.  Bank  v. 
Madison,   99   Cal.    12.'),   33   Pac.   762. 

Under  a  provision  that  the  published 
statement  shall  set  forth  "where"  the 
assets  are  situated,  a  statement  re- 
citing that  part  of  the  assets  are  in 
London,  England,  part  in  San  hVan- 
cisco,  part  in  New  York  City,  and  pari 
in  Canada,  without  giving  the  amount 
of  assets  at  the  places  named,  is  sufli- 
cient. Bank  v.  Madison.  99  Cal.  12"), 
33   Pac.   762. 

67.  Return  must  be  founded  on 
books  of  the  bank. — Commonwealth 
V.  Dunham,  Thacher  Cr.  Cas.  519,  con- 
struing   an    old    Massachusetts    statute. 

68.  Report  as  to  loans  and  dis- 
counts due  from  director?  of  bank. — 
Peo,)lc  ,-■.  Vail  {K.  \.).  6  AM).  X.  C. 
206.  .")7  I  low.  I'rac.  Kl.  ccnstruiiig  \ew 
N'ork    statute    of    IHI7. 


38 


BANKS    AND   BANKING. 


§    17     (1) 


make  reports  to  the  auditor  of  state,  verified  by  some  member  of  the  firm, 
calls  for  reports  under  oath.*'^  A  verification  to  the  best  of  affiant's  knowl- 
edge and  belief  is  sufficient  when  that  is  the  language  of  the  statute,"*^  or 
where  the  specified  officer  or  agent  could  not  have  actual  knowledge  of  its 
correctness,  e.  g.  of  the  condition  of  a  foreign  corporation/^  But  where 
the  statute  requires  a  sworn  statement,  verified  by  some  officer  of  the  bank, 
the  affidavit  must  show  that  the  officer  at  least  swears  that  he  believes  it 
to  be  true,  not  merely  that  it  is  a  copy  of  another  statement." - 

§  16  (5)  Returns  as  Notice  of  Bank's  Condition. — The  returns 
required  by  law  to  be  made  to  the  governor  and  published  are  a  source  of 
information  and  opened  to  every  person  having  dealings  with  the  bank,  and 
though  they  may  not  amount  to  technical  notice,  they  are  a  method  by  which 
a  diligent  person  may  ascertain  the  true  condition  of  the  bank ;  but  whether 
true  or  untrue  such  returns  are  conclusive  as  to  the  liability  of  the  bank 
and  stockholders.'^'' 

§  17.  Public  Examiners'^ — §  17  (1)  Appointment. — Authority  to 
Appoint. — It  has  been  held,  and  no  doubt,  correctly,  that  inspections  may 
be  required  and  the  cost  thrown  on  the  bank."*^ 

Provisional  Appointment. — The  appointment,  during  vacation  of  the 
state  senate,  of  a  bank  commissioner,  under  a  statute  providing  for  his  ap- 
pointment with  the  consent  of  the  senate,  was  only  provisional,  and  the  of- 


69.  Verification — Primary    meaning. 

—State  -c'.  Trook,  172  Ind.  558,  88  N.  E. 
930,  construing  Ind.  Acts,  1905,  p.  182, 
c.  109,  §  5. 

70.  Verification  to  best  of  affiant's 
knowledge  and  belief  enough. — Daven- 
port V.  Prentice,  126  App.  Div.  451,  110 
N.  Y.  S.  105(3,  construing-  banking  laws 
of  New  York. 

71.  As  to  foreign  corporation. — Un- 
der a  provision  of  the  statute  that  the 
statement  of  a  foreign  corporation 
shall  be  verified  by  the  agent  or  man- 
ager of  such  corporation  residing  in 
the  state,  a  verification  of  the  state- 
ment of  a  foreign  corporation  by  its 
resident  agent,  that  it  was  true  to  the 
best  of  his  knowledge  and  belief,  is  not 
open  to  the  objection  that  it  was  not 
made  upon  actual  knowledge.  Bank 
1'.   Madison,  99  Cal.  125,  33  Pac.  762. 

72.  Affidavit  that  statement  is  copy 
of  another  statement  insufficient. — Tlie 
statute  further  requires  that  the  state- 
ments filed  shall  be  sworn  statements, 
verified,  in  the  case  of  foreign  corpo- 
rations, by  the  agent  or  manager  of 
the  business  resident  in  the  state. 
Plaintift's  statement  was  followed  by 
an  aflidavit  of  the  managing  agent  at 
San    Francisco,    which    stated    that    the 


bank  has  its  principal  place  of  business 
in  London;  that  the  accounts  of  the 
San  Francisco  agency  are  made  up 
twice  each  year,  and  forwarded  to  the 
London  office,  where  a  general  state- 
ment is  prepared,  and  sent  to  the  San 
Francisco  office;  that  the  foregoing  is 
a  correct  copy  of  the  last  statement 
received.  There  was  nothing  in  the 
affidavit  to  show  that  the  statement 
was  sworn  to  by  any  officer  or  em- 
ployee of  the  bank,  or  that  the  affiant 
believed  the  statement  to  be  true,  only 
that  it  was  a  true  copy  of  the  last 
statement  received.  Held,  that  this 
was  not  a  sworn  statement,  within  the 
meaning  of  the  statute.  Bank  v. 
Alaska  Imp.  Co.,  97  Cal.  28.  31  Pac. 
726;  S.  C,  97  Cal.  xvii,  31  Pac.  729. 

73.  Returns  as  notice  of  bank's  con- 
dition.— Hill  v.  Silvey,  81  Ga.  500,  8  S. 
E.  808,  3  L.  R.  A.  150;  Schley  7'.  Dixon, 
24  Ga.  273,  71  Am.   Dec.  121. 

74.  Of  national  banks,  see  post,  § 
287,  et  seq. 

75.  Inspection  and  payment  there- 
for.— Charlotte,  etc.,  R.  Co.  v.  Gibbes, 
142  U.  S.  38G.  35  L.  Ed.  1051;  Xoble 
State  Bank  :■.  Haskell.  219  U.  S.  104, 
]12.  55  L.   Ed.   112,  31   S.   Ct.   186. 


§    17    (4)  CONTROL    AXD   REGULATION'    IN    I'.KNKRAL.  39 

ficial  term  began  to  run  only  on  the  appointment  of  such  commissioner  at 
the  next  session  of  the  senate."*^ 

§  17  (2)  Compensation. — Where  the  statute  creating  bank  examin- 
ers prescribes  their  compensation,  it  must  prevail."'  An  act  of  the  legisla- 
ture appropriating  a  certain  sum  to  pay  officers  appointed  at  that  session 
to  wind  up  a  certain  bank  includes  an  officer  appointed  to  visit  such  bank 
and  another  one,  the  amount  appropriated  being  sufficient  to  pay  his  salary 
as  well  as  the  salaries  of  the  other  officers  appointed  for  the  purpose 
stated."^ 

§  17  (3)  Removal. — Bank  examiners  can  not  be  prosecuted  under  the 
statute  providing  for  the  removal  of  public  officers  from  office,  for  mal- 
feasance or  neglect  of  duty,  where,  by  other  sections,  prosecutions  for  re- 
moval can  only  be  maintained  against  district,  county,  municipal  or  town- 
ship officers.'^ 

Power  of  Governor. — Under  the  common  law  and  under  Const,  art.  12, 
§  8,  and  article  4,  §  22,  and  Civ.  Code,  1902,  §§  340,  393,  of  South  Car- 
olina the  Governor  has  no  authority  to  remove  from  office  the  State  Bank 
Examiner  whose  term  of  office  if  fixed  at  four  years  by  Act  Feb.  23, 
1906  (25  St.  at  Large,  p.  103),  as  amended  by  Act  Feb.  20,  1911  (27  St. 
at  Large,  p.  4  )."'"^ 

§  17  (4)  Powers. — In  General. — The  powers  of  bank  examiners 
depend  on  the  terms  of  the  statutes  creating  them.'^"  The  legislature,  in 
the  exercise  of  its  police  power,  is  authorized  to  regulate  the  business  of 

76.     Provisional   appointment.— State  79a.    Power    of    Government.— Lyon 

V.    Breidenthal,    55   Ivan.    308,    40    Pac.       ''-'■   Rhame   (S.   C.),  75   S.   E.  881. 


651,   construing   Kansas   Laws,   1891.   c. 


80.    Particular    statutes    construed. 


43.      'See,     also,     ante,    "Constitutional       Arkansas.— \n   act    relatmo-   to   the   liq- 
and   Statutory   Provisions,"   §   4.  nidation    of    a    bank,    whose    property 


77.       Compensation  —  Amount. — Act 


had   yone   into   the   possession   of   trus- 
tees named  in  a  deed  of  the  directors, 


March  29,  1889  which  provides  for  re-  -^^^^  f^,  tl,,  appointment  of  other 
ports  of  the  business  of  aU  banking  l^ustees,  and  also  of  a  bank  visitor  for 
institutions  to  be  made  to  the  board  ^^^^j^  ^^^^^^  ^^^^  another.  The  act  re- 
of  state  officers  constituted  by  the  act,  ^^j^^^  ,^j^^^  ^^  schedule  the  property 
and  for  yearly  examinations  of  the  af-  H^  ^,^^  ,^^,^j^  ^^  .^^.^  trustees,"  it  he- 
fairs  of  such  banks,  in  §  8  gives  the  ;  doubtful  which  ones  were  meant, 
compensaion  of  the  bank  examiners  j^-^,^^  provided  that  in  case  he  was 
at  $10  a  day,  but  in  no  case  to  exceed  .^^^t^;;  from  acting  as  visitor  of  ei- 
$20,  to  be  paid  by  the  bank  whose  af-  \^^^^  ^^  ^,^^  ^^^,^,.g_  ^^^^  ^^^^^  f^^  the 
fairs  are  being  examined.  Held,  that  ^^j^^.  ^^^  ^^,.^^  t,^  ,^^^^  ^,^,  ,^^,f  ^j^^ 
he  board  crcitea  by  the  act  has  no  an-  ^^,^  prescribed.  Held,  that  the  of- 
thonty  to  prescribe  a  different  rate  of  j^^^^.^  ^j  ,,t  ^^  ^i^i^  ^^^^  ,^^,^^  j„  ,i  ,j. 
compensatmn.  Post  v.  Benton,  31  ^j^^j^,^  ^^j^^^^l  ^,^ji^  ^^^^  property  was 
44.  4(    A.   v\  .  4i(.  jj^   tl^^   hands   of  the   trustee   named    in 

78.  _  Appropriation.— P.yrd  v.  Con-  the  deed.  Ryrd  v.  Conway,  5  Ark.  43(5. 
way,  5  Ark.   43(i.  California. — Incorporated        commer- 

79.  Removal — Construction  of  stat-  cial  l)anks  are  subject  to  examination 
utes. — Kilburn  v.  Law,  111  Cal.  237,  43  by  the  l)ank  commissioners,  under  the 
Pac.  (ns,  construing  Cal.  Pen.  Code,  Act  of  1878,  creating  the  board.  Wells 
§§  772,  888,  889.  V.   Coleman,  53   Cal.  41  (5. 


40 


BANKS  AND  BANKING. 


17  (4) 


banking,  and  for  that  purpose  may  authorize  an  administrative  officer  to 
adopt  a  reasonable  system  of  inspection  and  reports.^^ 

Examination  of  Vaults,  Books  and  Papers. — rVuthority  for  this  is 
usually  conferred. ^- 

Judicial  Powers — Enjoining  Prosecution  of  Business. — A  statute 
authorizing  bank  commissioners  to  apply  for  an  injunction  to  restrain  the 
bank  from  proceeding  further  with  its  business  is  not  unconstitutional  as 
usurping  judicial  power,-*^^  or  as  compelling  the  officers  and  agents  of  the 
bank  to  furnish  evidence  to  criminate  themselves, ^^  or  as  impairing  the  obli- 
gation of  a  contract. •"'■'^ 

Requiring  Change  of  Directors. — Visitorial  powers  over  bankers  jus- 
tify the  requirement  of  a  change  in  the  personnel  of  directors.''"' 

Power  to  Bind  Bank  by  Representations. — \\  hen  a  defaulting  of- 
ficer of  an  insolvent  bank  in  charge  of  a  bank  examiner,  for  the  purpose  of 
replenishing  the  assets  of  the  bank  to  enable  it  to  resume  business,  is  allowed 
to  furnish  collateral  securities  for  his  indorsements  on  paper  previously 
sold  by  him  to  the  bank,  representations  made  by  such  examiner  as  to  the 
liabilities  of  such  officer  to  the  bank  and  the  value  and  condition  of  the  se- 
curities already  furnished  by  him  are  not  binding  on  the  bank ;  and  one  who 
furnishes  securities  to  such  defaulting  officer  to  be  so  used  by  him  can  not 


81.  Adoption  of  system  of  inspec- 
tion and  reports. — State  v.  Struble,  19 
S.   D.  646,   104   N.  W.  465. 

82.  Examination  of  vaults,  books 
and  papers. — Under  Act  Feb.  5,  1843, 
§  2,  No.  22,  the  board  of  currency  are 
entitled  to  free  access  to  the  vaults 
and  books  of  the  banks  in  New  Or- 
leans; may  call  upon  their  officers  at 
any  time;  take  such  memoranda  and 
lists  as  they  think  proper;  and  require 
any  officer  of  such  banks  to  submit 
their  books  and  papers  to  their  inspec- 
tion and  examination.  State  f.  Union 
Bank   (La.).   4   Rob.   499. 

83.  Statute  authorizing  injunction 
against  bank.  —  Commonwealth  7'. 
Farmers',  etc..  Bank  (Mass.),  21  Pick. 
542,  32  Am.  Dec.  290,  construing  old 
Massachusetts   statute   of   1838. 

84.  As  compelling  self-incrimina- 
tion.— Neither  is  it  unconstitutional  on 
the  ground  of  its  compelling  the  offi- 
cers and  agents  of  a  bank  to  furnish 
evidence  to  criminate  themselves;  for 
(among  other  reasons)  it  imposes  a 
penalty  only  upon  those  who  "with- 
out justifiable  cause"  refuse  to  testify. 
Commonwealth  v.  Farmers',  etc.,  Bank 
(Mass.),  21   Pick.  542.  32  Am.  Dec.  290. 

85.  As  impairing  contract  obliga- 
tion.— Nor  is  it  unconstitutional  on 
the  ground  that  a  suspension  of  the 
proceedings   of   a   bank   by   the   injunc- 


tion, diminishes  tlie  period  for  which 
tlie  banl<  is  by  its  charter  empowered 
to  act  as  a  corporation  and  thereby  im- 
pairs the  obligation  of  a  contract;  for 
as  the  bank  may  violate  its  charter  or 
the  law.  there  must  be  some  mode 
prescribed  for  a  judicial  inquiry  into 
the  fact  and  for  giving  redress  to  par- 
ties who  may  have  suffered,  and  the 
injunction  is  not  an  arbitrary  suspen- 
sion of  the  corporate  powers  of  the 
bank,  but  a  species  of  compulsory 
process  entirely  consonant  to  the 
course  of  the  administration  of  justice 
in  like  cases.  Commonwealth  v. 
Farmers',  etc..  Bank  (Mass.),  21  Pick. 
542.  32  Am.  Dec.  290. 

86.  Requiring  change  of  directors.^ 
Where  the  promoter  of  a  bank  adver- 
tised that  its  affairs  would  be  placed 
in  the  hands  of  directors,  who  were 
strong,  wealthy  men  and  most  experi- 
enced bankers,  but  in  fact  he  caused 
directors  to  be  elected  who  were  men 
inexperienced  in  financial  affairs,  of  no 
independent  judgment  nor  fortune,  but 
who  were  wholly  subservient  to  his 
will,  the  secretary  of  state,  on  ascer- 
taining such  conditions,  was  justified 
by  Rev.  St.  1899,  §  1305.  conferring  on 
him  visitorial  powers  over  bankers,  to 
require  a  change  in  the  personnel  of 
the  board  of  directors.  Harlev  z'.  Peo- 
ple's, etc.,  Bank,  197  Mo.  574,  94  S.  W. 
953. 


§  18 


CONTROL    AND    REGULATION    IN    GENERAL. 


41 


rely  on  such  representations  of  the  examiner  as  a  defense  in  an  action  by 
the  bank  to  foreclose  its  lien  on  such  securities.^" 

To  Examine  Records  of  Bank  Commissioner.— The  state  bank  ex- 
aminer and  inspector  is  authorized  by  the  Oklahoma  statute  to  examine  the 
records  of  the  bank  commissioner,  including  the  records  of  a  failed  or  in- 
solvent bank  in  his  custody  as  such  officer  in  administering  the  affairs  of 
such  bank  under  the  powers  conferred  upon  him  by  said  act.'^'^ 

§  17    (5)   Efifect  on  Title  to  Property  and  Rights  of  Action.— The 

legal  title  to  the  assets  is  unchanged,  and  it  may  still  sue  in  regard  thereto. '^"•^ 

§  18.  Foreign  Banks.'"'— A  penal  statute  in  regard  to  failure  to  pay 
prescribed  fees  for  doing  business  in  the  state  is  not  applicable  to  foreign 
banking  companies  where  they  are  not  mentioned," i  nor  a  statute  punish- 


87.  Power  to  bind  bank  by  repre- 
sentations.— Tecumseh  Xat.  Bank  !■. 
Chamberlain  Banking  House,  63  Xeb. 
163,  88   X.   W.   186.   57   L.    R.   A.   811. 

88.  Examination  of  records  of  bank 
commissioner. — Taylor  z:  Cockrell,  27 
Ukl.  630,  112  Pac.  1000,  construing' the 
Oklahoma  statute. 

89.  Effect  on  title  to  property  and 
rights  of  action. — Laws  1892,  c.  689.  § 
18.  as  amended  by  Laws  1908,  c.  143, 
§  3,  authorizes  the  state  superintendent 
of  banks  to  take  possession  of  the 
property  and  business  of  any  corpora- 
tion and  individual  banker,  when  it  ap- 
pears that  such  bank  is  doing  business 
in  an  unsafe  or  unauthorized  manner, 
and  retain  possession  till  the  bank  re- 
sumes business,  collect  money  due  the 
bank,  collect  all  debts  due  and  claims 
belonging  to  it,  and  upon  an  order  of 
the  supreme  court  sell  or  compound 
doubtful  debts  or  sell  its  realty,  pay  all 
debts  of  the  corporation,  and  do  other 
acts  necessary  to  conserve  its  assets, 
and  further  provides  that  the  corpora- 
tion may  resume  business  upon  condi- 
tions approved  by  the  superintendent. 
Held,  that  the  statute  did  not  directly 
deprive  a  bank,  in  the  hands  of  the 
superintendent,  of  title  to  its  assets. 
or  vest  it  in  the  superintendent,  so 
that  a  l)ank  in  the  hands  of  the  super- 
intendent was  the  real  party  in  interest, 
and  the  proper  party  plaintiff  in  an  ac- 
tion on  a  promissory  note  owned  by 
It.  Lafayette  Trust  Co.  v.  Higgin- 
botham,  130  App.  Div.  747,  121  X  Y 
S.  489. 

90.       Banking     powers     generally. — 

See  post,  ••I'lace  of   f.xercise,"'  S  H'l  (3). 
Location    and   place   of   business,    see 
post,    "Location    and     Place    of    Busi- 
ness," §  32. 


Xational  banks  as  foreign  corpora- 
tions, see  post,  "Xature  and  Status," 
§  232. 

What  are  banks,  see  ante,  "What 
Are   Banks,"  §  2. 

Power  to  acquire  and  hold  property. 
— See  post,  "In  General,"  §  94;  "Real 
I'roperty,"  §  95. 

Power  to  make  loans. — See  post,. 
"Power    to    Make    Loans    in    General," 

§  no. 

Power  of  discount. — See  post,  "Power 
of  Discount,"  §  177. 

As  to  circulating  notes. — See  post, 
"Power   to    Issue    or   Circulate,"   §    197. 

Subjection  to  laws  of  state  where  it 
operates. — See   ante,   "In   General,"   §   S. 

91.  Amenability  to  penal  statute. — 
Pol.  Code,  pt.  3,  tit.  1,  c.  3,  art.  11,  § 
497,  as  amended  by  Act  March  4,  1897 
(Laws  1897,  p.  107),  and  Laws  1903,  p. 
184.  c.  100,  requiring  each  bank  or  in- 
vestment and  loan  company  incorpo- 
rated under  the  laws  of  this  state  to 
pay  certain  fees  into  the  state  exam- 
iner's .fund,  and  requiring  each  build- 
ing and  loan  association,  wliether  for- 
eign or  domestic,  to  pay  a  certain  pro- 
portion of  its  assets  into  the  fund,  and 
§  498,  providing  penalties  for  failure 
of  any  bank,  building  and  loan  associa- 
tion, or  investment  and  loan  com])any 
incorporated  under  the  laws  of  tliis 
state,  "or  doing  business  under  any 
law  of  this  state  concerning  corpora- 
tions," to  pay  the  fees  prescribed  in 
the  preceding  section,  do  not  apply  to 
foreign  banking  companies  doing  bus- 
iness in  the  state,  since  the  statute  be- 
ing penal,  and  to  be  strictly  construed, 
the  phrase  quoted  can  not  be  read  into 
S  497.  State  7'.  ^Etna  Banking,  etc., 
Co.,  34  Mont.  379,  87  Pac.  208.  See. 
also,  ante,  "Power  to  Impose,"  § 
12   (1). 


42 


BANKS  AND  BANKING. 


§  21 


ing  embezzlement  by  officers  or  employees  of  banks  "in  the  state. "^^ 

§  19.  Penalties  for  Violations  of  Regulations. — It  has  been  held 
that  a  failure  in  several  respects  to  comply  with  a  statute  requiring  reports 
and  returns,  makes  the  delinquent  bank  liable  for  each  neglect  to  the  pen- 
alty named. ^3 

§  2  0.  Offenses  by  Banks  or  Bankers. '^^ — Sufficiency  of  Informa- 
tion.— In  the  information  against  a  bank,  it  is  only  necessary  that  the  time 
and  other  circumstances,  in  the  description  of  one  of  the  charges  showing 
a  violation  of  the  charter,  be  certain  to  a  common  intent. ^'^ 

§  21.  Offenses  by  Persons  Dealing  with  Banks. — Drawing  Check 
without  Funds. — A  statute  making  it  a  crime  to  draw  or  pay  a  check  with- 
out funds  to  draw  against  has  been  held  to  embrace  all  classes  of  persons, 
not  merely  bank  officers.'^"  The  essential  elements  of  the  crime  are  the 
drawing  of  the  check,  knowledge  of  insufficiency  of  drawer's  funds  to  meet 
it,  and  an  intent  to  defraud. ^^ 

Passing  of  Fictitious  Check  with  Intent  to  Defraud. — The  essentials 
of  the  offense  denounced  by  a  statute  punishing  the  passing  with  intent  to 
defraud  any  fictitious  check,  are  the  uttering  and  publishing  of  a  fictitious 
check  with  knowledge  of  its  character  and  an  intent  to  defraud,  and  the 


92.  Under    embezzlement    statute. — 

The  Frccdman's  Savings  and  Trust 
Company,  incorporated  by  act  ot  cnr- 
gress,  i.i;d  located  m  the  city  of  Wash- 
ington, is  not  a  bank  or  corporate  body 
in  Georgia,  within  the  meaning  of  § 
4421  of  the  Code.  Cory  ^■.  State,  55 
Ga.  236. 

93.  Commonwealth  r.  Cooke,  50  Pa. 
201,    construing   Act    of    May    16,    1861. 

Unauthorized  banking,  see  ante, 
"Penalties  and  Actions  Therefor,"  §  10. 

94.  Offenses  by  banks  or  bankers. — 
Civil  liability  therefor,  see  post,  "Civil 
Lial)ility  on  Insolvency,"  §  82,  and 
subdivisions   thereunder. 

Constitutional  and  statutory'  provi- 
sions, see  ante,  "Constitutional  and 
Statutory   Provisions,"   §   4. 

Criminal  responsibility  of  bank  offi- 
cers and  agents,  see  post,  "Officers,"  § 
CI;  "Prosecution  and  Punishment,"  § 
62;  '"Officers,"  §  84;  "Prosecution  of 
Punisliment,"   §  85. 

Unauthorized  banking,  see  ante, 
"Criminal    Prosecutions,"   |    11. 

Criminal  responsibility  of  l^ank  offi- 
cers and  agents,  see  post,  "Criminal 
Responsibility,"  §  60;  "Officers,"  §  61; 
"Prosecution    of    Punishment,"    §    62. 

95.  Sufficiency  of  information. — 
Bank  r.  State,  1  Blackf.  (Tnd.)  267,  12 
Am.   Dec.   234. 


97.  Drawing    check    without    funds. 

— Burkett  ?■.    Lanata.    15    La.   Ann.   337, 
construing  Act   of   March   15,   1855. 

98.  Essential  elements. — State  v. 
Pilling,  53  Wash.  464,  102  Pac.  230. 

The  essential  elements  of  the  crime 
defined  by  the  Washington  Act  March 
2,  1905  (Laws  1905,  p.  78,  c.  49)  §  1, 
are  the  drawing  of  a  check  on  a  bank 
for  the  payment  of  money,  knowledge 
that  the  drawer  has  not  sufficient  funds 
to  meet  the  check,  and  an  intent  to  de- 
fraud; and  the  technical  ownership  of 
the  money  paid  out  by  a  bank  on  a 
check  drawn  on  another  bank  is  not 
material.  State  z\  Pilling,  53  Wash. 
464,  102  Pac.  230. 

An  information  alleging  that  accused 
with  intent  to  defraud  prosecutor  drew 
and  delivered  to  a  third  person  a  check 
on  a  bank,  knowing  at  the  time  he  had 
no  funds  in  or  credit  with  the  bank  to 
meet  the  check,  states  the  oftense  de- 
nounced b}'  Pen.  Code,  §  476a,  prohib- 
iting the  drawing  of  checks  v/ith  in- 
tent to  defraud.  People  v.  Mohr,  157 
Cal.  732,  109  Pac.  476. 

Postdated  check. — A  prosecution 
lield  warranted  under  Pen.  Code,  § 
476a.  for  the  utterance  of  a  postdated 
check,  where  there  were  no  funds  to 
meet  it.  People  i'.  Bercovitz  (Cal.), 
126  P.  479. 


^  21 


CONTROL    AND    RFX.ULATIOX    IX    GENERAL. 


43 


state  need  not  prove  that  accused  drew  or  attempted  to  draw  on  an  account 
which  he  had  estabhshed  in  a  bank  based  on  the  fictitious  check,  or  that  the 
bank  was  in  fact  defrauded  by  the  transaction.^" 

Intent  a  Question  for  Jury. — The  intent  is  a  question  for  the  jury.i 

Repeal  of  Statute. — A  statute  making  the  forgery  of  a  check  on  a  bank 
a  felony  was  not  repealed  by  a  general  revision  of  the  penal  laws.- 

Admissibility  of  Evidence. — On  a  trial  for  passing  a  fictitious  check 
purporting  to  have  been  signed  and  indorsed  by  a  third  person  on  a  desig- 
nated bank,  evidence  of  the  nonpayment  of  the  check  and  of  the  fact  that 
the  third  person  did  not  have  an  account  with  such  bank  was  admissible.^ 
And  the  testimony  of  the  receiving  teller  of  the  bank  that,  referring  to  the 
Tjank  book  showing  the  names  of  the  depositors,  the  name  of  the  third  per- 
son did  not  appear  as  a  depositor  was  admissible  as  prima  facie  evidence 
that  the  check  was  fictitious.'* 

Sufficiency  of  Evidence.— In  a  prosecution  under  laws  1905.  c.  5468, 
for  drawing  a  draft  on  a  bank  in  consideration  of  property  received  with- 
out having  sufficient  money  in  the  bank  to  pay  it,  evidence  held  sufficient 
to  sustain  a  conviction."' 


99.  Passing  fictitious  check  with  in- 
tent to  defraud.— People  t'.  Walker.  15 
Cal.  Cr.  App.  400,  114  Pac.  1009,  con- 
struin,?  Cal.   Pen.   Code,   §   476. 

1.  Intent  a  question  for  jury. — The 
intent  with  which  a  depositor  of  a 
hank  who  had  opened  a  deposit  ac- 
count in  a  fictitious  name  deposited  a 
fictitious  check  in  violation  of  Pen. 
Code.  §  476,  and  thereby  received 
credit  on  his  account  therefor,  is  foi 
the  jury,  who  need  not  accept  his 
statement  oi  his  intent  in  making  the 
deposit,  but  the  establishment  of  the 
account  and  the  subsequent  deposit  of 
the  check  creating-  an  opportunity  to 
defraud  the  bank  justify  a  finding  of 
an  intent  to  defraud.  People  r.  Wal- 
ker, 1.5  Cal.  Cr.  App.  400,  114  Pac.  1009. 

2.  Repeal  of  statute. — Drew  v.  Coin- 
monwealth  (Pa.).  1  Whart.  279,  con- 
struing a   statute   of  Penn. 

3.  Admissibility  of  evidence. — Peo- 
ple r.  Walker,  i:.  Cal.  Cr.  App.  400.  114 
Pac.   1009. 

4.  People  r.  Walker,  1.",  Cal.  Cr. 
App.   400.    1  14    Par.    1009. 


5.  Sufficiency  of  evidence. — Ryan  z\ 
State,  60   IHa.  2.5,   53   So.  448. 

In  a  prosecution  under  Laws  1905, 
c.  5468,  making  it  a  felony  for  one  to 
issue  a  draft  upon  a  bank  in  payment 
of  anything  of  value,  the  title  or  pos- 
session of  which  shall  have  been  trans- 
ferred upon  the  faith  of  the  payment 
of  such  draft,  where  he  does  not,  at 
the  time  of  making  the  draft,  have 
sufficient  money  on  deposit  with  such 
bank  to  pay  the  draft,  or  has  reason 
to  believe,  from  an  existing  contract 
or  from  previous  dealings  with  the 
liank,  that  the  draft  will  be  paid,  and 
does  not  within  24  hours  after  notice 
of  nonpayment  of  such  draft,  make 
full  restitution  l)y  returning  the  con- 
sideration, evidence  clearly  establish- 
ing that  the  draft  was  presented  for 
payment  at  the  place  named  therein, 
that  the  drawee  could  not  l)e  found 
there,  that  the  draft  was  not  paid,  that 
notice  of  its  nonpayment  was  given  to 
accused  personally,  and  that  it  has 
never  been  paid,  is  sufficient,  as  to  pre- 
sentment and  notice  of  nonpayment, 
to  sustain  a  conviction.  Rvan  :■.  State. 
60  Phi.  :25,  5:!   So.  44S. 


CHAPTER  II. 

II.  Banking  Corporations  and  Associations. 

A.  Incorporation,  Organization   and  Incidents  of  Existence. 

§  22.   Nature  and   Formation   in   General. 
§  23.  Incorporation. 

§  23  (1)   Power  to   Incorporate. 

§  23   (2)   Conditional   Incorporation — Conditions    Precedent   and    Beginning 
of  Corporate  Existence. 

§  23   (3)   Results  of  Incorporation. 

§  23   (3a)   As    to    Liabilities,    Privileges    and    Powers. 

§  23   (3b)   Charter  as  Contract,  and  Amendment  or  Repeal. 

§  23   (3c)   Sale   of  Franchise  and   Efifect. 

§  23   (3d)   Notice   of   Charter. 

§  23   (4)   Amendment. 
§  24.   Partnerships  and   Joint-Stock   Companies. 
§  25.  Special   Charters   or  Acts. 

§  25   (1)    Power  to   Grant. 

§  25   (2)   Operation    and    Efifect. 

§  25   (3)   Amendment,   Renewal   and   Repeal. 
§  26.   General    Laws. 

§  27.  Defective   Incorporation  or   Organization. 
§  28.   Evidence   of   Existence. 

§  28   (1)   In    General. 

§  28   (la)    Presumptions    and    Burden    of    Proof. 

§  28   (lb)   Judicial    Notice. 

§  28   (Ic)   As   Question   for  Jury. 

§  28   (Id)   Of  National  Banks. 

§  28   (2)   Charter   or   Certificate. 

§  28   (3)   Parol    Evidence. 

§  28   (4)   User  and   Repute. 
§  29.  Term    of    Existence. 
§  30.   Extension,   Renewal  or  Transfer  of  Franchise. 

§  30   (1)    Extension  or  Renewal. 

§  30   (2)   Assignment   and   Transfer   of   Rights,   Franchises,   etc. 
§  31.   Name. 

§  31    (1)    Statutory   Requirements. 

§  31    (2)   Change  of  Name. 
§  32.   Location  and   Place  of   Business. 
§  33.   Branches. 

§  33   (1)   Distinct   Corporate    Existence   and   Authoritj'. 

§  33   (2)   Creation. 

§  33   (3)   Powers. 

§  33    (4)   Actions. 
§  34.  Constitution.  Charter  and  By-Laws. 

§  34   (1)    In    General. 

§  34   (2)   Charter  as  Notice. 

§  34   (3)   By-Laws. 
§  341^.   Repeal  or  Amendment. 


§    --  liAXKIXG   CORPORATIONS   AXD  ASSOCIATIONS.  45 

II.  BAXKING  CORPORATIONS  AND  ASSOCL-\TlONS.i 

A.   INCORPORATION,    ORGANIZATION  AND  INCIDENTS  OF  EX- 
ISTENCE. 

§  22.  Nature  and  Formation  in  General.— An  individual  carrying 
on  the  banking  business  is  not  a  corporation,-  or  a  quasi  corporation.-^ 

Classes  of  Banks. — There  are  two  classes  of  banks  in  the  states,  viz, 
state  banks  and  national  banking  associations.'* 

Purpose  of  Creation.— Banks  are  created  primarily  for  the  public  in- 
terest.^ 

Duties  and  Liabilities  of  Promoters.— Both  in  England  and  in  the 
United  States,  promoters  of  corporations  or  other  enterprises  have  been 
held  to  occupy  a  fiduciary  relation  towards  one  another,  and  towards  the 
company  or  corporation  whose  organization  they  seek  to  promote.  The 
principle  of  law  necessarily  resulting  from  the  doctrine  is  that  the  promoters 
must  act  in  good  faith  with  one  another,  and  with  the  corporation,  and  such 
special  advantages  or  profits  as  they  reserve  to  themselves  must  not  be  se- 
cret. In  other  words,  they  will  not  be  permitted  to  assert,  either  expressly 
or  by  necessary  implication,  that  they  are  forming  a  corporation  upon  terms 
which  give  them  no  special  profit  or  advantage,  while,  in  fact  they  are  in- 
tending to  reap  benefit  of  which  their  fellow  promoters  or  subsequent  sub- 
scribers have  no  notice.^"' 


1.  Loan,  trust  and  investment  com- 
panies, see  post,  "Loan,  Trust  and  In- 
vestment Companies,"  §§  310-317; 
National  banks,  see  post,  "National 
Banks,"  §§  232-288.  Savings  banks,  see 
post,    "Savings    Banks."    §§    289-309. 

2.  The  business  of  banking  by  an 
individual  is  his  personal  and  in- 
dividual affair,  and  suits  in  relation 
thereto  are  rightly  prosecuted  in  his  in- 
dividual name.  Cuyler  v.  Sandford  (N. 
Y.),  ^  Barb.  225;  Codd  v.  Rathbone, 
19  N.  Y.  37;  Hallett  v.  Harrower  (N. 
\.),  33   Barb.   537. 

An  unincorporated  bank,  exclusively 
owned  by  a  private  individual,  is  not 
a  legal  entity,  even  though  its  busi- 
ness be  conducted  by  a  president  and 
cashier.  Longfellow  v.  Barnard,  58 
Xeb.  612,  76  Am.  St.  Rep.  117.  79  N. 
W.  255,  affirmed  on  rehearing  in  59 
Xeb.    455.    81    X.    W.    307. 

3.  Not  a  quasi  corporation. — A  pri- 
vate bank  carried  on  by  an  individual 
IS  not  a  quasi  corporation  under  the 
banking  law.  In  re  Purl's  Kstate,  147 
Mo.    App.    105,    125    S.    W.    849. 

4.  Classes  of  banks— State  and  na- 
tional.—"Judicial  coL,MiizaiK-c  will  lie 
taken  of  the  fact  that  there  are  two 
classes  of  banks  which  arc  located, 
operated,  and  doing  business  in  the 
state,    wliich    have    presidents;    to    wit. 


banks  organized  under  the  laws  of 
this  state,  and  banking  associations 
created  under  the  laws  of  the  United 
States,  which  are  private  associations 
authorized  by  congress  for  the  joint 
purposes  of  convenience  and  profit  to 
the  holders  of  United  States  bonds, 
and  of  furnishing  the  public  with  a 
convenient  and  uniform  circulating 
medium."  Linton  v.  Childs,  105  Ga. 
567,    32    S.    E.    617. 

As    to    definitions,    see    ante,    "Right 
of    Banking    in    GL-ncral,"    §    1. 

5.  Purpose  of  creation  of  banks. — 
"However  repugnant  it  may  be  to  the 
notions  or  to  the  practices  of  some 
liankcrs,  banks  are  created  primarily 
for  the  pul)lic  interest.  Their  l)ills  are 
the  medium  of  circulation:  their  drafts 
the  medium  of  exchange;  their  vaults 
are  places  of  deposit;  and  every  man 
who  has  occasion  to  use  either — and 
who  has  not? — as  well  as  the  state,  tlie 
proper  guardian  of  the  public  interests, 
is  legitimately  concerned  in  the  main- 
tenance, in  their  integrity  and  strict- 
ness, of  all  the  restraints  which  tin- 
wisdom  of  the  le.uislature  has  devised 
for  individual  and  pul)lic  security." 
State  V.  Seneca  Conntv  I'ank.  5  O. 
St.    171. 

6.    Duties    and    liabilities    of    promo- 
ters.—  Sliawiu'e.    etc.,    Sav.    I'.ank    Co.    .-•. 


46 


BANKS  AND   BANKING. 


§  23   (1> 


§  23.  Incorporation'— §  23  (1)  Power  to  Incorporate.— Con- 
gress has  power  to  incorporate  a  bank,*  as  a  necessary  and  proper  instru- 
ment for  carrying  on  the  fiscal  operations  of  government.''  A  state  may,  of 
course,  charter  banks,  and  the  attempt  to  make  the  notes  of  a  bank  so  char- 
tered a  tender,  while  ineffectual,  does  not  affect  the  validity  of  the  incor- 
poration,i*'  unless  forbidden  by  a  provision  of  the  constitution,  as  in 
Texas,^^  and  in  Oregon  as  to  banks  of  issue.^-     Sometimes  it  is  forbidden 


Miller,  24   O.   C.   C.  198,  14-24  O.  C.   D. 
198. 

7.  Of  national  banks. — See  post, 
"Organization  and  Corporate  Exist- 
ence,"  §   236. 

8.  Power  of  congress. — ]\IcCulloch 
V.  Maryland,  4  Wheat.  316,  4  L.  Ed. 
579;  Osborn  v.  Bank,  9  Wheat.  738,  6 
L.  Ed.  204;  Bank  v.  Bank,  10  Wheat. 
333,  347,  6  L.  Ed.  334;  Minor  v.  Me- 
chanics' Bank,  1  Pet.  44,  7  L.  Ed.  47; 
Casey  v.  Galli,  94  U.  S.  673,  24  L.  Ed. 
168;  Huntington  v.  Savings  Bank,  96 
U.  S.  388,  24  L.  Ed.  777;  Legal  Tender 
Cases,  110  U.  S.  421,  445,  28  L.  Ed.  204, 
4  S.  Ct.  122;  Easton  v.  Iowa,  188  U. 
S.    220.    47    L.    Ed.    452. 

Bank  of  the  United  States. — The  act 
of  the  10th  of  April,  1816,  c.  44,  to 
"incorporate  the  subscribers  to  the 
Bank  of  the  United  States,"  is  a  law 
made  in  pursuance  of  the  constitution. 
McCulloch  r.  Maryland,  4  Wheat.  316, 
4  L.   Ed.  579. 

9.  Osborn  7'.  Bank,  9  Wheat.  738,  6 
L.  Ed.  204. 

10.  Power  of  state. — Briscoe  z\  Bank, 
11  Pet.  257,  9  L.  Ed.  709;  Nathan  7'. 
Louisiana,  8  How.  73,  81,  12  L.  Ed. 
992;  Woodruff  v.  Trapnall  (U.  S.),  10 
How.  190,  13  L.  Ed.  383.  See  Ohio 
Life  Ins.,  etc.,  Co.  v.  Debolt  (U.  S.), 
16  How.  416,  14  L.  Ed.  997;  Veazie 
Bank  v.  Fenno  (U.  S.),  8  Wall.  533,  19 
L.  Ed.  482,  per  Nelson,  J.,  dissenting; 
Lampton  v.  Commercial  Bank  (Ky.), 
2  Litt.  300;  Briscoe  v.  Bank  (Ky.),  7 
J.  J.  Marsh,  349;  Bank  v.  Swindler 
(Ky.),  2  Dona  393;  Craighead  r.  State 
Bank,  19  Tenn.  (l  Meigs)  199;  Bell  v. 
Bank.  7  Tenn.   (1  Peck)  269._ 

A  state,  in  granting  privileges  to  a 
bank,  with  a  view  of  affording  a 
sound  currency,  or  of  advancing  any 
policy  connected  with  the  public  in- 
terest, exercises  its  sovereignty,  for 
a  public  purpose,  of  which  it  is  the  ex- 
clusive judge.  State  Bank  v.  Knoop 
(U.  S.),  16  How.  369,  14  L.  Ed.  977. 

Employment  of  trust  funds  in  state 
bank. — It  is  difficult  to  see  how  the 
employment  of  trust  funds  by  a  state 
in  a  state  bank  made  the  bank  any 
less    a    state    institution,     for      it      was 


crea:ted  expressly  for  the  benefit  of 
the  state,  which  had  the  exclusive 
management  of  it,  and  agreed  to  sup- 
port it.  Furman  v.  Nichol  (U.  S.),  S 
Wall.  44,  19  L.   Ed.  370. 

Ohio. — Prior  to  the  declaration  of 
war  in  1812,  there  were  in  operation 
in  the  state  of  Ohio  only  six  banks  in- 
corporated as  such.  Bonsai  f.  State, 
11    O.   72. 

From  that  time  to  the  adoption  of 
the  constitution  of  1851,  banks  were 
incorporated  by  and  under  laws  es- 
pecially applicable  to  such  institutions. 
See  Act  February  23,  1816,  incorporat- 
ing many  banks  by  name;  Act  Feb- 
ruary 24,  1845,  incorporating  the  State 
Bank  of  Ohio;  Act  March  21,  1851,  au- 
thorizing free  banking.  The  constitu- 
tion of  1851,  however,  placed  the  in- 
corporation of  banks  upon  the  same 
ground  with  the  incorporatifSn  of 
other  corporations,  with  the  exception 
of  banks  of  issue  and  circulation. 
Const.  1851,  art.  13.  See,  as  discussing 
these  various  statutory  and  constitu- 
tional provisions.  State  f.  Chase,  5  O. 
St.  528;  Citizens'  Bank  z:  Wright,  6  O. 
St.  318.  See,  also,  Ridenour  z\  Mayo, 
29  O.  St.  138;  Franklin  Bank  z'.  Com- 
mercial  Bank,   36   O.   St.   350. 

Tennessee. — Bell  z\  Bank.  7  Tenn. 
(1   Peck)   2(T9. 

11.  Constitutional  prohibition. — 
Texas. — Section  16,  art.  16,  of  the  con- 
stitution of  Texas.  1876  (Art.  VII,  §30 
of  Const,  of  1866),  provides  that  "no 
corporate  body  shall  hereafter  be 
created,  renewed  or  extended  with 
banking  or  discounting  privileges." 
Anderson  v.  Cleburne  Bldg.,  etc., 
.\ssn.,  4  App.  Civ.  Cases,  §  174,  16  S. 
W.   298;    Alills  z:   State,   23   Tex.   295. 

But  this  section  was  not  intended 
to  prohibit  foreign  banking  corpora- 
tions from  enforcing  their  legal  rights 
in  the  courts  of  this  state.  Freeman 
v.   Bank,  3  App.   Civ.   Cases.   §  338. 

12.  Oregon.— Const.,  art.  2.  §  1; 
"The  legislative  assemply  shall^  not 
have  the  power  to  establish  or  incor- 
porate any  bank  or  banking  company 
or  moneyed  institution  whatever:  nor 
shall    any   bank,"    etc..    with    the    privi- 


§  -^3  (1) 


BANKING    CORPORATIONS    AND    ASSOCIATIONS. 


47 


unless  authorized  by  a  vote  of  the  people,  but  "banking  powers"  under  such 
prohibitions  has  usually  been  held  to  mean  only  the  power  to  issue  notes  to 
circulate  as  money. ^-^  If  it  meant  more,  a  mere  remedial  amendment  would 
not  come  within  its  scope. ^-^  And  if  there  is  any  other  requirement  of  the 
fundamental  law,  it  must  be  complied  with.^^  But  the  power  is  a  legisla- 
tive one,^"  and  may  be  exhausted  by  exercise.^^ 


lege  of  circulating  any  paper  as  money 
— held  not  to  constitute  two  independ- 
ent propositions.  Xot  the  incorpora- 
tion of  banks,  but  the  issuance  of  pa- 
per to  circulate  as  monej^  is  pro- 
hibited. State  z'.  Hibernian  Sav.,  etc., 
.\ss'n,  8   Or.  396. 

13.  Necessity  for  authorization  by 
popular  vote. —  In  Const.  184S,  art.  10, 
§  5,  the  words  "with  banking  powers" 
mean  power  to  issue  notes  to  circu- 
late as  money.  It  was  not  intended 
to  prohibit  the  conferring  of  some  of 
the  other  banking  powers  upon  cor- 
porations without  a  vote  of  the  peo- 
ple.    People  V.  Loewenthal.  93   111.  191. 

Const.,  art.  8,  §  5,  requiring  all  acts 
and  amendments  thereto,  authorizing 
and  creating  corporations  with  bank- 
ing powers,  to  be  first  submitted  to  a 
vote  of  the  people,  relates  only  to 
banks  of  issue,  and  not  to  those  or- 
ganized under  the  general  incorpora- 
tion act  (Code,  c.  1,  tit.  9),  of  which 
.■\cts  18th  Gen.  .\ssem.,  c.  208,  fixing 
the  liability  of  stockholders,  is  an 
amendment.  State  v.  Union  Stock 
Yards,  etc..  Bank,  103  Iowa  549,  72 
X.    W.    1076,    70    N.    W.    752. 

Kansas.— Fape  v.  Capitol  Bank,  20 
Kan.   440,   27   Am.    Rep.    183. 

Ohio. — Dearborn  v.  Northwestern 
Sav.  Bank.  42  O.  St.  617,  51  Am.  Rep. 
851;  Bates  v.  People's  Sav.,  etc., 
Ass'n,  42   O.   St.  6.-)5. 

14.  Mere  remedial  amendment. — 
Smith  V.  Bryan.  :i4  111.  .'!(;4.  rr)n'^truing 
an  111.  statute  facilitating  tlie  remedy 
of  a  creditor  of  a  l)ank  against  its 
stockholders:  Reapers"  Bank  v.  Wil- 
lard.  21  111.  433,  76  Am.  Dec.  755,  con- 
struing 111.  statute,  amending  banking 
law  so  as  not  to  require  separate  nrc- 
senlation   of  every  note   or  bill. 

15.  Other  requirements. — .llahama. — 
''.An  incornoratt-fl  bank,  in  Alabama, 
is  not  only  the  mere  creature  of  the 
law  creating  it.  as  banks  are  in  other 
states;  but  it  is  the  creature  of  a 
peculiar  fundamental  law;  and  if  its 
charter  is  not  in  conformity  to  tlie 
provisions  of  the  fundamental  law  it 
1"=  void."  B;ink  r.  Karle  fU.  S.),  13 
Pet.   519,   10  L.   Kd.  274. 

.l/(V/(i>/«.— The  legislature  r,f  Michi- 
gan   passed    an    act    on     the      15tli      of 


March,  1837,  entitled  "An  act  to  or- 
ganize and  regulate  banking  associa- 
tions,"' and  on  the  30th  of  December, 
1837,  an  act  to  amend  the  former  act. 
By  the  first,  any  persons  were  allowed 
to  form  associations  for  the  purposes 
of  banking  upon  the  terms  specified 
in  the  law;  and  by  the  second,  the 
stockholders  were  made  liable,  in  their 
individual  character,  under  certain  cir- 
cumstances, for  the  debts  of  the  as- 
sociation. The  associations  formed 
under  these  acts  are  corporations 
within  the  meaning  of  the  constitu- 
tion of  Michigan,  and  the  acts  are  un- 
constitutional and  void,  for  §  2,  art.  12, 
forbids  the  legislature  "passing  any 
act  of  incorporation  unless  with  the 
assent  of  at  least  two-thirds  of  each 
house,"  and  the  judgment  of  the  legis- 
lature is  required  to  be  exercised  upon 
the  propriety  of  creating  each  par- 
ticular corporation,  and  two-thirds  of 
each  house  must  sanction  and  ap- 
prove each  individual  charter.  Ne- 
smith  V.  Sheldon,  7  How.  812,  12  L. 
Ed.   925. 

16.  A  legislative  power. — ".\11  bank- 
ing corporations  in  America  are  the 
creatures  of  legislative  will,  and  no 
power  tq  create  such  corporations  be- 
longs to  either  of  the  other  depart- 
ments of  the  state  government."  Me- 
chanics"   Bank  7:    Heard,   37    Ga.    401. 

The  issuing  of  a  proclamation  by 
the  governor,  pursuant  to  the  eleventh 
section  of  tlie  Ohio  banking  law  of 
1845.  setting  forth  that  a  company  or- 
ganized as  a  branch  of  the  state  liank 
was  authorized  to  commence  and  carry 
on  the  business  of  banking,  was  not 
one  of  the  duties  enioined  liy  the  con- 
stitution on  the  governor  and  resting 
in  the  supreme  executive  discretion, 
but  a  ministerial  act  reqtu'rod  by  stat- 
ute, which,  upon  his  being  'Satisfied  of 
the  existence  of  certain  facts,  the  .gov- 
ernor, upon  neglect  or  refusal,  might 
l^ave  been-  compelled,  bv  a  writ  of 
mandamus,  to  perform,  hnd  thr  ■^tatu- 
forv  authority  continued  in  force. 
Whiteman  7-.   Chase,  5  O.   St.  528. 

General  laws  in  respect  to  inrorpo- 
r.ati(in.   ><(•(•  post.  "General  T^avvs,"  §  26. 

17.  Exhaustion  by  exercise. — The 
foiirlli    section    of    the     Ohio     banking 


48  BANKS    AND    BANKING.  §    23     (2) 

Authority  Strictly  Construed. — It  is  the  settled  rule  of  construction 
that  statutes  conferring  special  privileges  in  derogation  of  common  right 
are  to  be  strictly  construed,  and  authority  to  create  new  corporations  can 
not  be  derived  from  mere  implication.^^ 

Territorial  Limitation. — But  the  power  does  not  extend  to  chartering 
.a  bank  to  operate  in  another  state. ^^ 

Fraudulent  Conduct  of  Majority  of  Commissioners. — A  legislature 
appointed  nine  commissioners,  who,  or  any  three  of  them,  were  authorized 
to  organize  a  bank.  A  majority  of  the  whole  number  corruptly  agreed  to 
transfer  the  franchise  to  a  citizen  of  another  state.  It  was  held,  that  in 
such  case  three  other  of  the  commissioners  had  valid  authority  to  proceed 
with  the  organization,  and  that  letters  patent  issued  in  pursuance  of  such 
•organization  were  valid. ^"^ 

§  23  (2)  Conditional  Incorporation — Conditions  Precedent  and 
Beginning  of  Corporate  Existence. — In  a  constitutional  provision  that 
the  general  assembly  shall  not  have  power  to  establish  or  incorporate  any 
bank  or  banking  company  for  the  purpose  of  issuing  bills  of  credit  except 
on  conditions  prescribed  in  the  constitution,  the  conditions  spoken  of  re- 
lated exclusively  to  the  subject  of  banking.-^ 

Conditions  Precedent. — A  charter  requirement  that  the  capital  stock 
be  a  certain  amount  is  not  a  condition  precedent  to  the  operation  of  a  bank.-- 
So  where  the  amount  of  capital  stock  is  not  stated  as  contemplated  by  the 
statute. -3      But   where  conditions   precedent   are   prescribed,   they   must   be 

law  of  1845  provided  that  the   number  21.        Conditional        incorporation. — 

of  bankinsa:  companies  to  be  formed  in  Wright    z:    Defrees.    8    Ind.    298,    con- 

a    certain    county    should    not     exceed  struing-   art.    11,   §   1    of   Indiana   consti- 

four.     That  number  of  companies  was  tution. 

formed,    and    some     of      them      subse-  ««     o   u       •   .t-          r               -u  j 

quently   ceased    to   do   business.      Held  ,  f\  Subscription   of  prescribed   capi- 

that,    under   the    statute,    as    four   com-  ^al  stock.-The  provision  in  the  act  of 

panics    had    been    chartered,     no      new  congress,       incorporating         the      Me- 

1  1  ,    1      .,         1              r  .1  chanics     Bank    or    Alexandria,      which 

companies  could  take  the  places  of  the  .          .i    ^   ..i             •..  i     .,     i       c  ^u 

r                   Tin  -i.                     nu            r    nil  ■  lequires,    that   the    capital    stock    or    the 

former.      Whiteman    i:    Chase,    5    Ohio  ,       i      in             •  ..      c^f^r^f^f^     i                » 

o,     ^^o  bank   shall   consist   of  50,000   shares,   ot 

18."^  Authority     strictly     construed.--  ^^^    ^^"t'"'    'f  IY   'I  "u     ""    condition 

Whiteman  v.  Chase,  5  O.   St.  528,   con-  P^cedent;    and   the   bank   wen     legally 

,•         ,1        r\\  •       A^      rio.r  J  into    operation,    with    an    actual    capital 

struing    the    Ohio    Act    of     1845,      and  ,         .,1.^1^  u         t    u  at- 

1     ij-         .1  r      •  ^-  less  than  that  number  ot  shares.  Minor 

holding    the    power     of      incorporation  uri       •     <    T^      1      -.n^,.     r.T 

,1  J        i      1  1  1         i    J  t'.    Mechanics     Bank,    1    Pet.    44,    7    L. 

thereunder    to    have    been    exhausted.  -r? j      ,^       c  1         o      ^^         -n. 

_..,,...  ^,  hd.    47.      bee,    also,    bcott   z'.    Ueweese, 

19.  Territorial  limitation. — The  state  ^g^  jj  5  202  45  L  Ed  822-  Aspin- 
of  Maryland  has  no  right  to  charter  ^^^^  .'_  But~leT,  133  U.  S.'  59.5,"  608,  33 
a  bank,  with   power  to  establish   bank-  ^    Ed    779    10  S    Ct    417 

ing  companies   in  Virginia;    and     such  V»              1.        ^\                   -j.  ^      i 

company  assuming  to  act  must  be  held  .    Corporate    stock    or    capital    of    sav- 

unchartered,    within    the    contemplation  l"/!.  ^0       ~                         Stockholders, 

of   the   act   against   banking   companies  ^^       "."■ 

not   deriving  a  charter   from   the   state.  O"  increase  of  stock.— See  post,  "In- 

Atterberry      z:      Knox      (Ky.),      4      B.  crease   r.f  Capital   Stock,"   §  241    (2). 

^on.  90.  23.     Statement   of   amount   of   capital 

20.  Fraudulent  conduct  of  majority  stock. — The  certificate  of  incorpora- 
nf  commissioners. — Commonwealth  z'.  tion  of  a  bank,  filed  in  1860,  omitted 
McKean   County    Bank,   32    Pa.    185.  to    state    the    amount    of   capital    stock. 


^  23   (3a) 


BAXKIXG    CORPORATIONS    AND    ASSOCIATIONS. 


49 


fulfilled.--' 

Deposit  of  Securities. — Where  the  statute  forbade  the  transaction  of 
banking  business  until  the  required  deposit  of  securities  was  made,  all  that 
could  be  done  by  the  company,  before  such  deposit,  was  to  organize,  deposit 
stocks  as  required  by  the  act.  and  make  needful  preparations  for  the  busi- 
ness contemplated  l)y  the  law  of  its  creation.--^ 

Beginning  of  Corporate  Existence.-'- — Where  a  bank  charter  is  re- 
ceived, and  takes  efifect  on  the  first  day  of  a  certain  month,  the  corporation 
may  legally  act  under  the  charter  on  that  day;  and  a  legal  transfer  of 
shares  in  the  bank  may  be  made  on  the  first  day  of  the  same  month  of  the 
next  year.-'  And  a  bank  created  by  an  act  of  legislature,  providing  that  a 
certain  number  of  directors  shall  be  elected  by  the  legislature,  and  giving 
them  all  the  powers  of  a  banking  corporation,  although  the  directors  are 
not  named  and  the  institution  is  not  expressly  called  so,  is  a  corporation. ^s 
Where  the  incorporation  statute  provides  that  upon  making  the  certificate 
specified  and  having  it  recorded  the  incorporation  shall  be  efifectual,  from 
that  time  there  is  a  body  corporate,-''  but  until  this  is  done  there  is  no  legal 
corporate  existence."'" 

§  23  (3)  Results  of  Incorporation— §  23  (3a)  As  to  Liabil- 
ities,  Privileges  and  Powers.— Where  a  corporation  is  formed  to  suc- 


Held,  that  although  the  Act  of  April 
14,  1853,  did  not  seem  to  authorize  the 
incorporation  of  a  company  without  a 
capital  stock  consisting  of  a  specified 
number  of  shares,  yet  that  under  the 
amendatory  and  supplemental  Acts  of 
March  4  and  March  24,  1870,  and  the 
curative  Act  of  April  1,  1864,  there 
could  be  no  doubt  as  to  the  validity 
of  the  incorporation  of  the  barik.  Peo- 
ple z:   Perrin,   .56  Cal.   :u:>. 

24.  Conditions  precedent  must  be 
fulfilled. — An  association  of  persons 
can  not  claim  a  corporate  existence 
under  the  free  banking  act,  unless 
they  shall  have  fulfilled  the  conditions 
precedent  prescribed  by  that  act. 
W'orkingmen's  Accommodation  Rank 
v.    Converse,   20    La.    .\nn.   ;',69. 

25.  Deposit  of  securities.— Medill  f. 
Collier,  16  O.  St.  599,  construing  §  44 
of  the  .'\ct  of  1851  to  authorize  "free 
banking.  Section  44  was  repealed  l)y 
the  act  of  April  24,  1879  (70  O.  L.  74). 
See.  also,  ante,  "Rfifect  of  Failure  to 
Deposit,"    §    15    (4). 

What  constitutes  sufficient  organi- 
zation—Issue of  certificates.— State  ?■. 
I'.mlcr.  Hi;  Tenn.  (2  Pickle)  614,  8  S.  W. 
5H(i,  citing  National  P>ank  v.  Watson- 
lown  Rank,  105  U.  S.  217,  26  L.  Ed. 
10:{9;  Cook  on  Stock  and  Stockhold- 
ers. §  10.  and  cases  there  cited,  anrl 
saying:  "While  this  is  a  circum- 
B  &  B— 4 


stance  that  may  be  looked  to  in  ar- 
riving at  the  good  faith  of  the  par- 
ties, and  in  determining  the  true  na- 
ture of  the  transaction  as  to  whether 
it  were  a  transfer  of  stock  so  as  to 
carry  succession  to  the  purchasers,  or 
a  mere  sale  of  the  charter,  it  is  by  no 
means  conclusive.  The  issuance  of 
certificates  of  stock  is  nonessential, 
either  to  the  validity  of  the  original 
organization  or  to  the  transfer  of 
some  to  purchasers.  The  subscrip- 
tion to  and  payment  for  stock  is  all 
that    is    necessary." 

26.  Incomplete  organization  and  in- 
effective choice  of  directors. — See  post. 
"Election  or  Appointment,  Qualifica- 
tion, and  Tenure."  §  51. 

Transaction  of  l)usiness  Ijy  incom- 
plete organization  as  unauthorized 
l)anking.   see  ante,  "In   General,"  §  8. 

27.  Beginning  of  corporate  exist- 
ence.—  Agricultural  I'ank  :'.  IUut,  24 
Me.   256. 

28.  Corporation  results  although  not 
so  called. — Mahony  r.  Rank,  I  Ark. 
620. 

29.  Making  and  recordation  of  cer- 
tificate.—Rafterty  r.  I'.aiik,  X]  \.  J.  E. 
.'■68;  I'almer  r.  Lawrence,  5  X.  ^'. 
Super.    Ct.    1()1. 

30.  Burrows  r.  Smith.  10  N.  Y.  550; 
Valk  r.  Cran(hill  (X.  V.),  1  Sandf.  Ch. 
1 79. 


50 


BANKS    AND    BANKING. 


23    (3b) 


ceed  to  an  unincorporated  banking  association,  as  between  them  the  former 
succeeds  to  all  the  assets,  rights  and  liabilities  of  the  latter.^^  A  state  act  of 
incorporation  conferred  on  a  bank  a  corporate  character,  but  could  give  that 
corporate  body  no  peculiar  privileges  in  the  courts  of  the  United  States,  not 
belonging  to  it  as  a  corporation.  Those  privileges  do  not  exist,  unless  con- 
ferred by  an  act  of  congress. ^- 

§  23    (3b)   Charter  as  Contract,  and  Amendment  or  Repeal. — A 

bank  charter  is  a  legislative  contract.-^-^     It  is  a  contract  between  the  stock- 


31.  Liabilities  of  association  incor- 
porated unimpaired. — Where  an  un- 
incorporated banking  association  was 
succeeded  by  a  corporation  organized 
to  take  its  good  assets  and  assume  its 
liabilities,  the  directorates  being  par- 
tially if  not  wholly  identical,  as  be- 
tween the  old  bank  and  the  new,  the 
new  bank  is  to  be  treated  in  all  re- 
spects as  the  successor  of  the  old, 
taking  the  assets  that  were  turned 
over  as  they  stood,  and  assuming  the 
liabilities.  All  the  knowledge  of  the 
old  bank  as  to  the  rights  of  the  par- 
ties to  the  securities  transferred  is 
chargeable  in  law  on  the  new.  Lanier 
V.  Nash,  121  U.  S.  404,  30  L.  Ed.  947, 
7   S.   Ct.   919. 

32.  State  incorporation  confers  no 
privileges  in  federal  courts. — The  act 
incorporating  the  bank  professes  to 
regulate,  and  could  regulate,  only 
those  courts  which  were  established 
under  the  authority  of  Virginia.  It 
could  not  afifect  the  judicial  proceed- 
ings of  a  court  of  the  United  States, 
or  of  any  other  state,  or  exempt  the 
bank  from  appeals  against  it  there. 
Young  z'.  Bank,  4  Cranch  384,  397,  2 
L.    Ed.   655. 

"There  is  a  difference  between  those 
rights  on  which  the  validity  of  the 
transactions  of  the  corporation  de- 
pends, which  must  adhere  to  these 
transactions  everywhere,  and  those 
peculiar  remedies  which  may  be  be- 
stowed on  it.  The  first  are  of  general 
obligation;  the  last,  from  their  nature, 
can  only  be  exercised  in  those  courts 
which  the  power  making  the  grant  can 
regulate."  Young  z'.  Bank,  4  Cranch 
384.   2   L.    Ed.   655. 

Charter  powers  construed,  see  post, 
"Construction  of  Charters  and  Bank- 
ing Laws,"  §  87. 

0/,/o.— The  Act  of  1838,  to  au- 
thorize free  banking,  placed  associa- 
tions formed  thereunder  very  much 
upon  the  footing  of  natural  persons. 
Niagara  County  Bank  r.  Baker.  15  O. 
St.  68. 

33.  Legislative         contract. — State 


Bank  v.  Knoop  (U.  S.),  16  How.  369, 
14  L.  Ed.  977;  Planters'  Bank  t'.  Sharp, 
6  How.  301,  12  L.  Ed.  447;  Woodruff 
V.  Trapnall  (U.  S.),  10  How.  190,  13  L. 
Ed.  383;  Curran  v.  Arkansas,  15  How. 
304,  310,  14  L.  Ed.  705;  Ohio  Life  Ins., 
etc.,  Co.  V.  Debolt  (U.  S.),  16  How. 
416,  14  L.  Ed.  997;  Furman  z>.  Nichol 
(U.  S.),  8  Wall.  44,  19  L.  Ed.  370; 
South  Carolina  v.  Gaillard,  101  U.  S. 
433,  25  L.  Ed.  937;  Deposit  Bank  v. 
Frankfort,  191  U.  S.  499,  513,  48  L. 
Ed.   276. 

"A  bank,  in  which  stock  is  held  by 
individuals,  is  a  private  corporation, 
and  its  charter  is  a  legislative  con- 
tract, which  can  not  be  changed  with- 
out its  consent."  Jefferson  Branch 
Bank  v.  Skelly,  1  Black  436,  449,  17  L. 
Ed.  173;  Ohio  Life  Ins.,  etc.,  Co.  v. 
Debolt  (U.  S.).  16  How.  416,  14  L. 
Ed.  997;  State  Bank  v.  Knoop  (U.  S.), 
16    How.    369,    14   L.    Ed.    977. 

"If  it  be  provided  in  the  charter  of 
a  bank  that  the  bills  and  notes  of  the 
institution  shall  be  received  in  pay- 
ment of  taxes  or  of  debts  due  to  the 
state,  such  undertaking  on  the  part  of 
the  state  constitutes  a  contract  be- 
tween the  state  and  holders  of  the 
notes,  which  the  state  is  not  at  liberty 
to  break,  although  notes  issued  after 
the  repeal  of  the  act  are  not  within 
the  contract,  and  may  be  refused." 
Pearsall  v.  Great  Northern  R.  Co.,  161 
U.  S.  646,  663,  40  L.  Ed.  838;  Wood- 
rufif  V.  Trapnall  (U.  S.),  10  How.  190, 
13  L.  Ed.  383;  Paup  v.  Drew  (U.  S.), 
10  How.  217,  218,  13  L.  Ed.  394;  Furman 
V.  Nichol  (U.  S.),  8  Wall.  44,  19  L. 
Ed.  370;  Keith  v.  Clark.  97  U.  S.  454, 
24  L.  Ed.  1071;  Antoni  f.  Greenhow, 
107  U.  S.  769,  27  L.  Ed.  468,  27  S.  Ct. 
91;  Poindexter  z'.  Greenhow,  114  U. 
S.  270.  29  L.  Ed.  185.  See,  also,  post, 
"General  Laws,"  §  26. 

As  to  special  charters  or  acts,  see 
post,  "Amendment,  Renewal  and  Ap- 
peal,"  §  25    (3). 

As  to  repeal  or  amendment  when 
oower  therefor  is  reserved,  see  post, 
"Repeal    or    Amendment."    §    341-2. 


§  -^3 


(3bj 


BANKING    CORPORATIONS   AND    ASSOCIATIONS. 


51 


holders  and  the  state,^^  and  is  strictly  construed  against  the  former.-'  Thus, 
a  charter  provision  making  the  bills  or  notes  of  a  bank  receivable  for  taxes 
or  other  claims  of  the  state,  was  a  contract.-*"^  But  an  act  which  merely 
provides  a  new  remedy  forms  no  part  of  the  charter  of  an  existing  bank  to 


34.  Between  stockholders  and  state. 

— Xashville  Bank  z:  Ragsdale  (Tenn.), 
Peck  296;  Union  Bank  ;■.  State,  17 
Tenn.    (9    Yerg.)    490. 

35.  Between  the  stockholders  and 
the  state — Construction. — 'J'he  charter 
of  a  bank  is  a  contract  between  its 
stockholders  and  the  state,  which  will 
be  construed  strictly  against  the 
tormer,  and  liberally  in  favor  of  the 
latter,  and  no  privileges  or  powers  will 
be  implied.  Bank  v.  Commonwealth,  10 
Pa._  St.  144. 

Georgia. — Bank  charters  are  held  to 
be  contracts  and  are  to  be  interpreted 
as  such.  Adkins  v.  Thornton,  19  Ga. 
325;  Mechanics'  Bank  z'.  Heard,  37 
Ga.  401,  411. 

Hence  the  act  creating  a  bank  as  a 
corporation  can  not  be  modified  or  re- 
pealed by  the  legislature  without  the 
free  assent  of  the  corporators,  and 
then  only  when  such  alteration  or  re- 
peal does  not  affect  the  rights  of  its 
creditors.  It  may  be  safely  asserted 
that  the  legislature,  its  creator,  has  no 
power  of  its  will  merely  to  dissolve  it. 
As  long  as  it  performs  its  engagement 
by  the  act  creating  it,  it  has  a  corpo- 
rate existence  within  the  limit  of  time 
fixed  by  the  act  which  can  not  be 
shortened.  Mechanics'  Bank  v.  Heard, 
37   Ga.   401,   411. 

South  Carolina — South  Carolina  v. 
Gaillard,   101    U.    S.   433,   25   L.    Ed.   937. 

Tennessee. — A  charter  of  a  corpora- 
tion, is,  after  acceptance  by  the  person 
incorporated,  an  inviolable  contract 
between  the  corporation  as  it  is;  also, 
between  the  corporation  and  the  stock- 
holders. Neither  can  disregard  its 
obligations,  or  alter  its  essential  fran- 
chises, without  the  unanimous  consent 
of  the  stockholders.  Wooclfork  7'. 
I'nion    I'.aiik,    i:;   Tmn.    (3   Coldw.)    488. 

A  legislative  grant  of  the  ordinary 
franchises  for  banking  is  not  a  partial 
law,  111  the  sense  f>f  the  constitution. 
It  i--  in  the  nature  of  a  contract,  rather 
ilian  a  "law  of  the  land,"  as  that  term 
IS  understood  to  be  used  in  the  con- 
stitution. It  has  never,  therefore,  been 
considered  that  laws  containing  these 
exclusive  grants  of  the  privilege  of 
banking  are  repugnant  to  the  constitu- 
tion, as  not  l)einfr  "laws  of  the  land" 
of     general      application.        Hazen      t- 


Union  Bank,  33  Tenn.  (1  Sneed)  115, 
citing  Dartmouth  College  v.  Wood- 
ward, 4  Wheat.  518,  4  L.  Ed.  C29; 
Union  Bank  v.  State,  17  Tenn.  (9 
Yerg.)  490.  See,  also,  Furman  v. 
Nichol  (U.  S.),  8  Wall.  44,  19  L.  Ed. 
370;  W^oodrufif  v.  Trapnall  (U.  S.),  10 
How.    190,    13    L.    Ed.   383. 

Special  charter  or  act. — See  post, 
"Amendment,  Renewal  and  Repeal," 
§    25    (3). 

36.  Receivability  of  notes  for  taxes. 
— The  provision  in  §  12  of  the  charter 
of  1838  of  the  Bank  of  Tennessee, 
"that  the  bills  or  notes  of  said  cor- 
poration, originally  made  payable,  or 
which  shall  have  become  payable  on 
demand,  in  gold  or  silver  coin,  shall 
be  receivable  at  the  treasury  of  the 
state,  and  by  all  tax  collectors  and 
other  public  officers,  in  all  payments 
for  taxes  or  other  moneys  due  to  the 
state,"  made  a  contract  on  the  part 
of  the  state  with  all  persons,  that  the 
state  would  receive  for  all  payments 
for  taxes  or  other  moneys  due  to  it, 
all  bills  of  the  bank  lawfully  issued, 
while  the  section  remained  in  force. 
The  guaranty  was  not  a  personal  one, 
extending  only  to  the  benefit  of  the 
first  holder,  but  attached  to  the  note 
so  issued;  as  much  as  if  written  on 
the  back  of  it.  It  went  with  the  note 
everywhere,  as  long  as  it  lasted,  and 
although  after  the  note  was  issued,  §  12 
were  repealed.  Furman  v.  Nichol 
(U.  S.),  8  Wall.  44,  19  L.  Ed.  370.  See, 
also,  Woodrufif  v.  Trapnall  (U.  S.),  10 
How.    190,    13    L.    Ed.    383. 

Section  603  of  the  Tennessee  Code 
of  1858,  which  enacted  that  l)esidcs 
federal  money,  controllers'  warrants, 
and  wildcat  certificates,  the  collector 
should  receive  "such  bank  notes  as  are 
current  and  ])assing  at  par,"'  did  not 
amount  to  a  repeal  of  the  above 
quoted  12th  section;  the  words  of  the 
code  having  no  words  of  negation,  the 
two  enactments  being  capable  of 
standing  together,  and  implied  repeals 
not  being  to  be  favored.  Furman  zk 
Nichol  (U.  vS.),  8  Wall.  44,  19  L.  Ed. 
370. 

'i'liis  decision  did  not  apjjly  to  issues 
of  tile  b;iiik  wliile  under  tiie  control  of 
the  insurgents,  h'tirman  7'.  Nichol  (U. 
S.).   8   Wall.    II.    19    ],.    Fd.   370. 


52 


BANKS    AND    BANKING. 


§  23  (3d) 


which  it  appHes.'^'  It  is  a  franchisees  ^hich  can  not  be  changed  without  its 
assent,  unless  such  power  is  expressly  reserved,  or  repealed  so  as  to  af- 
fect contract  rights.-*'' 

§  23    (3c)   Sale  of  Franchise  and  Effect.— See  note  40. 

§   23    (3d)    Notice  of  Charter.— A  party  dealing  with  a  bank  will  be 


37.  Remedial  act  no  part  of  charter, 

— South  Carolina. — The  act  of  the 
general  assembly  of  South  Carolina, 
passed  June  9,  1877,  entitled  "An  act 
to  provide  the  mode  of  proving  bills 
of  the  bank  of  the  state  tendered  for 
taxes,  and  the  rules  of  evidence  ap- 
plicable thereto,"  created  no  new  con- 
tract between  the  state  and  the  tax- 
payer or  billholder,  but  merely  pro- 
vided a  new  remedy  which  formed  no 
part  of  the  contract  created  by  the 
charter  of  the  bank,  and  after  its  re- 
peal could  not  be  availed  of.  South 
Carolina  -v.  Gaillard,  101  U.  S.  433,  25 
L.    Ed.    937. 

38.  Franchise. — State  Bank  v. 
Knoop  (U.  S.),  16  How.  369,  14  L. 
Ed.  977;  Gordon  v.  Appeal  Tax  Court 
(U.  S.),  3  How.  133,  11  L.  Ed.  529; 
Jefiferson  Branch  Bank  v.  Skelly,  1 
Black   436,   17   L.   Ed.   173. 

39.  Inviolability. — State  Bank  v. 
Knoop  (U.  S.),  16  How.  369,  14  L.  Ed. 
977;  Curran  v.  Arkansas  (U.  S.),  15 
How.  304,  310,  14  L.  Ed.  705;  Ohio 
Life  Ins.,  etc.,  Co.  v.  Debolt  (U.  S.), 
16  How..  416.  14  L.  Ed.  997;  Deposit 
Bank  v.  Frankfort,  191  U.  S.  499,  513, 
48   L.   Ed.   276. 

A  municipal  corporation,  in  which  is 
vested  some  portion  of  the  adminis- 
tration of  the  government,  may  ne 
changed  at  the  will  of  the  legislature. 
But  a  l:)ank,  where  the  stock  is  owned 
by  individuals,  is  a  private  corpora- 
tion. Its  charter  is  a  legislative  con- 
tract, and  can  not  be  changed  without 
its  assent.  The  preceding  cases  upon 
this  subject,  examined,  and  the  case 
of  the  Providence  Bank  v.  Billings,  4 
Pet.  514,  7  L.  Ed.  939,  explained.  State 
Bank  v.  Knoop  (U.  S.),  16  How.  369, 
14    L.    Ed.    977. 

Every  valuable  privilege  given  by  a 
bank  charter,  and  which  conducted  to 
an  acceptance  of  it  and  an  organiza- 
tion under  it,  is  a  contract  which  can 
not  be  clianged  by  the  legislature, 
where  the  power  to  do  so  is  not  re- 
served in  the  charter.  The  rate  of  dis- 
count, the  duration  of  the  charter,  the 
specific    tax    agreed    to    be     paid,      and 


other  provisions  essentially  connected 
with  the  franchise,  and  necessary  to 
the  business  of  the  bank,  can  not, 
without  its  consent,  become  a  sub- 
ject for  legislative  action.  State  Bank 
v.  Knoop  (U.  S.),  16  How.  369,  14  L. 
Ed.  97  7;  Ohio  Life  Ins..  etc.,  Co.  v. 
Debolt  (U.  S.),  16  How.  416,  429,  14 
L.    Ed.    997. 

Repeal  of  charter. — Where  a  bank- 
ing corporation  had  no  other  stock- 
holder than  the  state,  it  is  not  doubted 
that  the  state  might  repeal  its  charter; 
l)ut  that  the  efifect  of  such  a  repeal 
would  be  entirely  to  destroy  the  ex- 
ecutory contracts  of  the  corporation, 
and  to  withdraw  its  property  from  the 
just  claims  of  its  creditors,  can  not  be 
admitted.  If  such  were  the  efifect  of 
a  repeal  of  an  act  incorporating  a 
bank  containing  no  express  power  of 
repeal,  it  might  be  difficult  to  en- 
counter the  objection,  that  the  repeal- 
ing law  was  invalid,  as  conflicting  with 
the  constitution  of  the  United  States. 
This  argument  was  pressed  on  this 
court,  in  the  case  of  Mumma  v.  Po- 
tomac Co.,  8  Pet.  281,  8  L.  Ed.  945, 
and  it  was  met  by  the  following  ex- 
plicit language:  ''We  are  of  opinion, 
that  the  dissolution  of  the  corpora- 
tion, under  the  acts  of  Virginia  and 
^Maryland,  can  not  in  any  just  sense 
be  considered,  within  the  clause  of  the 
constitution  of  the  United  States  on 
this  subject  as  impairing  of  the  obli- 
gation of  the  contracts  of  the  company 
by  those  states,  any  more  than  the 
death  of  a  private  person  can  be  said 
to  impair  the  obligation  of  his  con- 
tracts. The  obligation  of  those  con- 
tracts survives;  and  the  creditors  may 
enforce  their  claims  against  any  prop- 
erty belonging  to  the  corporation, 
which  has  not  pa;ssed  into  the  hands  of 
bona  fide  purchasers,  but  is  still  held 
in  trust  for  the  company,  or  for  the 
stockholders  thereof,  at  the  time  of 
its  dissolution,  in  any  mode  permitted 
by  the  local  laws."  Curran  v.  Arkan- 
sas. 15  How.  304.  310,  14  L.  Ed.  705. 
40.  Sale  of  franchise. — See  post, 
"Assianment  and  Transfer  of  Rights. 
Franchises,  etc.,"  §  30   (2). 


§  25   (1) 


BANKING    CORPORATIONS    AND    ASSOCIATIONS. 


53 


bound  by  tlie  cbarter  of  a  bank,  whose  provisions  are  in  contiict  with  the 
usual  rules  of  commercial  law."*^ 

§  23  (4)  Amendment. — Where  a  constitutional  j^rovision  requires 
amendments  to  acts  authorizing  banking  corporations  to  be  submitted  to 
popular  vote,  this  must  be  complied  with."*- 

§  24.  Partnerships  and  Joint- Stock  Companies.^-' — Joint-stock 
banking  associations  are  not  corporations,  but  special  partnerships  with 
certain  corporate  attributes.-*-*  Under  a  statute  which  provides  for  the  filing 
with  the  comptroller,  by  each  and  every  individual  banker,  of  a  certificate 
signed  by  every  person  interested  with  him.  stating  that  such  person  is  in- 
terested with  such  banker  in  the  circulating  notes  obtained  or  to  be  obtained 
by  him,  and  in  the  benefits  of  circulating  the  same,  a  party  signing  such  cer- 
tificate makes  himself  liable  as  a  general  partner  with  the  individual 
banker.^-^  And  a  banking  partnership  is  within  a  prohibition  against  the 
use  of  fictitious  names   in  partnerships.'*" 

Power  to  Form  Partnership. — A  bank  can  not  enter  into  a  contract  of 
partnership  in  the  absence  of  express  authority  of  law  therefor,  and  par- 
ticularly not  when  there  is  a  constitutional  prohibition  of  such  action.-*" 

§  25.  Special  Charters  or  Acts — §  25    (1)   Power  to  Grant. — In 


41.  Notice  of  charter. — Merchants' 
Bank  z:  Central  Bank,  1  Ga.  418,  44 
Am.    Dec.    665. 

42.  Amendment. — The  Act  of  March 
29,  186'.),  incorporating  the  "Kendall 
County  Banking  Company,"  provided 
that  it  should  "be  located  in  the  county 
of  Kendall,"  in  that  state,  and  that  the 
limit  of  increase  to  the  capital  stock 
should  be  $150,000.  The  stockholders 
met  June  1,  1872,  and,  under  the  Act 
of  March  26,  1872,  relating  to  the 
changing  of  names,  locations,  and 
stock  of  corporations,  etc.,  changed 
the  name  to  "National  Savings  Bank," 
the  location  from  Kendal!  county  to 
Cook  county,  and  increased  the  capi- 
tal stock  to  $200,000.  Held  ultra  vires, 
under  Const.  1870,  art.  11,  §  5,  provid- 
ing that  all  amendments  to  acts  au- 
thorizing banking  corporations  shall 
be  submitted  to  the  vote  of  the  people, 
etc.  Hunt  v.  National  Sav.  Bank  (Til.), 
11  N.  E.  170,  affirmed  on  rehearing  in 
120    111.    618,    22    N.    E.    288. 

43.  /\s  to  whether  banks  or  no,  see 
ante,  "What  .\re   Banks,"  §  2. 

Under  statutes  requiring  reports,  see 
.-mtc,  "Duty  to  Make  and  J^ffect  of 
I'ailurc,"    5J    u;    d  ). 

Effect  as  giving  an  interest  in  prop- 
erty of  partnership,  see  post,  "In  Gen- 
eral,"  §   94. 


44.  Not  corporations. — Curtis  r. 
Leavitt   (N.  Y.),   17  Barb.  309. 

45.  Liability  of  partners. — Juliand  v. 
Watson,  43  N.  Y.  571,  construing  N. 
Y.    Act    of    1854,    c.    242,    §    6. 

Alabama  statute. — There  can  be  no 
limited  partnership  for  the  purpose  of 
banking  or  making  insurance,  and  an 
association  formed  in  1838,  for  the 
purpose  of  issuing  bills  to  circulate  as 
money,  was  not  prohibited  by  the 
statute  from  doing  the  act.  The  only 
consequence  resulting  from  the  act  is 
to  make  all  the  partners  alike  respon- 
sil)le.     McGchcc  f.   Powell,   8   .\la.   827. 

46.  Under  prohibition  against  use 
of  fictitious  names. — Col)ble  r.  Farm- 
ers'   Bank,  63   O.   St.   528,   59   N.    E.  221. 

47.  Power  to  form  partnership. — .\ 
l)ank  organized  under  the  laws  of  the 
state  is  not  only  without  capacity  to 
enter  into  a  contract  of  partnership 
with  individuals  for  the  building  of 
levees,  l)ut  is  prohibited  from  so  do- 
ing by  Const.,  art.  265,  and  can  not 
invoke  the  aid  of  a  court  to  enforce  a 
contract  prohibited  by  the  constitu- 
tion, to  which  it  never  was  and  never 
could  have  been  in  legal  contempla- 
tion a  party.  Interstate  Trust,  etc., 
Co.  7'.  Kevnolds,  127  La.  193,  53  So. 
520. 


54 


BANKS   AND   BANKING. 


§  25   (3) 


the  absence  of  constitutional   prohibitions  a  state  legislature  may  grant  a 
special  banking  charter,"*^  or  a  territorial  government  may  do  so.'*^ 

Constitutional  Prohibition. — But  such  grants  are  now  usually  forbid- 
den by  the  organic  law.^'"  A  statute  which  remedies  defects  in  the  organ- 
ization of  a  banking  corporation  already  created  is  not  a  violation  of  a 
constitutional  provision,  prohibiting  the  granting  of  special  charters  for 
banking  purposes, •'^^  unless  disabled  by  contract  from  so  doing. ^- 

§  2  5  (2)  Operation  and  Effect. — The  operation  and  effect  depends, 
of  course,  upon  the  terms  of  the  special  act.^-^ 

§  25  (3)  Amendment,  Renewal  and  Repeal. ^^ — Power. — Unless 
the  right  of  repeal  or  amendment  be  reserved,  such  banking  franchise  is  an 
irrepealable  contract,  except  by  the  unanimous  consent  of  the  stockholders, ^'-^ 
but  if  extended  it  comes  under  the  operation  of  a  general  reservation  of  the 
power  to  amend  or  repeal  in  an  existing  statute. ^'^ 


48.  In  absence  of  constitutional  pro- 
hibition.— Henderson  Loan,  etc., 
Ass'n  V.  People,  163  111.  19(3,  45  N.  E. 
141;  Lampton  c'.  Commonwealth's 
Bank  (Ky.),  2  Litt.  300;  Briscoe  v. 
Bank  (Ky.),  7  J.  J.  Marsh.  349;  Bank 
v.  Swindler  (Ky.),  2  Dana  393;  Craig- 
head V.  State  Bank,  19  Tenn.  (1 
Mei""^s)    199. 

Creation  of  the  "comniercial  and 
agricultural  bank"  by  decree  no.  308, 
oi  the  congress  of  Coahuila  and  Texas, 
in  1835.— Williams  z:  State,  23  Tex. 
204.  ^      , 

49.  Territorial  government. — Bank 
z:  Williams  (N.  Y.),  5  Wend.  478;  Peo- 
ple V.  Marshall   (111.),  1  Oilman  672. 

50.  Constitutional  prohibition.— 
Smith  V.  State,  21  Ark.  294;  Syracuse 
City  Bank  v.  Davis  (N.  Y.),  16  Barb. 
188,  construing  N.  Y.  Const.,  art. 
S,   §  4. 

Arkansas. — Charter  provisions  ati- 
ihorizing  banking  business  in  general, 
see  ante,  "Charter  Provisions,"  §  5. 

The  legislature  has  no  constitutional 
power  to  confer  banking  privileges  on 
a  private  corporation,  engaged  in  min- 
ing and  manufacturing  slate.  Smith  v. 
Slate,  21  Ark.  294. 

51.  Remedying  defective  organiza- 
tion.— Syracuse  City  Bank  v.  Davis 
(N.  Y.),  16  Barb.  188,  construing  N. 
Y.   Const.,   art.   8,   §   4. 

52.  Contract  rights. — Duncan  z'. 
Marvland  Sav.  Inst.  (Md.),  10  Gill  & 
J.   299. 

The  state,  by  granting  a  charter  con- 
ferring on  a  savings  institution  within 
the  city  of  Baltimore  power  to  receive 
deposits  and  discount  paper,  does  not 
violate  its  pledge  to  the  laanks  of  that 


city  by  Acts  1813,  c.  122,  and  Acts 
1831,  c.  131,  providing  that  no  charter 
should  be  granted  to  such  an  institu- 
tion within  those  limits  for  a  specitied 
time  empowering  the  corporation  to 
issue  negotiable  notes.  Duncan  z\ 
Maryland  Sav.  Ins.  (Md.),  10  Gill  & 
J.    299. 

53.  Operation  and  effect. — Powers 
conferred  by  charter,  see  post,  ''Time 
to    Sue.    and    Limitations,"    §    219. 

See  State  v.  Lehre  (S.  C),  7  Rich. 
Law  234,  construing  South  Carolina, 
Act  18.52  (13  Stat.  212)  which  renews 
the  charter  of  the  Planters'  &  Me- 
chanics' Bank,  and  imposes  additional 
liabilities  and  obligations.  And  see 
Williams  z'.  State,  23  Tex.  264,  con- 
struing Decree  No.  308,  of  the  con- 
gress of  Texas  and  Coahuila,  in  1835, 
granting  the   establishment   of  a  bank. 

54.  Amendment,  renewal,  and  repeal. 
— Dissolution  of  l)ank,  see  post,  "Con- 
solidation," §  67;  "Effect  of  Dissolu- 
tion," §  72. 

55.  Power  to  repeal  or  amend. — 
Woodfork  z:  Union  Bank,  43  Tenn. 
(3  Coldw.)  488,  constrtiing  charter  of 
bank  of  Tennessee. 

Bank  of  the  United  States. — Com- 
monwealth z:  Bank  (Pa.),  2  Ashm. 
349,  construing  Charter  of  the  Bank 
of  the  United  States.  And  see  ante, 
"Charter  as  Contract,  and  Amend- 
ment or  Repeal."  §  23   (3b). 

56.  Extension  subject  to  general 
reservation  of  right  to  amend. — Re- 
newal, see  post,  "Extension  or  Re- 
newal," §  30   (1). 

The  Kentucky  statute  of  1884  ex- 
tending the  charter  of  the  Northern 
Bank    of    Kentucky   without    new    con- 


§  26 


BAXKIXG   CORPORATIONS  AXD  ASSOCIATIOXS. 


D5 


Form  of  Repealing-  Act. — It  is  not  necessary  that  the  repealing  act 
should  correspond  exactly,  in  naming  the  corporation,  with  the  act  of  in- 
corporation which  it  is  meant  to  repeal;  but  there  must  be  such  a  corre- 
spondence as  will  leave  no  doubt  of  the  intention  of  the  legislature.^'  Six 
months,  in  an  act  extending  a  bank  charter,  has  been  held  to  mean  six  cal- 
endar months. ■"'■"' 

Majority  Required. — When  a  bank  was  chartered,  the  constitution  re- 
quired a  two-thirds  vote  to  alter  a  charter ;  but  it  was  provided  in  the  char- 
ter that  the  legislature  might  "at  any  time  alter,  modify,  or  repeal  the  same." 
The  new  constitution  required  a  majority  vote  merely.  It  was  held,  that 
the  bank  had  no  "vested  right"  to  have  the  charter  changed  b}-  a  two-thirds 
vote  only.^*' 

Reorganization  as  Creating  New  Corporation. — This  has  been  held 
in  a  Louisiana  case.*^" 

Debts  Not  Affected.— Debts  contracted  with  the  bank  previous  to  the 
passing  of  the  repealing  act,  are  not  affected  thereb}-."! 

§  26.  General  Laws. — A  statute  which  provides  for  the  incorporation 
of  banks,  with  certain  restrictions,  in  cities,  towns,  etc.,  of  certain  classes, 
does  not  prevent  the  organization  of  banks  in  cities  having  a  larger  pop- 
ulation."^^     And  a  statute  wdiich  enacted  that  members  of  banking  associa- 


ditions,  except  that  the  extension 
shall  be  formally  accepted  by  the 
bank,  shows  no  intention  that  the  ex- 
tended charter  shall  not  be  subject  to 
repeal  or  amendment  in  accordance 
with  the  provisions  of  the  Act  of 
1856.  Northern  Bank  f.  Stone,  88 
Fed.    413. 

57.  Name  of  corporation — Accuracy 
required. — People  v.  Oakland  County 
Bank   (Mass.),  1  Doug.  282. 

An  act  repealing  the  charter  of  the 
"Bank  of  Oakland  County"  can  not 
be  construed  to  be  a  repeal  of  the 
charter  of  ''The  President,  Directors, 
and  Company  of  the  Oakland  County 
Bank."  People  v.'  Oakland  County 
Bank    (Mass.),    1    Doug.   282. 

The  Kentucky  Const.,  §  59,  subsec. 
4,  prohil)iting  the  legislature  from 
passing  local  or  special  acts  to  regu- 
late the  punishinent  of  crimes,  in  con- 
junction with  Ky.  St.,  §  1202,  provid- 
ing for  the  punishment  of  the  offense 
of  embezzlement  by  any  officer  or 
agent  of  any  bank,  operated  to  repeal 
a  bank  charter  granted  by  special  act 
of  the  legislature  prior  to  the  adoption 
of  the  constitution,  to  the  extent  that 
it  provided  for  the  punishment  of  the 
offense  of  embezzlement  of  the  bank's 
funds  by  any  of  its  officers  or  agents. 
Commonwealth  v.  Porter,  ll.'i  Ky.  575, 
fiS  S.   \V.  r,21.  24  Ky.   L.   Rep.  .304. 


58.  "Six  months"  construed. — Union 
Bank  v.  Forrest,  Fed.  Cas.  Xo. 
14, .356,  3   Cranch   C.   C.   218. 

59.  Majority  required. — In  re  Re- 
ciprocity P.ank,  22  X.  Y.  9,  affirming 
29    Barb.    3(39,    17    How.    Prac.    323. 

60.  Reorganization  as  creating  new 
corporation. — Acts  1853,  No.  246, 
l^assed  for  the  reorganization  of  the 
Citizens'  Bank  of  Louisiana,  and  in 
order  to  relieve  the  state  from  its  lia- 
bility on  certain  bonds  issued  by  it 
for  the  benefit  of  such  bank,  and 
creating  the  banking  department  of 
such  bank,  and  the  contract  or  ar- 
ticles of  association  of  that  year 
adopted  by  the  creditors  empowered 
under  such  act,  created  a  new  cor- 
poration. Hope  V.  Board,  108  La.  315, 
32    So.    547. 

The  banking  department  of  Uie  Citi- 
zens' Bank  of  Louisiana,  created  by 
the  act  of  1853,  being  distinct  from 
the  l)ank,  was  not  liable  for  the  bonded 
debt  of  the  state  incurred  in  1836  in 
aid  of  the  bank.  Hope  v.  Board.  108 
La.    315.    32    So.    547. 

6L  Debts  not  affected.— Smith  v. 
I'.ank,  I'ed.  Cas.  Xo.  13,011,  4  Cranch. 
C.  C.  143;  Fcrgifson  i\  State  Bank,  8 
.\rk.   416. 

62.  General  laws. — Dupee  v.  Swig- 
crt.  127   III.  494,  21    X.   R.  622. 

Acts   relating  to  right   of  banking   in 


56 


BANKS    AND   BANKING. 


§  27 


tions  thereafter  formed  should  be  individually  liable  for  the  debts  of  the 
association,  was  not  an  implied  incorporation  of  banking  companies  after- 
wards formed.*^-  In  the  absence  of  indication  of  a  contrary  intent,  a  con- 
stitutional provision  conferring  on  the  legislature  general  powers  to  create 
corporations  by  general  laws  has  been  held  to  include  banking  corpora- 
tions/^-*    But  a  proviso  excepting  banking  corporations  prevails."^^ 

Amendment  or  Repeal. — The  charter  of  a  bank  incorporated  under  a 
general  law  may  be  modified  or  repealed  by  the  legislature.''*'  But  the  re- 
peal of  a  general  incorporation  law,  for  the  incorporation  of  banks,  should 
not  be  construed,  in  the  absence  of  express  provisions,  to  repeal  the  char- 
ters of  corporations  formed  thereunder,  when  the  manifest  purpose  is  to  re- 
vise the  former  laws  upon  the  subject  and  to  substitute  a  new  law  extending 
the  provisions  of  the  old,  without  interfering  with  corporations  formed  un- 
der it.*^^ 

§  27.  Defective  Incorporation  or  Organization.'^'^— Failure  to  Pay- 
in  Capital. — The  failure  to  pay  in  the  specie  required  by  the  charter  does 
not  invalidate  the  incorporation,  if  the  rights  of  third  persons  are  not  prej- 
udiced,^'^ nor  does  the  failure  to  file  the  afifidavit  of  such  payment.'"^* 


general,    see    ante,    "Constitutional    and 
Statutory    Provisions,"    §    4. 

Incorporation  under  general  laws, 
see  ante,  "Nature  and  Formation  in 
General,"  §  22. 

63.  Implied  incorporation. — Myers 
V.  Irwin  (Pa.),  2  Serg.  &  R.  368,  con- 
struing   Penn.    Statute    of    1808. 

64.  General  constitutional  provision 
held  applicable. — Const.  1846,  art.  8, 
§§  1-.3,  providing  for  the  formation  of 
corporations,  the  alteration  or  repeal 
of  laws  or  special  acts  creating  them, 
and  defining  the  term  "corporations" 
as  used  in  said  article,  apply  to  bank- 
ing corporations,  though  §  7  declares 
and  defines  the  liability  of  stockhold- 
ers in  banks  of  issue,  and  §  4  provides 
for  chartering  savings  banks  by  gen- 
eral law,  prohibits  special  charters  to 
banks,  and  requires  them  to  be  incor- 
porated under  general  laws.  Barnes 
r.  Arnold,  45  App.  Div.  314,  61  N.  Y. 
S.  85,  affirmed  in  Barnes  z-.  Arnold,  169 
N.   Y.  611,  62  N.   E.  1093. 

65.  Proviso  excepting  banking  cor- 
porations.— A  certificate  of  incorpora- 
tion filed  under  Revision  1896  (P.  L. 
p.  277),  §  6,  which  provides  that  noth- 
ing contained  in  the  act  shall  au- 
thorize the  formation  of  any  trust 
coinpany  or  banking  corporation,  can 
not  include  powers  of  a  banking  cor- 
poration or  those  of  a  trust  company 
or  such  as  are  intended  to  derive  profit 
from  the  loan  and  use  of  monev.    Mc- 


Carter   i'.    Imperial   Trustee    Co.,   72   N. 
J.    L.    (43    Vr.)    42,    60    Atl.    223. 

66.  Amendment  or  repeal. — Barnes 
7\  Arnold,  23  Misc.  Rep.  197,  51  N.  Y. 
S.  1109;  People  z'.  O'Brien,  111  N.  Y. 
1.  18  X.  E.  692,  2  L.  R.  A.  255,  7  A-m. 
St.    Rep.    684. 

67.  Repeal  of  general  law — Charters 
obtained  thereunder  not  repealed. — 
Smock  z'.  Farmers'  Union  State  Bank, 
22  Okl.  825,  98  Pac.  945.  See,  also, 
ante,  "Charter  as  Contract,  and 
Amendment  or  Repeal,"  §  23  (3b); 
"Amendment,  Renewal  and  Repeal," 
§   25    (3). 

68.  Defective  incorporation  or  or- 
ganization.— Effect  of  failure  to  de- 
posit securities  in  safety  fund,  see 
ante.   "Reserves."    §   14. 

Liabilities  of  persons  engaged  in 
unauthorized  banking,  see  ante, 
"Validity  of  Transactions  and  Liabil- 
ities Incurred,"  §  9. 

Proceedings  by  stockholder  ques- 
tioning sufficiency  of  incorporation, 
see  post,  "Rights  and  Liabilities  as  to 
Bank,"  §  43. 

69.  Failure  to  pay  in  capital. — 
Where  a  bank  has  been  organized  and 
bills  issued  without  the  actual  pay- 
ment in  of  the  specie  required  by  its 
charter,   so  that  by  reason   thereof  the 


70.  Failure  to  file  affidavit  of  pay- 
ment.— The  fact  that  the  organizers 
of  a  state  bank  failed  to  file  with  the 
countv    clerk    an    affidavit    of    the    pay- 


§-^/ 


BANKING    CORPORATIONS    AND   ASSOCIATIONS. 


57 


Personal  Liability. — The  promoters  and  organizers  of  a  bank  which 
attempts  incorporation,  but  does  not  complete  the  same,  are  Hable  as  part- 
ners for  debts  contracted  in  the  course  of  business."^  But  mere  irregular- 
ities in  organizing  a  banking  corporation  will  not  deprive  the  officers  and 
stockholders  of  the  protection  of  the  charter,  or  subject  them  to  private  lia- 
bilitv.  when  sued  as  unauthorized  bankers." - 

De  Facto  Incorporation — What  Constitutes. — An  attempt  in  good 
faith  to  incorporate  under  an  existing  law  authorizing  incorporation  for 
banking  purposes,  and  the  issuance  of  articles  of  incorporation,  and  acting 
thereunder  by  holding  meetings,  electing  directors  and  doing  other  acts  as 
a  corporation,  constitutes  a  corporation  de  facto  in  spite  of  defects  and  ir- 
regularities in  the  articles  of  incorporation,  and  only  the  state  can  inquire 


state  might  at  any  time  have  recalled 
its  corporate  franchise,  or  a  stock- 
holder have  resisted  the  payment  of 
stock,  or  a  debtor  his  liability  to  the 
bank,  provided  the  rights  of  third 
persons  were  not  prejudiced,  it  is  still 
a  valid  corporation,  so  far  as  to  make 
it  liable  to  creditors  for  its  own  acts, 
and  its  stockholders  liable  to  innocent 
bill  holders  under  its  charter  for  the 
ultimate  redemption  of  the  bills  put 
in  circulation  by  the  bank.  McDou- 
gald   V.    Bellamy.    18    Ga.   411. 

Where  the  charter  of  a  bank  re- 
quires a  certain  amount  of  stock  to 
be  paid  in  before  the  bank  can  go 
into  operation,  and  the  statute  re- 
quires the  capital  of  banks  to  be  paid 
in  cash,  if  a  subscriber  for  stock  is 
allowed  by  the  directors  to  give  a 
note  for  his  stock,  instead  of  paying 
cash,  and  the  bank  goes  into  opera- 
tion in  violation  of  the  charter  on  a 
capital  which  the  note  is  reckoned  as 
a  cash  payment  for  stock,  the  ille- 
gality of  the  transaction  can  not  be 
set  up  in  defense  to  an  action  by  the 
bank  on  the  note.  Pine  River  Bank  7'. 
Hodsdon,  40  X.   H.   114. 

71.  Personal  liability. — Pettis  z'.  At- 
kins, 00  111.  4.54;  McLennan  v.  An- 
spaugh,  2  Kan.  App.  209,  41  Pac.  1003; 
following  McLennan  v.  Hopkins.  2  Kan. 
App.    200,    41     Pac.    lOGl. 

Where  persons  enter  into  articles  of 
association  for  banking  purposes,  and. 
without    any    charter,    assume    a    name, 

ment  of  its  capital  stock,  as  required 
by  law,  can  only  be  objected  to  by 
the  state,  and  can  not  be  made  a  de- 
fense by  one  who  in  the  usual  course 
of  business  has  incurred  oljligations 
to  the  l)ank.  Bank  7'.  Darling.  91 
Hun,  2:50,  :jo  N.  Y.  S.  ir,.-?,  72  N.  V.  St. 
Kcp.    54. 


open  a  stockbook,  subscribe  for  shares 
of  stock,  and  a  portion  pay  small 
sums  thereon,  hold  meetings,  elect  di- 
rectors, publish  their  names,  none  of 
whom  take  any  steps  to  inform  the 
public  that  they  do  not  belong  to  the 
association,  enter  into  and  transact 
business  as  a  bank,  held,  that  they  are 
all  liable  as  partners.  Pettis  z\  At- 
kins,  GO   111.   454. 

A  stockholder  in  Iowa  is  personally 
liable  on  his  stock  in  a  Kansas  sav- 
ings bank  for  the  debts  of  the  corpo- 
ration, if  a  material  article  of  the  cor- 
poration's charter  was  not  signed,  and 
the  signatures  to  the  ch.arter  itself 
were  not  acknowledged,  as  required 
by  the  incorporation  acts  of  Kansas, 
although  the  necessary  certificates  be- 
fore a  savings-bank  business  could  be 
commenced  were  duly  filed.  Kaiser :'. 
Lawrence  Sav.  Bank,  50  lov/a  104,  3 
N.   W.   772,   41    Am.    Rep.   85. 

The  president  of  a  bank,  who  signs 
notes  intending  to  l)ind  the  bank,  is 
himself  lialjle  thereon,  if  the  bank.  l)y 
reason  of  a  void  charter,  has  no  legal 
existence.  Allen  r.  Pegram,  10  Iowa 
10.'{. 

The  president  of  a  l)ank  is  charge- 
a])le  with  constructive  notice  of  the 
management  of  its  afifairs  by  the 
cashier  and  other  subordinate  officers; 
and,  where  such  bank  is  doing  busi- 
ness without  legal  organization,  lie 
can  not  escape  the  responsibility  re- 
sulting from  such  notice,  by  showing 
that  he  supposed  himself  tiie  president 
of  a  legally  constituted  i)ank,  if  he  lias 
contributed  the  infiuence  of  his  repu- 
tation to  give  undeserved  credit  to  a 
spurious  corporation.  Ilauser  7'.  Tate, 
H!i  N.  C.  81,  :i9  Am.  Rep.  080. 

72.  Mere  irregularities  not  sufficient. 
—  r.artlK.Ir.nieu-  v.    I'.entley,    1    O.   v^t.  :!7. 


58  BANKS   AND   BANKING.  §    27 

in  a  direct  proceeding  whether  it  is  a  corporation  de  jure."^  The  act  of  an 
incorporated  bank  in  changing  its  name  and  place  of  business,  under  an 
tniconstitutional  law,  and  the  subsequent  exercise  of  corporate  powers  under 
the  new  name,  with  the  implied,  if  not  the  direct,  consent  of  the  state,  makes 
the  bank  a  de  facto  corporation."'*  But  an  unincorporated  bank  exclusively 
owned  by  one  person,  which  never  adopted  articles  of  incorporation  or  pre- 
tended to  possess  or  exercise  corporate  powers,  is  not  a  corporation  de  facto, 
though  the  business  was  conducted  by  a  president  and  cashier.'-^ 

Necessity  for  Authority  of  Law  to  Incorporate. — \\'here  there  was 
no  territorial  law  under  which  a  corporation  could  be  formed  for  banking 
purposes,  an  attempted  incorporation  for  that  purpose  is  not  within  the  pro- 
tection of  a  statute  of  the  territory  protecting  de  facto  corporations  from 
collateral  attack,  as  that  provision  only  applied  to  de  facto  corporations, 
which  this  is  not,  and  the  incorporators  may  be  charged  as  partners  on  legal 
contracts  made  in  the  name  of  such  pretended  corporation."''' 

Retrospective  Curative  Legislation. — ^^■here  a  banking  corporation 
was  attempted  to  be  formed  when  there  was  no  territorial  law  authorizing 
such  incorporation,  and  subsequently  the  law  was  amended  so  as  to  author- 
ize banking  corporations  to  be  created,  and  a  statute  provided  that  any  com- 
pany theretofore  incorporated  for  banking  should  be  entitled  to  the  benefit 
of  the  amended  statutes  on  filing  a  certificate  with  the  secretary  of  the  ter- 
ritory setting  forth  its  acceptance  of  such  statutes,  such  bank,  though  not 
filing  the  certificate,  was,  when  thereafter  receiving  deposits,  a  de  facto  cor- 
poration."" 

Right  to  Sue. — An  unauthorized  bank  has  been  held  incapable  of  suing 
on  a  note  discounted  by  it."-^ 

Right  to  Question  Corporate  Existence. — The  general  rule,  appli- 
cable to  all  corporations,  that  the  franchise  of  a  corporation  can  not  be  im- 
peached or  inquired  into  collaterally,  is  applicable  to  corporations  exercis- 
ing banking  franchises."'*     Its  existence  can  not  be  questioned  by  one  wdio 

73.  De  facto  incorporation— What  tempted  to  incorporate  a  bank  in  ter- 
constitutes. — Shawnee,  etc.,  Sav.  Bank  ritory  then  in  dispute  between  that 
Co.  z'.  Miller,  24  O.  C.  C.  198,  14-24  O.  state  and  Ohio,  which  territory  was 
C.   D.   198.  settled   to   belong   to    Ohio.   After   this 

74.  Richards  7'.  JMinnesota  Sav.  Bank.  settlement,  the  bank  continued  to  do 
7.5  Minn.  196.  77  N.  W.  822.  business,  and  discounted  the  note  sued 

75.  Longfellow  z:  Barnard,  59  Neb.  on  in  this  case.  Held,  that  the  bank  is 
455,  81  N.  W.  307.  affirming  on  rehear-  unauthorized,  and  can  not  therefore 
ing,  58  Xeb.  612,  79  X.  W.  255,  76  Am.  maintain  the  action.  ^Nlyers  r.  Alan- 
St.    Rep.    117.  hattan    Bank.    20    O.    28.3. 

76.  Necessity  for  authority  of  law  79.  Right  to  question  corporate  ex- 
to  incorporate. — Davis  v.  Stevens.  104  istence. — Bartholomew  z'.  Bently,  1  O. 
Fed.   235.  St.    37.      See,   also.    Shawnee,    etc..    Sav. 

77.  Retrospective  curative  legisla-  Bank  Co.  z:  Miller.  14-24  O  C  C  198 
tion.-— :\Iason  r.  Stevens.  16  S.  Dak.  320,  24  O.  C.  D.  198.  '  ' 
19   X.  W.  424.  In  a  suit  against  a  stockholder  of  a 

78.  Right  to  sue. — The  general  as-  national  bank  by  its  receiver  for  as- 
sembly of  Michigan,  before  the  admis-  sessments,  the  validitv  of  the  incor- 
■sion   of   that   state   into   the   Union,   at-  poration  of  the  bank  is  a  collateral  is- 


§    28    (la)  BANKING    CORPORATIONS    AND    ASSOCIATIONS. 


59 


has  dealt  with  it  and  thus  admitted  its  existence  ;'^"  and  where  an  amend- 
ment to  the  charter  of  a  bank  was  offered  to  the  stockholders  thereof  for 
their  acceptance  in  a  prescribed  mode,  and  the  bank  proceeded  to  exercise 
and  enjov  the  privileges  and  immunities  secured  by  the  amendment,  neither 
the  bank  nor  such  of  its  stockholders  as  consented  to  and  accepted  the 
amendment  can  deny  that  the  amendment  was  accepted  in  the  prescribed 
mode,  as  against  the  claims  of  third  persons,  although  in  fact  the  amend- 
ment was  not  accepted  as  prescribed. ^^ 

§  28.  Evidence  of  Existence— §  28  (1)  In  General— §  28  (la) 
Presumptions  and  Burden  of  Proof. — Commencement  of  business  need 
not  be  shown  where  it  is  shown  that  the  bank  has  been  duly  incorporated.*- 
And  it  has  been  held  that  the  name  of  a  bank  may  connote  incorporation.^^ 

Presumption  from  Legislative  Recognition. — Well-considered  cases 
have  gone  so  far  as  to  hold  that  when  the  existence  of  a  corporation  has 
been  recognized  by  acts  of  the  legislature,  all  inquiry  into  the  original  crea- 
tion of  the  corporation  is  precluded.'^'* 


sue,  and  the  stockholder  is  estopped 
from  asserting  that  it  is  not  a  cor- 
poration de  jure.  Davis  v.  Watkins, 
5G  Xeb.  288,  76  N.  W.  575. 

80.  Estoppel  to  deny  corporate  ex- 
istence.— Persons  dealing  with  a  bank 
by  executing  a  note  and  mortgage 
thereto  after  its  term  of  corporate 
existence  had  expired,  were  estopped 
from  maintaining  that  the  mortgagee 
had  no  corporate  existence  when  the 
note  was  executed.  Citizens'  Bank  z'. 
Jones.  117  Wis.  446,  94  N.  W.  329; 
Campbell  v.  Perth,  etc.,  Engineering 
Co.,   70   N.   J.   Eq.   40,   62   Atl.   319. 

Where  a  bank  had  done  all  the  law 
required,  previous  to  the  appointment 
of  a  commissioner  by  the  governor  to 
examine  its  vaults,  which  the  governor 
neglected  to  do,  a  person  who  had 
done  business  with  the  bank  and  ad- 
mitted its  existence  by  the  receipt  of 
its  funds  could  not,  in  a  suit  against 
him  l)y  the  receivers  of  the  l)ank, 
question  the  legality  of  the  organiza- 
tion.    Bank  v.   Renick,   15   O.   322. 

Where  one  'contracts  with  a  bank 
organized  under  the  Indiana  Free  P)ank 
.^ct  of  1855,  he  can  not  as  a  defense 
to  such  contract  avail  himself  of  the 
provisions  of  §  18  of  such  act,  requir- 
ing that  the  place  where  the  l)ank  is 
located,  if  not  a  county  seat,  shall 
contain  not  less  than  1,000  inhal)itants. 
•Mlison   r.    llubbell,    17   Tnd.    559. 

Where  a  bank  collects  checks  pay- 
able to  and  indorsed  in  the  name  of 
plaintiff  as  a  corporation,  the  bank  is 
estopped  afterwards  to  deny  plaintiff's 
corporate    character.      Craig    Medicine 


Co.  V.   Merchants'   Bank,   59    Hun    561, 
14  X.  Y.  S.  16,  36  X.   Y.   St.   Rep.  923. 

81.  Amendment  accepted  in  other 
than  prescribed  manner. — Owen  :■. 
Purdy,    12    O.    St.    73. 

82.  Proof  of  commencement  of 
business  unnecessary. — On  trial  of  an 
indictment  for  uttering  certain  forged 
bills  with  intent  to  defraud  a  bank, 
v.diere  it  is  shown  that  the  bank  has 
been  duly  incorporated,  it  is  unneces- 
sary to  show  that  it  has  commenced 
business.  People  v.  Peabody  (X.  Y.), 
25  Wend.  472. 

83.  Incorporation  presumed  from 
name. — A  finding  that  plaintiff  credit- 
ors dealt  with  a  bank  as  a  corpora- 
tion is  stxstained  by  evidence  that  the 
bank  was  named  the  "Minnesota  Sav- 
ings Bank,"  Laws  1879,  c.  109,  §  40, 
forbidding  any  unincorporated  bank 
to  solicit  deposits  as  a  "savings  bank," 
in  the  absence  of  any  evidence  I)y 
plaintiffs  to  the  contrary.  Richards  r'. 
Minnesota  Sav.  Bank,  75  jNlinn.  196, 
77  N.  W.  822. 

.\  mortgage  in  tlic  form  of  an  abso- 
lute deed,  reciting  that  the  deed  is 
sul)ject  to  tlie  claim  nf  the  Anglo- 
California  Bank,  Limited,  imports 
that  the  l)ank  is  a  corporation,  and,  in 
a  suit  l)y  the  bank  to  foreclose  its 
claim  under  a  mortgage,  furnislies 
l)rima  facie  evidence  of  plaintiff's  cor- 
ixirate  character.  Anglo-Californian 
I'.ank  '■.  h'ield,  146  Cal.  644,  80  Pac. 
lOHO.  See,  however.  ITungerford  X^at. 
I'.ank   7'.   Van    Xcstrand.   106    ?\l;iss.   55'.). 

84.  Presumption  from  legislative 
recognition. — State   ;■.    I'liller.   S6  'i'enn. 


60 


BANKS    AND   BANKING. 


28  (2) 


§  28  (lb)  Judicial  Notice. — \\'here  the  charters  of  banks  are,  by 
statute,  made  general  laws,  of  which  the  courts  are  bound  to  take  notice, 
the  court  will  therefore  take  notice  whether  or  not  a  particular  bank  is  an 
authorized  institution. ^•''  But  not  of  a  bank  charter  granted  by  a  territorial 
legislature,'-*^  or  of  a  foreign  bank."*" 

§  28  (Ic)  As  Question  for  Jury. — In  a  suit  by  a  bank,  an  alleged  cor- 
poration, on  a  note  made  payable  to  \\'.  or  order,  the  fact  that  the  note  is 
payable  "at  such  bank"  is  not  conclusive  that  it  is  a  corporation,  but  the  ex- 
istence of  the  corporation  is  a  question  of  fact  to  be  submitted  to  the  jury.^^ 

§  28  (Id)  Of  National  Banks. — The  mode  provided  by  the  national 
banking  act  for  proving  the  organization  of  national  banks  should  be  fol- 
lowed.^^ 

§  28  (2)  Charter  or  Certificate. — A  bank  charter  granted  by  the 
governor  of  a  state,^^"'  or  a  legislative  act  of  incorporation,''^  which  is  pre- 


(2  Pickle)  614,  8  S.  W.  586,  citing  So- 
ciety for  Propagation  of  the  Gospel 
V.  Pawlet,  4  Pet.  480,  7  L.  Ed.  927;  In 
re  New  York,  etc.,  R.  Co.,  70  N.  Y. 
327,   338. 

Repeated  recognitions  of  a  bank  by 
the  legislature,  in  various  public  laws, 
as  a  legally  existing  corporation,  is, 
so  far  as  third  persons  are  concerned, 
conclusive  evidence  of  such  legal  ex- 
istence, against  which  no  testimony 
can  be  heard  of  the  nonfulfillment  of 
the  conditions  upon  which,  by  the 
charter,  such  legal  existence  was 
made  dependent.  Williams  v.  Union 
Bank,   21   Tenn.    (2   Humph.)    339. 

"Again  it  becomes  by  such  recogni- 
tion ipso  facto  a  legal  corporation,  and 
any  defect  or  irregularity  in  the  pro- 
ceedings required  by  law  to  be  taken 
for  its  organization  will  be  deemed  to 
have  been  waived.  Black  River,  etc., 
R.  Co.  z'.  Barnard  (N.  Y.),  31  Barb.  258; 
Atlantic,  etc.,  R.  Co.  v.  St.  Louis,  66  Mo. 
228;  White's  Creek  Turnpike  Co.  v. 
Davidson  Co.,  3  Tenn.  Ch.  396.  In 
which  last  case  it  is  said  by  Judge 
Cooper,  that  'after  repeated  recogni- 
tions of  the  existence  of  a  turnpike 
corporation  up  to  and  inclusive  of  the 
last  legislature,  a  collateral  impeach- 
ment of  its  existence,  based  on  pre- 
existing facts,  can  not  be  entertained.' 
See,  also.  Waterman  on  Corp.,  §  42." 
State  r.  Butler,  86  Tenn.  (2  Pickle) 
614,    8    S.    W.    586. 

85.  Judicial  notice  of  corporate  ex- 
istence.— Watson  T'.  Brown,  14  O.  473; 
Brown  z:  State,  11  O.  276;  State  f. 
Shelton,  26  Tenn.  (7  Humph.)  31; 
Shaw    V.    State,    35    Tenn.     (3    Sneed) 


86;  Bonner  v.  Burke,  41  Tenn.  (1 
Coldw.)    623. 

The  charter  of  a  bank  of  circula- 
tion, although  the  corporation  maybe 
correctly  denominated  a  private  cor- 
poration, is  a  public  law,  and  need  not 
be  given  in  evidence.  Williams  v. 
Union  Bank,  21  Tenn.  (2  Humph.) 
339.  See  post,  "Charter  as  Notice, " 
§  34   (2). 

The  act  of  Virginia  incorporating 
the  Bank  of  Alexandria  is  a  public 
law.  Young  z:  Bank,  4  Cranch  384,  2 
L.    Ed.    655. 

86.  Territorial  bank  charter. — Alex- 
ander z'.  Brown,  2  Disn.  395,  13  O. 
Dec.  241. 

87.  Of  foreign  bank. — Brown  z\ 
State,  11  O.  276;  Lewis  z'.  Bank,  12 
O.    132,   40   .\m.    Dec.   469. 

88.  As  question  for  jury. — Hunger- 
ford  Nat.  Bank  v.  Van  Nostrand,  106 
]\Iass.  559.  See,  however,  ante.  Pre- 
sumptions and  Burden  of  Proof," 
§  28  (la),  as  to  presumption  from  cor- 
porate   name. 

89.  Of  national  bank. — First  Nat. 
Bank  z'.  Randall,  1  App.  Civ.  Cases, 
§   f)Tl. 

90.  Charter  or  certificate. — A  bank 
charter  granted  by  the  governor  of  a 
state,  reciting  his  authority,  by  the 
laws  of  that  state,  to  make  such 
grants,  and  authenticated  by  the  great 
seal  thereof,  in  the  absence  of  proof 
that  its  laws  did  not  warrant  such  an 
exercise  of  authority  on  the  part  of 
the  governor,  is  sufficient  evidence, 
per  se,  to  prove  the  existence  of  such 
bank.  Agnew  v.  Bank  (Md.),  2  Har. 
&   G.   478. 

91.  Act   of  incorporation. — It   is   not 


§  28  (3) 


BAXKIXr,    CORPORATIOXS    AND    ASSOCIATIOXS. 


61 


sunied  to  have  been  legal  and  valid,''-  or  the  original  certificate  of  incorpora- 
tion recorded  in  the  proper  office,  are  sufficient  evidence  of  incorporation.^-' 
The  charter  is  proved  by  an  authenticated  copy  or  the  public  statute  book 
containing  it.-'"* 

§  28  (3)  Parol  Evidence. — While  it  has  been  held  that  parol  evidence 
is  not  admissible  to  establish  the  existence  of  a  free  bank,^^  yet  on  trial  of 
an  indictment  for  uttering  certain  forged  bills  with  intent  to  defraud  a  bank, 
parol  evidence  has  been  held  admissible  to  prove  the  bank's  existence.^" 


necessary,  in  order  to  maintain  an  ac- 
tion by  an  incorporated  bank,  that 
such  bank  should  show  a  regular  or- 
ganization according  to  the  directions 
of  Rev.  St.,  c.  44.  It  is,  in  general, 
sufficient  to  give  evidence  of  the  act 
of  incorporation,  and  the  actual  use 
of  the  powers  and  privileges  thereby 
conferred.  Farmers',  etc..  Bank  t'. 
Jenks   (Mass.),  7   Mete.  592. 

If  a  plea  of  nul  tiel  corporation  l)e 
filed  to  a  declaration  by  a  bank  on  a 
note,  and  issue  be  joined  thereon,  a 
copy  of  the  act  of  incorporation,  to- 
gether with  proof  oi  user  under  the 
charter,  is  sufficient  evidence  in  be- 
half of  the  bank.  Henderson  v.  Mis- 
sissippi Union  Bank,  14  Miss.  (6 
Smedes   &   M.)    314. 

And  it  has  been  held  that  proof  of 
user  in  addition  is  not  necessary. 
People  r.  Peabody  (N.  Y.),  25  Wend. 
472. 

Of  foreign  bank. — In  an  action  by 
a  bank,  purporting  to  be  a  foreign  cor- 
poration, to  foreclose  a  mortgage  as- 
signed to  it,  the  only  proof  of  incor- 
poration was  a  legislative  act  of  the 
foreign  state  incorporating  it.  Held, 
that  possession  of  the  note  and  mort- 
gage, with  proof  of  purchase  and  as- 
signment to  plaintiff  in  its  corporate 
name,  proved  an  acceptance  of  the 
charter.  Lancaster  Sav.  Bank  f.  El- 
well,   17   Wash.    440,   49   Pac.    1070. 

92.  Presumption  of  validity.— Upon 
the  denial  of  tiie  corporate  existence 
of  a  Ijank,  the  court  will  not  assume 
tliat  the  act  of  incorporation  took 
I)lace,  if  at  all,  under  the  statute 
passed  since  the  adoption  of  the  con- 
stitution of  1851,  and  is  therefore  void 
for  want  of  compliance  with  the  pro- 
visions of  such  constitution.  Ridenour 
V.    Mayo,    29    O.    St,     Kis. 

93.  Original  certificate. —  In  an  ac- 
tion by  a  banking  association  formed 
under  the  general  banking  law  of  18:58, 
tlie  original  certificate  recorded  in  tlie 
county  clerk's  office,  togetlier  witli 
Iiroof  that  the  association  had  done 
liusiness    and    issued    bills    which    were 


countersigned,  was  sufficient  evidence 
of  the  association's  organization,  with- 
out direct  proof  that  a  copy  of  its  cer- 
tificate had  been  filed  with  the  secre- 
tary of  state.  Leonardsville  Bank  x'. 
Willard,  16  Abb.  Prac.  Ill,  affirmed  in 
25  N.  Y.  574.  See.  also.  People  f.  Pea- 
body    (X.    Y.).   25   Wend.   472. 

94.  Authenticated  copy  of  charter 
or  the  statute  book. — Where  an  indict- 
ment for  passing  counterfeit  bank- 
notes alleged  the  existing  of  the  bank- 
ing corporation  in  another  state, 
whose  bills  were  counterfeited,  it  is 
held,  that  it  is  necessarj-  upon  the 
trial  to  produce  in  evidence  an  au- 
thenticated copy  of  the  charter  of  said 
liank,  or  a  book  purporting  to  be  the 
pul)lic  statute  book  of  said  state,  in 
which  said  charter  is  printed.  Jones 
r.   State,   37   Tenn.    (5   Sneed)   34f). 

A  properly  certified  copy  of  an 
amended  charter  of  plaintiff  l)anking 
corporation,  signed  by  the  state  auditor, 
and  a  deposition  of  plaintiff's  cash- 
ier that  the  bank  had  l)een  dulj' 
organized  and  acting  under  the  char- 
ter, and  for  ten  years  previous  had 
lieen  doing  business  under  a  previous 
charter;  that  he  had  been  connected 
with  it  from  its  first  organization;  and 
that  it  had  never  l)ecn  dissolved,  and 
was  still  doing  business,  to  which 
were  appended  the  minutes  of  a  meet- 
ing, containing  a  copy  of  the  first 
charter,  and  an  account  of  the  reor- 
ganization under  the  second,  was  sutTi- 
cient  evidence,  where,  uncontradicted, 
to  justify  a  finding  that  the  bank  was 
a  corporation.  Bank  ?'.  Carr,  130  \. 
C.   479,   41    S.    E.   87r). 

95.  Parol  evidence. — Trice  :■.  State, 
:i9    'I'enn.    (2    Head)    591. 

96.  Dennis  7:  People  (X.  Y.),  1 
I'arker  Cr.  R.  4f.9;  People  7'.  Chad- 
uick,  2  Parker  Cr.  R.  103;  Cady  7-. 
Commonwealth,  51  Va.  (10  Gratt.) 
77().  See  State  7:  Williams,  152  Mo. 
115,  53  S.  W.  424,  75  .\m.  St.  Rep.  441, 
"hen  such  evidence  was  held  suffi- 
cient in  a  ])rost'rntii>n  for  forging  of 
a  note. 


62 


BANKS    AND   BANKING. 


§  29 


§  28  (4)  User  and  Repute. — The  existence  of  a  banking  corporation 
may  be  proved  by  reputation,^'  or  user,^^  without  direct  proof  of  the  filing 
of  the  certificate  as  required  by  law,^^  and  this  apphes  to  a  foreign  corpora- 
tion. ^ 

Existence  of  National  Bank. — On  the  preHminary  examination  of  the 
accused,  charged  with  embezzlement,  evidence  of  the  actual  existence  of  a 
certain  national  bank,  and  of  acts  done  by  the  accused  as  president  thereof, 
is  sufficient  evidence  of  the  legal  incorporation  of  the  bank,  and  of  the  con- 
nection of  the  accused  with  it.- 

§  29.  Term  of  Existence. — In  General. — The  legal  existence  of  a 
bank  continues  as  long  as  the  act  incorporating  it  remains  in  force. -^ 

Statutory  Extension  Subsequent  to  Dissolution. — Of  course  the  life 
of  a  corporation  may,  for  certain  purposes,  by  statute  or  the  charter,  be  ex- 
tended for  certain  time  after  its  dissolution.'* 


97.  User  and  repute. — State  v.  Fitz- 
simnions,   30   Mo.   236. 

98.  Williams  v.  Union  Bank,  21 
Tenn.    (2   Humph.)   339. 

In  suit  by  a  bank  upon  a  note,  proof 
that  plaintiff  is  doing  business  as  a 
bank,  in  the  name  in  which  it  sued, 
has  a  president  and  other  officers,  and 
keeps  a  discount  register,  is  sufficient 
to  establish  its  status.  For  the  pur- 
pose of  the  suit,  it  is  immaterial 
whether  it  be  a  mere  association  of 
persons  or  an  incorporated  company. 
Farmers',  etc.,  Bank  v.  Williamson,  ol 
Mo.   259. 

In  a  suit  by  a  bank,  in  which  its 
corporate  existence  is  in  issue,  it  is 
sufficient  for  them  to  show  the  char- 
ter, and  to  give  parol  evidence  that 
they  are  transacting  business  as  a 
bank.     Bank  v.  Allen,  11  Vt.  302. 

Where  the  charter  of  a  bank  re- 
quired notice  of  its  organization  by  a 
certain  date,  and  it  was  found  in 
operation  afterwards,  under  the  char- 
ter, it  must  be  presumed,  in  the  ab- 
sence of  evidence  to  the  contrary,  that 
the  bank  was  organized  as  early  as 
the  time  prescribed.  Bank  ?'.  Lyman, 
Fed.  Cas.  No.  924,  20  Vt.  666,  1 
Blatchf.   297. 

Evidence  of  office  of  discount.— 
Evidence  that,  at  a  place  having  the 
name  of  a  bank  oVer  its  entrance, 
notes  were  discounted  and  accounts 
kept  there,  is  admissible  to  show  that 
the  place  is  a  bank.  Way  z'.  Butter- 
worth,    106   Mass.   75. 

Evidence  that  bills  are  in  general 
circulation. — Evidence  that  the  bills  of 
a  banking  corporation  are  in  general 
circulation  is  sufficient  evidence  of  the 
organization  of  the  bank  to  sustain  an 


allegation  to  that  effect  in  an  indict- 
ment for  forging  a  bank  note.  State 
f.    Carr,   5    N.    H.   367. 

99.  Without  proof  of  filing  of  certifi- 
cate.— In  an  action  by  a  banking  asso- 
ciation, the  original  certificate  recorded 
in  the  county  clerk's  office,  with  proof 
that  the  association  who  did  business 
and  issued  bills  which  were  counter- 
signed, is  sufficient  evidence  of  its 
due  organization,  without  direct  proof 
that  a  copy  of  the  certificate  was  filed 
with  the  secretary  of  state,  as  re- 
quired by  statute.  Leonardsville  Bank 
7'.  Willard,  16  Abb.  Prac.  Ill,  affirmed 
in   25    N.    Y.    574. 

1.  Foreign  corporation. — Gaines  v. 
Bank  of  Mississippi,  12  Ark.  769;  Jen- 
nings V.  People,  8  Mich.  81;  State  v. 
Fitzsimmons,  30  Mo.  236;  Reed  zk 
State,  15  O.  217;  Sasser  v.  State,  13  O. 
453. 

2.  Existence  of  national  bank. — In 
re  VanCampen,  Fed.  Cas.  No.  16,835,. 
2    Ben.    419. 

3.  Term  of  existence. — ^Lindell  v. 
Benton,   6   Mo.   361. 

4.  Statutory  extension  subsequent 
to  dissolution. — Where  a  statute  gives 
to  all  companies  incorporated  under 
It  three  j-ears,  after  a  dissolution  of 
said  corporations  by  limitation,  legis- 
lative repeal,  or  otherwise,  to  wind  up' 
and  settle  the  affairs  of  said  com- 
panies, they  may,  therefore,  sue  and 
be  sued  as  corporations  at  any  time 
within  three  years  after  dissolution. 
Ferguson  t'.  Miners,  etc..  Bank,  35- 
Tenn.  (3  Sneed)  609.  See  Nashville 
Bank  r.  Petway,  22  Tenn.  (3  Humph.) 
522,  for  example  of  extension  by 
charter   provision. 


§    30    (2)  BANKING    CORrORATlONS    AND    ASSOCIATIONS.  6S 

Subsequent  Acts  Extending  the  Period. — Subsequent  acts  extending 
the  period  of  corporate  existence  incorporate  themselves  with  the  original 
charter,  and  give  the  same  effect  to  its  provisions  with  the  respect  to  the 
period  of  extension  as  they  had  with  reference  to  the  original  period."* 

§  30.  Extension,  Renewal,  or  Transfer  of  Franchise — §  30  (1) 
Extension  or  Renewal." — Terms  and  Conditions. — An  act  to  extend 
the  charter  of  a  corporation,  by  usage,  includes  tlie  terms  or  conditions  upon 
which  said  extension  is  granted." 

Continuation  of  By-Laws  in  Force.' — Where  a  bank's  charter  is  re- 
newed by  direction  that  the  period  of  its  existence  shall  be  extended  as 
fully  as  if  the  extended  period  had  been  named  in  the  original  charter,  the 
directors,  in  a  suit  by  its  receiver  against  them,  can  not  claim  that  a  by- 
law adopted  previous  to  the  extension,  and  relied  on  by  the  receiver,  was 
not  binding  because  of  the  expiration  of  the  original  charter.''' 

Extension  by  Action  of  Stockholders — Failure  to  Give  Notice  of 
Meeting. — Where  the  law  authorizes  the  stockholders  to  extend  the  cor- 
porate existence  at  any  meeting  called  for  that  purpose,  the  failure  to  give 
the  usual  statutory  notice  of  such  meeting  will  not  invalidate  the  extension 
if  otherwise  regular.^ 

§  30  (2)  Assignment  and  Transfer  of  Rights,  Franchises,  etc. — 
In  General. — It  has  been  held  that  the  rights,  franchises,  and  exemptions 
granted  to  a  banking  corporation  by  its  charter  may  exist,  and  be  validly 
transferred,  without  issuance  or  transfer  of  stock  certificates,  where  there 
is  other  satisfactory  proof  of  subscription  and  payment  of  stock,  and  of 
organization  of  the  corporation,  and  of  a  bona  fide  transfer,  not  merely  of 
the  paper  charter,  but  of  the  stock,  franchises,  and  exemptions  of  the  cor- 
poration.i" 

5.     Subsequent    acts    extending     the  8.    Continuation  of  by-laws   adopted 

period.— Nashville   Bank   r.   I'ctway,   23  before    extension.— CaniphcU    z:     W  at- 

Tenn.    (3   Humph.)    522.  son,  62   N.  J.   J'ki.  3«)(),  50  Atl.  120. 

And,    therefore,    where    the    charter  „^-,    Extension   or    renewal.— Cascade 

provided   that   the    powers   and    oblij,^a-  ^'^"'^  '^-   ^o^.^'"'  ^^  ^^1°"^.  202,  103   Pac. 

tions  of  the  corporation  shall  continue  ^•'•''    construing    Rev.    Codes  of    Mon- 

for  the  purpose   of  bringing   to   a   final  ^^V«'   S   '''".''• 

settlement    its    affairs    which    shall    be  .  ^°-     Assignment     and      transfer      of 

depending  on  the   day  the   charter  ex-  TShts,    franchises     etc.— btatc    ^^    But- 

pires,   specifying   the   day,   and   the   ex-  l^"":   ^^    ^  ^■""-    ^^    P'cl<le)    G14,   8    b.    W. 

istence   of   the    corporation   was   subse-  '^^'V       ,  ,   ,                 ...           ,                  ,     ,, 

quently    extended    for     twenty      years  ^     statute,    providing    that     it     shall 

after   that    date,    it    was   held,    that    the  "°\   ^^ .    '^>^^"1  .    ^",''    .  ^"      nidividual 

powers  of  the  corporation  for  the  pur-  Ranker  issuing  circulating  notes   under 

pose   of  settlement   would   continue    as  l^^    general    banking    laws    to    sell    or 

if  there  had  been   no  extension.    Nasli-  transfer  the  business  o     banking,  upon 

ville     P.ank    v.     Petway     22    Tenn     Ci  ^'"^    securities    deposited    by    hini.    does 

lltnnijli.)    r,',i\>                     '  ""'^   prevent   an   absolute    sale    l)y    sncli 

R      o^^^-  ','     ,      ^                                  „  banker    of    the      bank      and      banking 

.,,;     ?P^"^\  '^h^'-te"      °'"  ,  ^^^f.-T^'^^  operations,     including      the      securities 

.'■ne      Special   Charters  or  .Acts,'   §  25.  deposited    with    the    bank    department. 

7.    Usage   as   to    terms     and     condi-  Metcalf  i;.  Messenger  ( N.  Y.),    ir,  I'.arl). 

tions.— R.,binson  ::   15ank,    IS   C.n.   (15.  325. 


64 


BANKS   AND    BANKING. 


§  31   (1) 


An  insurance  company  can  not  absorb  a  bank,  either  directly  or 
indirectly,  so  as  to  draw  unto  itself  the  rights,  franchises,  and  exemptions 
contained  in  the  bank  charter;  but  there  is  no  legal  objection  to  the  pur- 
chase of  the  stock,  franchises,  etc..  of  the  bank  by  shareholders  in  the  in- 
surance company.  Of  this  latter  character  is  the  transaction  in  this  case.^^ 
But  a  transfer  of  a  mere  charter  conferring  a  franchise  does  not  convey 
the  franchise  to  the  transferee. ^- 

The  judicial  sale  of  a  bank  franchise  transfers  to  the  purchaser  only 
the  right  to  reorganize  as  a  corporation,  not  an  existing  franchise  to  be  such 
corporation  with  any  of  its  personal  privileges  and  exemptions. ^'"^ 

§  31.  Name — §  31  (1)  Statutory  Requirements. — Under  a  statute 
requiring  the  name  of  the  county  or  city  in  which  a  bank  is  formed  to  ap- 
pear in  its  name,  either  is  sufficient. ^^     And  where  a  statute  requires  that 


11.  Absorption  by  insurance  com- 
pany and  purchase  by  stockholders 
thereof  distinguished. — State  v.  But- 
ler, 86  Tenn.  (2  Pickle)  614,  8  S.  W. 
586,  where  the  court  said:  "For  the 
complainant  it  is  urged  that  the  trans- 
action just  detailed  was  a  merger  of 
the  bank  into  the  insurance  companj-. 
or  was  a  sale  by  the  bank  of  all  its 
stock  to  the  Merchants'  Insurance 
Company  for  the  purpose  of  carrying 
to  the  latter  its  corporate  entity  and 
franchises,  to  enable  the  insurance 
company  to  control  the  organization 
and  to  become  a  bank,  and  that  the 
mere  mterposition  of  the  directors  as 
trustees  to  hold  the  stock  does  not 
change  the  effect.  The  legal  proposi- 
tion advanced  is  sound.  There  is  no 
doubt  but  that  the  insurance  company 
had  no  power  to  purchase,  and  the 
bank  no  power  to  sell,  so  as  to  vest 
all  the  stock  and  franchises  of  the 
latter  in  the  former,  there  being  no 
express  atithority  to  do  so  in  either 
charter,  nor  by  any  additional  legis- 
lative grant  or  provision.  Green's 
Brice's  Ultra  Vires,  166;  Cook  on 
Stocks,  etc.,  §  60,  pp.  315-317.  And  it 
is  equally  true  that  if  the  purchase 
was  by  the  one  corporation  for  the 
purpose  of  controlling  or  absorljing 
the  other,  the  mere  interposition  of 
the  directors  as  trustees  wotild  not 
validate  the  transaction.  Central  R. 
Co.  c.  Pennsylvania  R.  Co.,  31  N.  J., 
Eq.  475."  State  v.  Butler,  86  Tenn. 
(2  Pickle)  614,  8  S.  W.  586. 

12.  Transfer  of  charter  conferring 
franchise. — State  v.  Butler.  S3  Tenn. 
(15   Lea)    104. 

13.  Judicial  sale  of  franchise. — The 
judicial  sale  of  the  franchise  of  a  bank- 


ing corporation  does  not  transfer  to 
the  purchaser  the  franchise  to  be  such 
a  corporation,  but  only  the  right  to 
reorganize  as  a  corporation,  subject 
to  the  laws,  constitutional  and  other- 
wise, existing  at  the  time  of  the  re- 
organization. The  franchise  to  be  a 
corporation  is  distinguished  from  the 
franchise  to  exercise  as  a  corporation 
the  banking  powers  named  in  this 
charter.  The  exemption  from  taxa- 
tion was  a  personal  privilege  in  favor 
of  the  corporation  therein  specifically 
referred  to,  and  it  did  not  pass  with 
the  sale  of  that  charter,  and  there  is 
no  express  or  clear  intention  of  the 
law  requiring  that  exemption  to  pass 
as  a  continuing  franchise  to  the  pur- 
chaser thereof.  Morgan  v.  Louisiana. 
83  U.  S.  217.  23  L.  Ed.  860;  Wilson  v. 
Gaines.  103  U.  S.  417,  26  L.  Ed.  401: 
Louisville,  etc..  R.  Co.  v.  Palines,  109 
U.  S.  244.  27  L.  Ed.  922,  3  S.  Ct.  193. 
In  the  face  of  the  constittitional  pro- 
vision prohibiting  exemption,  it  can 
still  less  be  claimed  that  the  sale  of 
the  charter  caryed  the  exemption. 
Mercantile  Bank  f.  Tennessee,  161  U. 
S.  161,  173.  40  L.  Ed.  656,  16  S.  Ct. 
161. 

A  banking  corporation  may  exist 
under  and  by  virtue  of  the  purchase 
of  the  charter  at  a  receiver's  sale,  and 
the  legislative  recognition  and  the  as- 
stmiption  of  the  state  that  it  is  a  cor- 
poration, and  yet  not  have  the  title 
to  the  exemption  given  by  that  char- 
ter, because  it  is  not  in  fact  or  in  law 
the  same  corporation  originally  in- 
corporated. ^Mercantile  Bank  v.  Ten- 
nessee, 161  U.  S.  161.  173,  40  L.  Ed. 
656.    16    S.    Ct.    461. 

14.  Local  designation. — Erb  i\ 
Grimes,  94  Md.  92,   50  Atl.  397. 


§  31    (2) 


BAXKIXG    CORPOR.\TIOXS    AXD    ASSOCIATIOXS. 


65 


the  certificate  of  incorporation  of  a  corporation  reincorporating  under  that 
article  shall  state  the  proposed  name  of  the  new  corporation  and  the  former 
name  of  said  corporation,  where  the  \\'.  Savings  Institution  reincorporated 
as  the  W.  Savings  Bank,  the  alteration  of  the  name  did  not  affect  the  va- 
lidity of  the  new  corporation. i^'  Under  a  statute  prohibiting  a  foreign 
corporation  from  doing  a  banking  business  under  a  name  identical  with 
or  similar  to  that  of  a  domestic  corporation,  while  the  domestic  corporation 
would  be  entitled  to  an  injunction  against  such  use  of  such  name,  yet  where 
used  with  an  addition  which  prevents  it  from  being  misleading,  the  statute 
is  not  infringed.ic  "The  president  and  directors  of  has  been  held  not  a 
part  of  a  bank's  name.^' 

§  31  (2)  Change  of  Name.— Power  to  Change  and  Effect.— 
While  the  state,  by  its  legislature,  may  change  the  name  of  a  corporation, 
and  to  this  extent  recognize  its  then  existence  as  a  corporation,  it  does  not 
tb.ereby  assure  to  it  any  other  or  dift'erent  franchises  than  those  which  it 
is,  at  the  time  of  such  recognition,  entitled  to.^^ 


15.  Erb.  f.  Grimes,  94  Aid.  02,  50 
Atl.  397,  construing  Maryland  Code, 
art.  23,  §  83. 

16.  International  Trust  Co.  z'.  In- 
ternational Loan,  etc.,  Co.,  153  Mass. 
271,   26   X.    E.   693,   10   L.    R.   A.   758. 

Laws  1889^  c.  452,  §  2,  provides  that 
no  foreign  corporation  shall  carry  on 
a  banking,  mortgage  loan  and  invest- 
ment, or  trust  business  in  Massa- 
chusetts under  a  name  previously  in 
use  by  a  domestic  corporation,  or  so 
nearly  identical  as  to  mislead.  Held, 
that  the  name  "International  Loan  & 
Trust  Company  of  Kansas  City,"  or 
the  same  with  the  addition  of  the  ab- 
breviation "^Mo.,'"  is  not  so  nearly  the 
same  as  "International  Trust  Com- 
pany" as  to  mislead;  and  a  domestic 
corporation  which  has  previously 
owned  and  done  business  under  the 
latter  name  is  not  entitled  to  an  in- 
junction against  a  foreign  corporation 
to  restrain  it  from  doing  business  un> 
der^  the  former  name,  though  defend- 
ant's corporate  name  is  actually  "In- 
ternational Loan  Sz  Trust  Company." 
International  Trust  Co.  f.  Interna- 
tional Loan,  etc.,  Co.,  153  Mass.  271 
26   X.    E.   693,    to   L.    R.    A.   758. 

A  foreign  corporation  engatred  in 
the  i)usiness  of  buying  and  sellimr  in- 
vestment securities,  consisting  chicfiv 
of  its  own  debenture  bonds,  issued 
acrainst  mortfjacres  taken  by  it  in 
other  states,  and  mercantile  paper  dis- 
f-ounted  by  it  elsewhere  and  sent  into 
Massachusetts  for  rediscount,  is  en- 
gaged in  the  banking  or  loan  and  in- 
1   P,  &  p,_- 


vestment  business  within  the  mean- 
ing of  the  statute.  International  Trust 
Co.  V.  International  Loan,  etc.,  Co.. 
153  Mass.  271,  26  X.  E.  693,  10  L.  R. 
A.    758. 

The  proper  party  to  petition  for  in- 
junction under  §  3  of  the  act,  which 
provides  that  any  of  its  provisions 
may,  on  petition,  be  enforced  by  in- 
junction, is  the  party  aggrieved  by  the 
actions  of  the  foreign  corporation: 
and  a  domestic  corporation  engaged 
in  loaning  and  investing  moneys  re- 
ceived by  it  on  securities,  and  receiv- 
ing, discounting,  and  paying  interest 
on  deposits,  is  an  aggrieved  part}',  if 
the  foreign  corporation  does  business 
under  an  identical  name,  or  one  so 
similar  as  to  mislead,  as  the  business 
of  the  two  corporations  are  the  same 
or  similar.  International  Trust  Co.  v. 
International  Loan,  etc.,  Co.,  153 
iMass.  271,  26  X.  E.  693,  10  L.  R.  A. 
758. 

17.  The  corporate  name  of  the  bank- 
incorporated  by  .Kct  Cong.  March  3. 
1817,  §  23.  is  "The  Central  Bank  of 
Georgetown  and  Wasliington,"  and 
not  "The  President  and  Directors  of" 
said  bank.  Central  Bank  :■.  Tavloe. 
Fed.  Cas.  Xo.  2,548,  2  Crancli,  C.  C. 
427. 

18.  Power  to  change  and  effect 
thereof.— S,late  ;■.  I'.utk-r.  83  Tenn.  (I5 
Lea.)    101.    111. 

Similarity  of  new  name  to  that  of 
existing  corporation. —  An  order  al- 
lowiii-  a  C()rp<pr;iti(in  to  cli;inge  its 
name    from    llie    "I'ank    of    .\ttica"    be- 


66  BANKS   AND   BANKING.  §    22 

Changing  Name  by  Special  Act. — An  act  which  merely  changes  the 
name  of  a  pre-existing  corporation  is  not  obnoxious  to  a  constitutional 
provision  that  "no  corporation  shall  be  created  or  its  powers  increased  or 
diminished  by  special  laws."^^ 

Grant  of  Charter  with  Privilege  to  Change  Name. — Sometimes  a 
charter  carries  the  privilege  of  change  of  name.-" 

Necessity  for  Submission  to  Popular  Vote. — \\  here  a  banking  cor- 
poration has  attempted  to  change  its  name  under  the  provisions  of  an  act 
which  does  not  apply  to  banking  corporations  (because  not  submitted  to 
a  popular  vote  as  required  of  all  acts  creating  banking  corporations  or 
amendments  thereof)  another  statute,  which  ratifies  and  validates  all  such 
attempted  changes,  and  was  adopted  by  popular  vote,  does  not  cause  the 
changed  name  to  become  the  legal  name  of  the  corporation  until  the  date 
when  said  section  went  into  effect.-^ 

§  32.  Location  and  Place  of  Business.-- — Residence  of  Bank. — 

If  the  charter  of  a  bank  says  the  bank  shall  be  established  at  a  particular 
place,  the  charter  itself  means  to  say  that  the  bank  shall  be  a  resident  of 
that  place ;'-'  and  where  the  charter  of  a  bank  provided  that  its  operations 
of  discount  and  deposit  should  be  carried  on  in  the  village  of  Ithaca,  and 
not  elsewhere,  and  the  cashier  discounted  a  note  at  the  city  of  New  York, 
canceling  a  debt  due  the  bank  from  the  person  at  whose  request  the  dis- 
count was  made,  and  paying  him  the  balance  in  cash,  it  was  held  that  the 
transaction  was  not  a  violation  of  the  charter,  and  that  the  note  was  valid.-'* 
Legislative     Determination. — And    where    the    principal    bank    and 

cause  of  its  similarity  to  the  "Bank  of  Under     Const.     111.,    art.      11,      §      5, 

Attica    in    Attica,''     another      banking  which    provides    that    no    acts    creating 

corporation,   to   the   "Buffalo   Commer-  banking      corporations.      nor      amend- 

cial    Bank,''    will    not    be    disturbed    on  nients  thereto,   shall  go  into  efTect  un- 

the    ground    of    its    similarity     to      the  less   ratified   by   popular   vote,   the   Act 

"Bank    of    Commerce    in    Buffalo."      In  of    March    26,    1872,    providing    for    the 

re   Bank,   .59   Hun    615,   12  N.  Y.   S.  648.  change    of   corporate    names    (Rev.    St. 

19.  Change  of  name  by  special  act.  1889,  c.  .32,  §  50),  not  having  been  sub- 
— State  v.  Butler,  86  Tenn.  (2  Pickle)  mitted  to  popular  vote,  does  not  apply 
614,  8  S.  W.  586,  construing  art.  11,  to  banking  corporations.  Sykes  v. 
§  8  of  Tenn.  Const,  of  1870,  and  citing  People,  182  111.  .32,  23  X.  E.  391. 
Wallace  t'.  Loomis,  97  U.  S.  146,  24  L.  22.  Location  and  place  of  business. 
Ed.  895:  Jones  x'.  Habersham,  107  U.  — Control  and  regulation  of  foreign 
S.   174,   27   L.   Ed.   401,   2   S.   Ct.   336.  banks,     see     ante,      "Foreign       Banks," 

20.  Grant   of   charter   with   privilege  §  18. 

to    change    name. — The    Tennessee    act  Limitation   of  number  of  banks   in   a 

of    1854,    ch.    294,    §    68,    chartered    the  locality,    see    ante,    "Nature    and    For- 

Eastern     Division      Mining     Company,  mation    in    General,"    §     32;      "Special 

with    banking    powers,    and    the    privi-  Charters   or  Acts,''  §  25. 

lege    of    changing    its    name    and    title  Rights    to    establish     branches,      see 

whenever     deemed     necessary.      Under  post.  "Branches,"  §  33. 

the    power    thus    conferred,    the    name  Place   of  exercise  powers  of  foreign 

of    said    corporation    was    changed    to  banks,   see  post,   §   86    (3). 

the    Central    Bank    of   Tennessee.     Lil-  23.       Residence      of      bank. — Central 

lard  V.  Porter.  39  Tenn.    (2   Head)    177.  Bank   ;■.    Gibson,    11    Ga.    453;    Davis   v. 

21.  Submission    to    popular    vote. —  Central   R.,   etc..    Co..   17   Ga.   326. 
Sykes   r.    People,    132    111.    32,   23    N.    E.  24.     Potter   v.    Bank    (N.    Y.),    7    Hill 
391.  530. 


(1) 


BANKING    CORPORATIONS    AND    ASSOCIATIONS. 


67 


branches  of  the  state  bank  were  located  by  the  legislature  at  certain  desig- 
nated points,  they  could  only  be  removed  by  the  same  power. -^  And  where 
the  requirements  of  law  have  been  complied  with  a  certificate  of  authority 
to  transact  a  banking  business  can  not  be  refused  by  the  secretary  of  state 
because  the  business  is  to  be  conducted  in  a  department  store.-" 

§  33.  Branches — §  33  (1)  Distinct  Corporate  Existence  and 
Authority. — While  it  has  been  held  that  branch  banks  have  a  distinct  cor- 
porate existence  and  authority,  by  which  they  may  contract  for,  and  ac- 
quire, the  ownership  of  property,--  the  weight  of  authority  is  that  a  bank 
and  its  branches  constitute  but  one  corporation.-'*  The  relation  is  that  of 
principal  and  agent,  e.  g.,  that  between  the  bank  of  the  United  States  and 


25.  Legislative        determination. — 

Bank  v.  Woodson,  45  Tenn.  (5  Coldw.) 
176. 

The  Farmers'  Bank  of  Virginia,  be- 
ing a  domestic  corporation  in  Vir- 
ginia, before  the  division,  and  having 
branches  in  the  territory  which  be- 
came West  Virginia,  from  the  date  of 
the  division  continued  in  law  and  in 
fact  a  domestic  corporation  of  the  lat- 
ter state  as  effectually  as  it  had  been 
under  the  former  state,  and  as  such 
was  liable  to  be  sued,  and  was  not 
liable  to  be  proceeded  against  as  a 
foreign  corporation.  Farmers'  Bank 
V.  Gettinger,  4  W.  Va.  305;  Farmers' 
Bank  r.  Willis,  7  W.  Va.  31. 

26.  In  department  store. — Jones  v. 
Cook.    U-i    Mn.    100,    73    S.    W.    489. 

28.  Branches — Distinct  corporate 
existence. — McXeil  t\  Wyatt,  22  Tenn. 
(3  Humph. J  125;  Bonner  v.  Burke,  41 
Tenn.  (1  Coldw.)  623.  See  post, 
"Powers,"    §    33    (3). 

29.  Wallace  v.  State  Bank,  7  Ark. 
61;  Elliott  v.  Branch,  etc.,  Bank,  4 
Ark.  424;  Bower  v.  Bank,  5  Ark.  234; 
Murphey  v.  State  Bank,  7  Ark.  57; 
Bank  v.  Dunn,  17  La.  234;  Trezevant 
:■.  Bank  (La.),  1  Rob.  465;  Farmers' 
Bank  v.  Garten,  34  Mo.  119;  Bank  v. 
Smith,  33  Mo.  364;  Merchants'  Bank  r. 
Farmer,  43  Mo.  214;  Tompkins  v. 
I'.ranch  I'.ank.  38  Va.  (11  Leigh)  372; 
Mason  v.  Farmers'  Bank,  39  Va.  (12 
Leigh)  84;  Farmers'  Bank  :•.  Willis. 
7  W.  Va.  31;  Smith  v.  Lawson.  18  W. 
Va.   212,   14   /\m.   Rep.   688. 

Xo  estoppel  on  a  bank  estalilisliing 
a  branch  bank  under  §  9,  Act  Jan.  12, 
1H72,  requiring  it  to  treat  the  branch 
bank  as  an  independent  bank,  exists, 
since  that  would  1)C  to  create  an  in- 
dependent corporation,  which  it  could 
not  do.  Worth  f.  Bank,  122  X.  C.  397, 
29   S.    1*..   77.-.. 

Construction     of     statute. — In     B.-mk 


v.  McVeigh,  61  Va.  (20  Gratt.)  457, 
it  was  held,   that  the   act   of  March   3, 

1861,  authorizing  payment  of  debts  due 
to  mother  banks  within  the  federal 
lines  to  be  made  to  branch  banks 
within  the  confederate  lines,  was  not 
obligatory  upon  the  mother  banks, 
but  was  unconstitutional  as  to  debts 
contracted  before  its  passage,  al- 
though payment  had  been  made  in 
confederate   money   to   a  branch   bank. 

A  bank  located  within  the  federal 
lines  took  possession,  after  the  war, 
of  the  assets  of  its  branch  bank  lo- 
cated within  the  confederate  lines,  the 
assets  were  much  less  than  the  in- 
debtedness of  the  branch  bank  to  the 
mother  bank.  Held,  that  the  bank  did 
not  thereby  sanction  and  ratify  the 
acts  of  the  branch  bank  done  under 
the    Acts    of    March    29    and    May    16. 

1862.  Yeaton  v.  Bank,  62  Va.  (21 
Gratt.)    593. 

Payment  of  debts  to  parent  bank. — 
The  provision  in  the  Code  of  Virginia, 
that,  "though  a  bank  had  a  l)ranch 
*  *  *  all  its  notes  should  be  received 
in  payment  of  debts  to  the  ])ank, 
w'hcther  contracted  at  the  parent 
liank,  or  a  branch,"  applied  only  while 
the  dcl)ts  remained  due  to  the  bank. 
Wlicn  a  negotiable  promissory  note 
discounted  by  the  Farmers'  Bank  of 
Virginia  had  been  assigned  by  the 
bank  to  trustees,  for  the  payment  of 
antecedent  debts,  and  the  maker,  hav- 
ing notice  of  the  assignment,  after- 
wards acquired  notes  of  the  bank,  he 
could  not,  with  these,  pay  liis  debt  so 
assigned,  or  set  tlir-m  o(T  against  it. 
Farmers'   Bank  7'.   WiHis,   7  W.  Va.   31. 

Notes  discounted  by  branch. — In 
Smitli  7'.  Lawsun,  Ls  W.  Va.  212,  14 
Am.  Ri'p.  fi.ss,  it  was  held,  tliat  the 
motluT  bank  has  a  riglit  to  receive 
y>aymenl  of  a  negotiable  note  dis- 
cduiitcd    bv    llu'    braiu-li. 


68 


BANKS    AND   BANKING. 


§  ^^   (4) 


its  branches.'"*'  A  statute  defining  "branch  banks"  has  been  held  not  to 
include  branches  of  foreign  banking  corporations,  these  being  included  un- 
der "banks. "^^ 

§  33  (2)  Creation. — The  creation  of  branch  banks  by  the  legislature 
is  constitutional,^-  and  a  clause  in  the  constitution  providing  that  the  gen- 
eral assembly  may  incorporate  one  state  bank,  and  branches,  does  not  pro- 
hibit the  establishment  of  one  banking  institution,  with  any  number  of 
offices  of  deposit  to  transact  its  business ;  and  it  may  locate  these  offices 
at  as  many  points  as  it  may  deem  advisable,^^  in  the  absence  of  a  charter 
restriction,'''^  or  a  statutory  one.^'^  But  there  must  be  legislative  authority 
before  a  bank  can  establish  a  branch.-"*' 

§  33  (3)  Powers. — The  powers  of  branch  banks  are  limited  to  the 
•authority  delegated  to  them  by  charter,-''"  and  even  the  conferring  of  au- 
thority by  charter,  which  is  opposed  to  the  incorporating  clause  and  the 
general  objects  of  the  charter,  is  void.-^^ 

Acquisition  of  Property. — Branch  banks  have  a  distinct  corporate  ex- 
istence by  which  they  may  contract  for  and  acquire  property,  the  title  to 
which,  however,  becomes  vested  in  the  principal  bank  in  whose  name  suit 
can  be  maintained  for  its  recovery.^-' 

§   33    (4)    Actions. — And  while  it  has  been  held  that  a  branch  bank 


30.  Relation  of  principal  and  agent. 

—Bank  z:  Goddard,  Fed.  Cas.  No.  91  r. 
5  Mason  366;  Farmers'  Bank  v.  Calk, 
4  Ky.  L.  Rep.  (abstract)  G17;  Murphey 
V.  State  Bank,  7  Ark.  57. 

31.  Flumerfelt  v.  Engle,  50  Wash. 
207.   96   Pac.   1045. 

32.  Constitutional  exercise  of  leg- 
islative power. — People  z'.  Marshall 
(III).  1  Oilman  672;  Farmers'  Bank  z: 
Garten,   34    Mo.   119. 

33.  Number  and  location  of  offices 
unrestricted. — State  t.  Ashley,  1  Ark. 
513. 

34.  Charter  restriction. — \\'here  a 
bank  is  located  in  one  county  by  its 
charter,  it  violates  its  charter  by  es- 
tablishing an  agency  in  another 
county,  where  it  receives  deposits  and 
buys  and  sell  exchange;  but  it  may 
lawfully  have  an  agency  to  redeem  its 
bills.  People  z\  Oakland  County  Bank 
(Alass.),   1   Doug.   28:^ 

35.  Statutory  restriction — Scope. — 
Act  April  16,  1850,  §  50,  providing  that 
"each  and  every  bank  in  this  com- 
monwealth, or  any  other  state,  is 
hereby  prohibited  from  establishing 
*  *  *  any  branch  or  agency  for  the 
transaction  of  banking  business  *  *  * 
at  any  other  place  than  that  fixed  and 
named    in    its    charter    for    its    location 


and  the  transaction  of  its  business, 
without  the  express  authority  of  an 
act  of  assembly  of  this  commonwealth 
to  do  so,"  the  penalty  being  a  for- 
feiture of  charter,  is  inoperative  so  far 
as  it  refers  to  banks  chartered  by  the 
laws  of  other  states.  Bowman  i'.  Cecil 
Bank   (Pa.\   3   Grant   Cas.   33. 

36.  Legislative  authority  essential. 
— Bruner  v.  Citizens'  Bank,  134  Ky. 
283.   120   S.   W.   345. 

37.  Authority  limited. — State  v.  Ash- 
ley.  1   Ark.   513. 

The  local  boards  of  a  state  bank 
can  not  pass  any  by-law  or  ordinance 
affecting  any  other  part  of  the  cor- 
poration than  that  over  which  they 
respectively  preside,  and  even  then 
their  authority  is  subjected  to  the  con- 
trol of  the  central  board.  State  v. 
Ashley.   1    Ark.   513. 

38.  'State  z:  Ashley,  1   Ark.  513. 
Ratification   of  acts  of  branch  bank. 

— Yeaton  :■.  Bank.  62  Va.  (21  Gratt.) 
593.  See  ante.  "Distinct  Corporate  Ex- 
istence and  Authority,"  §  33  (1). 

39.  Acquisition  of  property. — M'Keil 
Z-.  Wyatt.  22  Tenn.  (3  Humph.)  125; 
Bonner  f.  Burke.  41  Tenn.  (l  Coldw.) 
623.  See,  however,  ante,  "Distinct 
Corporate  Existence  and  Authority." 
§   33    (1). 


§    34    (3)  BAXKIXG    CORPORATIONS   AND    ASSOCIATIONS,  69 

may  sue  and  be  sued  as  a  corporation."*^'  yet  the  better  rule  is  that  such 
suits  must  be  brought  by  or  against  the  mother  bank.-*i 

Garnishment — Duty  of  Branch. — It  is  the  duty  of  a  branch  bank, 
when  served  with  garnishee  process,  to  make  the  fact  known  within  the 
shortest  time  reasonably  practicable  to  the  main  bank  and  to  its  branches, 
where  it  is  known  that  the  depositor  whose  funds  have  been  garnished  has 
an  account  with  the  other  branch."* - 

§  34.  Constitution,  Charter  and  By-Laws-*-^— §  34  (1)  In  Gen- 
eral.— Collateral  Attack  on  Charter. — The  question  as  to  whether  a 
bank  has  violated  its  charter,  can  not  be  inquired  into  in  a  collateral  pro- 
ceeding. This  must  be  done  in  a  proceeding  having  that  single  object  in 
view.'*^ 

§  34  (2)  Charter  as  Notice. — Provisions  of  Charter  Bind  Third 
Persons. — Persons  dealing  with  a  banking  corporation  must  take  notice  of, 
and  are  affected  by  the  provisions  contained  in  its  charter.^*'  But  while 
knowledge  of  the  provisions  of  a  state  bank  charter  is  presumed,^'^  this  is 
not  true  of  the  charter  of  a  private  bank,  which  stands  on  the  footing  of 
a  special  private  act.'*^ 

§  34  (3)  By-Laws.^'' — Adoption. — Banks  may  enact  by-laws  to  reg- 
ulate the  means  of  attaining  their  corporate  ends ;  but  these  by-laws  must 
be  reasonable  and  consistent  with  the  general  laws  of  the  land ;  and  whether 
they  be  so,  a  court  must  determine."*^  They  must  not  be  in  restraint  of 
trade,  as  one  restricting  alienation  of  stock  has  been  held  to  be.^^     A  stat- 

40.  Actions. — Branch  v.  Rhew,  37  47.  Charter  of  state  bank. — All  per- 
Miss.   IK).  sons  within   the  limits  of  the   state  are 

41.  Elliott  z:  Branch,  etc.,  Bank,  4  presumed  to  know  the  purpose  of  the 
Ark.  424;  Wallace  v.  State  Bank,  7  creation  of  the  state  bank,  and  the  na- 
Ark.  61;  State  v.  Ashley,  1  Ark.  513;  ture,  character  and  extent  of  its  pow- 
Eower  z:  Bank,  .5  Ark.  234;  Bank  v.  ers.  Bank  v.  Woodson,  45  Tenn.  (5 
Dunn,  17  La.  234;  Bonner  v.  Burke,  41  Coldw.)  176.  See,  also,  Nashville  v. 
Tenn.  (l   Coldw.)  623;  IMason  r.  Farm-  Bank,    31    Tenn.    (1    Sw^an)    269. 

c-rs'    Bank,    39     Va.     (12     Leigh)      84;  48.     Private     bank.— King     r.     Doo- 

Tompkins  v.   Branch   Bank,   38   Va.    fll  little,   38   Tenn.    (1    Head)    77. 

Leigh)    372. _  49.    By-laws  of  savings  bank  as  part 

42      Garnishment — Duty    of    branch.  of    contract    with    depositor,    sec    post, 

— P.ank    :■.    Clark,    lOs    TU.    1(;3.  "By   Laws   or    Pass    Books   as    Part    of 

43.  Charter    as    contract— See    ante.  Contract,"  §  300. 

"Charter    as     Contract,      and      .Amend-  Rules     for    transaction     of    business 

ment    or    Repeal,"   §    23    (3b).  with  public,  see  post,  "Rules  of  Bank," 

44.  Collateral   attack    on     charter. —       §  88. 

Crump   f.    United    States    Min.    Co.,    48  50.     Adoption— Must    be    reasonable. 

Va.    (7    Gratt.)    352,    56    Am.    Dec.    116;  —State   z:    Bank,   5    Mart.    (X.    S.)    ;!27. 

P.anks    7'.    Poitiaux,    24    Va.    (3    Rand.)  51.     Restraint     of     trade— Alienation 

136,      15      Am.      Dec.     706.      See    post,  of    stock. — The    right,  of    alienation    is 

"Grounds   for    Forfeiture    of    Franchise  an   incident   of  property,   and   a   by-law 

or   Dissfihitirm,"   §   68.  of    a    I)ank    prohil)iting    the    alienation 

46.     Provisions    of    charter    as    bind-  <>f    stock    therein,    or    putting    rcstric- 

ing    third    persons. —  P.ohmer     r.      City  tions   tliereon,   is   voifl,   as   l)eing   in    re- 

I'ank.    77    Va.    445;    Hays    f.    I'.ank,    18  ^^traint    of    trade.      Moore    t'.    P.ank,    52 

Tenn.   (M.  &  Y.)   179.  Mo.  377. 


70  BANKS   AND   BANKING.  §    34j^ 

ute  requiring  corporations  generally  to  adopt  by-laws  within  one  month 
has  been  held  not  to  apply  to  banks. ^- 

Regulation  of  Business. — The  regulation  of  its  business  and  division 
into  departments  is  the  proper  subject  of  a  by-law,'^-'^  or  the  regulation  of 
stock  transfers  and  the  reservation  of  a  lien."'-* 

Construction. — A  by-law  of  a  bank  is  a  contract  between  the  stock- 
holders; and  the  ordinary  rules  of  construing  contracts  apply  in  its  con- 
struction.^^ The  construction  to  be  placed  on  the  by-laws  and  resolutions 
of  an  incorporated  bank,  in  evidence  in  a  case,  is  for  the  court. ^'*'' 

Mode  of  Proof. — Evidence  of  the  cashier  of  a  bank  as  to  what  the  by- 
laws of  the  bank  are  is  inadmissible.^" 

Binding  Force. — Although  an  incorporated  bank  be  authorized  to  make 
by-laws,  rules  and  regulations,  etc.,  such  by-laws  and  rules  can  not  afifect 
the  rights  or  interests  of  third  persons.^® 

§  34 1 .  Repeal  or  Amendment. — Power  of  Legislature  to  Repeal, 
Alter  or  Modify. — Under  the  power  reserved  in  the  charter  of  a  private 
banking  corporation,  to  repeal,  alter  or  modify  the  charter,  the  legislature 
may  repeal  the  charter,  but  can  not  modify  it  without  the  consent  of  the 
corporation.  But  if  the  corporation  refuses  to  consent  to  the  modification, 
it  must  discontinue  its  business  as  a  corporate  body.^"  And  the  acceptance 
by  the  stockholders  must  be  unanimous,  where  the  alterations  are  funda- 
mental.*^"' 

52.  Smock  V.  Farmers'  Union  State  plicable  to  corporations,  or  by  reason 
Bank,    22    Okl.    825,    98    Pac.    945.  of   the    provisions    of   its    charter,    it    is 

53.  Regulation  of  business. — Pal-  competent  for  the  legislature  to  re- 
mer  v.  Yates,  5  X.  Y.  Super.  Ct.  137.  strict     it,     or    to    take    it    away    alto- 

54.  Regulation  of  stock  transfers  gether.  Of  course  this  right  of  the 
and  liens.— Lockwood  v.  Mechanics'  state  to  alter  or  repeal  a  charter, 
Nat.  Bank,  9  R.  I.  308,  11  Am.  Rep.  where  the  legislature  has  reserved 
253.  that    power,    is    undoubted.      Robinson 

55.  Construction.— In    re   Dunkerson,       v.   Gardiner,  59  Va.   (18  Gratt.)   509. 
Fed.    Gas.    No.   4,156,    4    Biss.    227.  An  action  of  a  branch  l)ank,  not  hav- 

56.  Construction  of  by-laws  for  ing  been  assented  to  by  the  mother 
court. — Jumper  v.  Commercial  Bank.  bank,  did  not  operate  to  amend  the 
48   S.   C.   430,  26   S.   E.   725.  charter    of    the    mother   bank.      Yeaton 

57.  Mode     of      proof— Evidence      of  v.    Bank,   62   Va.    (21    Gratt.)    593. 
cashier. — Lumbard  v.  Aldrich.  8  N.   H.  Receipt   of   banknotes   in  payment  of 
31,  28  Am.   Dec.  381.  taxes. — The    legislature    of    Tennessee 

58.  Binding  force — Interests  of  third  had  the  right,  at  any  time,  to  repeal 
persons  unaffected. — Farmers',  etc.,  so  much  of  the  charter  of  the  Bank  of 
Bank  7'.   Smith,  19  Johns.  115.  Tennessee,  as  made  it  the   duty  of  the 

As    to    showing    mistake    in    account  tax    collectors    to    receive    its    bills    or 

of    deposits,    see    post.    "Making,     Re-  notes,  in  payment  of  all  taxes  due  the 

ceipt.    and    Entry   of   Deposits    in    Gen-  state.      Furman,   etc..   Co.   i'.   Nichol,   43 

eral,"    §    121.  Tenn.    (3    Coldw.)    432. 

As    to    liability    for    special    deposits,  60.     Acceptance     by     stockholders. — 

see    post,    "Special    Deposits,"    §    153.  Legislative    alterations,    in    the    charter 

59.  Power  of  legislature  to  repeal,  of  a  private  corporation,  when  merely 
alter  or  modify. — Yeaton  v.  Bank,  G2  auxiliary  and  not  fundamental  changes 
Va.    (21    Gratt.)   593.  of    the    same,    may    be    accepted    by    a 

Where  a  bank  is  doing  business  un-  majority  of  the  corporators,  and  such 
der   the   general   principles   of  law   ap-       acceptance    will    bind    the    whole;    but, 


§  34K^ 


BAXKIXG    CORPORATIOXS    AXD    ASSOCIATIOXS. 


71 


Submission  to  Popular  Vote. — Where  a  constitutional  provision  re- 
quires all  amendments  to  acts  authorizing  banking  corporations  to  be  sub- 
mitted to  popular  vote,  this  must  be  done  as  to  all  material  amendments.'"' 

Action  under  New  and  Old  Charter  Both. — A  banking  corporation 
already  in  being,  acting  under  a  former  charter  or  prescriptive  usage,  whicii 
accepts  a  new  charter  before  the  expiration  of  the  old.  may  still  act  under 
the  former,  or  partly  under  both. 6- 

Impairment  of  Obligation  of  Contracts. — The  power  can  not  be  ex- 
ercised to  impair  the  obligation  of  a  contract,  such  as  one  which  the  cor- 
poration has  entered  into  with  a  third  party .^^ 

Effect  of  Secession  on  Rights  of  State  Bank. — The  acts  by  which 
it  was  attempted  to  declare  a  state  independent,  and  to  dissolve  her  con- 
nection with  the  Union,  had  no  effect  in  changing  the  charter  of  a  bank 
therein,  but  it  had  the  same  powers  after  as  before  these  acts,  to  carry  on 
a  legitimate  banking  business.^'* 


if  such  alteration  are  fundamental, 
radical,  or  vital,  the  acceptance  must 
then  be  unanimous.  Woodfork  v. 
Union   Bank,  43  Tenn.    C3   Coldw.)    48S. 

61.  Submission  of  material  amend- 
ment to  popular  vote. — Hunt  z\  Na- 
tional Sav.  Bank  (111.),  11  X.  E.  170, 
affirmed  on  rehearing  in  129  111.  618, 
22    X.    E.    288. 

62.  Action  under  new  and  old  char- 
ter both. — Woodfork  i\  Union  Bank, 
43    Tenn.    (3    Coldw.  I    48S. 

63.  Impairment  of  obligation  of 
contracts. — Under  the  reserved  power 
of  the  legislature  "to  alter,  modify,  or 
repeal  a  charter  of  any  bank,"  it  has 
not  the  power  to  change  or  modify  an 
act  of  incorporation  in  such  a  way  as 
to  afifect  in  a  material  particular,  a 
contract  which  the  corporation  has 
entered  into  with  a  third  party.  Such 
an  exercise  of  legislative  power  would 
l)e  unconstitutional  and  invalid,  be- 
cause it  would  impair  the  obligation 
of  a  contract.  Bank  v.  McVeigh,  61 
Va.  (20  Gratt.),  4.57;  Yeaton  v.  Bank, 
(12  Va.  (21  Gratt.)  ,503:  Durfee  v.  Old 
Colony,  etc..  R.  Co.  (Mass.),  5  Allen 
230:  Hamilton  Mut.  Ins.  Co.  v.  Ho- 
bart   (Mass.),  2   Gray  543. 

Rut  where  the  general  assembly  has 
reserved  the  right  to  alter  or  repeal 
the  charter  of  a  l)ank,  an  act  en- 
titled  ".An    act    rcfiuiring   tlie    banks    of 


this  commonwealth  to  go  into  liquida- 
tion," is  not  obnoxious  to  the  charge 
of  interfering  with  vested  rights  or 
impairing  the  obligation  of  contracts. 
Robinson  v.  Gardiner,  59  Va.  (is 
Gratt.)    509. 

The  power  of  the  legislature  to 
change,  modify,  enlarge  or  restrain,  .i 
banking  corporation,  is  limited  1o 
such  measures  as  are  merely  ancillary 
to  the  main  design  of  the  corporation. 
It  can  not  repeal,  impair,  or  alter  the 
rights  and  privileges  conferred  by  the 
charter,  against  the  consent,  and  with- 
out the  default  of  the  corporation,  ju- 
dicially ascertained  and  declared. 
Woodfork  v.  Union  Bank,  43  Tenn. 
(3    Coldw.)    488. 

An  act  which  repeals  so  much  of  .'i 
previous  act  as  conferred  banking 
powers  upon  the  corporations  created 
by  said  act.  is  a  valid  and  constitu- 
tional enactment,  where  the  right  to 
alter  or  repeal  was  reserved.  Fergu- 
son V.  Miners,  etc..  Bank,  35  Tenn. 
(3   Sneed)    609. 

See  ante,  as  to  impairment  of  the 
contract  with  the  corporation  itself. 
"Charter  as  Contract,  and  Amendment 
of  Record,"  §  23   (3b). 

64.  Effect  of  secession  on  rights  of 
state  bank. — State  v.  Bank,  64  Tenn. 
(.-.  Baxt.)  1:  Lane  &  Co.  v.  Bank,  56 
Tenn.    (9    Hcisk.)    419. 


CHAPTER  III. 
B.  Capital,  Stock  and  Dividends. 

§  35.  Statutory  Provisions. 
§  36.  Amount  of  Capital  and  Shares. 

§  37.  Increase  of  Capital  Stock  and  Number  of  Associates. 
§  37   (1)   In  General. 
§  37   (2)   Mode  and  Validity. 

§  37   (3)  Apportionment  and   Disposition   of   Increased   Stuck. 
§  38.  Reduction  of  Capital   Stock. 
§  38   (1)   In  General. 
§  38   (2)   Mode    and    Validity. 

§  38   (3)   Disposition   of   Proceeds   of   Surrendered    Stock 
§  38  (4)   Relief  against  Reduction. 
§  381/^.  Surrender  of  Stock  to  Bank. 
§  39.  Subscription  to  and  Issue  of  Stock. 
§  39   (1)    Right  to   Subscribe. 

§  39   (2)   Form  and  Requisites,  Validity  and   Et^ect 
§  39  (2a)   Bona  Fides  of  Subscription. 
§  39   (2b)   Form  and  Sufficiency. 
§  39   (2c;   Nature  and  Effect  of  Obligation. 
§  39   (2d)   Rescission    of    Subscription. 
§  39   (3)   Oversubscription  and  Overissue. 
§  39   (4)    Stock  Certificates. 
§  39   (5)   Payment. 

§  39   (5a)   Medium. 
§  39   (ob)  Time. 

§  39   (5c)  Assessments   or   Calls   for   Payment. 
§  39   (5d)   What    Constitutes    Payment. 
§  39   (5e)   Presumption    and    Proof   of    Payment. 
§  39   (6)   Stock   Mortgages   and   Bonds. 

§  39   (7)   Liability   for   and    Collection    of   Unpaid    Balances. 
§  39   (7a)   In  General. 
§  39   (7b)   Persons   Liable.  ' 
§  39   (7ba)   State. 
§  39   (7bb)   Married    Women. 
§  39   (7bc)   Trustees. 
§  39   (7bd)   Assignor  or   Transferrer. 
§  39   (7be)   Assignee   or  Transferee. 
§  39   (7c)    Facts   Relieving   from   Liability. 

§  39   (7ca)    Banks    Having    No    Legal    Existence. 

§  39   (7cb)   Irregularity   of   Organization. 

§  39   (7cc)   Irregularities   in    Subscription. 

§  39   (7cd)   Fraud    and    Misrepresentation. 

§  39   (7ce)    Agreements    Relieving   against    Liability. 

§  39   (7cf)   Payment.  Release  or  Discharge. 

§  39   (7cg)   Redemption   of   Share  of   Bank's   Bills. 

§  39   (7ch)   Reduction   of   Capital   Stock. 

§  39   (7ci)   Part   of    Shares   Assessed. 


CAPITAL,    STOCK    AND    DIVIDENDS.  73 

§  39   (Tcj)    Estoppel    of    Director    Who    Became    Creditor. 
§  39  (7ck)   Collusion   between    Bank  and   Judgment   Creditors. 
§  39  (7cl)   Purchase  of  Shares  by  Bank. 
§  39   (.7cm)   Illegal   Transaction   of  Business. 
§  39   (,7d)  Ascertainment   of   Balances   Due   and  Adjustment   of   Lia- 
bilities. 
§  39  (7e)   Operation    of   Assignment    for    Benefit    of    Creditors. 
§  39   (7f)   Enforcement. 

§  39   (7fa)   Levy  of  Assessment  and  Sale  of  Stock. 

§  39  (7fb)   Nature  and  Form  of  Action. 

§  39   (7fc)  Jurisdiction. 

§  39   (7fd)   Limitations   and   Time   to    Sue. 

§  39   (7fe)  Appearance   and   Process. 

§  39   (7fif)   Parties. 

§  39   (7flfa)   Parties   Plaintiff. 
§  39   (7fifb)    Parties    Defendant. 
§  39   (7fg)   Pleading. 
§  39   (7fh)   Set-Oft. 
§  39   (7fi)   Evidence. 
§  39   (7fj)   Findings   and  Judgment. 
§  40.  Transfer  of  Stock. 

§  40   (1)   Assignability. 

§  40   (2)   Persons  Who  May  Acquire  or  Sell. 
§  40   (2a)   In    General. 
§  40   (2b)   Directors  of  Bank. 
§  40  (2c)   Bank   Itself. 

§  40  (2d)   Bank  Purchasing  Stock  in   Other  Bank. 
§  40  (3)  Validity,  Manner  and  Sufficiency. 

§  40  (3a)   Fraud   or   Misrepresentation. 
§  40  (3aa)   Efifect. 
§  40  (3ab)   Rescission. 
§  40  (3b)  Authority  from  Holder  or  Power  of  Attcney. 
§  40  (3c)   Form   and    Sufficiency. 
§  40   (3ca)   In    General. 

§  40  (3cb)   Certificate  Containing  Blank  Form  of  Assignment. 
§  40  (3cc)   Compliance  with   Formalities  and  Rules. 
§  40  (3cca)   In   General. 

§  40  (3ccb)   Right   to   Establish   and    Enforce. 
§  40  (Sccba)   In   General. 

§  40  (3ccbb)   Particular   Rules   and    Formalities. 
§  40  (3ccbba)   Consent   of    Directors. 
§  40  (3ccbbb)   Production    and    Cancellation 

of    Old    Certificates. 
§  40  (3ccbbc)   Entry  on   Bank's  Books. 
§  40  (3ccc)   Waiver   of    Compliance    witb    By-Laws. 
§  40  (3cd)   Issue   of    New    Stock    Certificate'. 
§  40  (3d)   Pledge   or   Collateral    Security 
§  40   (3e)   Gifts. 
§  40  (3f)   Usurious  Transfers. 
§  40  (4)   Operation    and    Effect. 
§  40   (4a)    In   General. 

§  40   (4b)    Rights    and    Liabilities    nf    Transferrer. 
§  40    (4c)    Title,   Riglits  and    inabilities  of  Transferee. 


74  BANKS   AND   BANKING. 

§  40  (4ca)   In    General. 

§  40  (4cb)   Liability  for  Unpaid   Balances   and  Assessments. 
§  40  (4cba)   In    Absence    of   Contract. 
§  40  (4cbb)  Assumption  by  Purchaser. 
§  40  (5)   Refusal  of  Bank  to  Allow  Transfer. 

§  40  (5a)   Right  to  and  Liability  for  Wrongful  Refusal. 
§  40  (5b)   Compelling  Transfer  and  Action  for  Damages. 
§  40   (5ba)  Jurisdiction   and    Form   of  Action. 
§  40   (5bb)   Limitations. 
§  40   (obc)    Process. 
§  40   (obd)   Parties. 
§  40   (5be)   Evidence. 
§  40  (5bf)  Variance. 
§  40   (5bg)  Judgment. 
§  40  (6)   Restraining  Transfer  of  Stock. 
§  401^.  Liability  of  Stock  for  Debts  of  Stockholders. 
§  40^    (1)   In   General. 

§  40^   (2)  Attachment.    Execution,  Judicial  and  Tax   Sales. 
§  41.  Profits  and  Dividends. 

§  41   (1)   Povi^er  and   Discretion   of   Directors. 
§  41   (la)   In  General. 
§  41   (lb)    Insolvent    Banks. 
§  41   (Ic)  Tax    Dividends. 
§  41   (2)    .\ccumulation   of   Surplus    Fund. 
§  41   (3)   Payment   of   Dividends. 
§  41   (3a)    Duty  to  Pay. 
§  41  (3b)  To  Whom   Payable. 
§  41   (3c)    Medium. 

§  41   (3d)  Application    to    Debt    of    Stockholders. 
§  41   (3e)   Interest. 
§  41   (4)  Actions  to  Recover  or  to   Enjoin  Alisapplication. 
§  42.  Lien  of  Bank  on  Stock  and  Dividends. 
§  42   (1)   Creation   and    Existence. 
§  42  (la)   At  Common  Law^ 
_  §  42  (lb)   Under   Charter   or   Statute. 

§  42   (Iba)   In   General. 

§  42   (Ibb)   Retroactive    Effect    of    Statutes. 
§  42   (Ibc)   Reservation   by  a   Bj^-Law. 
§  42   (Ibd)   Contract  or  Stipulation  in  Certificate 
§  42   (Ic)   Stock  on  Its  Face  Transferable. 
§  42   (Id)   Stock   Held  in   Trust. 
§  42  (le)   Shares  Plndged  to  the  Bank. 

§  42   (If)   Bank  Prohibited  from  Dealing  in  Its  Own  Stock. 
§  42   (Ig)   Death    of    Stockholder. 
§  42   (2)   Nature.  Operation  and   Effect. 
§  42   (2a)   In  General. 
§  42   (2b)   As   Extending  to   Dividends. 
§  42   (2c)   Debts  Secured. 

§  42   (2d)   Priorities     and    Rights     against    Persons     Dealing     with 
Stockholders. 
§  42   (2da)   General  Rule  as  to  Notice  of  Lien. 
§  42   (2db)   Assignees    and    Purchasers. 


§  ^6 


CAPITAL,    STOCK    AND    DIVIDENDS. 


75 


§  42   (2dba)   In  General. 

§  42   (2dbb)   Indebtedness    Incurred     before    Notice     of 

Transfer. 
§  42   (2dbc)   Debts    Contracted    after    Notice    of   Assign- 
ment. 
§  42   (2dbd)   Loan   to   Stockholder   Larger  than   Author- 
ized. 
§  42   (2dbe)   Certificate     for     Repayment     of     Cancelled 
Stock. 
§  42   (2dc)   Pledges. 
§  42   (2dd)   Creditors  and  Purchasers  at  Execution  or  Sheriff's 

Sale. 
§  42   (2de)   Right  to  Refuse  Transfer. 
§  42   (3)   Discharge,    Estoppel.    Forfeiture,    Release    or   Waiver. 
§  42   (3a)  Waiver    or    Discharge. 
§  42  (3aa)  Authorit}^ 
§  42   (Sab)   What  Constitutes. 
§  42   (3b)   Estoppel. 
§  42   (3c)   Forfeiture. 
§  42   (4)    Enforcement    and    Settlement. 
§  42   (4a)   Manner. 
§  42   (4b)   Form   of  Action. 
§  42   (4c)   Jurisdiction. 
§  42  (4d)   Process. 
§  42   (4e)   Limitations. 
§  42  (4f)   Pleading. 
§  42  (4g)   Redemption. 
§  42^.  Voting   Power   of   Stock. 

B.    CAPITAL,    STOCK  AND   DIVIDENDS. i 

§  35.  Statutory- Provisions. —The  general  rtiles  as  to  the  vaHdity  and 
construction  of  statutes  apply  to  statutes  respecting  bank  stock  and  stock- 
hoklers.- 

§  36.  Amount  of  Capital  and  Shares.— The  capital  of  a  bank  is  not 
an  ideal,  fictitious,  arbitrary  sum  of  money  set  down  in  the  articles  of  as- 
sociation, but  is  composed  of  substantial  property,  and  is  that  which  gives 


1.  Of  national  banks,  see  post. 
"Capital  and  Shares,"  §  241;  "Lien  of 
Rank    on    Stock    or    Dividends,''    §   245. 

Power  of  bank  to  purchase  and  hold 
its  own  stock,  see  post,  "Purchasing 
and   Holding   Bank's   Own    Stock,"  §91. 

Power  of  bank  to  purchase  and  hold 
stock  in  other  banks  or  corporations 
in  general,  see  post,  "Purchasing  and 
Holding  Stock  in  Other  Corporations," 
^    02. 

Stock  as  security  for  loan  by  a  bank 
l_o  stockholders,  see  post,  "Loans  to 
Stockholders  and  Stock  as  Securitv,'" 
§180. 

Assessment    of   stock   to   make    good 


impairment  of  capital,  see  post, 
"Rights  and  Liabilities  as  to  Bank," 
§   43. 

Set-off  of  deposit  in  actions  to  re- 
cover dividends  wrongfully  paid,  see 
post,  "Assets  and  Receivers  on  In- 
solvency," §  77. 

Civil  lial)ility  of  officer  for  declar- 
ing dividends  after  insolvency,  sec 
post,  "Civil  Lia1)ilit3'  on  Insolvency," 
§    82. 

2.  Construction  of  "Hereafter." — 
vSee  ])ost.  "Li(.ii  of  Bank  on  Stuck  and 
Dividends,"    §    42. 

Amount  of  capital. — Sec  post, 
"Amnunt  nf  Capital  and   Shares,"  §  30. 


76 


BANKS   AND   BANKING. 


§  36 


value  and  solidity  to  the  stock  of  the  institution.  It  is  the  foundation  of 
its  credit  in  the  business  community.^  Capital  used  in  the  business  of  bank- 
ing is  none  the  less  so  because  it  is  borrowed.  The  mere  fact  that  the 
money  permanently  invested  in  the  business  is  borrowed  does  not  alter  its 
character  as  capital,  but  a  temporary  loan  obtained  to  meet  an  emergency 
is  not  capital.'* 

The  capital  stock  of  a  bank  is  the  whole  undivided  fund  paid  in  by 
the  stockholders,  the  legal  right  to  which  is  vested  in  the  corporation,  to  be 
used  in  trust  for  the  benefit  of  the  members.^^  If  a  large  surplus  be  ac- 
cumulated and  laid  by,  that  does  not  become  a  part  of  it.*^ 

Capital  and  Capital  Stock  Distinguished. — "Capital"  and  "capital 
stock"  of  a  bank,  while  sometimes  used  interchangeably,  are  not  one  and 
the  same  thing.  "Capital"  includes  the  entire  assets  of  the  bank  whether 
represented  by  money  paid  in  for  stock,  surplus,  undivided  profits  or  othei 
property  of  the  bank  while  "capital  stock"  represents  only  the  total  amount 
derived  from  the  issuance  of  the  shares  of  stock." 

Capital  Stock  and  Shares  Distinguished. — The  capital  stock  of  a 
bank,  and  the  shares  of  the  capital  stock,  are  distinct  things.'^     The  shares 


3.  Nature  of  capital. — Bank  Tax. 
Case,  2  Wall.  200,  208,  17  L.  Ed.  793. 
And  see  Per  Story,  J.,  dissenting, 
Briscoe  t'.  Bank  (U.  S.),  11  Pet.  2.57, 
9    L.    Ed.    709. 

Individual  and  corporate  alike. — • 
"There  is  no  difference  in  the  business 
of  banking  as  conducted  by  individuals 
from  the  business  as  conducted  by 
corporations,  which  would  warrant 
any  different  meaning  to  be  given  to 
the  term  capital  in  the  two  cases.  Nor 
can  any  good  reason  be  stated  why  a 
distinction  should  be  made  between 
banking  corporations  and  individual 
bankers  in  this  respect."  Bailey  t'. 
Clark  (U.  S.),  21  Wall.  284,  22  L.  Ed. 
651. 

4.  Borrowed  capital. — Bailey  7\ 
Clark  (U.  S.),  21  Wall.  284,  22  L.  Ed. 
651. 

5.  Capital  stock. — Union  Bank  z'. 
State,    17    Tenn.    (9    Yerg.),    490. 

The  capital  stock  is  the  money  paid 
or  authorized  or  required  to  be  paid 
in  as  the  basis  of  the  business  of  the 
bank,  and  the  means  of  conducting  its 
operations.  It  represents  whatever  it 
may  be  invested  in.  Farrington  z\ 
Tennessee,  95  U.  S.  679,  24  L.  Ed.  558. 

6.  Surplus. — Farrington  v.  Ten- 
nessee.   95    U.    S.    679,    2^4    L.    Ed.    558. 

7.  Capital  and  capital  stock  dis- 
tinguished.— West  7'.  Newport  N'ews, 
104  Va.   21,   51    S.   E.   206. 

8.  Capital  stock  and  shares  different 
things. — Farrington  f.  Tennessee,  95 
U.   S.  679,  24  L^.   Ed.   558;  Van   Allen  v. 


Assessors  (U.  S.),  3  Wall.  573,  18  L. 
Ed.  229;  New  York  v.  Commission- 
ers (U.  S.),  4  Wall.  244,  18  L.  Ed.  344; 
Bradley  v.  Illinois  (U.  S.),  4  Wall. 
459,  18  L.  Ed.  433;  First  Nat.  Bank  z'. 
Kentucky  (U.  S.),  9  Wall.  353,  19  L. 
Ed.  701;  Bank  v.  Tennessee,  161  U.  S. 
134,  40  L.  Ed.  645;  Bank  z'.  Tennes- 
see, 163  U.  S.  416,  41  L.  Ed.  211;  New 
Orleans  v.  Citizens'  Bank,  167  U.  S. 
371,  42  L.  Ed.  202,  17  S.  Ct.  905. 

"The  shares  of  capital  stock  are 
usually  represented  by  certificates. 
Every  holder  is  a  cestui  que  trust  to 
the  extent  of  his  ownership.  The 
shares  are  held  and  may  be  bought 
and  sold  and  taxed  like  other  prop- 
erty. Each  share  represents  an  ali- 
quot part  of  the  capital  stock.  But 
the  holder  can  not  touch  a  dollar  of 
the  principal.  He  is  entitled  only  to 
share  in  the  dividends  and  profits. 
Upon  the  dissolution  of  the  institu- 
tion, each  shareholder  is  entitled  to  a 
proportionate  share  of  the  residuum 
after  satisfying  all  liabilities.  The 
liens  of  all  creditors  are  prior  to  his." 
Farrington  z'.  Tennessee,  95  U.  S.  679, 
687.    24    L.    Ed.    558. 

The  corporation,  though  holding  and 
owning  the  capital  stock,  can  not  vote 
upon  it.  It  is  the  right  and  duty  of 
the  shareholders  to  vote.  They  in  this 
way  give  continuity  to  the  life  of  the 
corporation,  and  may  thus  control 
and  direct  its  management  and  opera- 
tions. Farrington  z'.  Tennessee,  95  U. 
S.    679,    24    L.'Ed.    558. 


S  36 


CAPITAL,    STOCK    AND    DIVIDENDS. 


of  Stock  are  owned  by  the  stockholders  individually,  but  the  capital  stock 
and  the  profits  earned  by  its  use  belong  to  the  bank.''  No  portion  of  a 
bank's  capital  stock  is  private. ^'^'  Bank  stock  consists  of  a  certificate  of 
the  bank  that  the  stockholder  is  entitled  to  so  many  shares  of  the  capital 
stock  of  the  bank.  It  entitles  him  to  his  proportion  of  the  profits  or  divi- 
dends which  may  be  declared  from  time  to  time,  and,  when  the  institu- 
tion closes  the  business,  to  his  proportion  of  the  capital  stock  and  profits 
which  may  remain  to  be  divided.  The  stock  of  an  individual  is,  then,  prop- 
erty in  his  own  hands  and  subject  to  his  own  control. ^^  Bank  stock  is  per- 
sonal property,^-  in  the  nature  of  a  chose  in  action,  having  no  locality  ;^^ 
but  it  is  not  a  legal  right  to  any  portion  of  the  property  or  assets  of  the 
corporation,  but  only  an  immediate  right  to  receive  a  share  of  the  dividends 
as  they  are  declared,  and  a  remote  right  to  a  share  of  the  eft'ects  upon  the 
dissolution  of  the  institution. i-*  The  bank  stock  of  an  individual  does  not 
consist  of  so  much  money  owned  by  him  in  the  bank ;  the  monev  in  the 
bank  is  the  property  of  the  institution,  to  the  ownership  of  which  the  stock- 
holder has  no  more  claim  than  a  person  has  who  is  not  at  all  connected  with 
the  bank.^'' 

Amount  of  Capital. — The  amount  of  paid-up  capital  without  which  an 
incorporated  company  or  private  person  is  prohibited  from  engaging  in  the 
business  of  banking  is  fixed  bv  statute. ^^ 


9.  State  r.  Farmers'  Bank.  11  O. 
94;  State  r.  Franklin  Bank.  10  O.  91; 
Brightwell  7\  Mallory,  18  Tenn.  (10 
Yerg.).    19f). 

10.  No  portion  of  stock  private. — 
Nashville  r.  Bank,  31  Tenn.  (l  Swan) 
269;  Bank  7'.  Woodson,  45  Tenn.  (o 
Coldw.)    176. 

11.  Brightwell  f.  Mallory,  18  Tenn. 
(10    Yerg.)    196. 

12.  Personalty. — Chapman  v.  National 
Bank,  5G  O.  St.  310.  47  X.  E.  54,  re- 
versing 9  O.  C.  C.  79,  4  O.  C.  D.  252: 
Stafford  v.  Produce  Exch.  Banking 
Co.,  16  O.  C.  C.  50,  8  O.  C.  D.  483. 

The  stocks  of  incorporated  banks 
are  personal  property.  It  needed  no 
statutory  enactment  to  make  them  so. 
They  are  so,  upon  the  common-law 
fk-finition.  Xashville  v.  Thomas,  45 
Tenn.    (r,    Coldw.)    600. 

National  bank  shares  are  personal 
property.  Cliapman  r.  National  Bank, 
56  O.  St.  310.  47  N.  E.  54,  reversing  9 
O.  C.  C.  79.  4  O    C.  D.  252. 

13.  Chose  in  action. — Union  Bank 
'•■  State,  17  Tenn.  (9  Yerg.)  490;  Mc- 
Laughlin 7:  Cliadwrll,  54  Tenn.  (7 
llcisk. )    389. 

14.  McLaughlin  r.  ChadvvcU,  54 
Tenn.   (7   Hcisk.)   389. 

"By   hank    stock."   as   used    in    art.   2. 


§  28.  Tenn.  constitution  of  1836,  "is 
meant  individual  interest  in  the  divi- 
dends as  they  are  declared,  and  a  right 
to  a  pro  rata  distribution  of  the  effects 
of  the  bank  on  hand  at  the  expiration 
of  the  charter,"  and  not  the  capital 
stock  of  the  bank.  Union  Bank  z: 
State.   17  Tenn.    (9   Yerg.)   490. 

15.  Union  Bank  r.  State.  17  Tenn.  (9 
Yerg.)  490;  Brightwell  r.  Mallory,  18 
Tenn.    (10    Yerg.)    196. 

16.  Amount  of  capital. — Rosenlierg 
V.  Weeks,  67  Tex.  578,  4  S.  W.  899; 
Engelke  z:  Schlenker,  75  Tex.  559,  12 
S.  W.  999. 

Rev.  St.  1899.  §  1299.  provides  that 
no  persons  shall  engage  in  the  busi- 
ness of  private  bankers  "without  a 
paid-up  capital  of  not  less  than  $5,000." 
Section  1278  provides  that  incorpo- 
rated companies  shall  not  engage  in 
the  business  of  banking  in  cities  with 
a  population  of  150.000  or  more  with 
a  less  paid-up  capital  than  $100,000, 
and  §  1301  provides  that  all  provisions 
of  the  article,  so  far  as  the  same  are 
applicable,  apply  to  private  bankers. 
Held,  that  individuals  desiring  to  en- 
gage in  the  I)usiness  of  private  bank- 
ing in  a  city  of  over  150.000  inhabitants 
arc  not  required  to  have  a  paid-up 
capital  of  over  $5,000.  Jimics  ;■.  Cook. 
174  Mo.  100,  7:'.  S.  W.  is;). 


78  BANKS    AND   BANKING.  §    Z7    (2) 

Presumption  of  Subscription  of  Minimum  Stock. — Creditors  of  a 
bank  have  a  right  to  presume  that  the  minimum  capital  stock  allowed  by  the 
charter  has  been  subscribed,  from  the  commencement  of  business  by  the 
bank,  hence  to  the  extent  of  the  minimum  stock,  the  stockholders  are  liable. ^^ 

Value  of  Bank's  Shares. — The  value  of  a  bank's  shares  depends  upon 
the  value  of  its  franchise,  capital,  and  property  of  all  kinds,  less  the  amount 
of  its  debts. IS 

§  37.  Increase  of  Capital  Stock    and    Number  of  Associates. — 

Limitation  of  indebtedness,  see  ante,  "Limitation  of  Indebtedness,"  §   13. 

§  37  (1)  In  General. — A  bank  may  have  the  right  to  increase  its  cap- 
ital or  the  number  of  its  associate  members  from  time  to  time  as  is  thought 
proper,!^  but  where  the  capital  stock  is  limited  by  the  act  of  incorporation, 
it  can  not  be  increased  without  an  enabling  act.-" 

Maximum  and  Minimum  Capital. — A  bank  incorporated  with  the  priv- 
ilege of  creating  a  stock  not  less  than  one  sum,  nor  greater  than  another, 
may  commence  business  with  the  smaller  capital,  and  afterwards  increase 
it  to  the  larger.2i 

§  37  (2)  Mode  and  Validity. — A  banking  corporation  may  increase 
its  capital  stock  only  in  the  manner  prescribed  by  its  charter  or  by  the 
method  prescribed  by  statute  for  increasing  capital  stock.  The  formalities 
required  by  such  charter  or  statute  must  be  substantially  complied  with.-- 
Thus  compliance  with  requirements  as  to  notice  of  a  stockholders'  meet- 
ing,23   favorable  action  of  the  stockholders,-^    formalities  as  to  filing  and 

17.  Presumption  that  minimum  stock  164  111.  427,  56  Am.  St.  Rep.  203,  45  N. 
subscribed. — Hill     %'.     Silvey,     81     Ga.       E.  954. 

500.  8  S.  E.  808,  .3  L.  R.  A.  150.  21.   Maximum  and  minimum  capital. 

18.  Value  pf  shares. — Rosenbery  v.  — Gray  v.  Portland  Bank,  3  Mass.  364, 
Weeks,   67   Tex.  578,  4   S.  W.   899;   En-       3   Am.   Dec.   156. 

gelke  V.   Schlenker,   75  Tex.   559,   12   S.  22.    Mode    and   validity.— A    corpora- 

W-  999.                              .                         .  tion    organized    under   the    banking   act 

19.  Increase  of  capital  or  associates.  ^^^^  increase  its  capital  stock  only  in 
—It  was  so  held  as  to  an  association  ^j^g  manner  prescribed  by  ^  12  of  the 
formed  under  the  general  banking  act  ^^^^  gg  m  ^pp.  593  (1895)  affirmed, 
of  New  York  of  1838.  Comstock  v.  McNulta  v.  Corn  Belt  Bank,  164  111. 
Willoughby     (N.     Y.),     Labor's     Supp.  437,  56  Am.  St.  Rep.  203,  45   N.   E.  954. 


(Hill   &   Denio)    271. 


23.   Notice   of  stockholders'   meeting. 


20.  Bank  v.  Schuylkill  Bank  (Pa.),  1  __j^    state    bank,    desiring    to    increase 

Pars.   Eq.  Cas.   180.  ^ 

Liability  of  stockholders  to  creditors,  24.  Power  of  directors  without  refer- 

see  post,  "In  General,"  §  47   (1).  ence     to     action     of     stockholders. — A 

Under  Banking  Act,  §  2  (3  Starr  &  resolution  passed  hy  a  board  of  direct- 
C.  Ann.  St.  p.  105;  Rev.  St.  c.  16a),  ors  can  not  fix  in  advance  a  time  for 
which  provides  that  the  application  to  increasing  the  capital  stock  of  a  cor- 
the  auditor  for  permission  to  organize  poration  without  reference  to  the 
shall  state  the  amount  of  capital,  an  action  of  the  stockholders,  or  the 
application  which  states  the  capital  method  prescribed  by  statute  for  in- 
stock  at  $100,000,  with  a  purpose  to  in-  creasing  stock.  63  111.  App.  593  (1895) 
crease  it  to  $300,000.  has  no  effect  in  afifirmed.  McNulta  v.  Corn  Belt  Bank, 
the  matter  of  increasing  the  capital  164  111.  427,  56  Am.  St.  Rep.  203,  4,5  N. 
stock.      McNulta    v.    Corn    Belt    Bank,  E.  954. 


§  ^7  (3) 


CAPITAL,    STOCK    AND    DIVIDENDS. 


79 


publication  of  the  amendment  of  the  articles  of  incorporation.-''  submis- 
sion of  the  proposed  amendment  to  the  vote  of  the  people,-*'  and  payment 
of  the  amount  of  increase,-"  is  essential  to  a  valid  increase  of  the  capital 
stock  of  a  bank. 

A  fraudulent  overissue  of  certificates  of  stock  by  a  bank  cashier 
does  not  operate  an  increase  of  the  capital  stock  of  the  bank.-s 

§  37    (3)   Apportionment  and  Disposition  of  Increased  Stock. — 

Where  a  banking  corporation  increases  its  capital  stock,  a  stockholder  or- 
dinarily has  the  right  to  acquire  a  quota  of  the  increased  shares  in  propor- 
tion to  the  amount  already  owned  by  him.-'-' 


its  capital  stock  in  1891,  when  the  only 
statutes  in  force  as  to  corporations 
were  Comp.  St.  1887,  div.  5,  c.  25,  regu- 
lating corporations  generally,  and 
chapter  27,  applicable  to  banks,  hav- 
ing fully  complied  with  division  5,  c. 
27,  §  526,  declaring  it  shall  be  lawful 
for  any  corporation  organized  under 
the  act  by  its  by-laws  to  provide  for 
an  increase  of  capital  stock,  etc.,  such 
increase  was  valid,  though  it  did  not 
comply  with  chapter  25,  §§  468,  469,  re- 
quiring six  weeks'  notice  of  a  stock- 
holders' meeting  to  increase  the  stock. 
Cascade  Bank  z:  Yoder.  .39  Mont.  202, 
10.3    Pac.   499. 

25.  Filing  and  publication  of  amend- 
ment of  charter.— Gen.  St.  1878,  c.  33, 
§  18  (Gen.  St.  1894.  §  2498),  providing 
that  it  shall  be  lawful  for  any  associa- 
tion organized  under  the  provisions  of 
chapter  33  to  provide  by  its  articles  of 
association  for  an  increase  of  capital 
stock,  authorizes  banks  organized 
under  said  chapter  to  increase  their 
capital  stock  by  amending  the  articles 
of  incorporation  though  the  same 
formalities  as  to  the  filing  and  publi- 
cation of  the  amendment  are  required 
as  are  required  of  the  original  articles. 
Palmer  v.  Bank,  72  Minn.  266,  75  N. 
W.  380. 

26.  Submission  to  vote  of  people. — 
The  .Act  of  March  29,  1869,  incorpo- 
rating the  "Kendall  County  Banking 
Company."  provided  that  it  should  "be 
located  in  the  county  of  Kendall,"  in 
that  state,  and  that  the  limit  of  in- 
crease to  the  capital  stock  should  l)e 
Sl50,noo.  The  stockholders  met  June 
1.  1872.  and,  under  the  act  of  March 
26,  1872.  relating  to  the  changing  of 
names,  locations,  and  stock  of  corpo- 
^f^^t'ons.  etc..  changed  the  name  to 
"Xational  Savings  Bank."  the  location 
from  Kendal!  county  to  Cook  county, 
and  increased  the  capital  stock  to 
$200,000.  Held  ultra  vires,  under 
Const.  1870.  art.  11,  §  5,  providing  that 


all  amendments  to  acts  authorizing 
banking  corporations  shall  be  sub- 
mitted to  the  vote  of  the  people,  etc. 
Hunt  V.  National  Sav.  Bank  (111.),  11 
N.  E.  170,  affirmed  on  rehearing  129 
111.  618.  22   N.   E.  288. 

27.  Payment  "in  cash"  for  whole 
amount  of  increase. — Where  a  part  of 
an  increase  of  capital  stock  of  a  bank 
was  purchased  by  the  president,  and 
paid  for  with  city  funds  deposited  in 
other  banks  in  his  name  as  city  treas- 
urer, such  stock  is  not  absolutely  void, 
though  Gen.  St.  1878,  c.  33,  §  18,  as 
amended  by  Gen.  Laws  1881,  c.  77,  § 
3,  provides  that  "no  increase  of  cap- 
ital stock  shall  be  valid  until  the  whole 
amount  of  the  increase  proposed  is 
paid  in  cash."  Dunn  z\  State  Bank,  59 
Minn.   221.   61    X.   \V.   27. 

28.  Fraudulent  overissue  by  cashier. 
— A  bank  cashier  having  fraudulently 
overissued  certificates  of  stock,  the 
bank,  under  authority  of  the  legisla- 
ture, took  part  of  its  earnings,  with 
which  it  purchased  and  withdrew 
nearly  all  the  surplus  stock  over  the 
original  capital.  On  the  balance  of 
this  surplus,  nothing  had  ever  been 
paid  into  the  bank.  Held,  that  its 
capital  stock  had  not  been  increased. 
Commonwealth  t'.  Bank  (Ky.).  9  B. 
Moil.  1. 

29.  Apportionment  of  i  n  c  r  e  a  s  e. — 
Under  the  act  incorporating  the  Iiaiik 
of  Charleston  (§  5),  providing  that, 
at  any  time  before  the  expiration  of 
their  charter,  the  said  company  may. 
by  paying  a  bonus  of  two  and  one-half 
per  cent,  extend  the  amount  of  capital 
stock  subscribed  to  a  further  sum  of 
$2,000,000,  to  be  paid  in  the  same  man- 
ner with  that  herein  already  provided 
for,  the  stockholders  have  the  right  to 
apportion  the  increased  capital  stock 
among  themselves.  State  :•.  Bank  (S. 
C).   Dud.   187. 

Right  to  damages  for  denial  of  right. 
— Where    a    banking     corporation     has 


80 


BANKS   AND   BANKING. 


38    (3) 


§  38.  Reduction  of  Capital  Stock. — Oversubscription  of  stock,  see 
post,  "Subscription  to  and  Issue  of  Stock,"  §  39. 

§  38  (1)  In  General. — A  banking  corporation  can  not  reduce  its  cap- 
ital stock  in  the  absence  of  charter  or  legislative  authority.^" 

§  38  (2)  Mode  and  Validity. — The  formalities  prescribed  by  the  au- 
thority under  which  a  reduction  of  the  capital  stock  of  a  bank  is  to  be  made 
must  be  duly  performed.  A  valid  reduction  pro  tanto  of  a  bank's  capital 
stock  is  not  effected  by  the  purchase  of  its  own  stock  by  the  bank,-^^  or  by 
withdrawing  stock  under  the  form  of  loans  on  private  security.^^ 

§  38    (3)   Disposition  of  Proceeds  of  Surrendered  Stock. — If  a 

bank  reduce  its  capital  stock  without  constraint,  for  the  purpose  of  with- 


increased  its  capital  stock,  a  stock- 
holder can  not  recover  damages  of  it 
for  its  action  in  refusing  him  the  right 
to  acquire  his  quota  of  the  increased 
shares,  proportionate  to  the  amount 
already  owned  by  him,  unless  he  has 
demanded  the  shares  and  offered  to 
subscribe  and  pay  for  them  within  a 
reasonable  or  fixed  time.  Bonnet  z'. 
First  Nat.  Bank,  24  Tex.  Civ.  App.  613, 
60  S.  W.  325   (see  94  Tex.  703,  no  op.). 

Measure  of  damages. — Where  there 
has  been  an  increase  in  the  capital 
stock  of  a  corporation  in  which  a 
stockholder  has  the  right  to  share,  the 
measure  of  damages  for  a  denial  of 
such  right  is  the  excess  of  the  market 
value  of  the  stock  above  its  par  value 
at  the  time  of  its  issuance,  with  in- 
terest on  such  excess.  Bonnet  z: 
First  Nat.  Bank,  24  Tex.  Civ.  App.  613, 
60  S.  W.  325   (see  94  Tex.  703,  no  op.). 

30.  Reduction  of  capital  stock. — A 
bank  created  with  a  capital  stock  lim- 
ited by  the  act  of  incorporation  can 
not  diminish  the  capital  but  by  a 
license  from  the  legislature.  Bank  v. 
Schuylkill  Bank  (Pa.),  1  Pars.  Eq.  Cas. 
180. 

In  the  absence  of  a  clause  in  a  bank 
charter  authorizing  a  reduction  of  the 
capital  stock  to  which  it  has  been 
raised  under  a  discretionary  power  to 
increase  it,  the  question,  as  to  whether 
any  such  power  would  exist,  could  not 
be  raised,  unless  it  clearly  appears  that 
the  corporation  ordered  the  reduction 
to  be  made.  Neither  equivocal  acts, 
nor  inferences,  nor  unauthorized  acts 
of  a  president  or  directors,  will  have 
the  effect.  Moses  z'.  Ocoee  Bank,  69 
Tenn.    (1   Lea)    398. 

Banks    of   circulation   and    banks    of 

discount.— Acts  1859-60,  c.  27  (Act  Feb. 
0,  1860),  providing  that  no  part  of  the 
capital    stock    of    any    bank    shall    be 


withdrawn  until  its  whole  liabilities 
are  satisfied,  applied  only  to  banks  of 
issue,  all  its  provisions  being  made 
with  a  view  to  protecting  the  circu- 
lating medium,  and  practically  all 
banks  of  that  period  being  authorized 
to  issue  circulating  notes;  and  hence 
none  of  its  provisions  apply  to  banks 
of  discount  and  deposit,  as  to  which 
an  entirely  new  and  a  complete  system 
was  inaugurated  by  General  Incorpo- 
ration ;Act  1875,  c.  142.  Lellyett,^'. 
Brooks   (Tenn.),  62   S.   W.   596. 

Decline  in  value  of  security  first  ac- 
cepted.— Act  April  2,  1832  (incorporat- 
ing the  Union  Bank  of  Louisiana),  § 
24,  relating  to  the  reduction  of  the 
number  of  shares  of  stock  when  the 
security  offered  by  the  subscribers  to 
the  corporation  is  insufificient,  does  not 
authorize  a  reduction  of  the  number 
of  shares  where  the  property  first  of- 
fered and  accepted  to  secure  the  whole 
becomes  less  valuable.  Byrne  f.  Union 
Bank  (La.),  9  Rob.  433. 

31.  Purchase  of  its  own  stock. — 
Where  a  solvent  banking  corporation, 
not  in  contemplation  of  insolvency, 
purchases  its  own  stock  in  payment 
of  a  previously  existing  debt  due  from 
a  stockholder,  such  stock  does  not 
constitute  a  reduction  pro  tanto  of  the 
bank's  capital;  the  shares  under  such 
circumstances  being  treated  as  the 
property  of  the  bank,  subject  to  be 
sold  or  held  for  the  benefit  of  creditors 
and  the  remaining  stockholders,  to- 
gether with  any  dividends  earned 
thereon.  Draper  t'.  Blackweli,  138  Ala. 
182.    35    So.    110. 

32.  Withdrawing  stock  under  the 
form  of  loans  on  private  security,  if 
done  with  intent  to  reduce  the  effect- 
ive capital  below  the  amount  required 
by  the  charter,  is  a  violation  of  the 
charter.  State  z:  Essex  Bank,  8  Vt. 
489. 


§  38/2 


CAPITAL,    STOCK    AND    DIVIDENDS. 


81 


drawing  the  excess  capital  above  the  amount  to  which  it  was  reduced,  the 
excess  is  distributable  among  the  shareholders,^-^  and  can  not  be  retained  as 
a  surplus  fund  f*  but  where  the  original  capital  had  become  impaired,  the 
stockholders  have  no  right  to  a  distribution  of  any  part  of  such  fund,'*''  with- 
out provision  being  first  made  for  payment  of  the  bank's  debts. ^^ 

§  38  (4)  Relief  against  Reduction. — A  stockholder  can  not  have 
the  benefits  of  an  illegal  reduction  of  the  stock  of  a  bank  by  recovering  on 
deposit  tickets  executed  in  lieu  of  the  cancelled  stock  and  in  the  same  suit 
obtain  a  decree  annulling  the  transaction.^" 

§  38^.  Surrender  of  Stock  to  Bank. — Under  a  charter  giving  a  bank 
power  to  do  a  banking  business  and  exercise  incidental  powers,  and  vest- 
ing the  management  of  the  business  in  the  directors,  the  latter  have  no 
power  to  agree  that  a  stockholder  may  surrender  his  stock,  and  receive 
back  all,  or  any  part  of,  the  capital  he  has  paid  in.-^''^ 


33.  Disposition  of  proceeds. — yic- 
Cann  r.  First  Xat.  Bank,  112  Ind.  354, 
14  X.  E.  251;  Wools  v.  First  Nat.  Bank, 
112  Ind.  600.  14  N.  E.  255;  Seeley  v. 
New  York  Nat.  Exch.  Bank  (N.  Y.), 
4  Abb.  N.  C.  61,  8  Daly  400,  affirmed 
in   78   N.   Y.   608. 

34.  A  portion  of  capital  remaining 
after  a  reduction  can  not  be  retained 
as  a  surplus  fund.  Seeley  z'.  New 
York  Nat.  Exch.  Bank  (N.  Y.),  8  Daly 
400,  4  Abb.  N.  C.  61.  affirmed  in  78  N. 
Y.  608. 

35.  Capital  stock  impaired. — Mc- 
Cann  ?■.  First  Nat.  Bank.  112  Ind.  354, 
14  N.  E.  251;  Wools  v.  First  Nat.  Bank. 
112    Ind.   600.   14   N.    E.   255. 

Where  bank  subsequently  realizes  on 
"bad  debts." — The  capital  of  a  national 
bank  had  Ijecome  impaired  by  the  non- 
payment of  the  interest  on  some  bills 
and  notes,  which  were  among  its  as- 
sets, to  the  amount  of  $71,000;  and,  in 
order  to  avoid  an  assessment  by  the 
comptroller,  the  stockholders  reduced 
its  capital  stock,  and  carried  the  bills 
and  notes  to  the  account  of  suspended 
or  "bad  debts,"  which  were  not  there- 
after included  as  assets,  although  re- 
tained in  its  custody.  Some  years 
afterwards  the  bank  realized  $75,000 
from  collaterals  pledged  for  the  se- 
curity of  the  bills  and  notes.  On  a 
suit  by  one  of  the  stockholders  for  the 
purpose  of  compelling  the  bank  to 
distribute  to  him  a  share  of  the 
amount  rcalizerl.  proportioned  to  the 
amount  of  stock  surrendered,  held, 
that  he  could  not  recover.  McCann  z\ 
First  Nat.  Bank,  112  Ind.  354,  14  N.  E. 
251;  Wools  <•.  First  Nat.  Bank,  112  Ind. 
fiOO,  14  N.  E.  25.5. 
1  p,  &  R_r, 


36.  State  v.  Bank,  65  Neb.  20,  90  N. 
W.  961,   91    N.   W.  497. 

Where  a  bank  held  as  collaterals  a 
part  of  the  stock  of  another  bank,  and 
surrendered  the  same,  and  accepted  in 
lieu  thereof  one-half  in  new  stock  and 
one-half  in  certificates  of  deposit  is- 
sued to  the  stockholders  on  the  reduc- 
tion of  the  stock  of  the  bank,  as  to 
this  reduction  the  bank  stood  in  the 
shoes  of  an  ordinary  stockholder,  and, 
where  the  certificates  were  issued 
without  consideration,  could  not  re- 
cover against  the  receiver  on  its  de- 
posit certificates.  State  v.  Bank,  65 
Neb.  20,  90  N.  W.  961,  91  N.  W.  497. 

37.  Relief  against  reduction. — Plain- 
tiff recited  that  defendant  bank  re- 
duced its  stock,  while  worth  its  par 
value,  from  $25,000  to  $12,500;  that  on 
the  same  day  the  bank,  through  its 
cashier,  paid  its  stockholders  $17  on 
each  $100  of  their  respective  shares  of 
stock,  and  executed  its  deposit  tickets 
for  a  like  amount  to  the  various  stock- 
holders of  the  bank,  payable  January 
1,  1897;  and  that  the  reduction  of  the 
stock  of  the  bank,  resulting  as  above 
stated,  was  in  violation  of  statute,  and 
at  a  time  when  the  bank  was  solvent. 
Plaintifif  also  sued  on  one  of  the  cer- 
tificates. The  petition  further  charged 
mismanagement  of  the  affairs  of  the 
bank  by  the  president  and  the  cashier, 
and  prayed  for  a  receiver  and  full 
equitable  relief.  Held,  that  the  remedy 
at  law  was  adequate.  Mansfield  ;•. 
Bank,  74   Mo.  App.  200. 

37a.  Surrender  of  stock  to  bank. — 
Pettilxinc  7'.  Hawkins,  2  X.  'N'.  Leg. 
01)S.  210;   Mathes  r.   Bales,  Id.  213. 


82 


BANKS   AND  BANKING. 


§  39 


§  39.  Subscription  to  and  Issue  of  Stock— §  39  (1)  Right  to 
Subscribe. 28 — The  right  of  the  public  or  any  individual,-'^"''  the  state,  or  any 
college,  ecclesiastical  society,  school  corporation,  or  association  for  chari- 
table purposes,  to  subscribe  for  the  stock  of  an  incorporated  bank,  and  the 
right  of  the  bank  to  receive  subscriptions  from  such  person,  etc.,  depend 
upon  its  charter  or  the  law  authorizing  it  to  receive  subscriptions.-**' 

All  the  stock  of  a  state  bank  may  be  owned  by  the  state.-*! 

An  attorney  may  subscribe  for  bank  stock  in  the  name  of  his  principal.-*^ 

Unsubscribed  stock  is  held  in  trust  to  be  disposed  of  for  all  the  sub- 
scribers and  a  subscriber  who  is  in  arrears  in  his  installments  is  entitled  to 
his  proportion  thereof.^^ 

Denial  of  Right. — The  refusal  to  allow  a  person  entitled  to  subscribe 
for  stock  in  a  bank  must  be  complained  of  by  such  person  and  not  by  the 
state  or  a  third  person,-*^  and  the  party  complaining  must  show  a  demand 
and  offer  to  subscribe.-*^ 


38.  Right  of  bank  to  purchase  and 
liold  its  own  stock,  see  post,  §  225. 

39.  Right  to  subscribe. — State  v. 
Bank  (S.  C),  Dud.  187.  And  see  Mc- 
Culloch  r.  State,  11  Ind.  424. 

40.  College,  school,  society,  etc. — 
The  Act  of  1855,  which  provides  that 
"all  banks  and  banking  associations 
organized  under  the  Act  of  1852, 
authorizing  the  business  of  banking  in 
this  state,  shall,  in  addition  to  the  num- 
ber of  shares  authorized,  be  opened  to 
subscription  from  the  funds  of  this 
state,  the  school  fund,  or  from  the 
funds  of  any  college,  ecclesiastical  so- 
ciety, school  corporation,  or  associa- 
tion for  charitable  purposes,  etc.,  pro- 
vided that  such  additional  subscrip- 
tions shall  in  no  case  exceed  ten  per 
cent  of  the  amount  of  the  capital  of 
any  bank  or  banking  association 
actually  paid  in,"  applies  only  to  the 
banks  organized  under  the  Act  of  1852, 
and  not  to  the  chartered  banks.  Char- 
itable Soc.  V.  Farmers'  etc..  Bank,  26 
Conn.  60. 

Within  the  meaning  of  §  7  of  the 
Act  of  October,  1811,  constituting  the 
Eagle  Bank  a  body  corporate,  and  pro- 
viding that  the  bank  shall  receive  sub- 
scriptions to  its  shares  from  the  funds 
of  any  college,  ecclesiastical  society, 
school,  or  corporation  for  charitable 
purposes,  the  "Trustees  for  Receiving 
Donations  for  the  Support  of  the 
Bishop,"  incorporated  by  the  Act  of 
May,  1799,  is  a  corporation  for  chari- 
table purposes.  Bishop's  Fund  v.  Eagle 
Bank,   7   Conn.   476. 

41.  Ownership  by  state. — The  Bank  of 
Tennessee  is  a  public  corporation,  act- 
ing  upon    the   funds   and   credit   of   the 


state,  and  none  of  its  stock  is  private. 
Nashville  v.  Bank,  31  Tenn.  (1  Swan) 
269. 

42.  Attorney. — The  provision  in  the 
charter  of  a  bank  that  "it  shall  not  be 
lawful  for  any  person  to  subscribe  for 
shares  in  the  name  of  other  persons" 
does  not  exclude  a  bona  fide  subscrip- 
tion by  an  attorney  in  the  name  of  his 
principal.  But  the  commissioners  to 
take  the  subscription  may,  if  they 
doubt  the  good  faith  of  the  subscrip- 
tion, require  further  evidence  than  the 
mere  production  of  a  power  of  at- 
torney, to  remove  their  doubts.  State 
V.  Lehre  ( S.  C).  7  Rich.  Law  234. 

43.  Unsubscribed  stock. — Where  a 
bank  is  incorporated  when  only  a  por- 
tion of  its  capital  stock  is  subscribed, 
under  a  law  authorizing  such  action, 
the  bank  holds  the  balance  of  stock  in 
trust  to  be  disposed  of  for  all  the  sub- 
scribers, so  that  it  can  not  divide  such 
balance  only  among  those  who  have 
paid  up  their  installments,  denying_  to 
those  in  arrears  their  proportion 
thereof.  Reese  :•.  Bank,  31  Pa.  78,  72 
Am.  Dec.  726. 

44.  Denial  of  right.— Under  the  act 
incorporating  the  State  Bank,  it  was 
the  duty  of  the  commissioners  to 
allow  all  who  presented  themselves  at 
the  appointed  time  to  subscribe,  but 
their  failure  so  to  do  must  be  com- 
plained of  by  those  not  allowed,  and 
not  by  the  state  upon  a  quo  warranto 
against  the  bank,  it  being  a  mere  ir- 
regularity. McCulIoch  V.  State,  11  Ind. 
424. 

45.  Demand  and  offer  to  subscribe. 
— A  stockholder  of  a  bank  entitled  to 
a    pre-emption    of    additional    stock    is- 


§    39    (2b)  CAPITAL,    STOCK    AND    DIVIDENDS.  83 

§  39  (2)  Form  and  Requisites,  Validity  and  Effect— §  39  (2a) 
Bona  Fides  of  Subscription. — When  commissioners  are  appointed  by 
law,  to  receive  subscriptions  of  stock  to  a  bank,  and  the  subscriptions  are 
required  to  be  bona  fide,  they  have  the  discretion  to  determine  what  is  a 
bona  fide  subscription.^*^ 

Fraudulent  Subscriptions. — Where  the  subscriptions  were  fraudu- 
lently made,  with  a  view  to  evade  the  provisions  of  the  charter,  the  law  will 
hold  the  parties  bound  by  their  subscriptions,  and  compellable  to  comply 
with  all  the  terms  and  responsibilities  imposed  upon  them,  in  the  same  man- 
ner as  if  they  were  bona  fide  subscribers.  It  will  not  make  the  subscrip- 
tion itself  a  nullity,  but  it  will  deprive  the  subscribers  of  the  power  of  avail- 
ing themselves  of  the  same,  and  such  a  fraud  can  not  be  set  up  to  the  injury 
of  subsequent  purchasers  of  the  stock  who  became  bona  fide  holders  of  the 
same,  without  participation  in,  or  notice  thereof.-*" 

§  39  (2b)  Form  and  Sufficiency. — An  actual  subscription  for  stock 
in  a  bank  is  not  necessary.  There  may  be  a  virtual  subscription,  deducible 
from  the  acts  and  conduct  of  the  parties;-*'^  hence,  no  particular  form  is 
essential  to  the  validity  of  a  contract  of  subscription  for  shares  of  stock  in 
a  banking  corporation.  It  is  not  necessary  that  the  subscription  should  be 
in  writing.  It  may  be  made  by  parol.  It  may  be  made  in  any  way  in  which 
other  contracts  may  be  made.  Whenever  an  intent  to  become  a  subscriber 
is  manifested,  even  without  a  formal  subscription,  or  where  it  is  irregulnr, 
the  courts  are  inclined  to  infer  the  contract  from  acquiescence  and  accept- 
ance of  the  benefits  of  membership. ■i'^  .When  one  accepts  or  assumes  the 
position  and  duties,  and  claims  the  rights,  privileges  and  emoluments  of  a 
stockholder,  and  the  bank  accepts  or  acquiesces  therein,  such  person  is  es- 
topped to  deny  that  he  is  a  subscriber  even  though  there  may  have  been 
something  irregular  or  defective  in  the  formal  manner  of  his  subscription, 
or  there  may  have  been  no  formal  subscription  at  all."'"^ 

sued  by  it  can  not  maintain  an  action  50.  Estoppel  to  deny  subscription. — 

against  the  bank  for  refusing  to  allow  Somerset  Xat.,  etc.,   Receiver  z\  Adams, 

him   to   subscribe   for   the    stock  with-  24  Ky.  L.  Rep.  30s:},  72  S.  W.  112."). 

out   proof   of   a    demand    and    ofifer    to  Signature   of    certificate    of    associa- 

subscribe.     Wilson  v.  Bank,  29  Pa.  537.  tion. — The  New  Jersey  statute  declares 

46.  Bona  fides. — Napier  v.  Poe,  12  that  persons  associating  themselves 
^^-    1~^'-  together  for  the  purpose  of  conducting 

47.  Fraudulent  subscriptions. — Minor  a  banking  business  shall,  under  their 
i:  Mechanics'  Bank  (  U.  S.),  1  Pet.  4G,  hands  and  seals,  make  a  certificate,  "I>y 
7  L.   h<\.  47.  the    terms    of    which    such    association 

48.  Form  and  sufficiency. — Pacific  shall  be  bound,"  which  shall  specify 
Xat.  Bank  v.  Eaton,  141  U.  S.  227,  35  the  names  and  residences  of  the  sbare- 
L.  FA.  702,  11  S.  Ct.  984.  See,  also,  holders,  and  the  number  of  shares  held 
Scott  V.  Deweese,  181  U.  S.  202,  45  L.  by  each  of  them  respectively,  etc. 
Ed.  822,  21  S.  Ct.  585;  Thayer  v.  But-  Held,  in  an  action  by  a  receiver  to  en- 
ler,  141  U.  S.  234,  35  L.  Ed.  711,  11  S.  force  payment  of  stock  subscription. 
Ct.  987;  Finn  v.  Brown,  142  U.  S.  56,  that,  where  a  certificate  of  association 
71,  35  L.   Ed.  93r>,  12  S.  Ct.   136.  specified  the  number  of  shares  of  stock 

49.  Somerset  Nat.,  etc..  Receiver  z'.  held  I)y  defendant,  and  was  signed  by 
.•\dams,  24  Ky.  L.  Rep.  2083,  72  S.  W.  him,  he  was  estopped  from  denying  his 
'125.  subscription       Dayton   v.    Borst,   20    N. 


84 


BANKS    AND   BANKING. 


§  39  (3) 


§  39  (2c)  Nature  and  Effect  of  Obligation. — Each  individual  stock- 
holder, by  the  acceptance  of  the  bank's  charter,  becomes  a  party  to  the  con- 
tract, and  is  bound  by  all  its  provisions. ^^ 

§  39  (2d)  Rescission  of  Subscription. — A  subscription  for  stock  of 
a  bank  and  the  issue  of  the  same  may  be  rescinded  upon  the  same  grounds 
and  in  the  same  manner  as  other  contracts  of  subscription  for  stock. ^-  The 
right  to  rescind  may  be  waived. ^^ 

§  39  (3)  Oversubscription  and  Overissue. — Where  the  charter  of 
a  bank  or  the  law  under  which  it  is  organized  provides  a  method  of  reduc- 
ing an  oversubscription  to  its  stock,  it  must  be  followed,^^  and  can  not  be 


Y.  Super.  Ct.  115,  affirmed  in  31  N.  Y. 
435. 

Directors  bound  by  statement  in 
subscription  book. — Where  the  min- 
utes of  the  proceedings  of  a  corpora- 
tion show  an  order  for  the  opening  of 
books  for  subscription  to  stock 
therein,  and  the  amount  taken  by  each 
subscriber  is  there  distinctly  set  forth, 
and  where  it  appears  that  such  sub- 
scribers had  been  directors  of  the  cor- 
poration and  has  the  right  of  access  to 
the  book  containing  said  statement; 
held,  bound  by  the  record  to  the 
amounts  there  shown,  although  no 
actual  subscriptions  to  stock  were  pro- 
duced. Moses  i'.  Ocoee  Bank,  C9  Tenn. 
(1   Lea)   398. 

51.  Shareholder  party  to  charter  con- 
tract.—Adkiiis  T'.  Thornton,  19  Ga.  325. 

52.  Rescission. — Rev.  St.  1898,  §  2024, 
subsec.  18,  provides  that  any  number 
of  persons  may  associate  and  become 
incorporated,  and  subsection  19  de- 
clares that  such  person  shall  make  a 
certificate  stating  the  names  of  the 
shareholders  and  the  number  of  shares 
subscribed  by  each,  which  shall  be 
filed  with  the  register  of  deeds.  Ar- 
ticles of  incorporation  for  a  bank  were 
signed  by  W.  R.  and  R.  R.  on  condition 
that  they  were  not  to  be  bound  unless 
M.  R.,  the  third  member  of  the  firm 
of  R.'s  Sons,  should  also  sign  and 
agree  that  the  firm  should  take  $2,500 
worth  of  shares.  M.  R.  refused  to  sign, 
and  the  promoter  of  the  corporation, 
without  the  knowledge  of.W.  R.  and 
R.  R..  filed  the  articles  with  their  sig- 
natures. Held,  that  the  fact  that  the 
firm  refused  to  accept  the  shares  when 
tendered  was  not  sufficient  to  show  a 
rescission  of  the  contract  in  the  ab- 
sence of  evidence  that  the  corporation 
accepted  the  rescission,  since  on  the  fil- 
ing of  the  certificate  the  contract  be- 
came an  executed  one,  and  hence  irrev- 
ocable,   without    the    consent    of    both 


parties.  Rehbein  z:  Rahr,  109  Wis.  136, 
85   N.   W.  315. 

53.  Waiver  of  right  to  rescind. — The 
right  to  rescind  an  issue  of  bank  stock 
for  fraud  is  waived  by  the  bank's  ac- 
ceptance of  a  surrender  of  the  certifi- 
cate by  a  pledgee  of  the  stock,  and 
issue  of  a  new  one  in  its  place  to  the 
pledgee.  Tecumseh  Nat.  Bank  v.  Rus- 
sell, 50  Neb.  277,  69   N.  W.   763. 

A  person  purchasing  stock  from  a 
bank  held  not  entitled,  after  insol- 
vency and  the  institution  of  a  proceed- 
ing to  wind  up  its  affairs,  to  rescind 
the  purchase  for  fraud  although  he 
lived  at  a  considerable  distance  from 
the  bank,  and  it  would  have  been  in- 
convenient for  him  to  ascertain  the 
bank's  condition.  Little  t'.  Owensboro 
Savings  Bank  &  Trust  Co.'s  Receiver, 
150  S.  W.  334. 

54.  Oversubscription. — Union  Bank 
V.   McDonough,   5  La.  63. 

Defendant's  charter  authorized  its 
commissioners  to  open  stock  subscrip- 
tion books,  and,  in  the  event  of  an 
excess  of  subscriptions,  to  distribute 
the  stock  in  such  manner  as  the  com- 
missioners should  deem  most  ad- 
vantageous to  the  bank;  that  persons 
subscribing  for  twenty  shares  and  up- 
ward should  not  receive  less  than 
twenty  shares,  unless  such  subscribers 
or  those  for  a  less  amount  exceeded 
the  whole  amount  of  the  stock;  and 
that  each  commissioner  should  not  re- 
ceive more  than  two  hundred  and  fifty 
shares,  if  without  it  the  whole  stock 
was  taken.  There  was  an  excess  of 
subscriptions,  and  those  for  twenty 
shares  and  upward  exceeded  the  whole 
stock.  Held,  that  the  commissioners 
were  entitled  to  two  hundred  and  fifty 
shares  each,  and  were  then  entitled  to 
divide  the  remainder  among  the  other 
subscribers,  according  to  their  dis- 
cretion; that  the}^  were  not  obliged  to 
give   every   subscriber   some   stock,   nor 


§  39  (4) 


CAPITAL,    STOCK    AXD    DIVIDENDS. 


85 


evaded  by  subdividing  a  subscription  among  several  nominal  subscribers  ;''''> 
but  where  no  means  is  provided  for  effecting  a  reduction,  the  commission- 
ers can  not  arbitrarily  apportion  the  stock  among  part,  leaving  out  others 
of  the  subscribers."''^ 

Overissue. — ^lere  formal  subscription  for  all  the  stock  to  be  issued  by  a 
bank,  the  subscribers  being  practically  trustees  for  such  new  stockholders 
as  could  be  induced  to  subscribe,  is  not  an  overissue,  rendering  the  subse- 
quent subscriptions  invalid.-^" 

§  39  (4)  Stock  Certificates. — A  certificate  of  bank  stock  is  authentic 
evidence  of  title  to  stock,  but  it  is  not  the  stock  itself.  It  certifies  a  fact 
which  exists  independently  of  itself. ^^ 

Necessity  for  Certificate. — Without  express  regulation  to  the  contrary, 
a  person  becomes  a  stockholder  in  a  bank  by  subscribing  for  stock,  paying 
the  amount  to  the  company  or  its  proper  officer,  and  being  entered  on  the 
stock  book  as  a  stockholder.  He  may  take  out  a  certificate  or  not,  as  he 
sees  fit.     A  certificate  is  not  necessary  to  the  existence  of  bank  stock. 5'' 

Form   and  Requisites. — A  certificate  of  stock  conforming  in  all   re-- 


to  ratably  apportion  it,  and,  in  the  ab- 
sence of  fraud,  their  exercise  of  dis- 
cretion would  not  be  interfered  with. 
Clarke  v.  Brooklyn  Bank  (N.  Y.),  1 
Edw.  Ch.  361. 

Under  the  Act  of  1852  (12  Stat.  212), 
chartering  certain  banks,  the  commis- 
sioners appointed  to  take  subscriptions 
had  no  power,  in  case  of  oversubscrip- 
tion to  the  stock,  to  apportion  it 
among  the  subscribers.  It  belonged 
to  the  corporation  to  reduce  the  sub- 
scriptions pro  rata.  State  v.  Lehre 
(U.   S.).  7   Rich.   Law  2.34. 

55.  The  charter  of  a  bank  provided 
that,  if  subscriptions  to  its  capital 
stock  should  exceed  the  aggregate 
limit,  the  excess  should  be  deducted 
from  the  largest  subscription  till  they 
equal  the  next  below  in  amount.  A 
subscriber  sought  to  evade  this  pro- 
vision by  subdividing  his  subscription 
among  several  nominal  subscribers. 
Held,  that  the  directors  could  go  be- 
hind the  face  of  the  subscriptions 
under  the  implied  provision  of  the 
charter  against  one  subscriber  acquir- 
ing too  much  stock,  and  could  erase 
the  nominal  subscriptions.  Union  Bank 
V.  McDonough.  '>  La.  6.'3. 

56.  Under  an  act  incorporating  a  bank, 
and  designating  commissioners  to  re- 
ceive subscriptions,  and  providing  that 
the  capital  should  be  a  certain  amount, 
but  making  no  provision  in  case  of  an 
excess  of  subscriptions,  where  there 
is  an  excess,  the  commissioners,  in  ef- 
fecting a  reduction,  can  not  arbitrarily 
apportir.n   the   stock  among  part,   leav- 


ing out  others,  but  must  deduct  the 
excess  from  the  largest  subscriptions 
in  such  manner  that  no  subscription  is 
reduced  while  any  one  remains  larger. 
:\Ieads  z:  Walker  (N.  Y.),  1  Hopk.  Ch. 
587.  ■ 

57.  Overissue. — Tulare  Sav.  Bank  v. 
Tabot,   131    Cal.   45,   63   Pac.   172. 

To  facilitate  the  reorganization  of  a 
state  bank  as  a  national  bank,  it  was 
agreed  that  certain  stockholders  should 
subscribe  for  all  the  stock,  which  was 
afterwards  to  be  apportioned  among 
those  stockholders  of  the  state  bank 
who  desired  to  take  it.  Subsequently 
one  of  the  stockholders  in  the  state 
bank  subscribed  for  shares,  and  certifi- 
cates were  issued  to  him.  Held,  that 
there  was  no  overissue,  invalidating  the 
last  subscription.  Somerset  Nat.,  etc.. 
Receiver  f.  Adams,  24  Ky.  L.  Rep. 
20S3,   72    S.   W.   1125. 

58.  Stock  certificate. — Pacific  Nat. 
Bank  r.  Eaton,  141  U.  S.  227,  35  L.  Ed. 
702,  11  S.  Ct.  984.  See,  also,  Scott  f. 
Deweese.  181  U.  S.  202,  45  L.  Ed. 
822,  21  S.  Ct.  585;  Thayer  v.  Butler, 
141  U.  S.  234,  35  L.  Ed.  711,  11  S.  Ct. 
987:  Einn  7'.  Brown,  142  U.  S.  56,  35 
L.   Ed.  936,  12  S.  Ct.  136. 

59.  Certificate  unnecessary  to  sub- 
scription.—  Pacific   Nat.   Rank  ?-.   Eaton. 

141  U.  S.  227,  35  L.  Ed.  702,  11  S.  Ct. 
984.  See,  also,  Scott  r.  Deweese.  181 
U.  S.  202,  45  L.  Ed.  822.  21  S.  Ct.  585; 
Thayer  r.  Butler,  141  U.  S.  234.  35  L. 
Ed.  711.   11    S.   Ct.   987:    Einn  7-.   Brown, 

142  U.  S.  56.  35  L.  Ed.  936.  12  S.  Ct.  136. 


86 


BANKS   AND   BANKING. 


§  39  (5a) 


spects  to  the  requirements  of  the  charter  or  law  under  which  a  bank  is  au- 
thorized, is  sufficient.*^" 

A  corporate  seal  is  not  essential  to  the  validity  of  a  certificate  of  bank 
stock.^'i 

Duplicate  Certificate. — When  certificates  of  bank  stock  are  lost  or 
stolen,  upon  proof  of  the  loss  and  execution  of  a  sufficient  bond,  to  indem- 
nify the  bank  against  loss  by  the  original  certificates  coming  into  the  hands 
of  an  innocent  holder,  the  owner  thereof  is  entitled  to  duplicate  certificates. 
This  right  may  be  enforced  by  mandamus.^'^ 

§  39  (5)  Payment''-^— §  39  (5a)  Medium.— Where  the  charter 
or  law  under  which  a  bank  is  organized  prescribes  the  medium  of  payment 
of  subscriptions  to  its  stock,  an  organization  without  such  payment  is  a  nul- 
lity .*^^  Ordinarily  payment  is  to  be  made  in  money,*^^  cash.'^s  gr  specie.^*^ 
A  banking  corporation,  in  the  absence  of  an  enabling  statute,  is  without  au- 
thority to  accept  such  property  as  notes,  judgments,*^^  mortgages,*^^  other 
stocks,'^''  etc.,  in  payment  of  stock  subscriptions,  aliter  when  authorized  by 


60.  Form  of  certificate. — A  certificate 
in  all  respects  according  to  the  require- 
ments of  chapter  260  of  the  Act  of 
1838,  to  authorize  the  business  of 
banking,  and  concluding  with  the 
words,  "We  have  hereunto  respectively 
subscribed  and  set  our  hands  and 
seals,"  etc.,  "and  the  number  of  shares 
of  the  capital  stock  of  the  corporation 
aforesaid  taken  and  held  by  each  of  us 
respectively,"  is  sufficient  to  render  the 
signers  stockholders,  and  liable  to  pay 
for  the  number  of  shares  set  against 
their  names.  Cole  v.  Ryan  (N.  Y.).  52 
Barb.   168. 

61.  Corporate  seal. — Fitzhugh  v. 
Bank  (Ky.).  3  T.  B.  Mon.  126,  16  Am. 
Dec.  90. 

62.  Duplicate  certificate. — Hof  v. 
Western  German  Bank,  6  Wkly.  L. 
Bull.   665,   8    O.    Dec.    R.   245. 

62a.  Liability  for  debts  and  acts  of 
bank,  see  post,  "Liability  for  Debts 
and  Acts  of  Bank,"  §  46;  "Actions  and 
Proceedings  to  Enforce,"  §  49. 

Lien  of  bank  on  stock,  and  divi- 
dends, see  post,  "Lien  of  Bank  on 
Stock  and  Dividends,"  §  42. 

63.  Medium. — Pacific  Trust  Co.  f. 
Dorsey,  72   Cal.   55,   12   Pac.  49. 

64.  Money. — Pacific  Trust  Co.  v. 
Dorsey.  72   Cal.  55,  12  Pac.  49. 

65.  Cash.— Dunn  z:  State  Bank.  59 
Minn.  221.  fit    N.   W.  27. 

66.  Specie. — When  a  charter  re- 
quires payments  to  be  made  on  the 
stock  in  specie,  before  organization, 
and  the  bank  is  organized  v^'ithout  such 
payment,  it  is  a  mere  nullity,  and  can 
not   exercise    any   of   the   privileges    of 


the  charter.  Napier  v.  Poe,  12  Ga. 
170. 

The  capital  stock  of  a  bank  is  a 
trust  fund  for  the  payment  of  the  note 
holders  and  creditors  of  the  bank;  and 
therefore,  where  a  subscriber  to  stock 
is  garnished  for  a  debt  of  the  bank 
for  a  balance  due  on  his  subscription, 
he  can  not  pay  in  notes  of  the  bank. 
Payment  must  be  made  in  specie. 
King  V.  Elliott  (Miss.)  5  Smedes  &  M. 
428. '^ 

Where  a  stockholder  of  a  bank  was 
delinquent  in  stock  payments,  and  was 
garnished  by  judgment  debtors  of  the 
bank,  he  was  liable  for  the  payment  of 
the  delinquency  in  specie,  the  bank 
stock  being  payable  only  in  specie. 
King  v.  Elliott  (Aliss.),  5  Smedes  & 
M.    428. 

67.  Notes  and  judgments. — Codding- 
ton  r.  Cannady,  157  Ind.  243,  61  N.  E- 
567. 

Where,  by  the  act  of  incorporation 
of  a  bank,  the  subscribers  to  stock 
were  required  to  pay.  at  the  time  of 
subscription,  ten  per  cent  in  specie, 
on  the  amount  subscribed  for,  a  mere 
subscription  to  stock,  without  paying 
the  ten  per  cent  in  specie,  the  sub- 
scriber executing  his  note  merely  to 
the  bank  for  that  sum,  would  not  con- 
stitute the  subscriber  a  stockholder. 
Such  subscription  would  be  void,  and 
would  impose  no  obligation  on  the 
stockholder.  Hayne  v.  Beauchamp 
(Miss.).   5    Smedes   &   M.   515. 

68.  Mortgages. — See  post.  "Stock 
Mortgages  and  Bonds,"  §  39  (6). 

69.  Payment    in    stock. — When    not 


§  39  (5b) 


CAPITAL,    STOCK    AND    DIVIDENDS. 


87 


its  charter,  act  of  incorporation,  or  other  statute,  to  except  money  paid,  la- 
bor done  or  property  actually  received  in  payment  of  such  subscriptions.'^^* 

§  39  (5b)  Time.— Where  no  time  is  designated  for  the  payment  of 
the  tirst  installment  of  subscriptions  for  bank  stock,  it  need  not  be  contem- 
poraneous with  the  subscription.' 1  The  commissioners  to  receive  subscrip- 
tions and  payments  may  allow  a  reasonable  time.'- 

State  a  Subscriber. — Where  the  charter  of  a  bank  reserved  to  the  state 
the  privilege  of  subscribing  to  a  certain  portion  of  the  stock,  "to  be  paid 
for  at  such  time  or  times  as  might  be  convenient  for  the  state,"  it  was  op- 


prohibited  by  law  or  the  charter,  pay- 
ment for  the  capital  stock  of  a  bank 
may  be  made  in  stock,  and  if  so  paid 
in  and  accepted,  the  stock  becomes 
the  common  property  of  the  associa- 
tion. Holbrook  v.  Union  Bank  (U.  S.), 
7  Wheat.   553,   5   L.   Ed.  521. 

Stock,  paid  in  as  a  part  of  the  capital 
of  the  Union  Bank  of  Alexandria,  be- 
fore its  incorporation,  became  the 
common  property  of  the  association, 
so  as  to  be  subject  to  be  sold  and  dis- 
tributed among  the  members,  after 
the  charter,  which  directed  that  the 
capital  stock  should  consist  of  money 
only,  was  accepted;  and  those  who 
subscribed  the  road  stock,  or  their  as- 
signees, were  not  entitled  to  have  the 
same  returned  specifically  to  them. 
Holbrook  v.  Union  Bank  (U.  S.),  7 
Wheat.  553,  5   L.   Ed    521. 

"Each  share  represented  an  equal 
part  of  the  whole  capital,  comprehend- 
ing each  description  of  road  stock, 
and  of  the  money  paid  in;  and  there 
was  nothing  on  the  face  of  the  certifi- 
cate, which  was  transferable,  indi- 
cating that  one  share  was  more 
valuable  than  another.  If,  instead  of 
oI)taining  the  act  of  incorporation,  the 
company  had  expired  or  been  dissolved 
by  consent,  the  shares  would  have 
been  equal,  and  would  have  entitled 
the  holders  to  equal  portions  of  the 
whole  capital.  The  dividends,  during 
the  continuance  of  the  company,  must 
have  been  equal.  Had  the  road  stock 
been  sold,  it  must  have  been  carried 
to  the  credit  of  the  whole  company." 
HoIIjrook  V.  Union  Bank  (U.  S.),  7 
Wheat.  553,  5  E.  Ed.  521. 

70.  Notes  for  property  actually  re- 
ceived.—Const.,  art.  12,  §  II,  provides 
that  no  corporation  shall  issue  its 
stock  "except  for  money  paid,  labor 
done,  or  property  actually  received." 
Act  April  1,  1876  fSt  1876,  p.  729),  re- 
quires every  banking  cor])()ration  to 
publish  biennial  statements  f.f  the 
amount  of  capital  actually  paid  in,  and 


declares  that  nothing  shall  be  deemed 
capital  so  paid  except  money  bona  fide 
paid  to  the  bank;  and  that  under  no 
circumstances  shall  the  note  or  other 
obligation  of  a  stockholder  be  treated 
as  a  part  of  such  paid-up  capital.  uA.nd 
Pen.  Code,  §  560,  provides  that  "every 
director  of  a  corporation  who  concurs 
in  any  vote  or  act  of  the  directors  by 
which  it  is  intended  to  discount  or  re- 
ceive any  note  or  other  evidence  of 
debt  in  payment  of  any  stock  subscrip- 
tion called  or  required  to  be  paid,  with 
the  intent  to  provide  the  means  of 
making  such  payment,  is  guilty  of  a 
misdemeanor."  Held,  that  the  note  of 
a  stockholder  given  to  a  bank  as  se- 
curity for  the  payment  of  his  first 
stock  installment  was  "property  ac- 
tually received,"  within  the  provision 
of  the  constitution,  for  which  the  bank 
was  authorized  to  issue  its  stock;  that 
such  no'te  was  not  void  under  the  above 
provisions;  and  that  the  amount 
thereof  might  be  recovered  by  the 
l^ank  from  the  maker.  Pacific  Trust 
Co.  V.  Dorsey,  72  Cal.  55,  12  Pac.  49. 

71.  Time. — The  charter  of  a  bank  de- 
clared that  "when  the  amount  of 
$250,000  shall  have  been  subscribed 
bona  fide,  and  the  sum  of  ten  per  cent 
paid  thereon  in  specie,  the  commission- 
ers shall  give  notice  for  the  election  of 
directors,"  etc.  Held,  that  payment 
of  the  ten  per  cent  need  not  be  con- 
temporaneous with  the  subscription; 
but,  if  the  subscribers  give  a  draft  for 
the  payment  of  the  ten  per  cent  in 
tiiirty  days,  the  subscription  is  good 
against  those  afterwards  a])plying  for 
the  stock,  and  tendering  the  money 
for  the  ten  per  cent  within  the  thirty 
days.      Napier  v.   Poe.   12   Ga.   170. 

72.  Discretion  of  commissioners. — 
If  commissiuners  are  rccjuired  to  re- 
ceive upon  the  stock  ten  per  cent  in 
gold  or  silver,  and  no  time  is  desig- 
nated for  the  payment,  they  have  the 
discretion  to  allow  a  reasonable  time. 
Xapier    i\    I'oe.    12    Ga.    170. 


BANKS   AND   BANKING. 


§  39  (5d) 


tional  with  the  state  to  pay  at  any  time  before  the  termination  of  the  char- 
ter.'3 

§  39    (5c)   Assessments   or  Calls  for  Payment. — See  post,  "Levy 
of  Assessment  and  Sale  of  Stock,"  §  39  (7fa). 

§  39  (5d)  What  Constitutes  Payment. — A  subscription  to  the  stock 
of  a  bank  must  be  fully  paid  in  and  dedicated  to  the  business  of  the  bank 
in  order  to  discharge  the  subscriber's  obligation.'-^ 
Pretended  payment  will  not  discharge  the  subscriptions."^^ 
Where  notes  are  executed  in  payment  of  subscriptions  to  bank  stock, 
the  obligation  to  pay  the  amount  subscribed,  will  be  considered  as  a  debt 
subsisting  independently  of  such  notes  until  actually  paid.'*^  The  notes 
themselves  are  binding,'"^  though  the  original  subscription  was  void.'^^    Pay- 


73.  Subscriptions  of  state. — Attorney 
General  f.   State   Bank.  21  N.   C.  545. 

74.  What  constitutes. — McNulta  v. 
Corn  Belt  Bank,  164  111.  427,  45  N.  E. 
954,    56   Am.    St.    Rep.   203. 

Where  the  stock  subscription  of  a 
city  in  a  certain  bank  was  to  be  paid  in 
city  bonds  bearing  interest,  to  be  met 
by  its  dividends,  when  the  bank  had 
to  advance  the  interest  before  the  divi- 
dends became  sufficient,  the  city  was 
bound  to  refund  the  amount  with  in- 
terest. Commercial  Bank  t'.  New  Or- 
leans, 11  La.  217. 

75.  Pretended  payment  s. — Sub- 
scribers to  stock  can  not  release  their 
obligations  by  fraudulently  providing 
funds  to  be  counted  by  the  auditor  as 
the  paid-up  capital  of  the  bank,  and 
immediately  withdrawing  them,  leav- 
ing the  bank  without  funds  till  the 
stock  is  sold.  McNulta  v.  Corn  Belt 
Bank,  164  111.  427,  56  Am.  St.  Rep.  203, 
45  N.  E.  954. 

76.  Notes. — Moses  v.  Ocoee  Bank,  69 
Tenn.   (1  Lea)   398. 

Wrongful  cancellation  of  notes. — 
Certain  persons  purchased  the  charter 
of  a  banking  corporation,  paying  part 
cash  and  executing  their  note  for  the 
balance.  After  reorganizing  the  bank, 
the  vendor  of  the  charter  agreed  to 
accept  stock  for  his  debt,  which  was 
accordingly  issued  to  him,  and  the  note 
was  transferred  to  the  bank  and  can- 
celed without  payment.  The  cash  pay- 
ment to  him,  as  well  as  the  note,  was 
charged  to  the  bank.  Held,  that  the 
note  so  transferred  was  the  property 
of  the  bank,  was  not  subject  to  can- 
cellation without  payment,  and  was 
assets  of  the  bank,  liable  to  the  claim 
of  its  creditors;  and  that  the  cash 
payment  was  improperly  charged  to 
the   bank;    and   inasmuch   as   the    stock 


issued  to  the  vendor  was  intended  to 
go  to  him  as  paid  up  stock,  the  stock- 
holders for  whose  benefit  the  charter 
was  purchased  are  liable  for  its  satis- 
faction in  proportion  to  the  amount  of 
their  respective  subscriptions.  Moses 
f.  Ocoee  Bank,  69  Tenn.  (1  Lea)  398. 
Where,  the  stockholders  of  a  banking 
corporation  ordered  the  books  to  be 
opened  to  increase  the  capital  stock 
of  the  corporation  a  fixed  amount,  and 
authorized  one  of  their  number  to 
give  his  and  their  notes  for  the  amount 
so  increased  in  payment  of  the  same, 
which  he  did,  and  subsequently,  the 
stockholders  so  executing  the  note, 
instructed  the  cashier  to  reduce  the 
stock  by  the  amount  thus  subscribed, 
alleging  the  circulation  issued  upon  it 
had  been  redeemed;  held,  that  the 
stock  could  not  be  so  reduced,  and 
that  the  creditors  of  the  bank  were 
entitled  to  have  the  amount  so  sub- 
scribed paid  up  by  the  stockholders, 
the  proceeds  arising  therefrom  to  be 
applied  to  the  satisfaction  of  their 
claims.  Moses  z".  Ocoee  Bank,  69 
Tenn.   (1  Lea)   398. 

77.  In  the  absence  of  any  statute,  a 
note  given  to  a  bank  for  a  portion  of  its 
capital  stock,  which  the  bank  itself  had 
previously  purchased,  is  not  void 
merely  because  given  for  the  contract 
price  of  the  stock,  nor  because  it  was 
discounted  by  the  bank  for  the  pur- 
pose of  enabling  the  purchaser  to  pay 
for  the  stock.  United  States  Trust 
Co.  V.  Harris,  15  N.  Y.  Super.  Ct.  75. 

78.  Where  the  commissioners  who 
were  appointed  to  receive  the  subscrip- 
tions to  a  bank  and  the  cash  payment 
took,  in  lieu  of  the  latter,  the  note  of 
the  subscriber,  which  was  discounted 
by  the  bank,  and  the  proceeds  on  the 
check    of   the    subscriber,    being   drawn 


§    39    (6)  CAPITAL,    STOCK    AND    niVIDENDS.  89 

ment  of  stock  by  stockholders  of  a  bank  with  mutually  indorsed  notes  of 
stockholders  or  directors  is  not  authorized  by  a  bank  charter  requirint,^  the 
capital  stock  to  be  paid  in  coin,  or  in  bills  or  notes  deemed  by  the  corpo- 
rators or  directors  the  equivalent  to,  or  better  than,  specie."''  Where  sub- 
scriptions to  the  ca[)ital  stock  of  a  bank  are  paid  with  such  mutually  indorsed 
notes  of  the  stockholders  or  directors,  without  authority  conferred  bv  the 
bank  charter,  such  notes  are  to  be  regarded  as  valid  obligations  for  the  pro- 
tection of  the  issues  of  the  bank  and  its  general  creditors,  and  will  bear 
interest  and  be  subject  to  the  statute  of  limitations,  and,  when  paid  or  col- 
lected, are  to  be  credited  as  payments  pro  tanto  on  the  unsatisfied  stock. ^^^ 

The  note  of  a  third  party  deposited  by  a  stockholder  of  a  bank  in 
payment  of  his  stock  and  subsequentl}*  collected  by  him,  will  be  treated  by 
a  court  of  equity  as  the  property  of  the  bank,  and  such  stockholder  will  be 
charged  with  the  proceeds  and  interest  from  the  time  it  was  collected,  and 
upon  payment  his  stock  will  be  credited  according  to  the  arrangement  made 
at  the  time  it  was  so  deposited. ^i 

Payment  in  Depreciated  Bills.— Where  a  subscriber  to  bank  stock  has 
paid  for  his  stock  in  depreciated  bills  of  the  bank,  he  is  entitled  to  be  cred- 
ited with  their  value  at  the  time  of  payment. ^2 

§  39  (5e)  Presumption  and  Proof  of  Payment.— Whether  a  bank 
has  paid  in  its  capital  stock,  in  gold  or  silver,  within  the  appointed  time  after 
receiving  its  charter,  is  to  be  ascertained  and  proved  in  the  manner  provided 
by  the  statute,  by  the  certificate  of  the  commissioners  appointed  for  that 
purpose. ^3  Where  a  bank  has  been  in  operation  for  several  years,  ir  is  to 
be  presumed  that  its  capital  stock  has  been  paid  within  the  time  appointed 
after  the  reception  of  its  charter.''-* 

§  39    (6)    Stock   Mortgages     and    Bonds.— A   bond   and  mortgage 
given  for    subscription    to    stock    in    a    bank    are    valid. ^^     When  not  per- 
fectly satisfied  with  the  validity    of    titles    to    property  offered  for  mort- 
gage,  as   security   for  a   stock   subscription,   the   directors,   in  the  exercise 
of  a  proper    discretion,    should    withhold    the    expression    of  their  satis- 
faction.^''^     Such  bonds  and  mortgages  can  not  be  enforced  against  stock- 
therefor,  init  to  his  credit  on  his  stock  82.   Payment    in    depreciated    bills. — 
account,   it   was    held   that,   though    the       Marr  ?'.   Bank,  72  Tenn.   (4  Lea)   5~S. 
original     subscription     for     stock     was  gg.    Presumption     and     proof.— Agri^ 
void,    yet    the    note    would    be    huiding,       cultural  Bank  v.  Burr,  2i  Me.  2.'-.f.. 
and    regarded    as    given    for    the    pur-  „.       »       •     w       1     d      1  t?,,.-,-     oj. 
chase    of     so     much     stock.      Hayne    v.       .Z*-,:;^^^"'"'^"''-'^'     ^^""'^    '■     ^""'    ""* 
Beauchanip    (Miss.),    .5    Smedes    &    M.       ^^^-  "''''■ 
',]-,.                                                                             85.    Bond    and    mortgages — Validity. 

79.  Mutually  indorsed  notes  of  stock-  — Valk  z'.  Crandall  (N.  Y.),  1  Sandf. 
holders.— Moses  f.  CJcoee  Bank,  (i!)  Ch.  179.  Liability  of  transferee  of 
Tenn.   (]    Lea)   ,'U)8.  stock    on     stock    mortgage,     see    post, 

80.  Moses  V.  Ocoee  Bank,  C'.)  Tenn.  "Transfer  of  Stock,"  §  40.  Lial)ility  of 
O    r.ca)    :!98.  '  stock   mortgages   for  debts  and  acts  of 

81.  Notes  of  a  third  party  deposited  bank,  see  post,  "In  Oeiioral,"  §  47  (1). 
by  stockholder. —  Mrjses  v.  Ocoee  86.  Approval  of  directors.— Waldcn 
I'ank,  (•,!)  Ttnii.   (I    Lea)  398.                              7'.    Union    liank,  (i   La.  ::4S. 


90 


BANKS   AND  BANKING. 


39  (6) 


holders  until  the  conditions  upon  which  they  are  to  be  used  are  performed.s^ 
Stock  mortgages  are  the  property  of  the  bank**  to  secure  the  payment  of 
the  stock  subscription  and  are  held  for  the  benefit  of  the  creditors  of  the 
bank,89  and  bear  interest.^*^ 

Priorities. — The  equities  of  the  creditors  in  such  mortgages  are  prior  and 
paramount  to  the  equity  of  the  bank.''^ 

Discharge  and  Satisfaction. — The  final  payment  of  the  subscription 
which  the  mortgage  was  given  to  secure  operates  as  a  discharge  of  the  mort- 
gage indebtedness. ^- 

Fore closure  and  Sale. — The  bank  may  subject  the  mortgaged  property 
to  the  satisfaction  of  the  debt  upon  failure  of  the  stockholder  to  pay  his 
interest  or  principal,  or  both.^^ 


87.  Performance  of  conditions  prece- 
dent.— Where  bonds  and  mortgages 
on  incumbered  lands  are  left  with  the 
commissioners  of  an  association  formed 
under  the  general  banking  law,  who 
were  appointed  to  procure  subscrip- 
tions to  stock,  it  being  distinctly  un- 
derstood that  such  bonds  and  mort- 
gages were  to  be  used  only  in  case  the 
association  advanced  money  by  which 
the  incumbrances  on  the  land  could  be 
removed,  the  subscription  based  on 
such  bonds  and  mortgages  can  not  be 
enforced  against  the  stockholders  until 
the  condition  is  carried  out.  Burrows 
V.  Smith,  10  N.  Y.  550. 

88.  Union  Bank  v.  Parkhill,  2  Fla. 
660. 

89.  The  mortgages  executed  to  the 
Real-Estate  Bank  by  its  stockholders 
to  secure  the  payment  of  the  stock 
subscribed  are  held  for  the  benefit  of 
the  bondholders,  and  to  guaranty  the 
state  against  loss  for  her  bonds  loaned 
to  the  bank  to  procure  capital.  Duncan 
V.  Biscoe.  7  Ark.  175. 

90.  Interest. — Where  a  stockholder 
in  a  bank  gave  it  a  bond  and  mortgage 
in  payment  for  his  stock,  he  can  not 
refuse  to  pay  interest  provided  thereby, 
because  the  directors  of  the  bank  do 
not  declare  a  dividend  on  the  stock 
from  the  bank's  profits;  nor  will  the 
collection  of  such  interest  be  restrained 
until  a  dividend  is  declared.  Ely  v. 
Sprague   (N.  Y.),  Clarke  Ch.  351. 

91.  Priorities. — The  charter  of  the 
Real-Estate  Bank  provided  that  all 
subscriptions  to  the  capital  stock  of 
the  bank  should  be  secured  by  mort- 
gages executed  to  the  bank,  which 
should  be  conditioned  for  the  payment 
of  all  money  received  from  the  bank 
on  account  of  subscriptions,  and  for 
the  final  payment  of  the  bonds  of  the 
state  issued  in  aid  of  the  bank,  and 
that,  to   guaranty   the  bonds   so  issued 


by  the  state,  the  mortgages  should  be 
transferred  to  the  state  and  the  holders 
of  the  bonds.  Held,  that  the  equity  of 
the  state  and  the  bondholders  in  the 
stock  mortgages  so  executed  was 
prior  and  paramount  to  the  equity  of 
the  bank.  Wilson  v.  Biscoe,  11  Ark.  44. 
The  two  conditions  in  the  stock 
mortgages  to  the  Real-Estate  Bank — 
the  one  for  the  payment  of  the  bonds 
of  the  state  and  interest  thereon,  and 
the  other  for  payment  of  moneys  re- 
ceived from  the  bank  on  stock  sub- 
scriptions— are  separate  and  distinct, 
and  the  former,  being  prior  in  time  and 
equity  to  the  latter,  can  not  be  ex- 
tinguished by  sale  under  decree  for  the 
satisfaction  of  the  latter.  Chapman  v. 
State,   39   Ark.   274. 

92.  Discharge.— Act  1853,  No.  246, 
authorizing  the  directors  of  the  Citi- 
zens' Bank  to  transfer  or  set  apart  a 
stated  number  of  shares  of  stock  as 
cash  shares,  did  not  discharge  a  mort- 
gage given  by  a  shareholder  to  sectire 
the  unpaid  price  of  his  shares,  or  re- 
lease the  stock  held  by  the  mortgagor 
from  payment  of  calls.  Breard  v.  Citi- 
zens' Bank,  47  La.  Ann.  1374.  17  So. 
875. 

93.  Foreclosure — Right  of  bank.^ 
The  act  incorporating  the  Union 
Bank  (§  1)  provides  that  the  capital 
shall  be  raised  by  means  of  a  loan  on 
the  faith  of  the  territory,  by  the  di- 
rectors of  the  bank.  Section  8  pro- 
vides that,  to  secure  the  principal  and 
interest  of  the  bonds  to  be  issued  by 
the  territory  for  the  purpose  of  rais- 
ing the  capital,  the  subscribers  shall 
give  a  bond  and  mortgage  on  prop- 
erty. Section  9  provides  that  the 
bonds  and  mortgages  so  given  shall 
be  deposited  in  the  offices  of  said  in- 
stitution, and  that  any  stockholder 
may  at  any  time  release  his  property 
by    paying    his    subscription    and    loans 


§  39  (7a) 


CAPITAL,    STOCK    AND    DIVIDENDS. 


91 


The  death  of  the  mortgagor  does  not  effect  the  bank's  right  to  seize 
and  sell  the  mortgaged  property.''^ 

Parties. — The  trustees  of  the  bank  are  the  proper  parties  to  foreclose 
stock  mortgages  and  they  may  do  so  without  making  the  creditors  parties 
to  the  action.''"'  The  bank  comptroller,  and  not  the  receiver,  is  the  proper 
person  to  bring  a  suit  on  a  stockholder's  bond.^*' 

Judgment. — Where  judgment  upon  a  stockholder's  bond  was  entered  by 
the  bank  comptroller  under  a  warrant  of  attorney  for  that  purpose,  the 
judgment,  if  otherwise  regular  and  just,  may  be  allowed  to  stand. '^' 

§  39  (7)  Liability  for  and  Collection  of  Unpaid  Balances — 
§  39  (7a)  In  General. — Stockholders  are  bound  to  pay  up  all  arrearages 
of  stock  when  there  are  creditors  of  the  bank.''*     Each  stockholder  is  liable 


that  have  been  made  on  the  faith  of 
it.  Section  10  provides  that  the  bonds 
issued  by  the  territory  shall  be  pay- 
able to  the  bank,  and  negotiated  by  it. 
Section  11  provides  that  both  princi- 
pal and  interest  of  said  bonds  shall  be 
paid  by  the  bank  as  the  same  shall  be- 
come due.  Held,  that  the  stock  mort- 
gages belong  exclusively  to  the  bank, 
and  that,  therefore,  it  is  competent  for 
the  bank  to  subject  the  mortgaged 
property  to  the  satisfaction  of  the  debt 
upon  failure  of  the  stockholder  to 
pay  his  interest.  Union  Bank  z\  Park- 
hill.  2   Fla.   660. 

The  assignees  of  the  Real-Estate 
Bank  have  no  interest  w^hatever,  either 
general  or  special,  in  the  mortgages 
executed  by  stockholders  to  secure  the 
amount  of  stock  subscribed  for  by 
them,  and  they  possess  no  right  of  ac- 
tion whatever  upon  such  mortgages 
for  the  purpose  of  foreclosure.  Duncan 
c'.   Biscoe,  7  Ark.  IT.t. 

The  securities  referred  to  by  §  25  of 
the  original  banking  law,  to  be  sold  by 
the  comptroller  in  certain  cases,  are 
those  required  to  be  deposited  by  §§  '). 
C  of  that  law,  and  do  not  include  a 
stockholder's  bond.  Van  Steenwyck 
V.  Sackett,  17  Wis.  64.5. 

94.  Death  of  mortgagor. — The  bank's 
rif^Iit  under  tlic  cliartcr  (§  24)  to  seize 
and  sell  property  mortgaged  for  stock 
is  not  impaired  by  the  mortgagor's 
death;  and  the  bank  may  proceed  ac- 
cording to  circumstances,  either  via 
cxecutiva  or  via  ordinaria.  If  the  pro- 
ceeds of  the  mortgaged  property  be 
insufficient,  the  bank  must  go  into  the 
probate  court  for  the  balance,  and,  if 
not  admitted,  sue  the  representatives 
of  the  deceased  there;  and  this,  whether 
the  original  proceedings  were  via 
executiva  or  via  ordinaria.  And  these 
proceedings,  to  avoid   the  delays  from 


which  it  was  the  intention  to  relieve 
the  bank,  must  necessarily  be  before 
the  ordinary  tribunals.  Union  Bank  v. 
Marigny  (La.).  11  Rob.  209. 

95.  Parties. — The  charter  of  the  Real- 
Estate  Bank  provided  that  all  subscrip- 
tions to  the  capital  stock  of  the  bank 
should  be  secured  by  mortgages  exe- 
cuted to  the  bank  conditioned  for  the 
payment  of  all  money  received  from 
the  bank  on  account  of  subscriptions, 
and  for  the  payment  of  the  bonds  of 
the  state  issued  in  aid  of  the  bank; 
that,  to  guaranty  the  bonds  so  issued, 
the  mortgages  should  be  transferred 
to  the  state  and  the  holders  of  the 
bonds.  Held,  that  the  trustees  of  the 
bank  may,  without  making  the  state 
or  the  bondholders  parties  to  the  ac- 
tion, foreclose  the  mortgages,  and 
sell  the  lands,  to  enforce  the  payment 
of  the  stock  loans  secured  thereby, 
subject  to  the  prior  lien  of  the  state 
and  bondholders.  Wilson  z\  Biscoe.  11 
Ark.  44. 

96.  It  was  so  held  under  Wis.  Rev. 
St.  C.  71.  §  40.  Rusk  V.  Van  Nor- 
strand.  21  Wis.  159.  overruling  Van 
Steenwyck  z\   Sackett.  17  Wis.  645. 

97.  Judgment.— \'an  Steenwyck  v. 
Sackett,  17  Wis.  645,  overruled  on  an- 
other point  Rusk  v.  Van  Norstrand,  21 
Wis.   159. 

98.  Liability   for  unpaid   balances. — 

Lewis  I'.  Robertson  (Miss.),  i:!  Smedcs 
&  M.  558. 

A  note  given  for  a  suI)Scri])tion  of 
stock,  and  discounted  l^y  the  bank  for 
that  purpose,  the  first  and  several 
other  calls  having  been  first  paid,  is  a 
valid  oi)ligation,  and  may  be  enforced 
by  the  trustee  appointed  under  the 
statute  of  1H43,  who  succeeds  to  all 
the  rights  of  the  bank.  Lewis  7:  Rob- 
ertson   (Miss.),    i:{    Smedcs    &    M.    558. 


92 


BANKS  AND   BANKING. 


39  (7bd) 


for  the  deficiency  of  the  stock  standing  in  his  name,^^  and  it  is  immaterial 
whether  the  bank  was  organized  under  a  general  incorporation  act  or  an 
act  providing  for  the  incorporation  of  banks. ^ 

§  39  (7b)  Persons  Liable— §  39  (7ba)  State.— A  state  is  liable 
for  an  unpaid  balance  of  its  subscription  to  the  stock  of  a  bank,  but  may 
restrict  or  annul  the  right  to  call  in  the  unpaid  installments  of  its  original 
subscription  by  an  act  extending  the  charter  of  the  bank  where  such  ex- 
tension was  applied  for  and  accepted  by  the  bank.- 

§  39  (7bb)  Married  Women. — A  holder  of  bank  stock  who  is  a  mar- 
ried woman  is  liable  for  an  unpaid  balance  of  the  original  subscription.^ 

§  39  (7bc)  Trustees. — Bank  stockholders  of  record  are  liable  for 
unpaid  installments  though  in  fact  they  hold  it  as  trustees  for  others.-* 

§  39  (7bd)  Assignor  or  Transferrer. — In  some  of  the  states  an 
original  subscriber  to  the  stock  of  a  bank  is  liable  for  the  whole  amount 
of  his  subscription  although  he  has  assigned  his  stock, ^  but  in  most  juris- 


99.  Where  several  persons  associ- 
ated to  establish  an  office  of  discount, 
deposit,  and  circulation  under  the  bank 
Act  of  February  27,  1850,  and  seven  of 
the  ntniiber  subscribed  for  only  5 
shares  each,  and  the  balance  of  3,000 
shares  was  subscribed  for  by  the 
eighth  associate,  who  was  also  the  pres- 
ident elect,  and  one-third  of  the  value 
of  each  share  of  stock  was  paid  in  by 
the  president,  and  the  other  associates 
paid  in  nothing,  held,  that  in  case  of 
insolvency  each  of  the  associates  was 
liable  to  pay  the  deficiency  of  the 
stock  standing  in  his  name,  not  ex- 
ceeding the  amount  of  each  share  as 
fixed  by  the  charter.  Kinsela  %'.  Cat- 
aract City  Bank,  18  N.  J.  Eq.  158. 

1.  In  an  action  by  a  creditor  of  a 
bank  against  the  subscribers  to  its 
capital  stock,  the  question  whether 
such  bank  was  organized  under  Gen. 
St.,  _§§  948-974,  providing  for  the  or- 
ganization of  corporations  to  aggre- 
gate, save,  and  invest  the  funds  of 
members,  and  prohibiting  the  issue  of 
certificates  of  shares  until  all  the  sub- 
scription shall  be  paid,  and  providing 
that  stock  shall  not  be  considered  as 
acquired  until  payment  in  full,  or  un- 
der the  general  incorporation  act,  is 
imniaterial,  as  it  was  the  duty  of  sub- 
scribers under  the  former  act  to  pay 
their  subscription  in  advance,  and,  not 
having  done  so,  they  are  still  liable. 
Ross  7\  Bank,  20  Nev.  191,  19  Pac.  243. 

2.  State. — A  bank  was  incorporated 
with  a  capital  stock  of  $1,000,000,  di- 
vided  into   10,000   shares   of  $100   each, 


5,000  of  which  were  subscribed  for  by 
the  state.  Upon  these  65  per  cent,  or 
$325,000,  was  paid  in  prior  to  1834.  In 
that  year,  upon  petition  of  the  presi- 
dent and  directors  of  the  bank,  an  act 
was  passed,  extending  its  charter,  with 
this  proviso:  "Nor  shall  anything  be 
so  construed  as  to  authorize  the  presi- 
dent and  directors  to  call  in  an  addi- 
tional installment  upon  the  stock 
owned  by  the  state."  Creditors,  sub- 
sequent to  1834,  claimed  that  the  un- 
paid $175,000  was  a  trust  fund,  out  of 
which  they  were  entitled  to  be  paid. 
Held  that,  notwithstanding  the  unpaid 
capital  stock  of  incorporated  compa- 
nies is  deemed  a  trust  fund  for  the 
payment  of  corporation  debts,  yet  the 
right  to  call  in  the  unpaid  ins^^allments 
upon  the  state  ttock  was  taken  away 
'uy  the  act  of  1834.  Robinson  v.  liank, 
18  Ga.  65. 

3.  Married  women. — Simmons  v. 
Dent,   16   AIo.   App.   288. 

4.  Trustees. — Rankin  v.  Fidelity 
Ins.,  etc.,  Co.,  189  U.  S.  242,  47  L.  Ed. 
792,  23  S.  Ct.  553;  Hawkins  v.  Glenn, 
131  U.  S.  319,  33  L.  Ed.  184,  9  S.  Ct. 
739. 

5.  Assignor  or  transferror. — Under 
the  general  banking  act  of  1859-60,  an 
original  subscriber  to  the  stock  of  a 
bank  is  liable  for  the  whole  amount  of 
his  subscription,  although  he  has  as- 
signed his  stock;  and  it  is  immaterial 
that  the  bank  was  chartered  before 
the  passage  of  the  act.  The  assignee, 
however,  is  first  liable.  ]\Iarr  v.  Bank, 
72  Tenn.    (4  Lea)   578. 


§  39  (7ca) 


CAPITAL.    STOCK    AXD    DIVIDENDS. 


93 


dictions  a  bona  fide  assignment  and  transfer  on  the  books  of  stock  in  a 
solvent  bank  relieves  the  assignor  from  all  liabilit}'  for  an  unpaid  balance 
on  his  subscription,*'  even  where  the  assignment  is  by  a  husband  to  his 
wife." 

Stockholder  of  Record. — Stockholders  of  record  are  liable  for  unpaid 
installments,  though  in  fact  they  may  have  parted  with  their  stock. ^ 

§  39  (7be)  Assignee  or  Transferee.— Where  the  right  of  bona  fide 
transfer  is  secured  by  the  charter  or  law  under  which  a  bank  is  organized, 
a  transferee  of  the  stock  succeeds  to  all  the  legal  responsibilities  of  the 
original  owner  and  is  liable  for  an  unpaid  balance  of  the  subscription," 
even  in  case  of  a  transfer  by  a  husband  to  his  wife.^*^ 

§  39  (7c)  Facts  Relieving  from  Liability— §  39  (7ca)  Banks 
Having  No  Legal  Existence. — Where  the  conditions  on  which  a  stock 
subscription  under  the  banking  law  was  made  have  never  been  complied 
with  by  the  association,  and  no  stock  has  been  issued,  and  where  the  sub- 
scriber has  never  been  treated  as  a  stockholder  by  such  association,  it  will 
be  concluded  from  thereafter  claiming  the  subscription ;  and  therefore  a 
receiver  can  not  recover  it.^^  An  original  subscriber  to  the  capital  stock 
of  a  bank  can  not  deny  liability  on  his  subscription  by  showing  that  the 
corporation  had  no  legal  existence,  or  that  the  issue  of  the  shares  was 
invalid.'- 


6.  Bona  fide  assignment. — Simmons 
r.  Dent,  16  .Mo.  App.  288;  Gilmore  c'. 
Rank.  8  O.  62. 

7.  Husband  to  wife. — Simmons  t'. 
Dent,    16    :\Io.    A])]).    28S. 

8.  Stockholder  of  record. — Rankin 
f.  Fidelity  Ins.,  etc.,  Co.,  189  U.  S.  242, 
47  L.  Ed.  792,  23  S.  Ct.  553;  Hawkins 
V.  Glenn,   131    U.   S.  319,   33   L.   Ed.   184, 

0  S.  Ct.  7:;9. 

9.  Assignee  or  transferee. — Simmons 
V.  Dent,  16  Mo.  App.  288. 

The  right  of  bona  fide  transfer  re- 
lates to  the  honest  conditions  of  the 
parties  at  the  tnne  of  the  transfer. 
When  this  transfer  is  fairly  made,  new- 
certificates  generally  issue,  and  the 
stock  assumes  a  new  character  as  to 
the  ownership.  The  new  owners  incur 
the  responsil)ilities  of  their  position, 
and  those  who  honestly  make  the 
transfers  are  discharged.  The  extent 
of  these  responsibilities  is  usually  set- 
tled at  the  time  of  transfer.  Tf  not 
then  adjustcfl,  ilie  lial)ilities  f)f  those 
implicated  may  depend  ui^m  circum- 
stances."    Gilmore  v.   Bank,  8   O.   62. 

10.  Gen.  St.  1865,  p.  366,  §  14,  pro- 
viding  tliat    '"married    women    may   be- 


come stockholders,  and  may  deposit 
money  with  any  bank  or  savings  in- 
stitution incorporated  under  the  laws 
of  this  state,"  held  to  impose  on  a 
married  woman  stockholder  all  a 
stockholder's  liabilities  for  unpaid 
stock,  and  therefore  a  bona  fide  as- 
signment by  a  husband  to  his  wife  of 
his  stock  in  a  solvent  corporation  re- 
lieved him  from  all  liability.  Simmons 
V.   Dent,  16  Mo.   .App.  288. 

11.  Bank  having  no  legal  existence. 
— P.urrows  v.   Smilli,   10   X.   Y.   ,•;.-)(). 

12.  Palmer  z'.  Lawrence,  5  X.  V. 
Super.    Ct.    161. 

Stockholders  in  a  liank  wliich  has 
acted  as  a  corporation  can  not,  in  a 
suit  by  a  receiver  to  enforce  payment 
of  tlieir  subscriptions,  set  up  that  the 
bank  had  no  legal  existence,  because 
it  had  not  complied  witii  the  require- 
ments of  tlie  law.  Voorhees  v.  Bank, 
19    O.    4<;:i. 

Under  the  illegal  I>aid<ing  .Vet  of 
1855,  a  stockholder,  sued  for  his  suli- 
scription,  is  not  estop]ied  to  plead  tlie 
violation  of  tlie  act  I)y  llie  corpora- 
tion in  b;ir  of  ilu'  suit.  Rev.  Code. 
1855.  c.  16.  !}§  -1.  '•'.  Xorth  Missouri  R. 
R.  Co.  V.  Winkler.  :!3   Mo.  ;{54. 


94 


BANKS  AND  BANKING. 


§  39  (7cd) 


§  39  (7cb)  Irregularity  of  Organization. — A  subscriber  to  th&  stock 
of  a  bank  can  not  plead  a  mere  irregularity  or  imperfectioni=^  in  the  organ- 
ization of  the  bank  as  a  defense  to  an  action  to  enforce  an  unpaid  sub- 
scription. 

§  39  (7cc)  Irregularities  in  Subscription. — Where  the  subscribers 
to  the  stock  of  a  bank  gave  their  notes  in  payment  of  their  subscriptions 
and  became  stockholders,  they  can  not  claim,  as  a  defense  to  an  action  on 
the  notes,  that  the  bank  improperly  received  the  notes  in  payment  instead 
of  requiring  them  to  pay  the  money,^-^  or  that  they  had  a  secret  agreement 
that  they  should  have  the  option  to  surrender  the  stock  and  have  the  notes 
returned. ^^ 

Stock  Held  by  Bank  as  Collateral  for  Purchase  Price. — A  pur- 
chaser of  stock,  who  gave  his  note  for  the  purchase  price  and  pledged  his 
certificate  with  the  corporation  as  collateral  for  payment  thereof,  could 
not  avoid  his  subscription  contract  under  an  act  prohibiting  a  bank  from 
accepting,  as  collateral,  its  own  capital  stock  except  where  necessary  to  pre- 
vent loss  upon  a  debt  previously  contracted  in  good  faith,  but  not  imposing 
any  penalty  or  forfeiture  for  its  violation. ^^^ 

§  39  (7cd)  Fraud  and  Misrepresentation. — That  the  subscription 
was  fraudulently  made,^''  or  was  obtained  by  misrepresentation, ^^^  will  not, 
as  against  creditors,  relieve  a  subscriber  to  the  stock  of  a  bank  from  lia- 
bility to  pay  his  subscription. 


13.  Irregular  or  imperfect  organiza- 
tion.— A  subscriber  to  a  certiricate  of 
a  banking  association  formed  under  the 
laws  of  New  Jersey  can  not  claim  ex- 
emption from  liability  to  pay  for  his 
stock,  as  against  creditors  of  the  com- 
pany, on  the  grounds  that  his  associ- 
ates never  chose  a  board  of  directors, 
or  obtained  deposits,  but  only  issued 
circulating  notes,  and  accepted  bills 
of  exchange.  Dayton  i'.  Borst,  20  N. 
Y.  Super.  Ct.  115. 

14.  Irregularities  in  subscription. — 
Finnell  v.  Sandford  (Ky.),  17  B.  Mon. 
748;  Farmers',  etc.,  Bank  v.  Jenks 
(Mass.),  7  Mete.  592. 

15.  In  an  action  by  a  receiver  of  a 
bank  on  a  note  given  for  the  price  ot 
shares  of  stock  in  the  bank,  which  did 
not  become  due  until  after  the  bank's 
insolvency  and  the  vesting  of  the  cred- 
itors' rights,  defendant  can  not  set  up 
as  a  defense  a  secret  agreement  with 
the  president  of  the  bank  that  he 
should  have  the  option  of  surrender- 
ing the  stock  when  the  note  matured, 
and  having  the  note  returned.  At- 
water  v.  Stromberg,  75  Minn.  277,  77 
X.   W.   963. 

16.  Stock  held  by  bank  as  collateral 
for    purchase   price. — Meholin    v.    Carl- 


son,   17    Idaho    742,  107    Pac.    755,    re- 
vised  Code   of   Idaho,   §   2976. 

17.  Fraudulent  subscription. — Bates 
v.  Lewis,  o  O.  St.  459.  See  ante,  "Bona 
Fides   of  Subscription,''  §  39   (2a). 

The  fact  that  a  note  sued  on 
was  given  for  bank  stock,  subscribed, 
without  any  intention  to  pay  it, 
merely  for  the  purpose  of  pretending 
to  the  public  that  the  stock  was 
greater  than  it  really  was,  or  for  the 
purpose  of  preventing  the  predorhi- 
nance  of  certain  stockholders,  is  no 
defense  to  the  action  of  the  trustee  of 
the  bank.  Bates  v.  Lewis,  3  O.  St. 
459. 

Sale  not  repudiated  till  after  insol- 
vency of  bank. — Defendants,  having 
purchased  stock  from  a  bank,  and  taken 
no  steps  to  repudiate  the  same  for 
fraud  until  after  the  bank  had  gone 
into  the  hands  of  a  receiver,  were  lia- 
ble for  the  price,  though  no  certificates 
were  issued  to  them,  and  they  did  not 
appear  as  stockholders,  and  took  no 
part  in  the  alTairs  of  the  bank.  Rob- 
ertson T'.  Owensboro  Savings  Bank  & 
Trust    Co.'s    Receiver,    149    S.   W.    1144. 

18.  Misrepresentation  as  to  articles 
contained  in  charter. — Where  defend- 
ant   subscribed    to    a     proposed      bank. 


§  39  (7ce) 


CAPITAL,    STOCK    AND   DIVIDENDS. 


95 


§  39  (7ce)  Agreements  Relieving  against  Liability.— Any  agree- 
ment or  arrangement  among  the  stockholders^'*  or  directors-"  whereby  they 
attempt  to  reheve  themselves  of  their  liability  to  the  creditors  of  the  hank 
for  unpaid  balances  of  their  subscriptions,  is  void,  but  does  not  render  the 
subscription  void.  A  release  by  the  board  of  directors  of  a  bank  of  its 
stockholders  from  a  portion  of  their  subscriptions, -^  or  acceptance  of  less 


and  executed  his  notes  therefor,  the  fact 
that  the  bank's  charter,  subsequently 
obtained,  did  not  contain  a  number  of 
the  articles  set  out  in  the  subscription 
list  signed  by  defendant  did  not  con- 
stitute a  defense  to  an  action  on  the 
notes.  Petrie  v.  Coulter,  10  Okl.  257, 
Gl   Pac.    1058. 

19.  Agreements  relieving  against 
liability. — The  stockholders  of  a  bank- 
ing corporation,  whose  charter,  veri- 
fied certificate,  and  advertisements 
proclaim  its  capital  stock  to  be 
$50,000,  and  whose  verified  statements 
recite  that  only  $10,000  has  been  paid 
in  upon  such  stock,  can  not,  without 
changing  its  charter,  verified  certifi- 
cates, advertisements,  or  verified 
statements,  relieve  themselves  of  their 
liability  to  the  creditors  of  such  cor- 
poration by  any  agreement  among 
themselves,  whether  the  creditors 
were  such  before  or  after  such  agree- 
ment. Putnam  v.  Hutchison.  4  Kan. 
App.    273.    45    Pac.    931. 

20.  Agreement    among     directors. 

Palmer   v.    Lawrence,    5    N.    Y.    Suoer 
Ct.   161 

An  agreement  among  the  original 
subscribers  to  the  capital  stock  of  a 
bank  that  they  would  not  be  person- 
ally liable  on  their  subscriptions  is 
void,  but  it  does  render  the  subscrip- 
tions themselves  void,  or  affect  the 
personal  liability  of  the  subscribers. 
Palmer  v.  Lawrence,  5  N.  Y.  Stiper.  Ct 
161. 

Evidence  that  the  original  subscrib- 
ers to  a  bank  were  assured  that,  if  they 
were  unable  to  pay  or  secure  the 
shares  subscribed,  other  persons  could, 
doubtless,  be  found  who  would  relieve 
them  from  their  subscriptions,  is  not 
proof  of  an  agreement  among  the  sub- 
scribers that  they  were  not  to  be  per- 
sonally responsil>le,  or  that  their  su!)- 
scriptions  should  be  binding  only  at 
their  election.  Palmer  v.  Lawrence. 
■>  -\'.  Y.  Super.  Ct.   If, I. 

Vote  of  directors  that  no  further 
calls  be  made. — .\  l)aiiking  company 
was  f.rganizfd  unrlcr  tin-  general  l)ank- 
ing   law.      .Alter   the    calls    on    the    sub- 


scribers amounted  to  one-half  the  nom- 
inal sum,  the  directors  voted  that  no 
further  calls  should  be  made.  The 
company  became  insolvent.  Held,  that 
the  vote  of  the  directors  that  there 
should  be  no  further  calls  was  void  as 
to  the  receiver  appointed  in  insolvency. 
Sagory  v.  Dubois  (N.  Y.),  3  Sandf.  Ch. 
466. 

A  banking  company  was  organized 
under  the  general  banking  law  of  Xew 
York  of  1838.  The  articles  provided 
that  the  stock  should  be  divided  into 
shares  of  $100  each;  and  that,  if  any 
shareholder  should  omit  to  pay  any  in- 
stallment on  his  shares,  pursuant  to'  any 
call  of  the  directors,  his  shares,  and  all 
previous  payments,  should  be  for- 
feited. The  associates  signed  a  paper, 
by  which  they  subscribed  for  and 
agreed  to  take  the  number  of  shares 
against  their  respective  names,  and  to 
fulfill  all  the  engagements  contained 
in  the  articles.  The  association  made 
several  calls  for  assessments,  and 
made  dividends  on  the  stock  paid  in, 
and  applied  the  s?me  to  meet  some  of 
the  calls,  the  last  of  which  dividends 
was  contrary  to  the  law.  After  the 
calls  amounted  to  about  one-half  the 
nominal  amount  of  the  shares,  the  di- 
rectors voted  that  no  further  calls 
should  ever  be  made,  and  discontinued 
the  company.  The  company  became 
insolvent,  and  on  application  of  a  cred- 
itor a  receiver  was  appointed.  The 
receiver  filed  a  bill  to  compel  a  stock- 
holder, who  had  subscribed  for  25 
shares,  to  pay  the  unpaid  balance  of 
his  share.  Held,  that  the  stockholder 
was  liable  to  pay  the  whole  amount  of 
his  subscription  not  previouslv  paid. 
Sagory  v.  Dubois  (X.  Y.),  3  Saiidf.  Ch. 
466. 

21.  Release  by  directors. — Right  of 
one  who  is  a  director  when  the  board 
of  directors  of  a  bank  improperly  re- 
leased its  stockholders  from  a  portion 
of  tlieir  subscriptions,  and  wiio  after- 
wards l)ecomes  a  creditor  of  the  bank, 
to  have  the  transaction  undone  for 
his  l)cnefit  in  a  proceeding  i>y  him 
against  a  stockholder.  See  Walton  v. 
ilake,  9   Mo.   .App.   596,   memorandum. 


96  BANKS  AND  BANKING.  §    39    (7cj) 

than  par  value  of  the  certificates  in  pursuance  of  an  agreement  with  the 
subscriber,22  is  void  as  against  creditors  of  the  bank. 

§  39  (7cf)  Payment,  Release  or  Discharge. — Payment  of  a  call 
for  contributions  from  stockholders  does  not  discharge  them  from  liability 
for  further  call  on  their  stock.^s 

§  39  (leg)  Redemption  of  Share  of  Bank's  Bills. — The  fact  that 
holders  of  unpaid  stock  may  have  severally  redeemed  their  share  of  the 
bills  of  the  bank  does  not  release  them  from  liability  for  the  amount  due 
on  their  stock  subscriptions.^-* 

§  39  (7ch)  Reduction  of  Capital  Stock. — An  arrangement  made  in 
good  faith  among  the  stockholders  of  a  banking  corporation  whose  sub- 
scription to  its  capital  stock  had  never  been  made  public,  entered  into  be- 
fore the  corporation  had  incurred  debts,  whereby,  instead  of  issuing  stock 
to  the  amount  of  the  original  subscription,  each  subscriber  is  given  full 
paid-up  stock  to  the  amount  that  he  had  actually  paid  on  his  subscription, 
is  valid  as  against  creditors ;  and  they  can  not  enforce  the  original  sub- 
scription, except  as  to  the  deficiency  between  the  amount  of  paid-up  stock 
so  issued,  and  the  minimum  allowed  by  the  charter  for  the  transaction  of 
business. ^^ 

§  39  (7ci)  Part  of  Shares  Assessed. — Where  part  of  the  shares  of 
stock  in  a  bank  are  assessed  at  the  same  amount  that  they  would  have  been 
if  all  the  other  shares  had  been  assessed,  it  is  no  objection  to  the  liability 
of  the  holders  of  such  shares  that  the  remainder  were  not  assessed.-'^ 

§  39  (7cj)  Estoppel  of  Director  Who  Became  Creditor. — Estop- 
pel of  one  who  was  a  director  when  the  board  of  directors  of  a  bank  im- 
properly released  its  stockholders  from  a  portion  of  their  subscriptions, 
and  who  afterwards  becomes  a  creditor  of  the  bank,  to  assert  that  he  gave 

22.  Acceptance  of  less  than  par  i-jgi-n  to  call  for  contributions  from  its 
value.— Where  a  bank  assesses  certifi-  stockholders,  create  a  contract  be- 
cates  of  stock  on  less  than  par  value,  tween  the  state  and  the  stockholders, 
in  pursuance  of  a  contract  between  it  i^y  which  the  latter,  on  paying  the  con- 
and  the  buyer  that  he  shall  not  be  re-  tribution,  are  discharged  from  liabil- 
quired  to  pay  more,  and  accepts  such  jty  for  further  calls  on  their  stock, 
stockholder's  proportion  _  of  fictitious  Citizens'  Bank  r.  Gay,  47  La.  Ann.  551, 
profits   in   discharge   of   his   liability   to  ^7  gg.  148. 

pay  money  for  the  stock,  creditors  of  24.    Marsh  v.    Burroughs,   Fed.    Cas. 

the    bank,    on    its    msolvency,    have    a  ^,^_               ^  ^^^^^  ^^3    g^^              u^^, 

cause   of  action   for   the    difference   be-  ^         ,1^^  ^f  Share   of  Bank's   Bills."   § 

tween    the  amount    paid  and    the    par  ^„  (^ro) 

value,  which  never  existed  in  the  cor-  "^  Jl'  ^''        .           .         -^  1     ^     1       tt-h 

poration,    as   a   fraud   on   them    against  25    Reduction  of  capital  stock  -Hill 

the    estate    of    such    stockholder.     Ga-  L,-  Silvey,  81  Ga.  oOO,  8  b.  E.  808,  3  U 

ger  f.  Paul,  111  Wis.  638,  87  N.  W.  875.  ^-   -^-    ^^0- 

23.  Payment  of  call.— Act  No.  100  of  26.  Part  of  shares  assessed.— In  re 
1847,  relating  to  the  Citizens'  Bank,  Reciprocity  Bank,  22  X.  Y.  9.  revers- 
does     not,     by     giving    the     bank     the  ing  29  Barb.  369,  17  How.  Prac.  323. 


§    39    (7e)  CAPITAL,    STOCK    AND    DIVIDENDS.  97 

the  bank  credit  on  the  faith  that  the  stock  thus  retired  was  still  unpaid; 
is  a  defense  to  a  proceeding  by  him  against  a  stockholder.-" 

§  39    (7ck)   Collusion  between  Bank  and  Judgment  Creditors. — 

\\'hen  a  judgment  creditor  of  a  bank  has  exhausted  his  remedy  at  law,  and 
seeks  in  equity  to  enforce  payment  of  stock  subscriptions,  the  stockholders 
can  not  go  behind  the  judgment  rendered  against  the  bank,  and  question 
the  original  cause  of  action,  unless  they  can  show  collusion  between  the 
creditor  and  the  bank  for  the  purpose  of  defrauding  them.^s 

§  39  (7cl)  Purchase  of  Shares  by  Bank. — Where  bank  stock,  upon 
which  there  are  unpaid  installments,  is  redeemed  or  purchased  by  the  bank, 
or  received  by  it  from  debtors  in  payment  of  their  debts,  it  becomes  the 
property  of  the  bank,  to  which  the  remaining  stockholders  have  no  imme- 
diate claim,  and  therefore  they  can  not  be  held  liable  for  the  unpaid  install- 
ments, in  an  action  against  them  by  creditors  of  the  bank.^^ 

§  39  (7cm)  Illegal  Transaction  of  Business., — See  ante,  "Bank 
Having  No  Legal  Existence,"  §  39  (7ca). 

§  39  (7d)  Ascertainment  of  Balances  Due  and  Adjustment  of 
Liabilities. — Payment  in  Bank  Notes. — In  adjusting  the  equities  be- 
tween the  stockholders  of  a  bank,  those  who  paid  their  stock  in  notes  of 
the  bank,  will  be  allowed  only  what  they  paid  for  the  notes.^" 

Note  Collected  by  Stockholder. — In  adjusting  the  liabilities  of  stock- 
holders of  a  bank,  a  note  of  a  third  person,  given  by  a  stockholder  in  pay- 
ment of  his  stock,  and  afterwards  collected  by  him,  will  be  treated  as  the 
property  of  the  bank,  and  the  stockholder  charged  with  the  proceeds,  and 
interest  from  the  date  of  collection. ^^ 

Interest. — Actual  payments  upon  stock  will  bear  interest. ^- 

Redemption  of  Bills  of  Bank. — See  ante,  "Redemption  of  Share  of 
Bank's  Bills,"  §  39   (7cg). 

§  39    (7e)   Operation  of  Assignment  for  Benefit  of  Creditors. — 

The  liability  of  stockholders  for  unpaid  balances  on  stock  subscriptioui. 
passes  under  a  general  assignment  of  the  bank's  property,  assets,  etc.-'*''^ 

27.  Estoppel  of  director  who  became  31.  Note  collected  by  stockholder. — 
creditor. — \Valton  r.  Hake,  9  Mo.  App.  Moses  r.  Ocoee  Bank,  C9  Tenn.  (l 
590,  memorandum.                                                 Lea)   398. 

28.  Collusion  between  bank  and  32.  Interest.— In  adjusting  the  lialnl- 
judgment  creditor.— Marsh  v.  Bur-  'ties  of  sul)scribers  to  stock  in  a  bank- 
roughs,  Fed.  Cas.  Xo.  9,112,  1  Woods,  '".'-^  corporation,  actual  payments  on 
463_  stock   will   hear  interest   from   the   date 


29.    Purchase    of    shares    by    bank. — 


at    which    they   were    made.      Moses 


Robinson          I Wnk     IH   C       (">  '^'~'*'^^    ^••''"^'-   ^'•'  '^'^""-    ^^    ^^^'"'^    •^•^*^- 

'    _  *     '  ■     "\     '          ^'^     ''''  33.    Passage    under    general    assign- 

30    Payment  m  bank  notes.— Marr  z:  ment.— Terry    7'.    Anderson,    95    U.    S. 

l)ank.  44  'I  ciin.   (4   Cohhv.)   471;   Moses  (;>>«    iV.u]    24  L.  Ed.  3fi5. 

V.  Ocoee   Bank,  G9  Tenn.   (l    Lea)   398.  'Compared  to  statutory  individual  lia- 
1   B  &  B— 7 


98 


BANKS    AND    BANKING. 


39  (7fa) 


An  assignment  by  a  bank  of  its  effects  to  which  the  creditors  are  not  par- 
ties or  consenting  can  not  deprive  them  of  the  right  to  sue  stockholders 
and  directors  for  breach  of  duty.^^ 

§  39  (7f)  Enforcement— §  39  (7fa)  Levy  of  Assessment  and 
Sale  of  Stock.— Collection  of  Unpaid  Subscriptions  to  Pay  Debts 
of  Bank.— See  post,  "Nature  and  Extent,"  §  57; -"Actions  and  Proceed- 
ings to  Enforce,"  §  58.  Effect  of  adjudication  of  insolvency  as  to  enforce- 
ment of  stock  assessment,  see  post,  "Insolvency  and  Its  Effect  in  Gen- 
eral," §  7Z. 

Power  to  Assess. — Where  an  amount  of  stock  in  a  banking  corpora- 
tion exists  subscribed  and  unpaid,  the  corporation  may  call  for  payment.^^ 

Necessity — Condition  Precedent  to  Suit. — During  the  solvency  of  a 
bank,  the  stockholders'  subscription  liability  can  only  be  enforced  by  assess- 
ment made  in  conformity  with  the  by-laws  of  the  corporation. 3« 

The  directors  of  a  bank  adjudged  to  be  insolvent  have  power  with- 
out authority  of  the  court  first  obtained  to  assess  shareholders  for  unpaid 
capital  stock  for  the  purpose  of  liquidating  the  bank's  indebtedness  and 
making  final  settlement  of  its  aff'airs,  certainly  where  the  bank  commis- 
sioners acquiesce.^' 


bility. — The  liability  of  the  stockhold- 
ers upon  their  unpaid  subscriptions  is 
that  of  debtors  to  the  bank.  Ogilvie 
V.  Knox,  Ins.  Co.,  22  How.  380,  16  L. 
Ed.  349.  Consequently  the  balances 
passed  to  the  assignees  under  the  as- 
signment, which  was  "of  all  the  prop- 
erty, estate,  credits,  and  assets  of  the" 
bank.  The  liability  of  a  stockholder 
for  his  subscription  is  entirely  differ- 
ent from  that  imposed  by  the  charter 
"for  the  ultimate  redemption  of  the 
bills"  issued  by  the  bank.  The  sub- 
scription inures  to  the  benefit  of  all 
creditors,  while  the  individual  liability 
under  the  charter  operates  only  in 
favor  of  billholders.  Terry  v.  Ander- 
son, 95  U.  S.  628,  636,  24  L.   Ed.  365. 

That  balance  is  a  debt  to  the  bank, 
and  enures  to  the  benefit  of  all  its 
creditors,  while  the  individual  liability 
for  the  redem.ption  of  its  bills  operates 
only  in  favor  of  the  holders  of  them. 
Terry  v.  Anderson,  95  U.  S.  628,  24  L. 
Ed.  365. 

34.  Schley  v.  Dixon,  24  Ga.  273,  71 
Am.  Dec.  121. 

35.  Assessments  or  what  constitutes 
a  call. — Where  an  amount  of  stock  in 
a  banking  corporation  exists  sub- 
scribed and  unpaid,  and  books  are 
opened  for  the  subscription  of  other 
stock  for  which  a  stock  note  is  exe- 
cuted, the  court  can  not  by  construc- 
tion declare  the  stock  purporting  to  he 


subscribed  a  mere  call  on  the  old  un- 
paid stock.  Moses  v.  Ocoee  Bank,  69 
Tenn.   (1  Lea)  398. 

Statutory  prohibition  upon  calling 
in  installments  on  stock  held  by  state. 
— See  ante,  "State,"'  §  39  (7ba). 

36.  Covell  V.  Fowler,  144  Fed.  535. 

Prior  to  the  levy  of  an  assessment, 
a  stockholder  of  a  bank  can  not  be 
pursued  by  suit  to  enforce  his  sub- 
scription liability.  Covell  v.  Fowler, 
144  Fed.  535. 

37;  Power  of  directors. — It  was  so 
held  under  the  California  Banking 
Act  of  1895  (St.  1895,  p.  175),  provid- 
ing that,  if  a  bank  is  adjudged  insol- 
vent, the  court  shall  enjoin  it  from 
transacting  any  further  business,  "and 
shall  order  the  [bank]  commissioners 
to  surrender  to  the  corporation  the 
property  thereof  in  their  possession 
for  the  purpose  of  liquidation,"  giving 
to  the  court  power  to  remove  directors 
for  cause  and  to  appoint  others,  and 
declaring  that  "subject  to  this  right  of 
removal  and  appointment  the  direct- 
ors or  trustees  *  *  *  shall  be  per- 
mitted to  continue  the  management 
*  *  *  during  the  process  of  liquida- 
tion, under  the  direction  of  the  bank 
commissioners."  Union  Sav.  Bank  v. 
Dunlap,  135  Cal.  628,  67  Pac.  1084. 

The  directors  of  an  insolvent  bank 
may,  as  against  the  objections  of  the 
stockholders,    issue    a   call   for   the    un- 


§  39  (7fb) 


CAPITAL,    STOCK    AND   DIVIDENDS. 


99 


Sale  of  Stock. — Sale  of  the  stock  of  a  shareholder  who  fails  to  pay  an 
installment  of  his  subscriptions  is  one  of  the  remedies  usually  provided 
for  the  enforcement  of  payment  of  subscriptions  to  the  stock  of  a  bank. 
Such  sales  to  be  valid  must  be  in  conformity  to  the  requirements  of  the 
charter  of  the  bank  or  the  statute  authorizing  such  sales.  A  sale  w;iere 
the  conditions  precedent  to  the  power  to  levy  the  assessment  had  not  been 
complied  with  is  void,  and  the  subscriber  or  a  transferee  of  such  stock  may 
maintain  an  action  to  compel  the  bank  to  recognize  it.^^ 

§  39    (7fb)    Nature  and  Form  of  Action. — Personal    Action. — A 

bank  may  bring  an  action  against  one  who  refuses  to  pay  his  subscription 
to  stock,  though  made  before  the  bank  is  in  operation. ^^  The  right  to  bring 
a  personal  action  is  not  affected  by  the  existence  of  cumulative  redress 
against  a  stockholder  who  fails  to  pay  an  installment,  by  way  of  forfeiture 
of  his  shares  or  sale  under  a  mortgage  to  secure  payment  of  the  subscrip- 
tion.-*o 

Bill  in  Equity.— See  post,  "Jurisdiction,"  §  39  (7fc)  ;  "Parties  Plain- 
tiff,'" §  39  (7ffa). 

Garnishment. — The  indebtedness  of  a  delinquent  stockholder  of  a  bank 
for  stock  not  paid  in  is  subject  to  be  garnislied,  at  least,  by  the  judgment 
creditors  of  such  bank.'*^ 


paid  portion  of  the  capital  stock, 
though  the  bank  commissioners  cre- 
ated by  St.  1895,  p.  175,  c.  167,  had  di- 
rected the  levy  of  an  assessment  by 
the  directors  under  Civ.  Code,  §  332, 
authorizing  assessments  by  directors 
of  a  corporation  for  paying  debts,  etc., 
the  statute  of  1895  merely  giving  the 
bank  commissioners  the  power  to 
direct  a  speedy  settlement  of  the  af- 
fairs of  the  bank,  but  not  interfering 
with  the  right  of  the  directors  to  con- 
vert the  assets  of  the  bank  into  cash; 
and  hence,  if  the  bank  commissioners 
acquiesce  in  the  method  adopted,  no 
one  can  complain.  People's  Home 
Pav.  Bank  v.  Rauer,  2  Cal.  App.  445,  84 
Pac.  329. 

38.  Where  a  l^ank  levied  assessments 
on  certain  shares,  and  not  on  others, 
the  shares  being  sold  at  public  auction 
for  delinquency,  and  one-fourth  of  its 
capital  stock  had  not  been  subscribed, 
which  is  a  condition  precedent  to  the 
power  to  levy  assessments  by  Civ. 
Code,  §  331,  such  assessments  were 
void,  and  an  action  by  a  party  holding 
such  stock  as  security,  to  compel  the 
bank  to  recognize  it  as  a  stockholder, 
is  not  barred  Ijy,  or  included  within, 
§  347,  provi(b'ng  that  no  action  must 
be  sustained  to  recover  stock  sold  for 
delinquent  assessments  on  the  ground 


of  irregularity  in  the  assessment,  un- 
less the  sum  for  which  the  stock  \r, 
sold  be  first  tendered,  or  within  Code 
Civ.  Proc,  §  341,  subd.  2,  providing 
that  an  action  must  be  commenced 
within  six  months  to  recover  stock 
sold  for  a  delinquent  assessment,  as 
provided  in  Civ.  Code,  §  347.  Herbert 
Kraft  Co.  Bank  v.  Bank,  133  Cal.  64, 
65  Pac.  143. 

39.  Personal  action. — Stanton  v. 
Wilson    (X.   Y.),   2   Hill   153. 

40.  Forfeiture  of  share. — The  arti- 
cles of  a  banking  company  provided 
that,  if  any  shareholder  omitted  to  pay 
any  installment,  his  share  should  be 
forfeited.  Held,  that  the  provision  for 
a  forfeiture  was  a  cumulative  remedy, 
and  did  not  afifect  the  direct  lial)ility 
created  by  the  subscription  of  the 
stock.  Sagory  v.  Dubois  (N.  Y.),  3 
Sandf.   Ch.'466. 

The  remedy  of  the  Citizens'  Bank  of 
Louisiana  against  stockholders  who 
have  given  mortgages  to  secure  pay- 
ment of  their  subscriptions  of  stock  is 
not  confined  to  the  security  or  to 
seizure  and  sale  of  the  stock,  but  may 
be  enforced  against  the  stockholders 
personally.  Citizens'  Bank  v.  Gay,  47 
La.   Ann.  .-.51.   17   So.  148. 

41.  Garnishment. — King  v.  F.lliott 
(Miss.),   5    Smcdcs    &    M.   428. 


100  '  BANKS    AND    BANKING.  §    39    (7ffa) 

§  39  (7fc)  Jurisdiction. — Equity. — On  the  insolvency  of  a  bank, 
the  right  of  the  receiver  to  maintain  suit  against  the  individual  stockhold- 
ers to  enforce  their  liability  on  unpaid  subscriptions  does  not  constitute 
such  a  plain,  adequate  remedy  at  law  as  to  defeat  a  suit  in  equity  against 
the  stockholders  for  the  collection  of  the  corporate  assets  for  the  benefit 
of  the  creditors."*- 

A  repeal  of  the  statute  under  which  the  suit  was  brought  does  not 
defeat  the  action.^^ 

§  39  (7fd)  Limitations  and  Time  to  Sue. — The  statute  of  limita- 
tions will  not  commence  to  run  until  a  call  has  been  made  for  the  unpaid 
stock.44 

§  39  (7fe)  Appearance  and  Process. — A  stockholder  of  bank  stock 
may  enter  a  voluntary  appearance  in  an  action  to  enforce  his  liability  for 
an  unpaid  stock  subscription,  but  an  appearance  in  an  action  to  determine 
the  fact  of  insolvency  of  a  bank  and  for  a  receivership  is  premature  and 
ineffectual.^^ 

Process. — Service  of  process  before  the  accrual  of  a  cause  of  action 
against  a  holder  of  bank  stock  for  an  unpaid  balance  of  his  stock  subscrip- 
tion is  premature.^*' 

§  39    (7ff)   Parties— §    39    (7ffa)    Parties   Plaintiff.— Creditors. 

— Equity  may  invest  a  judgment  creditor  with  power  to  sue  to  compel  pay- 
ment of  an  unpaid  stock  subscription.^"     Sed,  quciere,  can  a  creditor  of  a 

42.  Jurisdiction. — Dill  v.  Ebey,  27  tion  accrues  against  stockholders,  and 
Okl.    584,    112    Pac.    973.  applies  to  the  liability  of  stockholders 

43.  Repeal  of  statute.— Where  the  °^  banking  corporations  imposed  by 
receiver  of  the  efifects  of  a  bank,  who  S  T,  so  that  a  voluntary  appearance  of 
was  appointed  on  motion  of  the  bank  ^  stockholder  of  a  bank,  in  an  action 
commissioners,  pursuant  to  St.  1838,  [°  determine  the  insolvency  of  the 
c.  14,  brings  an  action  in  the  name  of  '^^"^  ^""^  ^^^  the  appointment  of  a 
the  bank  against  a  stockholder  to  re-  ''eceiver,  before  such  accrual,  is  pre- 
cover  the  amount  of  a  note  for  stock  ^^?^^\^  ^"^  ineffectual.  Hazlett  v. 
subscribed  for,  such  stockholder  can  v^  oodhead,  28  R  I.  452,  67  Atl.  736. 
not  defeat  the  action  by  showing  the  f^-  Process.— Const.  Neb.  1875,  art. 
repeal  of  said  statute  after  suit.  Farm-  ^l^l-  »  ^'  providing  that  in  cases  of 
ers',  etc.,  Bank  f.  Tenks  (Mass  )  7  <^laims  against  corporations  the  exact 
Mete     59'^                      "                            '  amount    justly    due    shall    be    first    as- 

44.  Limitations  and  time  to  sue.-  nronirtl"^' «^"ll  l""^'"'  k  *^^  corporate 
Marr  ",  R^nl^  79  T<.n,->  fA  T^o^  -~q.  Property  shall  have  been  exhausted 
Mo7es^  Or;/.  R.nV'  it  T  ^'f  ^^'^  o".^>"al  subscribers  shall  be  in- 
LeaTsqg  ^ee  nns^  "  AnnLrl^r-  ^A  ^ividually  liable  to  the  extent  of  their 
Process,"  §3r(7Tef     Appearance  and  j^   subscription,   prescribes   a   time 

._        '     ^                ^           ^  when    a    cause    of    action    will    accrue 

45.  Appearance  and  process.—  against  stockholders  and  applies  to 
Lonst.  Aeb.,  art  11,  §  4,  providing  the  liability  of  stockholders  in  bank- 
that  in  cases  of  claims  against  cor-  ing  corporations  imposed  by  S  7  so 
porations  the  amount  due  shall  be  as-  that  service  of  process  on  stockhold- 
certained.  and  after  the  corporate  ers  of  a  bank  before  such  accrual 
property  has  been  exhausted  the  sub-  would  be  premature.  Hazlett  v. 
scnbers  shall  be  liable  to  the  extent  Woodhead.  27  R  I  506  63  A.tl  95^ 
of  their  unpaid  stock  subscriptions,  47.  Creditors.— Gilmore  r.  Bank?  8 
prescribes  a  time  when  a  cause  of  ac-  O.  62. 


§  39  (7fh) 


CAPITAL,    STOCK    AXD    DIVIDENDS. 


101 


dissolved  bank,  who  has  not  recovered  a  judgment  and  exhausted  his  rem- 
edies at  law,  proceed  in  equity  to  subject  unpaid  balances  on  stock  sub- 
scriptions, to  the  payment  of  his  demand.^ "^ 

§  39  (7ffb)  Parties  Defendant.— All  Stockholders.— A  judgment 
creditor  need  not  make  all  the  stockholders  of  the  bank  parties  to  his  bill  to 
subject  unpaid  balances  on  stock  subscriptions  to  the  payment  of  his  de- 
mand.-'^  Where  the  stockholders  of  a  bank  are  liable,  by  the  terms  of  the 
charter,  for  the  redemption  of  the  bills  of  the  bank  in  proportion  to  the 
number  of  shares  held  by  each,  an  action  can  not  be  maintained  in  e(iuity 
against  an  individual  stockholder  to  recover  any  debt  he  may  owe  the  bank 
for  unpaid  subscriptions  to  stock.  The  action,  it  seems,  should  be  against 
all  the  stockholders.^'^ 

Trustee  or  Cestui  Que  Trust. — Where  a  person  holds  stock  in  a  bank- 
ing association  as  trustee,  he  is  a  proper  party  defendant,  to  the  exclusion 
of  his  beneficiary,  in  an  action  brought  by  a  depositor  against  the  stock- 
holders to  recover  the  balance  due  him  at  the  time  of  the  suspension  of 
the  bank.5^ 

§  39  (7fg)  Pleading. — The  complaint  in  an  action  by  the  receiver  to 
recover  unpaid  subscriptions  must  state  sufficient  facts  to  authorize  a  court 
of  equity  to  assume  jurisdiction.-''- 

§  39  (7fh)  Set- Off. — In  a  suit  to  collect  a  bank  stock  note,  the  ordi- 
nary rules  of  set-off  apply  and  are  not  aft'ected  by  statutory  provisions  for 
special  proceedings  to  enforce  such  notes.^-^ 


48.  Enforcement  in  equity. —  "If  he 
can,  however,  it  is  upon  the  ground 
that  the  assets  of  the  corporation 
constitute  a  trust  fund  which  will  be 
administered  by  a  court  of  equity  in 
the  absence  of  a  trustee;  the  principle 
being  that  equity  will  not  permit  a 
trust  to  fail  for  want  of  a  trustee." 
Terry  v.  Anderson,  95  U.  S.  628,  63G, 
24   L.    Ed.   365. 

49.  All  stockholders.' — It  was  not 
the  complainant's  duty  to  marshal  the 
assets  of  the  bank,  or  to  adjust  the 
equities  between  the  corporators.  In 
all  that  he  had  no  interest.  The  de- 
fendants may  have  had  such  an  in- 
terest, and,  if  so,  it  was  quite  in  their 
power  to  secure  its  protection.  They 
might  have  moved  for  a  receiver,  or 
ihey  might  have  filed  a  cross  bill, 
obtained  a  discovery  of  the  other 
stockholders,  brought  them  in,  and 
enforced  contriI)ution  from  all  who 
had  not  paid  their  stock  suliscriptions. 
Their  equitable  right  to  contribution 
is  not  lost.  Hatch  v.  Dana,  101  U.  S. 
205,   25   L.    Ed.   885. 

50.  Terry  r.   Martin.   10   S.   C.   263. 


51.  Trustee    or    cestui    que    trust. — 

Wadswcrth    v.    Hocking,    61    111.    App. 
156. 

52.  Pleading. — Complaint  in  equity 
where  a  receiver  joined  subscribers  to 
the  capital  stock  of  a  l)ank  as  defend- 
ants to  recover  unpaid  subscriptions, 
which  alleges  that  the  judge  who  ap- 
pointed the  receiver  on  application  of 
creditors  supported  by  a  showing  that 
the  bank  was  insolvent  and  without 
assets  entered  an  order  directing  the 
receiver  to  retain  counsel  and  sue  de- 
fendants as  subscribers  on  their  un- 
paid subscriptions,  or  for  the  stock 
issued  to  them  for  the  benefit  of  all 
the  creditors,  and  that  the  suit  is  filed 
under  such  order,  warrants  the  court 
to  treat  such  suit  as  brought  by  the 
creditors  of  the  insolvent  liank,  over 
which  equity  has  jurisdiction,  and  in 
wliich  ail  the  suliscriliers  may  be 
joined  as  defendants.  Dill  v.  Ebey, 
27    Okl.    5S4.    112    Pac.   973. 

53.  Set  off. — In  an  action  on  a  note 
under  the  .Act  of  1845  (-13  Ohio  Laws, 
308),  authorizing  the  trustee  of  the 
Mechanics'    &    Traders'    I'.ank    of    Cin- 


102  BANKS    AND    BANKING.  §    40    (1) 

§  39  (7fi)  Evidence. — Declaration  of  Bank  Officer  as  to  Owner- 
ship of  Stock. — In  fixing  the  ownership  of  stock,  it  is  not  competent  to 
give  in  evidence  the  declarations  of  the  officers  and  agents  of  the  bank,  for 
that  purpose.     Third  persons  are  not  bound  by  their  sayings.^'* 

§  39    (7fj)   Findings   and  Judgment. — A  finding  of  nonpayment 

of  a  balance  on  a  note  given  in  payment  of  a  subscription  to  the  stock  of 
a  bank  is  justified  by  proof  of  a  resolution  of  the  stockholders  whereby 
such  balance  was  attempted  to  be  paid  out  of  the  holder's  share  of  the  ac- 
cumulated profits. ^^ 

Satisfaction — Medium  of  Payment. — See  ante,  "Medium,"  §  39  (5a). 

§  40.  Transfer  of  Stock— §  40  (1)  Assignability.— Efifect  on  lia- 
bility for  debts  and  acts  of  bank,  see  post,  "Effect  of  Transfer  of  Stock," 
§  48.  Stock  subject  to  lien,  see  post,  "Lien  of  Bank  on  Stock  or  Dividends," 
§  42.  Liability  of  pledgee  for  assessment,  see  post,  "Rights  and  Liabilities 
as  to  Bank,"  §  43. 

Every  bank  stockholder,  unless  prohibited  by  statute  or  the  charter  of 
the  bank,  or  by-laws  legally  enacted,  has  the  right  to  sell,  assign  and  transfer 
his  stock  freely  and  without  limitation, ^^  and  charter  provisions  limiting 
this  right  are  intended  for  the  protection  of  the  bank  itself  and  of  pur- 
chasers without  notice,  and  do  not  affect  the  rights  of  the  parties  to  a  trans- 
fer in  breach  thereof  as  between  themselves. »"     When  application  is  made 

cinnati  to  sue  on  notes,  etc.,  given  to  hands    of   its    members   has    been   held 

said    bank     and      against      delinquent  void    as    being    in    restraint    of    trade." 

stockholders,     defendant     can    not    set  Morgan  z'.  Struthers,  131   U.   S.  246,  33 

off  against  the   claim   the   amount  paid  L.    Ed.    132,    9    S.    Ct.    726. 

by   him   since    the     action     was     com-  Tennessee. — Bank      stock     is     trans- 

menced,    upon    execution    on    a    judg-  ferable.      Nashville    Bank   v.    Ragsdale, 

ment  rendered  against  him  and   others  7   Tenn.    (Peck)    296. 

as      partners     in    said    bank.      Bates    v.  "The   stockholder  has  an   entire   and 

Lewis,    3    O.    St.    459.  perfect  ownership  over  his  own  stock, 

54.  Declarations  of  bank  officer  as  and  may  sell  and  transfer  it  to  whom- 
to  ownership  of  stock. — Robinson  v.  soever  he  pleases,  and  from  which  the 
Lane,    19   Ga.   337.  bank    has    no   power    to    restrain   him." 

55.  Finding  of  nonpayment. — Where,  Brightwell  v.  Mallory,  18  Tenn.  (10 
in  an  action  against  the  representa-  Yerg.)  196;  McLaughlin  z'.  Chadwell, 
tives  of  a  deceased  stockholder  in  an  .54  Tenn.  (7  Heisk.)  389;  Union  Bank 
insolvent  bank,  who  gave  a  stock  note  i'.  State,  17  Tenn.  (9  Yerg.)  490. 
when  he  took  his  first  share  of  stock,  57.  Effect  of  charter  regulations. — 
there  is  evidence  that  deceased  paid  Leyson  z'.  Davis,  170  U.  S.  30,  42  L. 
but  sixty  per  cent  on  the  first  share  Ed.  939,  18  S.  Ct.  500,  and  affirmed  in 
of  stock  and  none  on  the  second,  and  Farmers'  Nat.  Bank  v.  Robinson,  176 
it  is  shown  that  it  was  attempted  to  U.  S.  681,  44  L.  Ed.  637,  20  S.  Ct.  1027, 
pay  the  balance  due  on  the  first  share  and  see  Moores  r.  Citizens'  Nat. 
out  of  accumulated  profits,  a  finding  Bank,  111  U.  S.  156,  28  L.  Ed.  385, 
of  payment  of  only  the  sixty  per  cent  4  S.  Ct.  345.  In  Black  v.  Zacharie  & 
is  justified,  though  it  does  not  appear  Co.,  3  How.  483,  513,  11  L.  Ed.  690, 
Mdiat  became  of  the  stock  note.  it  was  held  that  such  a  regulation  re- 
Gager  z'.  Paul,  111  Wis.  638,  87  N.  W.  lates  to  the  transfer  of  the  legal  title, 
875.  and    not    to    any    equitable    interest    in 

56.  Freedom  of  transfer. — "So  well  the  stock  subordinate  to  that  title. 
established  is  this  right  that  a  by-law  In  the  case  of  Union  Bank  v.  Laird 
of  a  bank  putting  restrictions  upon  (U.  S.),  2  Wheat.  390,  4  L.  Ed.  269, 
the    transferability    of     stock      in      the  the    court    took   notice    of    the    distinc- 


§  40  (2c) 


CAPITAL.    STOCK    AND   DIVIDENDS. 


103 


for  the  transfer  of  stock  in  a  bank  in  conformity  with  its  by-laws  by  one 
prima  facie  entitled  to  have  the  same  transferred,  the  bank  has  no  control 
or  discretion  as  to  the  transfer,  or  right  to  prevent  it  on  their  transfer 
book  ;5^  where  it  has  no  claim  on  the  stock  at  the  time  it  is  assigned^^  unless 
it  is  insolvent  or  its  capital  impaired.^*^ 

§  40  (2)  Persons  Who  May  Acquire  or  Sell— §  40  (2a)  In  Gen- 
eral.— See  ante,  "Assignability,"  §  40  (Ij. 

§  40  (2b)  Directors  of  Bank. — The  directors  of  a  bank  are  not  es- 
topped from  purchasing  with  their  own  money  shares  of  stock  owned  by 
other  stockholders  at  as  low  price  as  the  owners  are  willing  to  dispose  of  ihem, 
the  fact  that  the  price  was  too  low  being  a  matter  for  the  vendors  of  the 
stock  to  complain  of,  and  the  directors  are  then  entitled  to  sell  the  stock  to 
another  corporation,  of  which  they  are  directors,  at  as  high  a  price  as  pos- 
sible.^ ^ 

§  40  (2c)  Bank  Itself. — In  the  absence  of  a  law  or  charter  provision 
prohibiting  banks  from  acquiring  title  to  their  own  stock  a  bank  has  power 
to  purchase  and  again  sell  its  own  stock,'^-  but  an  insolvent  bank  has  no 


tion  between  the  legal  and  equitable 
title  in  cases  of  bank  stock,  where  the 
charter  of  the  bank  had  provided  a 
mode  of  transfer,  and  that  as  between 
vendor  and  vendee  the  transfer,  not 
in  conformity  to  such  provision,  is 
good  to  pass  the  equitable  title  and 
divest  the  vendor  of  all  interest  in  the 
stock. 

58.  Bank  v.  Craig,  33  Va.  (6  Leigh) 
399;  Madison  Bank  v.  Price,  79  Kan. 
289,   100    Pac.    2S0. 

Bank  directors  can  not  prevent  the 
alienation  of  stock  with  the  real  es- 
tate securing  it,  by  refusing  the  pur- 
chaser the  rights  of  a  ;Stockholder. 
Byrne  v.  Union  Bank  (La.),  9  Rob. 
433. 

A  bank's  duty  to  transfer  stock  on 
its  books  pursuant  to  a  transfer  hy 
the  registered  holder  is  ministerial, 
and  it  has  no  discretion  in  the  mat- 
ter. Madison  Bank  v.  Price,  70  Kan. 
289,    100    Pac.    280. 

"The  bank  can  impose  upon  one 
man  no  greater  restriction  than  on 
another,  nor,  by  the  exertion  r^f  -.n 
arbitrary  will,  extend,  for  a  particular 
occasion,  those  rules,  whose  validitj' 
and  use  consist  in  their  generality,  as 
laws  of  the  corporation."  Bank  r. 
Craig,  33  Va.   (6  Leigh)   309. 

Assignment  based  on  illegal  con- 
sideration, rndcr  1  Rc-v.  St.,  p.  \'\?.. 
regulating    tlic     Imsincss      of      general 


banking,  if  a  bank  has  no  claim  on 
stock  at  the  time  it  is  assigned,  it 
can  not  refuse  to  transfer  the  stock 
on  the  ground  that  the  assignment 
was  based  on  an  illegal  consideration. 
Helm    V.    Swiggett,    12    Ind.    194. 

Stock  in  name  of  guardian. — Hence, 
where  stock  belonging  to  an  infant 
was  sold  and  assigned  by  his  guardian, 
and  transferred  by  the  bank  to  the 
purchaser,  in  accordance  with  its 
rules,  it  is  not  liable  therefor,  al- 
though the  sale  by  the  guardian  was 
in  fraud  of  his  ward's  rights,  and  with 
intent  to  appropriate  the  proceeds  to 
his  own  use.  Bank  v.  Craig,  33  Va. 
(6    Leigh)    399. 

59.  Helm  v.  Swiggett,  12  Ind.  194; 
Madison  Bank  v.  Price,  79  Kan.  289, 
TOO  Pac.  280;  Foster  v.  Broas.  120 
Mich.  -1,  79  N.  W.  696,  77  Am.  St. 
Rep.   565. 

60.  Under  Laws  1897,  p.  98,  c.  947 
(Gen.  St.  1901,  c.  lla).  it  is  the  duty 
of  a  l)ank  in  the  state  to  transfer 
stock  on  its  books  pursuant  to  the 
transfer  by  the  registered  holder,  un- 
less said  holder  is  entitled  to  it  on 
a  matured  debt,  or  unless  tlie  bank 
is  insolvent  or  its  capital  impaired. 
Madison  Bank  v.  Price,  79  Kan.  289, 
100   Pac.  280. 

61.  Directors. — In  re  Liquidation, 
118   La.   664,   43   So.  270. 

62.  Bank  itself. — Fitzpatrick  "■.  Mc- 
Gregor,  VX.\   Ga.   332,   65   S.    E.   859. 


104 


BANKS    AND    BANKING. 


§  40  (3aa) 


power  to  purchase  its  own  shares  of  stock.'^s  j^  England  and  in  some  of 

the  states  of  this  country  an  express  grant  of  authority  is  necessary  to 

enable  a  bank  to  purchase  shares  of  its  own  stock,  either  for  the  purpose 
of  reissuing  or  retiring  them.^^ 

§  40  (2d)  Bank  Purchasing  Stock  in  Other  Bank.— A  bank 
which  purchases  stock  as  a  broker  but  takes  it  in  his  own  name,  which  ap- 
pears upon  the  books  of  the  corporation,  assumes  the  liability  of  a  stock- 
holder as  between  itself  and  the  corporation.*^^ 

§  40  (3)  Validity,  Manner  and  Sufficiency— §  40  (3a)  Fraud 
or  Misrepresentation— §  40  (3aa)  Effect.— Fraud  or  false  repre- 
sentation invalidates  a  transfer  of  bank  stock  as  against  the  party  de- 
frauded.*'*' 

As  Affecting  Assignees. — The  assignees  and  successors  of  stockhold- 


63.  Insolvent  bank. — Fitzpatrick  v. 
McGregor,    133    Ga.    332,   65    S.    E.   859. 

A  bill  by  a  bank  and  its  receiver  and 
creditors,  charging  that  defendant 
stockholders  sold  their  stock  to  the 
bank  at  par,  knowing  that  the  capital 
stock  of  the  bank  at  that  time  was 
impaired,  and  that  by  surrendering 
their  stock  the  bank  was  seriously 
embarrassed  and  afterwards  became 
insolvent;  that  one  of  defendants  \vas 
a  director,  and  knew  of  the  conditions, 
and  that  the  bank  would  be  rendered 
insolvent  by  buying  the  stock;  and 
praying  that  the  sale  be  set  aside  and 
that  defendants  be  held  liable  for  the 
purchase  price  of  the  stock  surren- 
dered by  them — was  properly  dis- 
missed. Bessemer  Sav.  Bank  v. 
Learned    (Miss.),   47   So.   119. 

64.  England  and  some  of  the  states. 
— Fitzpatrick  v.  McGregor,  133  Ga. 
332.  65  S.  E.  859;  German  Sav.  Bank 
V.  Wulfekuhler,  19  Kan.  60.  See,  also, 
Sutherland  v.  Olcott,  95  N.  Y.  93; 
^lorgan  z>.  Lewis,  46  O.  St.  1,  17  N. 
E.  558;  Cartwright  v.'  Dickinson,  88 
Tenn.  (4  Pickle)  476,  12  S.  W.  1030, 
7  L.  R.  A.  706,  17  Am.  St.   Rep.  910. 

65.  Bank  purchasing  stock  of  an- 
other bank. — McKim  z\  Glenn,  66  Md. 
479,  8  Atl.  130. 

66.  Fraud  or  false  representations. 
— Plaintifif,  a  director  in  a  bank,  who 
had  been  such  from  its  organization, 
wdio  usually  attended  the  meetings, 
and  was  actually  present  and  took 
part  in  the  proceedings  of  the  board 
of  directors  when  the  last  dividend 
was  declared,  having  purchased  from 
the  cashier  of  the  institution  tw^enty 
shares    of    the    capital    stock,    sued    to 


have  such  contract  rescinded,  and  to 
recover  back  the  money  paid,  on  the 
ground  of  false  repiesentations  and 
concealments  of  the  cashier,  as  to  the 
value  of  the  stock  and  the  condition 
of  the  bank  at  the  time  of  the  pur- 
chase. Held,  that  plaintifif  was  not 
estopped  from  setting  up  his  actual 
ignorance  of  the  condition  of  the  bank 
at  the  time  of  the  sale.  Lefever  v. 
Lefever,    30    N.    Y.    27. 

Evidence  that  the  president  of  a 
bank  was  informed  by  his  son  and  by 
the  deputy  comptroller  of  the  cur- 
rency, officially,  that  the  bank  was 
embarrassed,  and  its  capital  impaired, 
proves  the  falsity  of  statements,  after- 
wards made  by  him  in  order  to  sell 
his  stock,  that  the  bank  was  doing  a 
good  business  and  had  a  large  sur- 
plus. Truman  v.  Lombard,  10  App. 
Div.    430,    42    N.    Y.    S.    262. 

Sale  held  not  fraudulent. — Where 
G.  sold  to  L.  so  many  shares  of  stock 
in  the  First  National  Bank  when  is- 
sued imder  a  provision  that  the  cashier 
of  the  bank  was  to  retain  the  certifi- 
cates as  security  for  G.;  it  was  held, 
that  there  was  no  fraud  practiced 
upon  L.  in  the  failure  to  actually  de- 
tach the  certificate  of  stock  from  the 
stub  book,  and  give  him  manual  pos- 
session of  it.  Tt  was  agreed  between 
him  and  G.  that  the  stock  should  be 
placed  in  the  hands  of  the  cashier  to 
hold  as  collateral  on  the  note.  The 
cashier  left  the  certificate  of  stock  in 
the  book  as  a  matter  of  convenience 
to  himself  and  for  its  preservation. 
It  was  under  his  dominion  and  con- 
trol all  the  time  until  the  failure  of 
the  bank.  Long  v.  Gilbert  (Tenn.), 
59   S.  W.  414. 


§    40    (3b)  CAPITAL,    STOCK    AND   DIVIDENDS.  105 

ers  and  directors  of  a  bank,  are  not  bound  by  the  fraud  of  their  assignors 
and  predecessor?,  if  they  become  assignees  and  successors  without  fraud. ''^ 
Bona  Fides  of  Transferrer. — Where  defendant  had  no  reason  to  be- 
heve  that  the  otttcer  of  a  bank  was  using  the  bank's  money  in  purchasing 
defendant's  stock,  and  it  was  sold  in  the  usual  course  of  trade,  the  sale 
was  valid,  and  the  money  paid  became  defendant's  property. *^^ 

§  40  (Sab)  Rescission. — Conditional  Sale. — Where  a  contract  for 
the  sale  of  bank  stock  is  subject  to  a  parol  condition  that  an  examination 
by  the  buyer  on  his  return  from  a  journey  shall  show  the  bank  to  be  pros- 
perous, as  represented  by  the  seller,  and  the  buyer,  on  his  return,  finds 
the  bank  insolvent,  he  may  rescind  his  purchase  without  showing  that  the 
bank  was  insolvent  when  the  contract  was  made.^^ 

§  40  (3b)  Authority  from  Holder  or  Pow^er  of  Attorney. — Ne- 
cessity and  Duty  of  Bank. — Banks  stand  upon  the  footing  of  trustees 
in  relation  to  their  stockholders  for  the  protection  of  their  interests.  Be- 
ing custodians  of  the  primary  evidence  of  title  to  the  stock,  they  are  held 
to  the  exercise  of  reasonable  care  and  diligence  in  its  preservation.  Their 
safety,  therefore,  requires  them,  before  permitting  a  transfer,  to  be  satis- 
fied of  the  authority  of  the  person  to  make  it.  Hence  they  are  entitled  to 
require  the  production  of  satisfactory  evidence  of  such  authority,  and 
though,  generally,  the  possession  of  the  legal  title  is  sufficient  evidence 
thereof,  it  is  not  always  so,  since  the  real  equitable  ownership  may  be  in 
some  other  than  the  holder  of  the  legal  right.""  An  unauthorized  transfer, 
therefore,  may  work  a  serious  wrong  to  the  equitable  owner;  and  if  the 
bank  allow  it  to  be  made  with  notice  of  the  want  of  authority  or  if  put 
upon  inquiry,  without  proper  investigation  into  the  authority,  it  becomes  a 
party  to  the  wrong.^^^  This  principal  is  applicable  to  transfers  by  trustees, 
such  as  administrators,  executors"-  and  guardians."-' 

67.     As    affecting    assignees.— Schley  thority  beyond  his  letters,  and  has  no 

t'.  Dixon,  ??4  Ga.  27.3,  71    Am.  Dec.  121.  right   to   require   any    further   evidence 

?;   u^  ~-        1      transferrer  —Corn  of  his  authority.     If.  however,  the  cir- 

i:   Skillern,  _7;)_  Ark.   14S,   SJ   b.   \\.    142.  cumstances     attending      the      proposed 

69.  Rescission  of  conditional  sale.  transfer  show  that  it  is  not  in  the  or- 
^  ^"^\f  V  ^^"''•o^'''^'  ^^^  ''^"^'  '^'"  binary  course  of  administration,  it 
^       ^^A     L     •       r  ^^"'     1-   ij  becomes   the    duty   of   the    transfer   of- 

70.  Authority  from  holder  or  power  ficers,  without  permitting  it,  to  inquire 
of  attorney.— Peck  v.  Bank,  1C.  R.  I.  jnto  the  authority  of  the  executor  to 
.10,   ISJ   All.  .369    7   L.   R.   A.   82t).  maj^-e   it.      Peck   v.    Bank,   16   R.    I.   710, 

71.  Peck   V.    Rank,    If.    R.    I.    710,    19       19   Atl.   309,   7   L.    R.   A.   826.      And   sec 
L^'^'^   '    h   ^;  •^-  ^•■*'-  ,,.  Lowry  V.  Bank,  .3  Am.  L.  J.,  N.  S.,  111. 

72.  Transfer   by   executor.— \\  hen    a  Where    a    testator's    bank     stock     is 

proposed    transtcr    of    l^ank    stock    by       

an    executor    is    apparently    in    the    or-  73.     Guardian. — Bank    stock,    stand- 

dinary    course    of    administration,     for  ing   in    name    of   A.,    guardian,   may   be 

the   purpose    of   raising   money   to   pay  sold   and   transferred   by   the   guardian, 

the    testator's    debts    or   legacies    given  and   the   officers   of  the   bank   have    n  > 

by  the  will;   the   bank   may   safely  per-  right   to   control   or   prevent   him    from 

mit  a  transfer  of  the  slock  by  the  ex-  transferring   it   on   their   transfer   book, 

ccutor    withr.ut    looking    for     liis      au-  P.ank  r.  Craig,  :!:{  Va.   (6  Leigh)   :i9t>. 


106 


BANKS    AND    BANKING. 


40  (3ca) 


Bank  Must  Satisfy  Itself  as  to  Genuineness.— A  bank  before  making 
a  transfer  of  its  stock  must  satisfy  itself  of  the  genuineness  of  the  power 
of  attorney J-*  or  the  certificate,  or  scrip,' ^  and  is  Hable  in  case  either  is 
forged  or  otherwise  void  and  justifiable  in  refusing  a  transfer. 

Blank  Indorsement  by  Holder. — A  blank  indorsement  by  the  holder 
of  a  certificate  of  bank  stock,  with  his  seal  and  subscription  of  a  witness, 
is  a  valid  power  of  attorney  to  transfer  the  stock."*^ 

Attestation  of  the  signature  of  the  holder  by  the  cashier  or  other 
witness  may  be  required  by  the  by-laws  of  a  bank  in  order  to  render  a 
transfer  of  its  stock  valid.'^'' 

No  authority  from  an  original  subscriber,  who  holds  as  trustee 
for  future  subscribers,  for  the  transfer  to  the  purchaser  is  necessary,  as 
he  can  not  refuse  to  transfer.'^ ^ 

§  40    (3c)   Form   and   Sufficiency — §  40    (3ca)   In   General. — As 

between  the  parties  the  property  in  shares  of  bank  stock  passes  by  mere 


sought  to  be  transferred  by  the  ex- 
ecutrix, nine  years  after  the  testator's 
death,  and  six  years  after  the  period 
limited  by  law  for  the  settlement  of 
estates  has  elapsed,  not  to  another 
person  to  raise  money  for  the  estate, 
but  to  herself  individually,  for  the 
purpose  of  securing  a.  note  on  which 
she  is  indorser  for  a  third  person,  the 
circumstances  are  sufficient  to  put 
the  bank  on  inquiry  as  to  her  au- 
thority. Peck  V.  Bank,  16  R.  I.  710, 
19    Atl.    369.    7    L.    R.    A.    826. 

74.  Must  satisfy  itself  as  to  genuine- 
ness.— A  bank  may  refuse  to  recog- 
nize a  power  of  attorney  for  trans- 
fer of  the  stock  of  one  of  its  stock- 
holders if  not  satisfied  of  its  entire 
genuineness,  and  may  require  the  per- 
sonal attendance  of  the  party  to  de- 
termine such  matters  of  fact  as  may 
give  rise  to  dispute.  Chew  v.  Bank, 
14  Md.  299. 

Where  a  bank  permits  a  transfer  of 
its  stock  to  be  made  under  a  power 
of  attorney,  it  takes  the  risk  of  its 
validity.  It  is  liable  in  case  of  a 
forged  power,  or  of  one  executed  by 
a  feme  covert  or  an  infant.  Chew  v. 
Bank,  14  Md.  299;  Pollock  v.  National 
Bank.    7    N.   Y.   274,    57    Am.    Dec.    520. 

Where  the  owner  of  shares  assigned 
them  to  two  persons,  and  gave  a 
power  of  attorney  to  one  of  them  to 
transfer  them  on  the  books  of  the 
bank,  the  power  was  held  to  be  valid, 
whether  the  power  authorized  the 
transfer  to  be  made  to  both  assignees, 
or  to  the  attorney  alone;  and  the 
bank  was  held  not  to  be  liable  for  re- 
fusing to  transfer  the  shares  to  a  sub- 


sequent attaching  creditor,  who  sold 
them  on  execution.  Plymouth  Bank 
V.   Bank   (Mass.),  10  Pick.   454. 

75.  Bank  v.  Craig,  33  Va.  (6  Leigh) 
399. 

76.  Blank  indorsement. — Commer- 
cial Bank  v.  Kortright,  22  Wend.  348, 
34    Am.    Dec.    317. 

77.  Attestation  of  signature. — A 
provision  in  the  by-laws  of  a  bank 
that  its  "shares  shall  be  transferable 
by  indorsement  in  writing  by  the 
holder  in  presence  of  the  cashier  or 
two  other  witnesses"  requires  that  the 
cashier  or  two  other  witnesses  shall, 
in  writing,  attest  the  signature  of  the 
holder  in  order  to  render  the  transfer 
valid  between  the  parties.  Dane  v. 
Young,    61    Me.    160. 

78.  Trustee  for  purchasers. — To  fa- 
cilitate the  reorganization  of  a  state 
bank  as  a  national  bank,  it  was  agreed 
that  certain  stockholders  should  sub- 
scribe for  all  the  stock,  which  was 
afterwards  to  be  apportioned  among 
those  stockholders  of  the  state  bank 
who  desired  to  take  it.  Subsequently 
one  of  the  subscribers  of  the  state 
liank  subscribed  for  shares,  and  cer- 
tificates were  issued  to  him.  Held 
that,  as  the  original  subscriber  for  the 
shares  transferred  to  the  purchaser 
held  the  stock  as  a  trustee,  it  was  not 
necessary  to  show,  in  an  action 
against  the  receiver  of  the  bank,  any 
authority  from  such  original  sub- 
scriber for  the  transfer  to  the  pur- 
chaser. Somerset  Nat.,  etc..  Receiver 
V.  Adams,  24  Ky.  L.  Rep.  2083,  72  S. 
W.  1125. 


§  40  (3cb) 


CAPITAL,    STOCK    AND    DIVIDENDS. 


107 


delivery  of  the  certificates."^  A  statute  making  promissory  notes  negotiable 
by  indorsement  is  not  applicable  to  the  sale  and  transfer  of  certificates  of 
bank  stock.-'^*' 

§  40  (3cb)  Certificate  Containing  Blank  Form  of  Assignment. 
— The  delivery  of  a  bank  stock  certificate,  with  an  assignment  in  blank 
with  a  power  of  attorney  indorsed  passes  the  entire  title,  both  legal  and 
equitable, '^i  notwithstanding  that  by  the  terms  of  the  charter  or  by-laws 
of  the  corporation  the  stock  is  declared  to  be  transferable  only  on  its  books. 


't9.  Manner  and  sufficiency — De- 
livery.— As  between  the  stockholder 
and  the  pledgee,  the  property  in  the 
shares  of  stock,  t^ndoubtedl3^  passed 
to  the  latter  without  the  formality  of 
a  transfer  on  the  books  of  the  bank. 
As  collateral  security  for  the  payment 
of  their  notes,  discounted  and  held  bj- 
the  Cecil  National  Bank,  and  with  the 
power  to  sell  for  the  purpose  of  pay- 
ment, the  title  passed  by  the  delivery 
of  the  certificate,  with  the  accompany- 
ing power  of  attorney.  Johnston  v. 
Laflin,  103  U.  S.  800,  26  L.  Ed.  532; 
Cecil  Nat.  Bank  z\  Watsontown  Bank, 
105   U.    S.    217.    26    L.    Ed.    1039. 

A  bank  stockholder  overdrew  his 
account  on  the  promise  of  the  cashier 
to  buy  his  stock,  and  afterwards,  hav- 
ing transferred  the  stock  to  him  in- 
dividually, he  presented  his  pass  book 
showing  the  overdraft  to  the  cashier, 
and  asked  him  if  he  had  given  him 
credit  for  the  amount.  The  cashier 
replied  that  he  had  not,  but  would, 
and  instructed  the  teller  to  place  the 
credit  in  his  pass  book,  which  was 
done,  but  no  entry  was  made  in  the 
bank's  books  showing  the  transaction, 
and  the  cashier  never  paid  the  bank. 
and  the  seller  lemained  on  the  books 
charged  with  the  overdraft.  The 
stock  was  found  by  the  receiver  in  an 
envelope  indorsed  with  the  seller's 
name.  Held,  that  the  sale  was  com- 
plete, and  the  seller  was  not  bound 
to  see  that  the  cashier  actually  paid 
the  price  to  the  bank.  Foster  v. 
Broas.  120  Mich.  1,  77  Am.  St.  Rep. 
565.    79    N.    W.    696. 

A  wife,  who  is  the  administratrix  of 
her  husband,  can  not  be  surcharged 
with  the  value  of  bank  stock,  where 
.she  shows  that  she  had  a  separate  es- 
tate; that  her  husband  borrowed 
money  from  her  on  notes;  that  he  in- 
dorsed the  bank  stock  over  to  her,  with- 
out having  it  transferred  on  the  books 
of  the  bank,  l)Ut  stating  to  a  disin- 
terested witness  that  it  represented  the 
amount  of  his  debt  t(-/  his  wife:  that  he 
then  placed  the  stock  in  a  pocketbook 


belonging  to  his  wife,  and  placed  the 
pocketbook  in  a  box  where  he  and 
his  wife  kept  their  papers;  and  that 
after  the  husband's  death  the  promis- 
sor)^  notes  were  not  to  be  found.  In 
re  Hertzler's  Estate,  22  Pa.  Super. 
Ct.    592. 

80.  Weyer  v.  Second  Nat.  Bank.  57 
Ind.  198,  so  holding  at  1  Rev.  Stat. 
1876,   p.   635,   §    1. 

81.  Certificate  containing  blank 
form  of  assignment. — Union  Bank  r. 
United  States  Exch.  Bank,  143  App. 
Div.  128.  127  N.  Y.  S.  661.  See  ante, 
"Authority  from  Holder  or  Power  of 
.Attorney,"    §    40    (3b). 

\\'here  a  certificate  of  stock  con- 
tains on  the  back  thereof  a  blank 
form  of  assignment  and  power  of  at- 
tornej'  to  transfer  the  stock  on  the 
books  of  the  compau}',  such  certificate 
makes  the  stockholder  the  agent  of 
the  bank  and  of  all  whom  it  represents 
to  sell,  to  pledge  and  pass  title  to  the 
certificate.  Lee  v.  Citizens'  Nat. 
Bank,  2  Cin.  Rep.  298,  13   O.   Dec.  913. 

Where  a  bank  stock  certificate  con- 
tains a  form  of  assignment  and  power 
of  attorney,  an  indorsement  of  such 
form  in  blank  by  the  holder  of  the 
certificate  is  sufficient,  and  the  pur- 
chaser who  desires  such  stock  trans- 
ferred upon  the  books  of  the  corpora- 
tion may  write  above  the  assignor's 
signature  the  proper  form  of  indorse- 
ment. Franklin  Bank  v.  Commercial 
Bank,   5    O.    Dec.   339. 

The  holder  of  a  certificate  of  bank 
stock  indorsed  it  m  blank,  and  deliv- 
ered it  as  collateral  security.  The 
pledgee  then  transferred  it  to  plaintiflf, 
who  filled  up  the  blank  transfer,  bj' 
inserting  his  own  name  as  assignee, 
and  the  name  of  another  as  attorney 
to  make  the  transfer,  the  certificate 
reciting  that  it  was  transferable  on  the 
books  by  the  stockholder,  or  liis  at- 
lornc3\  on  surrender  thereof.  TTeld, 
that  the  assignment  was  valid.  Com- 
mercial Bank  7".  Kortright.  22  Wend. 
:J4S.    ;m    Am.    Dec.    317. 

Assignment     under     seal. — \\'liere    a 


108 


BANKS    AND    BANKING. 


§  40  (3ccbbb) 


§  40  (3cc)  Compliance  with  Formalities  and  Rules— §  40 
(3cca)  In  General.— Where  the  charter  of  a  bank,  or  its  legally  enacted 
by-laws,  provide  for  certain  formalities  to  be  observed  in  the  transfer  of 
stock,  the  legal  title  can  not  be  otherwise  acquired  than  by  conformity 
thereto,  but  the  equitable  title  may  be  otherwise  transferred.'^^ 

§  40    (3ccb)   Right  to  Establish  and  Enforce— §  40(3ccba)     In 

General.— Where  the  act  of  incorporation  of  a  bank  authorizes  the  officers 
to  establish  rules  conformably  to  which  stock  transfers  are  to  be  made, 
they  may  establish  reasonable  rules  respecting  the  transfer  of  stock  of  the 
bank,83  but  all  unreasonable  attempts  to  restrain  the  right  to  transfer  such 
shares  are  void,  as  against  public  policy. ^^ 

§  40  (3ccbb)  Particular  Rules  and  Formalities— §  40  (3ccbba) 
Consent  of  Directors. — A  by-law  which  makes  the  sale  and  transfer  of 
shares  of  bank  stock  subject  to  the  consent  of  the  directors,  or  refuses  to 
permit  the  same  unless  the  directors  are  satisfied,  is  unreasonable  and 
void.^^ 

§  40    (3ccbbb)   Production  and  Cancellation  of  Old  Certificates. 

—When  bank  stock  is  transferred,  the  old  certificates  should  be  taken  up 
and  cancelled  by  the  bank  and  new  ones  issued.     W  here  the  bank  can  not 


certificate  of  bank  stock  contains  a 
blank  form  of  assignment  and  power 
of  attorney  printed  on  its  back,  the 
stockholder's  signature  to  the  blank 
assignment  and  power  of  attorney, 
though  under  seal,  is  valid.  '  Lee  v. 
Citizens'  Nat.  Bank,  2  Cin.  Rep.  298, 
13    O.    Dec.    913. 

82.  Compliance  with  formalities  and 
rules. — Cecil  Xat.  Bank  v.  Watson- 
town  Bank,  105  U.  S.  217,  26  L.  Ed. 
1039;  Union  Bank  v.  Laird  (U.  S.),  2 
Wheat.  390,  4  L.  Ed.  269;  Brent  f. 
Bank  (U.  S.).  10  Pet.  596,  9  L.  Ed. 
547;  Union  Bank  v.  United  States 
Exch.  Bank,  143  App.  Div.  128,  127 
N.    Y.    S.    661. 

Where  by  the  act  of  incorporation 
of  a  bank  the  shares  of  any  individual 
stockholder  are  transferable  only  on 
the  books  of  the  bank,  according  to 
the  rules  (conformable  to  law)  estab- 
lished by  the  president  and  directors; 
and  all  debts  due  and  payable  to  the 
bank,  by  a  stockholder,  must  be  satis- 
fied, before  the  transfer  shall  be 
made,  unless  the  president  and  direct- 
ors should  direct  to  the  contrary,  no 
person  could  acquire  a  legal  title  to 
any  shares,  except  under  a  regular 
transfer,  according  to  the  rules  of  the 
bank;  and  if  any  person  takes  an 
equitable  assignment,  it  must  be  sub- 
iect   to   the    rights    of   the    bank,    undei 


the  act  of  incorporation,  of  which  he 
IS  bound  to  take  notice.  Union  Bank 
V.  Laird  (U.  S.),  2  Wheat.  390,  4  L. 
Ed.  269.  See  Brent  v.  Bank  (U.  S.), 
10   Pet.    596,   9   L.    Ed.   547. 

83.  Right  to  establish  and  enforce. 
—Bank  f.  Craig,  33  Va.  (6  Leigh) 
399;  Union  Bank  v.  Laird  (U.  S.),  2 
Wheat.   390,    4   L.    Ed.   269. 

84.  McXulta  v.  Corn  Belt  Bank, 
164  111.  427,  45  N.  E.  954,  5G  Am.  St. 
Rep.    203. 

85.  Consent  of  directors. — Mc- 
Nulta  z:  Corn  Belt  Bank,  164  111.  427, 
45    N.    E.   954,   56  Am.    St.    Rep.   203. 

A  by-law  of  a  bank  which  provides 
that  all  stock  sold  or  transferred  shall 
be  with  the  express  condition  that  it 
will  be  voted  in  favor  of  all  proposi- 
tions submitted  by  the  board  of  di- 
rectors to  increase  the  capital  stock 
of  the  bank,  until  its  capital  stock 
reaches  $300,000,  and  that  such  pro- 
visions shall  become  a  part  of  every 
contract  for  the  transfer  of  any  stock 
of  the  bank,  and  shall  become  bind- 
ing on  the  transferee  by  the  accept- 
ance of  the  stock,  is  void  because  it 
attempts  to  limit  the  right  to  sell  or 
transfer  the  corporate  stock,  by  im- 
posing unreasonable  conditions.  Mc- 
Xulta V.  Corn  Belt  Bank.  164  111.  427, 
56  Am.   St.   Rep.  203,  45   N.    E.  954. 


§  40  (3ccbbc) 


CAPITAL.    STOCK    AND    DIVIDENDS. 


109 


transfer  shares  of  stock  without  the  return  of  the  certificate,  its  nonpro- 
duction  is  notice  to  the  bank  that  someone  may  have  acquired  rights  to  it 
by  transfer  or  pledge. '^'^ 

§  40  (Sccbbc)  Entry  on  Bank's  Books. — Where  neither  the  char- 
ter nor  the  by-laws  of  a  banking  company  make  its  stock  transferable  only 
on  its  books,  a  provision  to  that  effect  in  its  certificates  of  stock  can  not 
limit  the  unconditional  right  of  transfer.*" 

Construction  and  Operation. — The  fact  that  the  shares  were  trans- 
ferable on  the  bank's  books  does  not  limit  the  right  of  transfer,****  but  pre- 
scribes the  manner  and  place  of  transfer. *'^' 

Notice  of  Assignment. — Where  the  charter  of  the  bank  provides  that 
no  assignment  of  stock  shall  be  valid,  as  against  it,  unless  a  formal  trans- 
fer of  the  same  be  made  on  its  books,  it  is  the  right  of  the  bank  to  treat  a 
stockholder  as  the  true  owner  of  stock  issued  to  him,  and  to  deal  with  him 
accordingly,  until  it  receives  notice  that  the  stockholder  has  assigned  his 
stock  to  a  third  person;  aliter,  after  notice  is  brought  home  to  the  bank, 
even  though  there  has  been  no  attempt  on  his  part  to  secure  a  formal  trans- 
fer of  the  stock  upon  its  books.^*^  The  notice  to  the  bank  of  a  sale  by  the 
stockholder  need  not  specify  the  name  of  the  purchaser.^ ^ 


86.  Notice  of  assignment. — Where 
the  articles  of  association  and  the  by- 
laws of  a  bank  provide  that  certifi- 
cates of  stock  therein  shall  be  trans- 
ferable only  on  the  books  of  the  cor- 
poration by  a  return  of  such 
certificates,  if  a  stockholder  attempts 
to  transfer  his  certificate  to  the  bank 
without  returning  the  same,  his  failure 
to  return  such  certificate  is  notice  to 
the  bank  that  he  may  have  parted 
with  it  to  someone  of  the  nature  of 
whose  rights  the  bank  is  bound  to  in- 
quire before  taking  any  action  in  the 
premises.  Lee  f.  Citizens'  Xat.  Bank, 
2    Cin.   Rep.   298,   13   O.    Dec.   913. 

87.  Entry  of  transfer  on  bank's 
book. — Williams  :■.  Mechanics'  Bank, 
Fed.    Cas.    Xo.    17,727,    .5    Blatchf.    .'59. 

88.  Construction  and  operation. — 
The  fact  that  the  shares  were  trans- 
ferable on  the  bank's  books  did  not 
limit  the  right  of  transfer;  the  trans- 
ferrer not  being  indebted  to  the  l>ank. 
so  as  to  justify  its  refusal,  under  3 
How.  Ann.  St.,  §  3208a6,  to  enter  the 
transfer.  Foster  r.  Broas.  120  Mich. 
1,   79   N.  W.   696.   77    .Xm.    St.    Rep.   .565. 

89.  A  certificate  reciting  the  owner- 
ship of  bank  shares  "which  are  trans- 
ferable at  the  bank  in  person  or  by 
attorney"  means  transferable  only  at 
the  bank  under  cognizance  of  its  of- 
firers.  Williams  7'.  Mechanics'  Bank, 
Fed.    Cas.    No.    17.727,    5    Blatchf.    50. 

Where  the  articles  of  association  of 
a  hank  and  the  certificate  of  stock  pro- 


vide that  transfers  of  stock  might  be 
made  on  the  books  ot  the  bank  by  the 
shareholder,  or  his  attorney,  duly  au- 
thorized, the  bank  is  bound  to  allow 
such  transfer  and  issue  a  new  cer- 
tificate on  application  of  a  transferee, 
who  has  a  power  of  attorney  from 
the  former  holder.  Purchase  z\  New 
York  Exch.  Bank,  26  N.  Y.  Super.  Ct. 
164. 

In  supplementary  proceedings  by  a 
judgment  creditor,  a  bank,  in  which 
the  debtor  owned  stock,  was  enjoined 
from  transferring  it.  A  receiver  was 
appointed,  and  authorized  to  sell  the 
stock.  Pending  the  proceedings,  one 
holding  a  written  assignment  of  the 
stock  and  power  of  attorney  from  the 
del)tor  gave  notice  thereof  to  the 
l)ank.  The  certificate  of  stock  recited 
that  the  stock  was  transferable  on 
the  books  on  delivery  of  the  certifi- 
cate. Held,  that  the  bank  could  not 
transfer  the  stock  on  the  books  to 
tlie  purchaser  from  the  receiver.  Pur- 
chase 7'.  New  York  Exch.  Bank,  26 
N.    Y.   Super.   Ct.   164. 

90.  Notice  of  assignment. — People's 
Bank  t:  Exchange  I'.ank.  116  Ga.  820. 
43  S.  E.  269,  94  .-Km.  St.  Rep.  144; 
Conant,  etc.,  Co.  r.  Reed,  1  O.  St. 
298. 

Notice  of  assignment  to  the  cashier 
is  notice  to  the  bank.  Conant,  etc., 
Co.   V.    Reed.   1    O.    St.   298. 

91.  Name  of  purchaser.— Lane  t'. 
Morris,   8    Ga.    468. 


no 


BANKS    AND    BANKING. 


§  40  (3ccbbc) 


Necessity  and  Effect  of  Failure  to  Enter.— The  entry  of  the  trans- 
action on  the  books  of  the  bank,  where  stock  is  sold,  is  required,  not  for 
the  translation  of  the  title,  but  for  the  protection  of  the  parties  and  others 
dealing  with  the  bank,  and  to  enable  it  to  know  who  are  its  stockholders, 
entitled  to  vote  at  their  meetings  and  receive  dividends  when  declared.  It 
is  necessary  to  protect  the  seller  against  subsequent  liability  as  a  stock- 
holder,^-  to  protect  the  purchaser  against  proceeding  of  the  seller's  cred- 
itors,^^  and  against  subsequent  purchaser  who  take  transfers  of  the  stock 
without  notice  of  any  prior -equitable  assignment.^^  Where  a  transfer  of 
bank  stock  is  required  to  be  entered  upon  the  books  of  the  corporation,  an 
assignment  made  without  such  entry  does  not  constitute  the  assignee  a 
shareholder,  and  he  can  not  act  as  such  ;»5  but  as  between  the  immediate 
parties  to  the  transaction,  the  assignment  is  effective.  It  invests  the  as- 
signee with  an  equitable  title  and  will  be  recognized  and  enforced,  at  least 
in  equity,  as  against  all  parties  not  showing  a  superior  right.'"^ 

Transfer  Officer,  Authority  and  Duty.— A  person  showing  a  prima 
facie  legal  right  to  claim  a  transfer  of  shares  of  bank  stock  to  himself  may 
demand  it  from  any  principal  officer  left  in  general  charge  and  superintend- 
ence of  the  bank,  during  the  regular  hours  appointed  by  the  bank  for  the 
transaction  of  banking  business.^"  The  cashier,  unless  the  charter  or  by- 
laws of  the  bank  forbid  it,  may  properly  make  or  superintend  the  transfer 


92.  Necessity,  purpose  and  effect 
of  failure  to  enter. — Johnston  c'.  Laf- 
lin,  ]03  U.  S.  800,  804,  26  L.  Ed.  532; 
Bank   v.    Craig,   33   Va.    (6   Leigh)    399. 

"Purchasers  and  creditors,  in  the 
absence  of  other  knowledge,  are  only 
bound  to  look  to  the  books  of  regis- 
try of  the  bank.  But  as  between  the 
parties  to  a  sale,  it  is  enough  that  the 
certificate  is  delivered  with  authority 
to  the  purchaser,  or  any  one  he  may 
name,  to  transfer  it  on  the  books  of 
the  company,  and  the  price  is  paid. 
If  a  subsequent  transfer  of  the  cer- 
tificate be  refused  by  the  bank,  it  can 
be  compelled  at  the  instance  of  either 
of  them."  Johnston  z\  Laflin,  103  U. 
S.  800,  26  L.  Ed.  532;  First  Nat.  Bank 
V.  Lanier  (U.  S.),  11  Wall.  369,  20  L. 
Ed.  172;  Webster  v.  Upton,  91  U.  S. 
65,   23   L.   Ed.   384. 

93.  Johnson  v.  Laflin,  103  U.  S.  800, 
26   L.   Ed.   533. 

Where  shares  are  transferable  only 
at  the  bank,  the  bank  is  not  liable  to 
a  purchaser  who  never  applied  for  a 
transfer,  where  it  permits  their  at- 
tachment as  the  property  of  the  per- 
son in  whose  name  they  stand  on  the 
bank  books.  Williams  z>.  Mechanics' 
Bank,  Fed.  Cas.  No.  17,727,  5 
Blatchf.    59. 

94.  Scott  V.  Pequonnock  Xat.  Bank, 
15    Fed.    494. 


95.  Effect    of     failure      to      enter. — 

Nicollet  Nat.  Bank  v.  City  Bank,  38 
Minn.  85,  35  N.  V\^.  577,  8  Am.  St.  Rep. 
643. 

96.  Equitable  assignment. — Nicollet 
Nat.  Bank  v.  City  Bank,  38  Minn.  85, 
35  N.  W.  577,  8  Am.  St.  Rep.  643,  cit- 
ing Baldwin  v.  Canfield,  26  Minn.  43, 
1  N.  W.  261;  Black  v.  Zacharie  &  Co., 
3  How.  483,  513.  11  L.  Ed.  690;  Broad- 
way Bank  v.  McElrath,  13  N.  J.  Eq. 
R.  24;  and  Dickinson  v.  Central  Nat. 
Bank,  129  Mass.  279;  Cushman  z>. 
Thayer  Mfg.,  etc.,  Co.,  76  N.  Y.  365; 
Scott  V.  Pequonnock  Nat.  Bank,  15 
Fed.   494. 

Although  the  transfer  on  the  books 
of  the  bank  may  be  necessary  to  pass 
a  legal  title,  an  equitable  title  may  be 
conveyed  otherwise.  Conant,  etc.,  Co. 
f.    Reed,   1    O.   St.   298. 

A  transferee  of  bank  stock  may  have 
a  perfect  title  thereto  as  respects  the 
transferrer,  though  no  transfer  has 
been  made  on  the  books,  and  the 
charter  provides  that  no  transfer  shall 
be  valid  unless  registered.  Commer- 
cial Bank  v.  Kortright,  22  Wend.  348, 
31    Am.    Dec.    317. 

97.  Transfer  officer. — Case  r'.  Citi- 
zens' Bank,  100  U.  S.  446,  25  L.  Ed. 
695. 


§  40  (3ccbbc) 


CAPITAL,    STOCK    AND    DIVIDENDS. 


Ill 


of  shares  of  the  capital  stock.^s  jj^  ^iig  absence  of  fraud  and  collusion,  a 
transfer  of  stock  directed  and  managed  by  the  president  and  cashier  who 
made  use  of  the  usual  forms  and  ceremonies  is  binding  on  the  bank.^^ 

Neglect  of  Proper  Officer  to  Enter  Transfer. — While  it  is  the  duty 
of  the  stockholder,  desiring  to  assign  any  of  his  shares,  to  have  an  entry 
thereof  made  in  the  books  of  the  bank,  if  he  attempts  to  do  so  in  good 
faith,  and  exercises  reasonable  care,  and  directs  the  entry  thereof  to  be 
made  by  the  proper  person,  he  can  not  be  held  liable  for  the  neglect  of  the 
officers  of  the  bank  to  obey  his  direction.^ 

Form  and  Sufficiency  of  Entry.— All  that  is  necessary,  when  the  trans- 
fer is  required  by  law  to  be  made  upon  the  books  of  the  corporation,  is 
that  the  fact  should  be  appropriately  recorded  in  some  suitable  register  or 
stock  list,  or  otherwise  formally  entered  upon  its  books.  For  this  purpose 
the  account  in  a  stock  ledger,  showing  the  names  of  the  stockholders,  the 
number  and  amount  of  the  shares  belonging  to  each,  and  the  sources  of 
their  title,  whether  by  original  subscription  and  payment  or  by  derivation 
from  others,  is  quite  suitable,  and  fully  meets  the  requirements  of  the  law.^ 

The  transfer  is  consummated  when  the  certificate  is  delivered  to  the 
purchaser  with  the  blank  power  of  attorney  indorsed,  and  the  money  is 
received  from  him.  As  between  them,  the  title  to  the  shares  then  passes; 
whether  that  be  deemed  a  legal  or  equitable  one  matters  not;  the  right  to 
the  shares  then  vested  in  the  purchaser,  and  is  not  affected  by  the  knowl- 
edge of  the  attorney  in  fact,  whose  name  is  subsequently  filled  in  to  make 
the  transfer,  of  circumstances  which,  if  known  to  the  transferrer,  would 
invalidate  the  transfer.^ 


98.  Cashier    as     transfer      officer. — 

Case  V.   Citizens"   Bank,   100  U.   S.  446, 
25   L.   Ed.   695. 

"Where  the  by-laws  of  a  bank  re- 
quire that  the  transfer  of  the  shares 
of  the  capital -stock  shall  be  entered  in 
the  books  of  the  bank,  the  entry  is 
usually  made  by  the  cashier,  and"  the 
evidence  introduced  by  the  plaintiff 
tended  to  show  that  the  practice  of 
the  defendant  bank  was  in  accordance 
with  the  general  usage."  Case  v. 
Citizens'  Bank,  100  U.  S.  446,  25  L. 
Ed.   695. 

99,  Hodges  r.  Planters'  Bank 
(y\(\.).  7  Gill   &  J.  ?,o«. 

1.  Neglect  of  proper  officer  to  enter 
transfer.— Hunt  v.  Seeger,  91  Minn. 
264.  '.iR  X.  W.  91. 

2.  Form  and  sufficiency  of  entry. — 
Cecil  Xat.  Bank  r.  Watsontown  Bank, 
105   U.    S.   217,    26    T..    Kd.    1039. 

3.  When  consummated. — Johnston  v. 
Laflin,   lo:{  U.   S.  soo.  26  L.   Ed.  532. 

"The  transferability  of  shares  in  the 
national  banks  is  not  governed  by  dif- 
ferent rules  from  those  which  are  or- 
dmarily    applied    to    the     transfer      of 


shares  in  other  corporate  bodies.  The 
power  of  attorney  indorsed  on  the 
certificate  is  usually  written  or  printed, 
with  a  space  in  blank  for  the  name  of 
the  attorney  to  be  inserted,  for  the 
accommodation  of  the  purchaser.  The 
subsequent  filling  up  of  the  blank  by 
him  with  another  name,  instead  of  his 
own,  as  it  may  suit  his  convenience, 
does  not  so  connect  the  vendor  with 
the  party  named  as  to  charge  him 
with  the  latter's  knowledge  and  thus 
affect  the  previous  transaction.  A 
different  doctrine  would  put  a  speedy 
end  to  the  signing  of  powers  of  at- 
torney in  blank."  Johnston  v.  Laflin, 
103    U.    S.    800,    26    L.    Ed.    532. 

"The  name  with  whicli  the  blank 
may  be  subsequentlj^  filled  up  l)y  the 
purchaser  is  not,  in  practice,  regarded 
as  affecting  the  previous  sale  in  any 
respect,  but  as  a  matter  which  con- 
cerns only  the  purchaser.  Tt  would 
be  a  source  of  disturbance  in  business 
if  any  other  result  were  attached  by 
the  law  to  the  proceeding."  Johnston 
r.   Laflin.   103   U.   S.   800.  26   L.    Ed.   532. 

"The    validity    of    the    sale    of    stock 


112 


BANKS    AND    BANKING. 


§  40  (3d) 


§  40  (3ccc)  Waiver  of  Compliance  with  By-Laws. — The  bank 
may  waive  a  compliance  with  its  by-laws  respecting  the  manner  of  a  trans- 
fer of  stock.^ 

§  40  (3cd)  Issue  of  New  Stock  Certificate. — The  transfer  of  stock 
on  the  books  of  the  bank  passes  title,  though  no  certificate  is  issued  to  the 
transferee.^ 

§  40  (3d)  Pledge  or  Collateral  Security. — If  a  holder  of  bank  stock 
for  valuable  consideration,  sell,  pledge,  or  otherwise  dispose  of  any  shares 
of  stock  belonging  to  him,  to  another,  and  deliver  to  him  the  certificate  for 
such  shares,  with  power  of  attorney  authorizing  the  transfer  of  the  same 


can  not  be  made  to  depend  upon  the 
accident  of  the  immediate  purchaser, 
or  of  the  party  to  whom  he  may  trans- 
fer the  certificate,  in  filling  up  the 
blank  in  the  power  of  attorney  with 
the  name  of  a  person,  to  make  the 
formal  transfer,  who  is  acquainted 
with  the  secret  interests  of  others  in 
the  shares  purchased.  The  validity  of 
a  sale  and  its  completeness  must  be 
determined  by  the  relation  which  the 
contracting  parties  at  the  time  openly 
bear  to  each  other."  Johnston  v. 
Laflin,   103   U.   S.   800,  26  L.   Ed.   532. 

Application  of  rule. — Where  a 
stockholder  in  a  national  bank,  in 
good  faith  and  without  intent  to  evade 
his  legal  liability  as  a  stockholder, 
sold  his  stock  to  a  broker  and  de- 
livered the  certificate  with  blank 
power  of  attorney  to  transfer  same  to 
purchaser,  who  was  unknown  to  him, 
and  the  broker  was  acting  for  the 
president  of  the  bank  who  represented 
that  he  was  purchasing  for  himself  or 
an  undisclosed  party  and  gave  his  in- 
dividual check  in  payment,  but  who 
was  really  purchasing  for  the  bank, 
and  had  the  certificate  transferred  to 
his  name  as  trustee  and  applied  the 
funds  of  the  bank  in  payment  there- 
for, without  notice  to  the  original 
stockholder  or  the  broker  of  these 
facts,  it  was  held  that  the  attorney 
who  made  the  transfer  by  the  direc- 
tion of  the  president,  filling  in  his 
name  as  attorney,  who  was  a  book- 
keeper in  the  bank,  was  the  agent  of 
the  bank,  and  his  knowledge  was  not 
imputable  to  the  original  stockholder. 
Such  stockholder's  liability  was  termi- 
nated by  this  sale  and  transfer.  John- 
ston V.  Laflin,  103  U.  S.  800,  26  L.  Ed. 
532. 

Of  course  the  whole  case  here 
would  be  changed  if  the  sale  had  not 
been  made  in  good  faith,  but  was 
made    merely    to    evade    his     just      re- 


sponsibility as  a  stockholder,  or  to 
work  a  fraud  upon  other  stockholders 
or  creditors  of  the  bank.  Johnston  v. 
Laflin,   103   U.    S.   800,   26   L.    Ed.   532. 

4.  Waiver  of  compliance  with  by- 
laws.— Where,  on  a  transfer  of  cer- 
tain bank  stock,  the  bank  canceled 
the  old  certificate,  and  issued  a  new 
certificate  to  defendant,  paid  her  ac- 
cruing dividends  on  the  stock,  and 
thereafter  recognized  her  as  trans- 
feree without  either  of  them  comply- 
ing with  certain  by-laws  requiring 
submission  of  the  name  of  a  trans- 
feree to  the  board  of  directors,  and 
approval  by  them,  and  that  such  trans- 
feree shall  sign  the  by-laws,  etc.,  the 
bank  waived  a  compliance  with  such 
by-laws.  Peoples'  Home  Sav.  Bank 
V.   Rickard,  139  Cal.  285,  73  Pac.  858. 

5.  Certificate  of  stock  not  issued. — 
Agricultural  Bank  v.  Wilson,  24  IMe. 
273. 

In  an  action  by  a  bank  on  a  promis- 
sory note  taken  in  payment  of  stock, 
defendant  set  up  want  of  considera- 
tion. The  stock  had  been  transferred 
to  defendant  on  the  bocks,  but  no  cer- 
tificate had  been  issued,  and  the  di- 
rectors had  exercised  control  of  the 
stock,  receiving  the  dividends  thereon, 
and  paying  the  taxes.  Held,  that  the 
legal  title  to  the  shares,  as  evidenced 
by  the  books,  being  in  defendants, 
their  title  was  not  changed  by  the 
mere  fact  that  they  left  such  shares 
in  the  control  of  the  directors.  Agri- 
cultural  Bank   v.    Burr,   24   Me.   256. 

A  stockholder  having  transferred 
his  stock,  the  charging  his  account 
therewith  by  the  bank  on  the  stock 
ledger,  and  opening  of  an  account 
with  the  transferee,  and  crediting  him 
with  the  stock,  is  a  sufficient  transfer 
to  vest  the  complete  legal  title  in  the 
latter,  and  entitle  him  to  a  certificate. 
National  Bank  v.  Watsontown  Bank, 
105   U.    S.   217,   26   L.    Ed.   1039. 


§  40  (3d) 


CAPITAL,    STOCK    AND    DIVIDENDS. 


113 


on  the  books  of  the  corporation,  the  title  of  the  former  shall  vest  in  the 
latter,  so  far  as  may  be  necessary  to  effect  the  sale,  pledge,  or  other  dis- 
posal of  the  said  share,  not  only  as  between  the  parties  themselves,  but  also 
as  against  the  creditors  of,  and  subsequent  purchasers  from,  the  former. 
Such  pledge  can  not  be  interfered  with  or  contested  by  creditors  of  the 
pledgor  to  the  detriment  of  the  pledgee,''  and  is  subject  only  to  the  statutory 
lien  of  the  bank  for  any  debt  due  it  from  the  stockholder."  A  delivery  of 
stock  as  collateral  security  for  a  debt  due  the  transferee  by  the  stockholder, 
accompanied  by  a  power  of  attorney  to  sell,  vests  in  the  former  title  to  the 
stock,  subject  only  to  the  lien  of  the  bank  for  debts  due  it  by  the  stock- 
holder.* 

Pledgee  Not  Owner. — A  pledgee  of  bank  stock  is  not  a  stockholder  in 
the  sense  of  being  a  member  of  the  corporation.-'  The  person  in  whose 
name  shares  of  stock  stand  on  the  books  of  the  corporation  is  deemed  the 


6.  Pledge  or   collateral  security. — A 

pledgee  of  bank  stock  has  a  Hen  upon 
such  stock  which  may  be  enforced. 
McConville  v.  Means,  10  O.  Dec.  452, 
21   W.   L.   B.   193. 

A  statute  incorporating  a  bank  and 
prohibiting:  a  transfer  of  stock  for  a 
certain  period  does  not  prevent  the 
original  subscriber  from  selling  it  as 
collateral  security,  so  as  to  give  the 
purchaser  or  transferee  an  equitable 
title  thereto,  and  to  the  dividends  de- 
clared thereon  during  such  period, 
which  title  may,  after  the  expiration 
of  the  time,  be  converted  into  a  legal 
one.  Nesmith  v.  Washington  Bank 
(Mass.),   6   Pick.   324. 

A  stockholder  of  one  bank,  by  writ- 
ten assignment,  transfers  his  stock  to 
another  bank  as  collateral  security 
for  his  indebtedness  or  liability,  of 
any  or  every  kind,  present  or  future; 
giving  such  bank  the  right  at  any 
time  of  collection,  to  determine  to 
which  debt  or  liability  it  will  apply 
the  same.  Such  right  of  application 
of  the  collection  on,  or  proceeds  of 
the  sale  of,  such  pledge  or  collateral, 
exercised  in  good  faith,  can  not  be 
interfered  with  or  contested  by  the 
creditors  of  the  debtor  to  the  detri- 
ment of  the  pledeee.  Donnally  v. 
Hearndon,  41  W.  Va.  519,  23  vS.  E. 
646. 

7.  .•Xn  assignment  of  stock  trans- 
ferable only  on  the  l)ooks  without 
such  transfer,  for  the  purpose  of  col- 
lateral security,  is  effectual  as  against 
the  bank,  asserting  a  lien  for  a  debt 
of  the  stockholder.  Nicollet  Xat. 
Bank  7>.  Cilv  Bank,  38  Minn.  85,  35  X. 
W.  577,   8   .Xm.   St.   Rep.   043. 

1    B   &   B— 8 


8.  Transfer  subject  to  bank's  lien 
for  debts  due  bank. — Charter  of  bank 
incorporated  in  1870  provided  that 
"the  bank  shall  have  a  lien  prior  to 
all  others  upon  any  stock  held  by  a 
stockholder  for  any  debt  of  said 
stockholder  to  said  bank."  The  stock 
certificates  contained  no  notice  of  this 
lien.  Init  declared  that  they  were 
"transferable  only  on  the  books  of 
the  bank,  in  person,  or  by  attorney,  on 
the  surrender  of  the  certificate."  .\ 
stockholder,  indebted  to  the  bank, 
borrowed  money  from  a  third  person, 
and  gave  him  the  certificate  as  col- 
lateral, with  power  of  attorney  to 
transfer  the  stock.  He  became  bank- 
rupt, and  then  lender  applied  to  the 
1:>ank  to  transfer  the  stock.  Bank  re- 
fused so  to  do,  until  paid  its  debt. 
Held,  the  act  of  1870,  acts,  1869-70, 
p.  488,  incorporating  this  bank, 
surperseded  the  general  law  as  to 
cliartered  companies,  providing  for 
the  transfer  of  stock,  and  gave  the 
bank  the  prior  lien  for  any  debt  due 
it  from  stockholder,  on  his  stock, 
which  lien  was  not  waived  by  leaving 
the  certificates  outstanding.  In  this 
case  the  lien  of  the  bank  upon  the 
stock,  was,  under  its  charter,  para- 
mount to  that  of  the  lender,  and  the 
bank  had  the  right  to  be  first  satisfied 
before  transferring  the  stock  to  the 
lender.  If  lender  chose  to  hold  the 
stock,  he  held  subiect  to  the  bank's 
lien.  Bohmer  z'.  City  Bank,  77  Va. 
•145 

9.  Pledgee  not  owner. — McCunville 
7'.  Means,  10  (J.  Dec.  452.  21  Wkly.  L. 
Bull.  193:  Donnally  v.  Hearndon,  41 
W.  Va.  519,  23  S.   H.  646. 


114  BANKS    AND    BANKING.  §    40    (4a) 

owner  thereof,  so  far  as  the  corporation  is  concerned-^*^ 

Notice  to  Officer  of  Bank.— In  order  to  bind  the  bank  whose  stock 
is  thus  pledged  as  collateral,  notice  should  be  given  its  president,  cashier 
or  other  officer  at  its  place  of  business,  and  in  the  usual  course  of  business.^i 

The  stock  should  be  transferred  where  the  pledgee  has  a  right  to 
have  it  transferred,  in  which  case  the  pledgee  has  a  right  to  demand  that 
such  transfer  be  made.^^ 

§  40  (3e)  Gifts. — The  delivery  of  a  certificate  of  bank  stock,  un- 
endorsed, by  the  donor  to  the  donee,  with  intent  to  transfer  title  by  way 
of  a  gift,  is  effectual  as  an  equitable  assignment,  although  no  legal  title 
passes  for  want  of  an  endorsement  and  transfer  on  the  books  of  the  com- 
pany. A  delivery  which  vests  an  equitable  title  only  in  the  donee  is  all 
that  is  required  to  constitute  a  valid  gift.^^ 

§  40  (3f)  Usurious  Transfers. — A  sale  of  bank  stock  at  whatever 
price  is  not  usurious,  unless  the  object  be  to  borrow  money  at  more  than 
lawful  interest,  and  not  to  purchase  stock,  and  the  price  of  stock  be  grad- 
uated as  a  device  to  effect  that  object;  or  there  be  a  combination  betweea 
the  seller  of  the  stock  on  credit,  and  a  person  to  whom  the  buyer  sells  it 
for  cash;  in  either  of  which  cases  the  transaction  becomes  usurious. ^^  A 
sale  of  bank  stock  at  an  exorbitant  price,  coupled  with  a  loan  of  money,  is 
usurious. ^^ 

§  40    (4)   Operation    and    Effect— §  40    (4a)   In    General.— The 

transfer,  when  consummated,  destroys  the  relation  of  membership  between 

10.  Donnally  v.  Hearndon,  41  W.  deposit  box  containing  certificates  of 
Va.  519,  23   S.   E.  646.  bank    stock    unindorsed    by    the    donor 

11.  Notice  to  officer  of  bank.-  is  sufficient  to  constitute  a  transfer  to 
Donnally  r.  Hearndon,  41  W.  Va.  519,  ^^^^  donee  of  the  equitable  title  to  the 
03  c;  p  g4g  Stock  represented  by  those  certin- 
~''   "■      ^       ■           ^         ,    ,            ,,.,  cates.     Thomas  v.   Lewis,  89  Va.  1,  15 

12.  Transfer  to  pledgee.-Where  g  g  ggg  ^-^^^  ^.^^  g^^l,  ,,  Holland, 
the  pledgor  of  bank  stock  executes  an  gg  y^_  ^g.  33  g  ^  j^g  5.  ^  R.  A. 
irrevocable    power    of     attorney,      au-  gg  j^^^_^    g^    ^        ggg 

thonzing  a  transfer  of  such  shares  on  ^^j^^^.^    ^    completed    gift     of      bank 

the    books    of   the    bank     issuing     the  ^^^^^^  ^^^^^  ^  husband  to  his  wife  has 

same    the  pledgee  has  the  right  to  de-  ^^^^^^     ^j^^^j        established,      her      title 

mand    that    such    transfer     be      made.  ^^^^^^^    ^j^    ^^^    ^^    affected    by    the 

Dayton  Nat.   Bank  v.   Merchants    Nat.  n.^j.^ion   of  the   stock  in  a  subsequent 

Bank.   37   O.   St.   208.     But   see   Frank-  ^^^jjj   ^^   ^^^^   ^f   ^^ust   of  the   husband, 

lin    Bank    v.    Commercial    Bank,    o    O.  ^^  ^j^^^j^    g,^g   ^^,^s   „^^   prj^.y,   and   un- 

Dec.  339.  ^^j.  ^j^jch  she   does  not  claim,   nor  by 

This    right    is    not    affected    by    the  the    fact    that    the    stock    continued    to 

fact   that   at    the    time   of   such    refusal  stand    in    his    name,    and    that    he    col- 

an    assignee    in    bankruptcy    had    been  lected    the    dividends    thereon.      First 

appointed     for    the    pledgor.      Dayton  Xat.   Bank   v.   Holland,   99   Va.   495,   39 

Nat.    Bank    z:    Merchants'    Nat.    Bank,  s    F    126    55  L.  P.  A.  155.  86  Am.  St. 

37  O.   St.  208.  Rep.    898. 

13.  Gifts. — First   Nat.    Bank  v.   Hoi-  14.      Usurious     transactions. — Green- 
land,   99   Va.    495,    39    S.    E.    126,    55    L.  how  r.  Harris,  20  Va.   (6  Munf.)   472. 
R.    A.    155,    86    Am.     St.      Rep.      89S;  15.     Bank    t-.    Stribling,    34     Va.      (7 
Thomas  v.    Lewis,   89   Va.   1,    15   S.    E.  Leigh)    26:   Stribbling  v.   Bank,  26  Va. 
389.  (5    Rand.)    132,    cited    in    Bank    z'.    Mc- 

The  delivery  of  the  keys  to  a  safety       Veigh,    70    Va.    (29    Gratt.)    546. 


8  40  (4cba)  capital,  stock  and  dividends.  115 

the  corporation  and  the  old  stockholder,  with  all  its  incidents,  and  creates 
an  original  relation  with  the  new  member,  free  from  all  antecedent  obliga- 
tions. This  legal  relation  and  proprietary  interest,  on  which  it  is  based, 
are  quite  independent  of  the  certificate  of  ownership,  which  is  mere  evi- 
dence of  title. ^*^ 

§  40  (4b)  Rights  and  Liabilities  of  Transferrer.— Liability  for 
Amount  of  Subscription. — The  assignment  of  stocks  by  the  owner  does 
not  discharge  him  from  liability.  Upon  the  subscription  it  becomes  corporate 
property,  impressed  with  a  trust  in  favor  of  the  bank's  creditors.  It  is  in 
effect  an  agreement  by  the  subscriber  to  pay  into  the  bank  the  amount  sub- 
scribed by  him.i"  The  statute  may  also  provide  that  the  subscriber  shall 
be  liable  notwithstanding  the  assignment,!^  in  which  case  the  assignees  of 
unpaid  stock  are  first  liable,  and  if  the  amount  can  not  be  collected  from 
them,  then  their  assignors,  who  were  original  subscribers,  are  liable. ^^ 

Liability  after  Resale  to  Bank. — Where  a  stockholder  in  a  bank  pur- 
chased of  the  bank  a  large  amount  of  its  stock  to  increase  his  votes  for 
directors,  which  he  voted  and  immediately  thereafter  the  purchase  money 
was  returned,  and  the  stock  again  taken  by  the  bank,  equity  will  not  com- 
pel the  purchaser  to  refund  the  money  and  take  back  the  stock  in  a  sub- 
sequent suit  by  a  stockholder,  where  the  evidence  showed  no  actual  loss 
to  the  bank  in  the  transaction.-^ 

§  40  (4c)  Title,  Rights  and  Liabilities  of  Transferee— §  40  (4ca) 
In  General. — A  transfer  which  does  not  comply  with  the  formalities  law- 
fully required  by  the  bank  authorities  conveys  an  equitable  title. -^ 

§  40  (4cb)  Liability  for  Unpaid  Balances  and  Assessments — 
§  40    (4cba)   In  Absence  of  Contract. — At  common  law  a  transferee 

16.  Operation  and  effect. — Cecil  assume  to  take  away  the  power  to 
Xat.  Bank  v.  Watsontown  Bank,  105  assign  stock,  hut  simply  to  regulate 
U.    S.   217,   26   L.    Ed.    1039.  its    transfer;    imposes    no    new    ohliga- 

17.  Liability  for  amount  of  sub-  tions  or  restrictions,  but  prescribes 
scription. — Marr  v.  J5ank,  72  Tenn.  (4  the  conditions  upon  which  the  original 
Lea)   578.  stockholders  might  assign   their  stock. 

18.  By   the    general    l)anking    act    of  Marr  v.  Bank,  72  Tenn.  (4  Lea)  578. 
1859-60,   the   original   subscriber   is   lia-  ^^     ^j^^r  v.   Bank,  72  Tenn.   (4  Lea) 
ble    for    the    amount    of    his    subscrip-  ..       \\os^s   v.    Ocoee    Bank,    69   Tenn. 
tion  until  the  same  is  paid  up,  whether  ,^  Lea)    ills 

he    retains    or    assigns    the    stock,    and  „^    \  .'  '  .'.^        ^^               i      ^      i       i 

this  applies  to  sul,scribcrs  for  stock  in  ^  20     Liability  after   resale   to   bank.-- 

a   bank    chartered    before    the    passage  Taylor  v.   Miami    Exporting   Co.,   6   O. 

of  the   act,   although   the    charter   con-  ^'^^• 

tained      no     such    provision.      Marr    v.  21.    Title  and  liability  of  transferee. 

Bank,  72  Tenn.    (4   Lea)    578.  —Johnson  v.    Lullin.    l():i    U.   S.   SOU,  ;.>G 

The    .Act    of    1859-r;0,    providing   that  L.    Ed.   532;    Cecil   Nat.    Bank   r.    Wat- 

the   original    suljscril)cr   shall    l)e    Haljle  sontown    Bank,    105    U.    S.    217,    26    L. 

for  the  amount  of  his  subscription  un-  Ed.   1039;   First   Nat.   Bank  v.   Holland, 

til    paid,    notwithstanding    the    assign-  99   Va.   495,   39   S.    E.    126,   55   L.   R.  A. 

ment    or    transfer    thereof,    is    not    un-  155,    86   .Am.    vSt.    Rep.    898;    Thomas   ?/. 

constitutional,    l>ecause     impairing     the  Lewis,    89    Va.    1,    15    S.    E.  _389.      Sec 

obligation   of  a   contract.      It   does   not  ante,  "Form  and   Sufficiency,"  §  40  (3c). 


116 


BANKS    AND    BANKING. 


§  40  (4cbb) 


of  bank  stock  was  not  liable  for  unpaid  balances  due  from  the  original  sub- 
scribers,-- or  assessments,^^  but  the  charter  or  a  statute  may  create  a  lien 
for  stockholders'  indebtedness  which  binds  the  stock  in  the  hands  of  an 
assignee.-^ 

§  40  (4cbb)  Assumption  by  Purchaser. — Where  a  transferee  of 
bank  stock  from  an  original  subscriber  assumes  the  latter's  liability  on  his 
subscription  as  consideration  for  the  transfer,  and  the  bank  accepts  him  as 
its  debtor,  releasing  the  original  subscriber,  the  transaction  is  valid,  and 
the  bank  may  enforce  the  transferee's  liability-^*^ 


22.  Liability  for  unpaid  balances  and 
assessments. — A  stockholder  trans- 
ferred, for  an  old  debt,  shares  of  bank 
stock,  on  which  no  payment  had  been 
made,  although  the  transferee  sup- 
posed the  shares  to  have  been  paid 
up.  Afterwards  the  original  holder 
paid  40  per  cent  upon  the  shares  as 
calls  were  made,  and  the  transferee 
received  dividends.  The  bank  became 
insolvent,  and  a  receiver  was  ap- 
pointed, who  sued  the  transferee  to 
recover  the  balance  of  the  subscrip- 
tion. Held,  that  the  action  could  not 
be  maintained.  Wintringham  z'.  Rosen- 
thal  (N.   Y.),  25  Hun  580. 

The  Citizens'  Bank  of  Louisiana  is 
not  liable  for  the  unpaid  balance  of  a 
stock  subscription  because  it  pur- 
chased the  stock,  and  property  mort- 
gaged to  secure  the  subscription,  on 
enforcement  of  the  lien.  Succession 
of  Thomson,  46  La.  Ann.  1074,  15  So. 
379. 

An  attachment  of  the  shares  in  a 
bank  by  the  bank,  after  notice  of  their 
assignment,  is  ineffectual  to  defeat 
the  prior  right  of  the  assignee.  Nicol- 
let Nat.  Bank  v.  City  Bank,  38  Minn. 
85,  35  N.  W.  577,  8  Am.  St.  Rep.  643. 

23.  After  failure  of  the  London 
correspondents  of  a  national  bank, 
plaintiff  sold  to  defendant  forty  shares 
of  the  stock,  at  $50  per  share,  signing 
the  transfer  on  the  proper  book  of 
the  bank,  leaving  a  blank  for  the  name 
of  the  transferee.  A  few  days  after- 
wards, and  on  the  next  day  after  the 
bank  had  suspended  payment,  defend- 
ant sold  the  shares  to  A.,  at  $11  per 
share,  and,  at  A.'s  request,  transferred 
them  on  the  book  to  A.'s  negro  porter, 
who  was  irresponsible,  defendant's 
name  appearing  only  in  the  margin  in 
pencil.  The  bank  passed  into  liquida- 
tion; and  its  receiver,  disregarding  the 
apparent  transfer,  sued  plaintiff  for 
70  per  cent  on  the  shares  as  contribu- 
tion, thereby  recovering  $3,579,  which 
he  was  compelled  to  pay.  Held,  that 
this   could   not   be    recovered   by   plain- 


tiff in  a  suit  against  defendant.    Lesas- 
sier  z'.    Kennedy,   36    La.   Ann.   539. 

24.  Under  charters  and  statutes. — 
The  provisions  of  a  banking  )aw  that 
the  transferee  of  the  shares  of  stock 
of  a  bank  should  succeed  to  all  the 
rights  and  liabilities  of  the  original 
stockholder,  and  requiring  a  semi- 
annual statement  to  be  made  specify- 
ing the  amount  of  the  capital  paid  in, 
or  secured  to  be  paid,  are  inconsistent 
with  the  construction  that,  under  the 
provision  that  the  certificate  of  the  as- 
sociates shall  state  the  amount  of  the 
capital  stock  of  such  association,  the 
requirement  is  implied  that  the  capi- 
tal must  all  be  actually  paid  in  before 
the  certificate  is  filed  and  the  bank 
become  legally  incorporated.  Pal- 
mer V.  Lawrence,  5  N.  Y.  Super.  Ct. 
161. 

Under  a  law  requiring  the  capital  of 
a  banking  association  to  be  paid  in, 
or  secured  to  be  paid,  when  it  is  or- 
ganized, it  is  secured  to  be  paid,  within 
the  meaning  of  the  law,  by  force  of 
the  subscriptions  of  the  associates. 
Palmer  v.  Lawrence,  5  N.  Y.  Super. 
Ct.   161. 

If  a  bank's  charter  provides  that, 
unless  a  stockholder  discharges  his 
debt  to  the  bank,  his  stock  can  not  be 
transferred,  the  purchaser  of  stock 
from  one  indebted  to  the  bank  takes 
only  an  equitable  assignment  subject 
to  the  rights  of  the  bank  under  its 
charter.  Farmers'  Bank  t'.  Iglehart 
(Md.),  6  Gill  50. 

25.  Assumption  by  purchaser. — Pal- 
mer z'.  Lawrence,  5  N.  Y.  Super.  Ct. 
161. 

A  transferee  of  bank  stock  who,  in 
consideration  therefor,  assumed  the 
liability  of  the  original  subscriber  on 
his  subscription,  can  not,  in  order  to 
defeat  recovery  by  the  bank,  set  up 
the  want  of  a  legal  existence  in  the 
bank,  or  the  invalidity  of  the  shares. 
Palmer  v.  Lawrence,  5  N.  Y.  Super.  Ct. 
161. 


§  40  (5a) 


CAPITAL,    STOCK    AND    DIVIDENDS. 


117 


Stock  Mortgage. — Act  April  2,  1832  ( incorporating  the  Union  Rank 
of  Louisiana).  §  29,  declaring  that,  on  application  by  a  stockholder  to 
transfer  his  stock  and  be  discharged,  the  new  stockholder  shall  furnish  a 
mortgage  to  the  satisfaction  of  a  majority  of  the  directors,  applies  only 
where  a  stockholder,  having  sold  his  stock,  retaining  the  immovable  mort- 
gage to  secure  it,  seeks  to  have  his  property  released  from  the  mortgage, 
on  the  purchaser  ottering  other  property  of  sufficient  value  to  be  mortgaged 
in  lieu  of  it.-^ 

§  40  (5)  Refusal  of  Bank  to  Allow  Transfer— §  40  (5a)  Right 
to  and  Liability  for  Wrongful  Refusal. — See  post,  "Right  to  Refuse 
Transfer,""  §  42  (2de).  A  bank  is  liable  in  damages  for  refusing  to  trans- 
fer upon  its  books  shares  of  its  stock  on  the  demand  of  the  person  entitled 
to  such  shares,  and  complying  with  the  transfer  regulations,-'  and  that  the 
bank  may  have  previou^y  transferred  to  another,  without  requiring  such 
compliance  and  proof  of  right,  is  no  excuse  for  refusing  transfer  to  such 
bona  fide  transferee  for  value,  though  the  bank  had  no  notice  of  the  latter 
transfer.-^  But  the  existence  of  a  lien  in  favor  of  the  bank  upon  the  stock 
is  a  complete  defense.-^     The  refusal  of  the  transfer  officer  to  allow  the 


26.  Stock  mortgage. — Byrne  v. 
Union    Bank    (La.).    9    Rob.    433. 

27.  Bank  liable  for  refusal  of  trans- 
fer to  person  entitled. — Case  v.  Citi- 
zens' Bank,  100  U.  S.  446,  25  L.  Ed. 
695;  First  Nat.  Bank  v.  Lanier  (U. 
S.).   11   Wall.   369,  20   L.   Ed.   172. 

A  bank  improperly  refusing  to 
make  a  transfer  of  stock  on  its  books 
because  of  an  alleged  lien  is  liable  to 
the  transferee  for  conversion  of  the 
stock.  Nicollet  Nat.  Bank  v.  City 
Bank,  38  Minn.  85,  35  N.  W.  577,  8 
Am.  St.  Rep.  643;  Kortwright  v.  Buf- 
falo .Commercial  Bank,  (N.  Y.),  20 
Wend.  91;  Bank  v.  McNeil  (Ky.),  10 
Bush   54. 

28.  A  bank  whose  certificates  of 
stock  declare  the  stockholder  entitled 
to  so  many  shares  of  stock,  which  can 
be  transferred  on  the  books  of  the 
corporation,  in  person  or  by  attorney, 
when  the  certificates  are  surrendered, 
but  not  otherwise,  and  which  suffers  a 
stockholder  to  transfer  his  stock  to 
anybody  on  the  l)ooks  of  the  l)ank, 
without  producing  and  surrendering 
the  certificates  thereof,  is  lial)lc  to  a 
bona  fide  transferee  for  value,  of  the 
same  stock,  who  produces  the  cer- 
tificates with  properly  executed  power 
of  attorney  to  transfer;  and  this  is  so 
although  no  notice  have  been  given  to 
the  bank  of  the  latter  transfer.  First 
Nat.  Bank  v.  Lanier  (U.  S.),  11  Wall. 
369.  20  L.   Ed.   172. 

"This  is  a  notification   to  all  persons 


interested  to  know,  that  whoever  in 
good  faith  buys  the  stock,  and  pro- 
duces to  the  corporation  the  certifi- 
cates, regularly  assigned,  with  power 
to  transfer,  is  entitled  to  have  the 
stock  transferred  to  him.  And  the 
notification  goes  further,  for  it  as- 
sures the  holder  that  the  corporation 
will  not  transfer  the  stock  to  any  one 
not  in  possession  of  the  certificates." 
First  Nat.  Bank  v.  Lanier,  11  Wall. 
369,    378,    20    L.     Ed.    172. 

29.  Lien  as  defense. — A  suit  at  law 
can  not  be  sustained  for  refusing  to 
permit  such  transfer,  where,  by  a 
clause  of  the  charter,  it  is  provided: 
"but  all  debts  actually  due  and  pay- 
alile  to  the  bank  (days  of  grace  for 
payment  being  past),  by  a  stock- 
holder requesting  a  transfer,  must  be 
satisfied,  before  such  transfer  shall  be 
made,  unless  the  president  and  di- 
rectors shall  direct  to  the  contrary." 
Where  the  owner  owed  the  debts  now 
claimed  by  the  bank,  on  the  notes  due 
and  protested  before  his  death,  this 
would  be  a  complete  answer  to  a  suit 
at  law  by  his  executors,  for  not  per- 
mitting a  transfer;  and  the  same  ol)- 
jcction  would  be  fatal  to  a  suit  _  in 
their  name,  for  the  use  of  the  United 
vStates  to  enforce  a  lien  claimed  1)y 
them.  The  defense  is  a  legal  one;  the 
case  provided  for  by  the  charter  and 
l)y  law  had  liappened;  the  l>ank  ha<l 
a  perfect  right  to  liold  on  to  tlie  stock; 
and   a   rule   of  the   l)ank    imposing  such 


118 


BANKS    AND    BANKING. 


§  40  (5ba) 


transfer  is  the  refusal  of  the  bank,^*^'  and  the  bank  may  ratify  the  wrongful 
refusal  of  one  of  its  officers  to  allow  the  transfer.^! 

Measure  of  Damages. — Where  a  bank  unjustifiably  refuses  to  make 
the  proper  entry  of  a  transfer  of  stock  on  its  books,  the  value  of  the  stock 
afifords  the  measure  of  the  recovery.^- 

§  40  (5b)  Compelling  Transfer  and  Action  for  Damages — §  40 
(5ba)  Jurisdiction  and  Form  of  Action. — In  some  jurisdictions,  it  is 
held  that  a  bill  in  equity  will  lie  to  compel  a  bank  to  open  its  transfer 
books  and  permit  a  transfer  of  stock  thereon,  as  the  remedy  at  law  is  not 
clear  and  perfect,  and  it  is  not  a  case  for  compensation  in  damages;-^"  but 


a  restriction  on  the  transfer  of  stock, 
is  conformable  to  law.  Brent  v.  Bank 
(U.  S.),  10  Pet.  596,  9  L.  Ed.  547; 
Union  Bank  r.  Laird  (U.  S.),  2 
Wheat.  390,  4  L.  Ed.  269. 

A  bank  whose  charter  provided 
that  stock  held  by  any  person  in- 
debted to  the  bank  should  not  be 
transferable  while  such  indebtedness 
existed  was  not  liable  in  damages  for 
refusing  to  permit  the  transfer  on  its 
books  of  stock  held  by  an  indorser 
on  a  note  held  by  the  bank.  Mc- 
Dowell V.  Bank,  2   Del.   Ch.   1. 

30.  Representation  by  cashier. — A., 
in  order  to  secure  the  payment  of  his 
note  to  B.,  pledged  to  the  latter  cer- 
tain shares  of  the  capital  stock  of  a 
national  bank  in  Louisiana,  with  au- 
thority to  sell  them  in  default  of  such 
payment.  Default  having  been  made, 
B.  sold  them,  and  in  March,  1873,  ap- 
plied to  the  cashier  of  the  bank  to 
liave  them  transferred  on  its  books. 
That  officer  refused  to  allow  the 
transfer,  on  the  ground  that  A.  was 
indebted  to  the  bank.  Before  the 
transfer  could  be  enforced,  the  bank 
failed,  and  C.  was  appointed  a  re- 
ceiver, against  whom  B.,  Feb.  24,  1876, 
brought  this  action  to  recover  dam- 
ages for  the  loss  sustained  by  him. 
It  does  not  appear  that  the  bank  ever 
adopted  any  by-law  providing  for  a 
lien  on  the  shares  of  a  stockholder 
indebted  to  it,  or  that  A.'s  debt  to  it 
had  been  contracted  before  his  stock 
was  pledged  to  B.  Held,  that  the 
cashier  having  been  intrusted  by  the 
directors  of  the  bank  with  the  trans- 
fers of  stock,  his  refusal  to  permit  the 
transfer  was  the  refusal  of  the  bank. 
Case  V.  Citizens'  Bank,  100  U.  S.  446, 
25   L.    Ed.   695. 

"Instruction  from  the  directors 
were  obligatory  upon  the  cashier,  who 
in  point  of  fact  assumed  no  responsi- 
bility. He  acted  by  order  of  the  di- 
rectors,   who    for    that     purpose     con- 


stituted the  bank,  it  appearing  that 
he  merely  obeyed  their  instructions 
not  to  transfer  any  stock  whose 
owner  had  discounted  notes  in  the 
bank  unpaid."  Case  v.  Citizens'  Bank, 
100    U.    S.    446,    25    L.    Ed.    695. 

31.  Ratification  of  wrongful  refusal. 
— Where  the  president,  while  at  the 
bank,  refused  to  permit  a  transfer  of 
stock  to  be  made  on  the  books  on 
demand  therefor  by  a  transferee,  and 
the  bank  thereafter  defends  a  suit  by 
the  transferee  for  damages,  it  will  be 
held  to  have  ratified  the  refusal,  which 
must  be  treated  as  its  own.  Commer- 
cial Bank  r.  Kortright  (N.  Y.),  22 
Wend.  34S,  34  Am.  Dec.  317. 

32.  Measure  of  damages. — Nicollet 
Nat.  Bank  z:  City.  Bank,  38  Minn.  85, 
35  N.  W.  577,  8  Am.  St.  Rep.  643; 
Kortwright  z'.  Buffalo  Commercial 
Bank  (N.  Y.),  20  Wend.  91;  S.  C,  22 
Wend.  348,  34  Am.  Dec.  317;  Bank  v. 
McNeil,  10  Bush  (Ky.),  54. 

A  bank  which  has  wrongfully  re- 
fused to  transfer  stock  on  its  books 
on  demand  of  the  transferee  thereof 
is  liable  to  the  latter  for  the  highest 
value  of  the  stock  since  the  refusal. 
Commercial  Bank  f.  Kortright  (N.  Y.), 
22  Wend.  348,  34  Am.  Dec.  317. 

General  Banking  Law  (Laws  1838, 
p.  249),  §  19,  declares  that  the  shares 
shall  be  transferable  on  the  books  of 
the  association  in  such  manner  as  may 
be  agreed  upon  in  the  articles  of  as- 
sociation. Held,  that  a  purchaser  and 
assignee  of  stock  which  the  bank  re- 
fuses to  transfer  on  its  books,  as  pro- 
vided by  its  articles  of  association, 
can  recover  its  value  in  an  action 
against  the  bank.  Bank  z'.  ^lanufac- 
turers',   etc..    Bank.   20    X.    Y.   501. 

33.  Equity  jurisdiction. — ^lechan- 
ics'  Bank  f.  Seton  (U.  S.),  1  Pet.  299, 
7   L.    Ed.    152. 

Where  a  bank  wrongfully  refuses  to 
transfer  stock  on  its  books,  the  trans- 
feree  has   no   adequate   remedy  at  law 


§    40    (5bd)  CAPITAL,    STOCK    AND   DIVIDKXDS.  119 

in  others  it  is  held  that  the  purchaser's  remedy  for  the  wrongful  refusal 
to  enter  the  transfer  is  an  action  on  the  case  or  assumpsit  in  the  form  of 
a  special  action  on  the  case  for  the  value  of  the  stock.-^^ 

Mandamus  will  not  lie  to  compel  the  officers  of  a  bank  to  transfer 
stock  from  a  vendor  to  a  purchaser,  except  under  a  judicial  sale;  in  that 
case  the  bank  official  becomes  a  public  officer  pro  hac  vice.^*^ 

§  40  (5bb)  Limitations. — The  claim  for  damages  resulting  from  the 
refusal  of  the  bank  to  transfer  the  stock  is  neither  an  ofifense  nor  a  quasi 
offense  within  the  meaning  of  a  statute  prescribing  a  limitation  for  an 
action  for  damages  arising  thereout.^^  Such  claim  for  damages  accrues 
on  the  refusal  of  the  bank  to  make  the  transfer,^' 

§  40  (5bc)  Process. — Where,  in  a  suit  to  compel  a  bank  to  transfer 
certain  stock  to  plaintiff  on  its  books,  the  president  of  the  bank  was  a  de- 
fendant, and  the  bill  at  issue  as  to  him,  it  was  sufficient,  for  the  execution 
of  the  compulsory  process  under  a  decree  in  favor  of  plaintiff,  that  the 
process  be  directed  to  him.^^ 

§  40  (5bd)  Parties. — Cashier. — In  a  suit  against  a  bank  to  compel 
it  to  transfer  certain  stock  to  plaintiff'  on  its  books,  or  in  case  that  can  not 
be  done  to  recover  damage,^'^  the  cashier  of  the  bank  was  not  a  necessary 
party. 

The  stockholders  are  not  ordinarily  parties  to  suits  to  compel  a  bank 
to  transfer  certain  stock.'*^ 

and   may    sue    in   equity   to    compel    it.  remedy    is    a    special     action      on      the 

Madison    Bank  v.    Price,   79    Kan.   289,  case,    to    recover    the     value      of      the 

100  Fed.  280.  stock  refused  to  be  transferred.    Ship- 

34.  Action  on  the  case. — Presby-  ley  v.  Mechanics'  Bank  (N.  Y.),  10 
terian   Congregation   v.    Carlisle    Bank,  Johns.   484. 

5   Pa.   345.  36.     Limitations. — Case    v.     Citizens' 

Where    a   bank    refuses    to   deliver   a  Bank,  100  U.  S.  446,  25  L.  Ed.  695. 

certificate    of    ownership     to      a      pur-  37.     On    refusal    of   the     request      of 

chaser   of   shares    of   its    capital    stock,  pledgee,  who  has  the  right  to  demand 

the    purchaser's    remedy    is    by    an    ac-  a     transfer      of     the      stock      on      the 

tion  on  the  case  for  damages.     Hussey  books  of  the  bank,   to  have  the  stock 

V.    Manufacturers',    etc.,    Bank    (Mass.)  so   transferred,   the   right   to  prosecute 

10  Pick.  415.  an    action    for    the    value    of    the    stock 

Assumpsit  in   the   form  of   a  special  accrues   to   the   pledgee.     Dayton    Xat. 

action    on   the    case    will   lie    against    a  Bank  v.   Merchants'   Nat.   Bank,   37   O. 

hank   for   improperly  refusing  to  make  St.   208. 

a   transfer   of   shares   of   capital    stock,  38,    Process.— Johnson  v.   Hume,  138 

in    the    name    of    the    party    injured    by  Ala.   564,    36    So.   421. 

the    refusal.      Case    v.    Citizens'    Bank,  39.    Cashier.— Johnson  v.   Hume,   138 

100   U.    S.    446,    25    L.    Ed.    605.  Ala.    564,    36    So.    421. 

35.  Mandamus.— Bank  r.  Harrison,  40.  Stockholders.— Where  the  plain- 
OC)  Ga.  6'.)6.  tiff  l)rought   suit   to  compel  a  bank  to 

Mandamus  will  not  lie  at  the  in-  execute  transfer  of  stock  and  to  re- 
stance  of  an  assignee  to  the  president,  instate  him  as  a  stockholder,  and  in 
directors,  and  company  of  a  bank,  to  case  that  could  not  be  done,  to  re- 
compcl  them  to  permit  the  transfer  cover  damages  for  the  conversion  cf 
on  the  books  of  the  bank  of  certain  his  stock,  it  was  held  that  the  stock- 
shares  of  stock  standing  in  the  name  holders  are  not  ordinarily  parties  to 
of    the     insolvent;      ])ut      the      proper  sucii    suits    as    this,    and   e.\ceptions    to 


120 


BANKS    AND    BANKING. 


§  40  (5bg) 


A  mere  trustee  in  whose  name  bank  stock  stands  is  not  a  neces- 
sary party  to  a  bill  by  the  equitable  owner  to  compel  the  bank  to  permit 
a  transfer  of  such  stock  to  him.'^i 

§  40    (5be)    Evidence. — Burden  of  Proof  and  Presumption. — In 

an  action  of  assumpsit  against  a  bank  for  refusing  to  transfer  to  plaintiff 
certain  shares  of  stock,  for  which  he  holds  the  certificate  assigned  in  ])lank 
by  the  owner,  he  must  prove  his  ownership  of  the  certificate.  Mere  pos- 
session is  not  sufficient.'*- 

§  40  (5bf)  Variance. — The  usual  rule  as  to  what  constitutes  and  the 
effect  of  a  variance  between  the  allegations  and  proof  apply  to  actions 
against  banks  for  refusal  to  transfer  certain  shares  of  stock.^^ 

§  40  (5bg)  Judgment. — In  an  action  by  a  devisee  of  bank  stock 
against  the  bank  to  compel  the  transfer  to  her  as  directed  by  a  judgment 
of  the  court,  the  court  will  have  full  power  to  adjudge  in  what  way  and 
manner  and  form  the  certificate  should  be  issued  by  the  bank.-*^ 

Judgment  in  favor  of  a  pledgee  is  not  for  recovery  of  damages  or 
for  a  conversion,  but  for  the  sale  of  the  stock  and  payment  of  his  debt  and 
of  the  proceeds."*^     Judgment  having  been  rendered  for  damages,  the  court 


the  petition  in  intervention  of  the 
stockholders  should  have  been  sus- 
tained, in  the  absence  of  allegation 
that  the  defense  would  not  be  prop- 
erly conducted  by  the  defendant. 
Gresham  v.  Island  City  Sav.  Bank,  2 
Tex.    Civ.    App.    52,   21    S.   W.    556. 

41.  Trustee  holding  stock. — Me- 
chanics' Bank  z'.  Seton  (U.  S.),  1  Pet. 
299.    7    L.    Ed.    152. 

42.  Burden  of  proof  of  ownership. — 
Dunn  V.  Commercial  Bank  (N.  Y.),  11 
Barb.   580. 

43.  Variance. — Where  a  wife  as- 
signed her  bank  stock  to  her  husband, 
who  sold  it  to  another,  and  the  latter 
sued  the  bank  to  compel  a  transfer  of 
the  stock  on  the  books  to  him,  and 
the  bill  alleged  various  facts  tending 
to  show  a  reduction  of  the  stock  to 
the  possession  of  the  husband,  the 
mere  fact  that  plaintiff  failed  to  show 
certain  of  the  acts  relied  on  as  show- 
ing a  reduction  to  possession  did  not 
constitute  a  fatal  variance  between  the 
allegations  and  the  proof.  Johnson  v. 
Hume,    138    Ala.    564,    36    So.    421. 

44.  Judgment. — Citizens'  Nat.  Bank 
V.  Boswell's  Adm'r,  12  Ky.  L.  Rep. 
(abstract)    468. 

45.  Judgment  for  pledgee. — A 
pledgee  of  shares  of  the  capital  stock 
of  a  national  bank,  having  an  irrevo- 
cable power  of  attorney  for  the  trans- 
fer   of    such    shares    to    him     on      the 


books  of  the  bank,  brought  suit  for 
the  value  of  such  stock  against  the 
bank,  which,  after  notice  that  the 
pledgor  had  been  adjudicated  a  bank- 
rupt, had  refused  to  permit  such 
transfer  to  be  made.  The  assignee  in 
bankruptcy  of  the  pledgor,  having 
been  made  a  party  by  consent,  filed 
an  answer  and  cross  petition  praying 
for  an  account  of  the  amount  due  the 
pledgee  and  a  sale  of  the  stock,  which 
prayer  was  granted.  It  was  held  that 
is  v/as  error  for  the  court  to  render 
a  further  judgment  that,  in  the  event 
ihe  proceeds  of  the  sale  were  suffi- 
cient to  satisfy  the  pledgee's  claim, 
the  bank  should  pay  the  deficiency, 
not  exceeding  the  difference  between 
the  proceeds  of  the  sale  and  the  value 
of  the  stock  at  the  time  of  such  re- 
fusal. Dayton  Nat.  Bank  v.  Mer- 
chants'   Nat.    Bank,   37    O.    St.   208. 

"In  such  posture  of  the  case,  the 
proper  decree  was,  as  this  is,  that  the 
amount  for  which  the  stock  is  held 
as  collateral  security  should  be  ascer- 
tained; that  the  Dayton  National 
Bank  should  pay  upon  such  indebted- 
ness the  amount  of  dividends  received 
by  it  on  the  stock,  with  interest,  less 
the  amount  of  taxes  it  has  paid  on  such 
shares;  that  the  stock  should  be  sold 
at  a  public  sale;  and  that  tlie  proceeds 
of  the  sale  should  be  applied  in  satis- 
faction of  the  balance  due  the  pledgee^ 


§  40/.    (2) 


CAPITAL,    STOCK    AND   DIVIDENDS. 


121 


below  had  power  to  order  the  receiver  of  the  bank  to  pay  the  claim,  or 
certify  it  to  the  comptroller.-*'"' 

§  40  (6)  Restraining  Transfer  of  Stock. — The  party  who  would 
arrest  a  transfer  of  bank  stock  or  charge  the  holder  with  a  trust  must  as- 
sert his  remedv  in  the  courts,  by  asking  a  restraining  order.-*"  The  trans- 
fer of  bank  stock  on  bank's  books  may  be  arrested  by  a  restraining  order 
or  injunction,  made  by  a  court  of  competent  jurisdiction,  at  the  instance 
of  a  party  interested.-*^ 

§  40 1 .  Liability  of  Stock  for  Debts  of  Stockholders— §  40 1  (1) 
In  General. — A  judgment  creditor  of  a  stockholder  in  a  bank  is  entitled 
to  subject  his  stock  to  the  satisfaction  of  his  judgment,-* '•*  and  the  court 
will  compel  the  bank  to  make  the  necessary  transfer  of  the  stock  on  its 
books. 

§  40 J    (2)   Attachment,    Execution,    Judicial   and   Tax    Sales. — 

Bank  stock  may  be  sold  under  attachment, •'•'^  execution,-"'^   or  judicial  de- 
cree,^- and  for  taxes. ^-^ 


and  costs  and  expenses,  and,  if  a  sur- 
plus remained,  that  it  should  be  paid 
to  the  assignee.  But  the  decree  should 
not  direct,  as  this  does,  that  if  the 
stock  sells  for  less  than  its  value  at 
the  time  the  request  for  transfer  was 
refused,  and  the  proceeds  of  the  sale 
are  insufficient  to  satisfy  the  sum  due 
the  pledgee,  and  costs  and  expenses, 
then  the  Dayton  National  Bank  shall 
pay  the  pledgee  the  deficiency,  not  ex- 
ceeding the  difference  between  the 
amount  realized  from  such  sale  and 
the  sum  the  stock  was  worth  at  the 
time  of  such  refusal.  In  such  equi- 
table action,  the  pledgee  can  only  look 
to  the  stock  and  dividends  for  the  sat- 
isfaction of  its  claims.  The  proposi- 
tion that  it  may  go  further  in  such  ac- 
tion, and  recover  damages,  in  any 
amount,  as  for  a  conversion,  is  sup- 
ported by  no  just  principle."  Dayton 
Nat.  Bank  v.  :\Icrchants'  Nat.  Bank,  37 
O.  St.  208. 

46.  Case  v.  Citizens'  Bank,  100  U.  S. 
440.  25  L.   Ed.  69,5. 

47.  Arresting  transfer  of  stock. — 
Bank  ?■.  Craig,  :'.:>,  Va.   Cn  Leigh)   ao!). 

Notice  to  stop  transfer  of  stock. — 
Tf  r)nc  desires  to  arrest  the  transfer  of 
stock,  he  must  go  to  the  transfer  clerk 
and  not  to  the  bookkeeper.  T5ank  7'. 
Craig,  :i:{  Va.   CO  Leigh)  .390. 

48.  Bank  z:  Craig,  33  Va.  (O  Leigh) 
309. 

49.  Liability  of  stock  for  debts  of 
stockholder. —  BriglUvvcU  :■.  Mallory, 
IS  'I'cnii.   (  10   Ycrg.)   19G. 


50.  Attachment,  execution,  and  judi- 
cial sales. — Where  bank  stock  has  been 
wrongfully  attached  and  sold  under  ex- 
ecution, the  fact  that  the  stock  was 
sold  without  appraisement  at  a  time 
when  it  was  not  considered  necessary, 
though  subsequently  adjudged  to  be 
so,  does  not  subject  the  bank  to  lia- 
bility to  the  owner  for  having  per- 
mitted a  transfer  to  the  judicial  pur- 
chaser, the  bank  being  guilty  of  no 
neglect,  and  justified  in  believing  that 
the  public  officer  discharged  his  duty. 
Chapman  v.  New  Orleans,  etc..  Bank- 
ing Co.,  4  La.  Ann.  153. 

Where  bank  stock  which  has  been 
wrongfully  attached,  and  sold  under 
execution,  is  afterwards,  on  a  devolu- 
tive appeal,  decreed  to  belong  to  an 
intervener,  he  can  not  recover  against 
the  bank  for  having  refused  a  transfer 
to  him,  and  permitted  it  lo  the  judicial 
purchaser.  Chapman  v.  New  Orleans, 
etc.,   Banking  Co.,  4  La.  Ann.  153. 

51.  Oliio. — Bank  stock  can  not  be 
levied  on  and  sold  under  execution. 
Lee  V.  Citizens'  Nat.  Bank,  2  Cin.  Rep. 
298,  13  O.   Dec.  013. 

A  sale  of  bank  stock  under  an  exe- 
cution in  favor  of  a  pledgee  thereof 
against  the  pledgor  is  void,  unless  the 
levy  and  sale  were  assented  to  liy  the 
])le(lgor.  Lee  7'.  Citizens'  Bank,  5  O. 
Dec.  21. 

52.  A  purchaser,  at  a  sheriff's  sale, 
of  bank   stock,   can   compel   a   transfer 

53.  Sale     for     taxes. — Where     l)ank 


122 


BANKS   AND   BANKING. 


41    (la) 


§  41.  Profits  and  Dividends.— Dividends  on  deposits  in  savings  bank, 
see  post,  "Interest  and  Dividends  on  Deposits,"  §  303.  Criminal  responsi- 
bility for  declaration  of  dividends,  see  post,  "Criminal  Responsibility," 
§  60.     Transfer  of  stock,  see  ante,  "Transfer  of  Stock,"  §  40. 

§  41  (1)  Power  and  Discretion  of  Directors— §  41  (la)  In 
General. — The  board  of  directors  may  from  time  to  time  declare  divi- 
dends of  so  much  of  the  net  profits  as  they  may  deem  it  prudent  to  divide,^* 
but  they  are  not  compelled  to  declare  any  dividends.^^  The  declaration 
of  dividends  rests  in  the  discretion  of  the  dir-ectors  or  other  governing 
body  of  the  corporation,  and  such  discretion  will  not,  in  the  absence  of 
fraud,  be  controlled  by  the  courts.^^ 


of  the  shares  on  the  books  of  the 
bank,  although  the  seised  debtor  may 
owe  the  bank  at  the  time  an  amount 
above  the  amount  of  the  stock  pur- 
chased, evidenced  by  his  notes  held  by 
the  bank,  notwithstanding  a  clause  in 
the  by-laws  of  the  bank,  adopted  by 
the  board  of  directors,  subsequently  to 
the  issuing  of  the  stock,  that  "no 
transfer  of  stock  shall  be  made  when 
the  party  is  indebted  to  the  bank  as 
principal,  indorser,  or  security  on  any 
obligation  that  is  due,  as  long  as  it  re- 
rnains  unpaid."  Such  a  by-law  is  not 
binding  on  the  judgment  creditors  of 
the  stockholders.  Bryon  v.  Carter,  22 
La.  Ann.  98. 

A  judgment  creditor  of  the  stock- 
holder is,  entitled  to  subject  the  stock 
to  the  satisfaction  of  his  judgment  by 
bill,  under  1832,  11,  1  and  2  (Code,  § 
4282,  et  seq.),  although  the  stock- 
holder may  be  indebted  to  the  bank  to 
the  amount  of  such  stock.  Brightvvell 
V.  Mallory,  18  Tenn.  (10  Yerg.)  196. 

If,  upon  bill  filed  by  a  judgment 
creditor  against  the  stockholder  and  a 

shares  are  seized  and  sold  by  a  col- 
lector of  taxes,  in  the  manner  provided 
by  Act  1846,  c.  195,  on  a  warrant  from 
assessors  having  jurisdiction  of  the 
subject-matter,  and  prima  facie  a  law- 
ful authority  to  issue  such  warrant, 
and  there  is  nothing  on  the  face  of  the 
proceedings  to  indicate  any  want  of 
jurisdiction,  or  any  error  or  defect 
therein,  the  cashier  of  the  bank  is  au- 
thorized (if  not  required)  to  issue  a 
new  certificate  of  such  shares  to  the 
purchaser,  who  will  thereupon  become 
entitled  to  accruing  dividends,  whether 
the  tax  for  the  payment  of  which  the 
shares  are  sold  be  rightly  assessed  or 
not.  Smith  v.  Northampton  Bank,  58 
Mass.   (4  Cush.)   1. 


bank  to  reach  the  stock  of  the  debtor 
in  the  bank,  alleging  the  existence  of 
the  judgment  and  execution,  the 
debtor  make  no  contest,  but  allow  the 
bill  to  be  taken  for  confessed  against 
him,  the  bank,  having  no  interest  in 
the  question,  has  no  right  to  resist  the 
decree  or  call  in  question  the  validity 
of  the  judgment,  even,  it  seems,  if  the 
judgment  produced  is  void.  Bright- 
well  V.  Mallory,  IS  Tenn.  (10  Yerg.) 
196. 

54.  Power  and  discretion  of  direct- 
ors.— Donnally  v.  Hearndon,  41  W. 
Va.   519,  23   S.   E.   646. 

Idaho  Rev.  Codes,  §  2732,  governing 
the  distribution  of  dividends  by  corpo- 
rations, does  not  apply  to  banking  cor- 
porations. McTamany  z'.  Day  (Idaho), 
128  Pac.  563. 

55.  Where  the  charter  of  a  bank  au- 
thorized dividends  to  be  declared,  of 
so  much  of  the  interest  and  profits  as 
should  be  deemed  expedient  by  the  di- 
rectors, the  directors  are  not  com- 
pelled to  declare  any  dividend  if  they 
reasonably  deem  it  inexpedient  to  do 
so.  Ely  v.  Sprague  (N.  Y.),  Clarke 
Ch.  351. 

The  accumulated  earnings  or  surplus 
funds  of  a  bank  constitute  a  part  of 
its  assets,  and  belong  to  the  corpora- 
tion and  not  to  the  stockholders,  until 
they  have  been  declared  and  set  apart 
as  dividends.  Bryan  v.  Sturgis  Xat. 
Bank,  40  Tex.  Civ.  App.  307,  90  S.  W. 
704,   affirmed  in  101  Tex.   630,  no  op. 

The  profits  that  the  stockholders 
may  receive  are  incidental,  but  are  not 
the  primary  object  in  passing  the 
charter.  Williams  v.  Union  Bank,  21 
Tenn.  (2  Humph.)  339. 

56.  Bryan  ?'.  Sturgis  Nat.  Bank.  40 
Tex.  Civ.  App.  307,  90  S.  W.  704.  af- 
firmed in  101  Tex.  630,  no  op. 


§  41   (2) 


CAPITAL,    STOCK    AND    DIVIDEXDS. 


123 


§  41  (lb)  Insolvent  Banks. — The  assets  of  a  bank  are  held  by  it  in 
trust  for  the  payment  of  its  indebtedness  and  for  the  distribution  among 
the  stockholders  of  the  surplus  only,  if  any,  remaining.^"  There  can  be 
no  voluntary  withdrawal  of  any  portion  of  the  assets  of  a  bank  where  the 
effect  of  such  withdrawal  will  be  to  impair  the  capital  stock,  or  endanger 
the  security  of  its  creditors.^^  Thus  where  dividends  are  paid  a  stock- 
holder in  an  insolvent  bank  in  disobedience  of  the  banking  law,  the  lia- 
bility to  repay  is  owed  to  the  corporation  and  enforceable  by  it.^^  Though 
such  liability  is  owed  to  the  corporation,  a  creditor  thereof  may  proceed 
in  equity  to  compel  restoration  on  the  corporation's  failure  to  do  so.'''^ 

If  the  board  of  directors  has  declared  and  paid  illegal  dividends,  the 
amount  paid,  if  recovered,  would  be  a  part  of  the  assets  of  the  bank.^*^* 


§  41    (Ic)   Tax  Dividends. 

tax  dividend.'' 1 


-The  directors  of  a  bank  mav  declare  a 


§  41  (2)  Accumulation  of  Surplus  Fund. — A  bank  has  a  right  to 
accumulate  a  surplus  before  declaring  dividends  on  its  stock.^-  The  ac- 
cumulation of  a  surplus  fund  before  payment  of  dividends  may  be  required 
bv  statute,  which  may  prescribe  the  amount  to  be  set  apart  each  time  a 
dividend  is  declared,*'-^  ^nd  may  also  provide  a  method  of  computing  the 
surplus  profits'^-*  and  assets  of  the  bank.^'^ 


57.  Insolvent  bank, — IMcCann  v.  First 
Xat.  Bank.  131   Ind.  95,  30  N.  E.  893. 

58.  :\IcCann  z:  First  Xat.  Bank,  131 
Ind.  95,  30  X.  E.  893. 

59.  Gager  v.  Paul,  111  Wis.  638,  87 
X.  W.  875. 

60.  Gager  i:  Paul,  111  Wis.  638,  87  X. 
W.   875. 

60a.  McTamany  v.  Day  (Idaho),  128 
Pac.  563. 

61.  Tax  dividend. — Where  the  direct- 
ors of  a  bank  adopted  a  resolution 
"that  the  bank  shall  pay  the  taxes  on 
the  bank  stock,  commencing  with  the 
taxes  of  1895,"  and  at  the  time  the 
value  of  the  stock  of  a  majority  of  the 
directors  was  set  ofif  by  debts,  the  res- 
olution should  be  regarded  as  one  for 
the  declaration  of  a  tax  dividend  pay- 
able equall}'  to  all  stockholders.  Red- 
head V.  Iowa  Xat.  Bank,  127  Iowa  572, 
103   X.  W.  790. 

62.  Accumulation  of  surplus  fund. — 
Reynolds  7'.  Bank,  6  App.  Div.  62,  39 
N.  Y.  S.  623;  Reynolds  v.  Bank,  158 
N.  Y.  740,  53   X.   E.  1131. 

The  primary  purpose  of  a  bank  sur- 
plus is  the  accumulation  of  a  sum 
against  which  bad  debts  may  be 
charged,  so  that  at  all  limes  the  capital 
may  be  kept  unimpaired.  Pullen  v. 
Corporation  Commission,  15  X'.  C.  548, 
68  S.   E.  155. 


63.  Rev.  St.  1899,  §  1293,  providing 
that  the  board  of  directors  of  any 
bank,  when  it  shall  declare  a  dividend, 
shall  first  set  apart  to  the  surplus  fund 
ten  per  cent  of  the  net  profits  for  the 
period  covered  by  the  dividend  ti41 
they  shall  amount  to  twenty  per  cent 
of  its  capital  stock,  is  mandatory,  and 
a  dividend  declared  in  disregard  thereof 
is  void.  Lapslev  :•.  Merchants'  Bank. 
105  j\Io.  App.  98,  78  S.  W.  1095;  Ed- 
wards V.  Merchants'  Bank  (Kan.),  78 
S.  W.  1132. 

64.  Where  notes  indorsed  by  K.,  and 
discounted  by  a  bank  in  1888  for  his 
benefit,  were,  within  one  year  prior  to 
June  28,  1892,  surrendered  to  one  H., 
who  paid  them  with  the  proceeds  of 
other  notes  indorsed  by  him  and  dis- 
counted by  said  bank,  the  new  notes 
were  a  part  of  the  l)ank's  resources  on 
June  28,  1892,  and  were  not  debt.*  ow- 
ing to  the   bank,   which   had   remained 

65.  Xotes  given  to  a  bank  by  its  di- 
rectors under  an  agreement  reciting 
ihat  the  purpose  of  the  notes  was  to 
remove  any  doubts  as  to  the  solvency 
of  the  bank,  and  to  make  it  unques- 
tionably solvent,  constitute  an  a.'^set 
of  tlie  bank  from  the  time  of  delivery. 
Dykman  7:  Keency.  16  .\pp.  Div.  131, 
45  X.  Y.  S.  137. 


124 


BANKS   AND   BANKING. 


41    (3b) 


§  41    (3)   Payment  of  Dividends— §    41    (3a)    Duty  to  Pay.— A 

dividend  which  has  been  declared  can  not  be  retained  by  the  directors  to 
constitute  a  surplus  fund.^^ 

§  41  (3b)  To  Whom  Payable. — Where  a  person  holds  a  full  and 
perfect  equitable  title  to  stock,  of  which  the  bank  has  notice,  he  is  entitled 
in  equity  to  the  dividends  thereafter  accruing  upon  it."^" 

A  state  which  is  a  stockholder  in  a  state  bank  has  a  right  to  receive 
and  dispose  of  its  share  of  the  profits  on  its  stock  in  the  bank,  unless  the 
right  has  been  expressly  or  by  necessary  implication  relincjuished  by  some 
provision  of  the  charter  or  law  creating  the  bank.'^'^ 


''due  without  prosecution"  for  more 
than  one  year,  within  Laws  1893,  c. 
C96  (Banking  Law)  §  26,  which  pro- 
vides that  such  debts  shall  be  classed 
as  losses,  and  deducted  from  the  ac- 
tual profits,  for  the  purpose  of  ascer- 
taining the  surplus  profits.  Judgment 
(1896)  42  N.  Y.  S.  488,  10  App.  Div. 
610,  affirmed.  Dykman  v.  Keeney,  IGO 
X.  Y.  677,  54  N.   E.  1090. 

A  bank,  which  held  several  notes  in- 
dorsed by  and  discounted  for  one  K., 
discounted  for  one  H.  notes  aggregat- 
ing the  amount  of  the  K.  notes,  made 
by  the  same  persons,  and  indorsed  Ijy 
H.,  but  without  the  indorsement  of  K. 
H.  then  gave  his  check  to  the  bank  for 
the  amount  of  the  K.  notes,  and  took 
them  up,  and  the  account  of  K.  was 
marked  on  the  books  of  the  bank  as 
paid.  Held,  that  the  K.  notes  were 
paid,  and  therefore  were  not  to  be  de- 
ducted from  the  resources  of  the  bank 
as  losses  (Laws  1893,  c.  696,  §  26),  be- 
cause they  had  remained  "due  without 
prosecution"  for  more  than  one  yeai. 
Dykman  ?.'.  Keeney,  16  App.  Div.  131, 
45  N.  Y.  S.  137. 

66.  Payment. — Seeley  v.  New  York 
Nat.  Exch.  Bank  (N.  Y.),  4  Abb.  N.  C. 
61,  8  Daly  400,  affirmed  in  78  N.  Y.  608. 

67.  To  whom  payable. — Conant,  etc., 
Co.  V.  Reed,  1  O.  St.  298. 

68.  State  a  stockholder. — State  v. 
Union   Bank,   17  Tenn.    (9    Yerg.)    119. 

The  act  incorporating  the  Union 
Bank  reserved  to  the  state  the  right 
to  subscribe  for  a  certain  amount  of 
its  stock.  Stock  to  the  amount  of 
$500,000  was  accordingly  taken  in  the 
name  of  the  state.  By  the  seventh  sec- 
tion of  the  charter,  it  is  provided  "that 
the  profits  which  may  arise  from  the 
stock  owned  by  the  state,  after  the 
bonds  of  the  state  shall  have  been  paid, 
and  also  the  bonus  agreed  to  be  paid 
by  the  bank  to  the  state  for  the  privi- 
leges conferred  by  the  charter,  and  also 


the  interest  which  may  from  time  to 
time  accrue  upon  the  deposits  of  pub- 
lic money  by  the  treasurer  of  the  state, 
shall  be,  and  they  are  hereby,  appro- 
priated to  the  use  of  public  schools." 
Held,  that  this  section  did  not,  by 
necessary  implication,  create  a  trust  in 
favor  of  the  bank,  and  authorize  it  to 
retain  the  bonus  and  dividends  until 
the  state  bonds  were  paid.  State  v. 
Union  Bank,  17  Tenn.  (9  Yerg.)  119. 

The  governor  subscribed  for  one- 
half  the  capital  stock  of  the  Central 
Turnpike  Company,  and  issued  state 
bonds  bearmg  interest  in  payment  of 
the  subscription,  in  accordance  with 
Act  1838,  c.  107.  That  act  established 
a  bank,  and  declared  that  its  capital 
should  be  $5,000,000,  and  that  the  faith 
and  credit  of  the  state  should  be 
pledged  for  its  support,  to  supply  any 
deficiency  in  the  fund  specifically 
pledged  for  its  establishment,  and  to 
give  indemnity  for  all  losses  arising 
from  such  deficiency;  and,  further,  that 
the  bank  should  pay  the  interest  on 
bonds  issued  to  internal  improvement 
companies,  after  the  payment  of 
specific  sums  to  common  schools  and 
academies;  and,  in  the  event  there 
should  be  a  deficiency  in  the  dividends 
of  the  bank,  and  in  the  dividends  of 
the  internal  improvement  companies, 
to  pay  such  interest,  then  the  indi- 
vidual stockholders  should  be  liable  to 
pay  such  interest.  Held,  that  a  fur- 
ther declaration  of  the  act  that,  if  the 
dividends  of  the  bank  and  the  con- 
tingent fund  should  be  insufficient  to 
pay  the  interest  on  the  bonds,  the  de- 
ficiency should  be  made  up  out  of  any 
uninvested  dividends  from  works  of 
internal  improvement,  did  not  amount 
to  a  positive  pledge  to  apply  the  divi- 
dends on  works  of  internal  improve- 
ment to  the  payment  of  interest  on 
state  bonds:  hence  the  law  requiring 
those  dividends  to  be  paid  into  the 
state  treasury,  instead  of  the  bank,  vio- 


§  41   (4) 


CAPITAL,    STOCK    AXD    DIVIDENDS. 


125 


§  41  (3c)  Medium. — A  dividend  of  the  cash  profits  of  a  bank  pay- 
able according  to  the  resolution  of  its  directors  "in  New  York  state  cur- 
rency" is  payable  in  par  funds ;  and  the  bank  can  not  pay  such  dividends 
in  uncurrent  country  bank  notes  at  a  discount  in  New  York,  though  the 
banks  on  which  such  notes  were  drawn  were  solvent  when  the  dividends 
was  payable.''-' 

§  41  (3d)  Application  to  Debt  of  Stockholders. — If  any  stock- 
holder be  indebted  to  the  corporation,  his  dividend,  or  so  much  thereof  as 
mav  be  necessary,  may  be  applied  to  the  payment  of  the  debt,  if  the  same 
be  then  due  and  payable.'^'^'  Dividends  accruing  after  a  transfer  of  bank 
stock,  as  provided  by  the  certificates,  are  not  subject  to  set-off  on  account 
of  indebtedness  of  the  assignor  incurred  after  the  transfer.'^ 

§  41  (3e)  Interest. — A  charter  which  entitles  any  creditor  to  inter- 
est, on  anv  obligation  of  the  bank,  from  the  time  it  refuses  payment,  does 
not  apply  to  claims  for  dividends.  It  was  intended  to  provide  for  the 
public  dealing  with  the  bank,  and  not  for  the  stockholders  inter  se.'^^ 

§  41    (4)   Actions  to  Recover  or  to  Enjoin  Misapplication. — In  an 

action  to  enjoin  the  misapi)lication  of  dividends  or  to  recover  dividends 
or  a  share  of  the  surplus  from  banks,  the  usual  rules  as  to  adequate  rem- 
edy at  law,^^  as  to  parties,'-*  pleading,  issues,  defenses,  proof,  variance,'-^ 


lated  no  contract  with  the  stockhold- 
ers. State  z:  Central  Turnpike  Co., 
29    Tenn.    (10    Humph.)    388. 

69.  Medium. — Ehle  z\  Chittenang 
Bank,   24    N.    Y.    548. 

70.  Application  to  debts  of  stock- 
holder.— Donnally  v.  Hearndon,  41  \\". 
Va.  519,  23   S.   E.   646. 

71.  The  owner  of  stock  in  the  de- 
fendant bank  assigned  and  delivered 
the  certificate  to  plaintiff  as  collateral 
security  for  a  loan.  After  assignment 
to  plaintiff  the  assignor  became  in- 
debted to  defendant,  and  the  dividends 
on  the  stock,  which  had  never  been 
transferred  on  the  books  of  the  de- 
fendant, as  provided  by  the  certificate, 
were  claimed  by  the  defendant.  Held, 
that  the  rights  of  the  plaintiff  became 
fixed  and  vested  before  the  assignor 
became  indebted  to  the  defendant,  and 
the  distributive  share  of  the  dividends 
paid  by  defendant  in  liquidation  be- 
longed to  plaintiff,  and  were  not  sub- 
ject to  any  set-off  on  account  of  the 
indebtedness  of  the  assignor  to  the  de- 
fendant. Union  Bank  z'.  United  States 
Exch.  Bank,  143  .App.  Div.  128,  127  N. 
Y.  S.  601. 

72.  Interest. — Bank  t'.  Eowler  (La.). 
10   Rob,    ^<.tr,. 

73.  Injunction  against  misapplication 
of   dividends. — W'Iktc    an    accdmnioda- 


tion  indorsee  takes  the  note  and  mort- 
gage of  the  maker  of  the  original  note, 
to  secure  such  indorsee,  and  thereafter 
transfers  the  note  and  mortgage  to  the 
bank  which  discounted  the  original 
note,  either  as  collateral  security  for 
such  note  or  under  an  agreement  for 
the  cancellation  thereof,  and  there- 
after the  maker  of  the  original  note 
becomes  the  agent  to  wind  up  the  af- 
fairs of  the  bank,  and  threatens  to 
cancel  the  mortgage  and  to  apply  the 
accommodation  indorsee's  dividends, 
as  a  stockholder,  upon  his  indebtedness 
as  indorsee,  equity  can  not  either  en- 
join the  release  of  the  mortgage  or 
the  application  of  the  money,  the  in- 
dorsee having  his  adequate  remedies 
at  law  in  each  case.  Moore  z'.  Lima 
N^at.  Bank.  8  O.  C.  C.  287,  4  O.  C.  D. 
529. 

74.  Parties. — In  an  action  by  an  al- 
leged stockholder  for_  a  part  of  the 
surplus  of  Bank  C.  which  had  con- 
solidated with  Bank  B,  it  was  held, 
that  all  stockholders  must  be  parties 
in  order  to  justify  a  decree.  Long  v. 
Gilbert    (Tenn.).    59    S.    W.    414. 

75.  Issues  and  proof. — In  an  action 
])y  a  stockhiildcT  in  a  bank  for  a  divi- 
dend on  his  stock,  where  the  petition 
alleges  that  the  board  of  directors  had 
competent  authority   to   declare   a   divi- 


126 


BANKS   AND  BANKING. 


42   (Iba) 


and  stay  of  execution'^  are  applied,  for  instances  of  which  see  the  notes. 

§  42.  Lien  of  Bank  on  Stock  and  Dividends— §  42  (1)  Crea- 
tion and  Existence — §  42  (la)  At  Common  Law. — At  common  law 
a  bank  had  no  lien  on  its  stock  to  secure  a  stockholder's  indebtedness  to  it.'^ 

§  42    (lb)   Under  Charter  or  Statute— §   42    (Iba)   In  General. 

— Banks  other  than  national  may  have  a  lien  upon  the  shares  of  their  stock 
in  the  hands  of  the  stockholders,  for  indebtedness  due  the  bank,  where 
such  lien  is  given  by  general  law,  or  by  the  charter,  or  legally  enacted 
by-laws."^ 


dend,  an  answer  containing  a  general 
denial,  and  alleging  tliat  the  dividend 
was  illegally  declared,  is  sufficient  to 
allow  the  defense  that  ten  per  cent  of 
the  net  profits  of  the  bank  had  not 
been  set  ofif  for  the  surplus  fund  be- 
fore declaring  the  dividend  as  required 
by  the  statute.  Lapsley  r.  Merchants' 
Bank,  105  Mo.  App.  98,  78  S.  W.  1095; 
Edwards  v.  Merchants'  Bank  (Kan.), 
78  S.  W.  1132. 

Variance. — In  an  action  by  the  trus- 
tees of  a  dissolved  banking  corpora- 
tion against  a  stockholder  to  recover 
a  dividend  that  should  have  been  ap- 
plied to  a  creditor's  demand,  where  the 
petition  fails  to  allege  that  defendant 
was  a  trustee,  and  affirmatively  shows 
he  sustained  no  such  relation,  his  lia- 
bility can  not  be  predicated  on  his 
breach  of  duty  as  a  trustee.  Daugherty 
V.  Poundstone,  120  Mo.  App.  300,  96 
S.   W.    728. 

76.  Stay  of  execution. — A  motion  to 
stay  execution  on  a  judgment  against 
a  bank  for  the  amount  of  dividends 
due  on  stock  can  not  be  granted  on 
the  mere  suggestion  of  other  stock- 
holders.    State  v.   Bank,  45   Mo.  528. 

77.  Creation  and  existence. — Union 
Bank  v.  United  States  Exch.  Bank, 
143  App.  Div.  128,  127  N.  Y.  661;  Staf- 
ford V.  Produce  Exch.  Banking  Co., 
16  O.  C.  C.  50,  8  O.  C.  D.  483;  Frank- 
lin Bank  z.>.  Commercial  Bank,  5  O. 
Dec.  339;  Lee  v.  Citizens'  Bank,  2  Cin. 
Rep.  298,  13  O.  Dec.  913;  Bullard  v. 
Bank,  18  Wall.  589;  Bank  v.  Lanier, 
11  Wall.  369,  20   L.   Ed.   173. 

A  bank  has  no  lien  on  stock  for 
debts  due  it  by  the  stockholders.  Dana 
J'.    Brown    (Ky.),   1   J.   J.    Marsh.   304. 

A  private  unincorporated  banking 
association  has  no  lien  on  the  shares 
of  its  members  for  debts  due  by  the 
latter  to  the  association.  Neale  v.  Jan- 
ney.  Fed.  Cas.  No.  10,069,  2  Cranch  C. 
C.   188. 

78.  Lien  of  banks  generally. — Cecil 
Nat.    Bank   v.    Watsontown    Bank,    105 


U.  S.  217,  26  L.  Ed.  1039;  Brent  v. 
Bank  (U.  S.),  10  Pet.  596,  9  L.  Ed. 
547;  Mechanics'  Bank  v.  Seton  (U.  S.), 
1  Pet.  299,  7  L.  Ed.  152;  Franklin  Bank 
z\  Commercial  Bank,  5  O.  Dec.  339. 
See,  also,  Conant,  etc.,  Co.  v.  Reed,  1 
O.  St.  298. 

Validity  of  statutes  conferring  lien. 
—Statutory  provisions  giving  banks  a 
lien  upon  their  stock  for  debts  due 
them  by  their  stockholders  have  uni- 
formly been  held  valid.  Franklin 
Bank  v.  Commercial  Bank,  5  O.  Dec. 
339.  See  also,  Conant,  etc.,  Co.  v. 
Reed,  1  O.  St.  298.  *•       * 

Lien  created  by  charter  or  special 
act.— -Leggett  z:  Bank,  24  N.  Y.  283; 
Cecil  Nat.  Bank  v.  Watsontown  Bank, 
105  U.  S.  217.  26  L.  Ed.  1039;  Brent  v. 
Bank  (U.  S.),  10  Pet.  596,  9  L.  Ed. 
547. 

Such  a  provision,  restraining  trans- 
fer while  stockholder  is  indebted  to 
the  bank,  is  intended  to  give  the  bank 
additional  security  for  debts  due  it 
from  stockholders.  Mechanics'  Bank 
V.  Seton  (U.  S.),  1  Pet.  299,  7  L.  Ed. 
152. 

Every  stockholder  of  a  bank,  who 
makes  or  indorses  a  note,  to  procure 
a  loan  from  the  bank,  is  bound  to  know 
the  terms  of  the  charter;  his  signature 
to  the  note  is  an  inchoate  pledge  of 
his  stock  for  security,  if  so  provided 
in  the  charter;  his  stock  gives  credit 
to  his  name,  and  the  bank  grants  the 
loan  on  its  faith.  Brent  f.  Bank  (U. 
S.),    10   Pet.   596,   9   L.    Ed.    547. 

Same — Instances. — Under  the  char- 
ter of  a  bank  providing  that  the  stock 
shall  be  transferred  according  to  the 
rules  of  the  corporation,  and  that  all 
debts  due  the  corporation  by  a  stock- 
holder must  be  first  satisfied,  an  as- 
signee of  a  stockholder  takes  the 
stock  subject  to  any  lien  the  bank 
may  have  under  its  charter.  Reese  v. 
Bank,  14  Md.   271.  74  Am.   Dec.  536. 

Where  the  articles  of  association  of 
a  bank  provide  that  no  shares  shall  be 


§  42  (Ibc) 


CAPITAL,  STOCK  AND  DIVIDENDS. 


127 


§  42  (Ibb)  Retroactive  Effect  of  Statutes. — General  statutes  giv- 
ing corporations  organized  thereunder  a  lien  of  the  stock  of  its  share- 
holder, do  not  apply  to  banks  chartered  by  or  under  previous  statutes  or 
special  acts."^ 

§  42  (Ibc)  Reservation  by  a  By-Law. — Where  no  lien  on  stock 
is  expressly  given  by  a  general  law  or  the  charter  of  a  bank,  the  bank  has 
an  implied  right  to  reserve  such    a    lien,    the    lien    may  be  reserved  by  a 


transferable  on  which  any  call  for  in- 
stallment of  capital  or  any  interest  on 
such  installment  shall  remain  unpaid, 
or  "in"  which  any  shareholder  is  in- 
debted to  the  bank,  unless  the  direc- 
tors consent  thereto,  no  shareholder 
who  has  failed  to  respond  to  a  call, 
or  who  is  indebted  to  the  bank  as 
drawer  or  indorser,  or  as  security  for 
any  sum  due  the  bank,  can  transfer 
his  stock  without  permission,  and  the 
bank  has  a  lien  on  the  stock.  Judg- 
ment 80  N.  Y.  S.  901,  81  App.  Div.  367, 
affirmed.  Lyman  v.  State  Bank,  179 
N.   Y.    577,   72    N.    E.    1145. 

A  bank  w^as  incorporated  under 
Laws  1838,  c.  260,  which  provides  (§  19) 
that  its  shares  of  stock  shall  be  trans- 
ferable on  the  books  in  such  manner 
as  may  be  agreed  on  in  the  articles 
of  association.  The  articles  of  asso- 
ciation providing  for  the  transfer  of 
shares  declared  that  they  should  be 
deemed  pledged  and  held  in  security 
by  the  bank  for  the  payment  of  the 
owner's  debt  to  it.  Held,  that  the 
bank,  on  making  a  loan  to  a  share- 
holder, acquired  a  vested  right  in  his 
shares.  Mohawk  Nat.  Bank  t'.  Schenec- 
tady Bank,  78  Hun  90,  28  N.  Y.  S. 
1100,  60  N.  Y.  St.  Rep.  510. 

Where  the  charter  of  a  bank  makes 
the  stock  transferable  only  on  the 
books  of  the  bank,  in  such  manner 
as  the  directors  shall  prescribe,  and 
provides  that  "no  stockholder  in- 
debted to  the  bank  for  any  debt,  or 
demand  due  and  payable,  shall  trans- 
fer until  such  debt  is  paid,  or  collateral 
security  is  given  for  the  payment,  to 
the  satisfaction  of  the  directors,  and 
said  bank  shall  have  the  first  lien  in 
law,  on  all  stock  owned  by  its  debtors," 
the  bank  is  invested  with  a  lien  on 
the  stock  of  a  debtor,  to  secure  the 
payment  of  any  sum  for  which  he  is 
liable  to  the  bank.  Downer  zf.  Zanes- 
ville  Bank  CO.),  Wright  477;  Conant, 
etc.,  Co.  V.  Reed,  1  O.  St.  298;  Frank- 
lin Bank  v.  Commercial  Bank,  5  O. 
Pec.  339. 

Acts  1869-70,  p.  488,  incorporating 
the    City    Bank    of    Richmond,    super- 


seded the  general  law  as  to  chartered 
companies,  providing  for  the  transfer 
of  stock,  and  gave  the  bank  the  prior 
lien  for  any  debt  due  it  from  a  stock- 
holder on  his  stock.  Cash  for  all 
loans  or  discounts  to  him.  Bohmer 
V.  City  Bank,  77  Va.  445.  See  also, 
Petersburg  Sav.,  etc.,  Co.  v.  Lumsden, 
75  Va.  327. 

Failure  to  organize  within  time  pro- 
vided in  charter. — Failure  of  a  bank 
to  organize  within  two  years  after  it 
is  chartered,  which  failure  Code,  §  688, 
provides  shall  forfeit  the  charter,  can 
not  be  urged  against  the  validity  of 
a  lien  by  the  bank  on  shares  of  a 
stockholder  given  by  the  charter,  but 
can  only  be  raised  by  the  state  in* 
a  direct  proceeding.  Boyd  v.  Redd, 
120  N.  C.  335,  58  Am.  St.  Rep.  792,  27 
S.    E.   35. 

79.  Retroactive  effect  of  statutes. — 
Though  Act  Oct.  21,  1891,  §  1,  declares 
that  all  banking  companies  hereafter 
chartered  in  this  state  shall  have  the 
powers  hereinafter  specified,  the  word 
"hereafter"  should  not  be  construed 
as  rendering  the  fourth  section,  as 
amended  December  20,  1893,  whereby 
liens  are  created  in  favor  of  banking 
companies  for  debts  due  to  them  by 
stockholders  on  stock  held  by  the  lat- 
ter, operative  as  to  stock  already  issued 
by  a  banking  company  chartered 
under  the  provisions  of  the  first  act, 
prior  to  its  amendment.  Southern 
Banking,  etc.,  Co.  t.  Fidelity  Banking, 
etc.,  Co.,  105   Ga.  487,  33   S.   E.  639. 

A  banking  corporation  chartered  by 
the  state  of  North  Carolina  by  special 
act  purchased  a  iiote  given  by  one  of 
its  stockholders  to  a  third  party,  and 
secured  by  a  pledge  of  his  stock  as 
collateral.  Sul)scc|uently  the  corpora- 
tion purchased  the  stock  from  pledgor 
at  an  agreed  valuation.  Held,  that 
Pub.  Laws  N.  C.  1903,  p.  469,  c.  275. 
giving  corporations  organized  there- 
under a  lien  upon  their  stock  for  the 
indebtedness  of  a  stockholder,  did  not 
apply  to  such  corporation,  and  that 
it  had  no  lien  on  the  proceeds  of  the 
pledged    stock    in    excess    of    that     re- 


128 


BANKS    AND    BANKING. 


§  42  (Ibd) 


by-law. ^0  Where  the  board  of  directors  of  a  bank  is  authorized  to  pre- 
scribe the  mode  of  transacting,  managing  and  conducting  the  affairs  and 
business  of  the  bank,  the  bank  has  an  implied  right  to  reserve  a  lien  on 
its  stock  owned  by  its  debtors.'^ ^ 

Compliance  with  Charter  Requirements. — The  requirements  of  the 
charter  respecting  the  enactment  of  such  by-law  and  notice  thereof  in  the 
certificates  of  stock  must  be  complied  with.^^ 

Validity  between  Corporators. — A  by-law  which  asserts  a  lien  on 
the  stock  of  members  of  a  banking  corporation  for  debts  due  the  bank,  is 
as  between  the  corporators  themselves,  valid  and  binding.^^ 

Validity  against  Creditors,  Assignors  and  Pledgors  of  Holders. 
— See  post,  "Assignee  and  Purchasers,"  §  42  (2db)  ;  "Pledgee."  §  47  (8d)  ; 
"Creditors  and  Purchasers  at  Judicial  Sales." 

§  42  (Ibd)  Contract  or  Stipulation  in  Certificate. — A  lien  to  se- 
cure the  indebtedness  of  its  shareholders  may  be  reserved  by  contract  be- 
tween a  bank  and  its  stockholders.^-*  A  banking  corporation  may,  by  an 
express  stipulation  in  the  certificate  of  stock  by  it  issued,  reserve  a  valid 
lien  upon  the  stock  to  secure  the  debts  of  the  holder  to  it.'^^     And  where 


quired  to  pay  the  secured  note  for 
other  indebtedness  on  which  the  stock- 
holder was  bound  as  indorser.  In  re 
Mills  Co.  (D.  C),  162  Fed.  42, 

80.  Reservation  by  a  by-law. — Belle- 
vue  Bank  z:  Higbee,  4  O.  C.  C.  222.  2 
O.  C.  D.  512.  affirmed  in  28  Wkly.  L. 
Bull.  336;  Stafford  v.  Produce  Exch. 
Banking  Co.,  16  O.  C.  C.  50,  8  O.  C.  D. 
483;  Brent  v.  Bank  (U.  S.),  10  Pet. 
596,  9  L.   Ed.   547. 

81.  Stafford  v.  Produce  Exch.  Bank- 
ing Co.,  61  O.  St.  160,  55  N.  E.  162, 
76  Am.  St.  Rep.  371.  affirming  16  O.  C. 
C.  50,  8  O.  C.  D.  483;  Bellevue  z:  Hig- 
bee,  4  O.  C  C.  222,  2  O.  C.  D.  512,  af- 
firmed in  28  Wkly.  L.  Bull.  336. 

A  bank  in  Ohio,  chartered  and 
known  as  a  savings  and  loan  associa- 
tion, has  power  to  create  a  lien  in  its 
own  favor  upon  its  stock  at  the  time 
it  issues  the  same.  Stafford  7'.  Pro- 
duce Exch.  Banking  Co.,  16  O.  C.  C. 
50,  8  O.   C.   D.   483. 

82.  Compliance  with  charter  re- 
quirements.— A  by-law  authorized  by 
a  bank  charter  that  "the  stock  of  the 
company  shall  be  assignable  only,  on 
the  books  of  the  company,  and  no 
transfer  of  stock  shall  be  made  by  any 
stockholder  who  shall  be  indebted  to 
the  company;  and  certificates  of  stock 
shall  contain  upon  them  notice  of  this 
provision" — will  not  render  an  assign- 
ment of  stock  by  a  stockholder  as  col- 
lateral security  liable  to  the  debt  due 
the    bank    by    the    stockholder,    where 


the  certificate  of  stock  only  contained 
a  notice  that  it  was  transferable  at 
the  office  of  the  company  in  person  or 
by  attorney,  and  the  transferee  had 
no  knowledge  of  such  by-law.  Bank 
V.  Pinson,  58  Miss.  421,  38  Am.  Rep. 
330. 

83.  Validity  between  corporators.— 
Tuttle  z:  Walton,  1   Ga.  43. 

84.  Reservation  by  contract  or  stipu- 
lation in  certificate. — Stafford  z\  Pro- 
duce Exch.  Banking  Co.,  61  O.  St.  160, 
55  N.  E.  162,  76  Am.  St.  Reo.  371.  af- 
firming 16  O.  C.  C.  50,  8  O.  CD.  483. 

85.  Stipulation  in  stock  certificate. — 
Stafford  v.  Produce  Exch.  Banking 
Co..  61  O.  St.  160,  70  Am.  St.  Rep.  37], 
55   N.   E.  162. 

A  provision  in  certificates  of  stock 
of  a  bank  that  the  stock  shall  not  be 
transferred  without  the  consent  of  the 
directors  by  any  stockholder  who  shall 
be  indebted  to  the  bank  is  not  injurious 
to  the  corporation,  and  hence  a  stock- 
holder can  not  sue  on  behalf  of  him- 
self and  the  other  stockholders  to  com- 
pel the  bank  to  strike  that  provision 
from  the  certificates.  Judgment  (1896) 
39  N.  Y.  S.  623,  6  App.  Div.  62,.  af- 
firmed. Reynolds  v.  Bank,  158  N.  Y. 
740,   53   N.   E.   1131. 

Ohin. — The  notice  "not  transferable 
by  any  stockholder  liable  to  this  com- 
pany as  principal  debtor  or  otherwise, 
without  consent  of  the  board  of  direct-^ 
ors,"  printed  on  the  back  of  a  certifi- 
cate of  bank  stock,  is  sufficient  notice 


§  42  (Id) 


CAPITAL,    STOCK    AND    DIVIDENDS. 


129 


such  stipulation  is  unauthorized,  it  may  be  ratified  by  the  shareholder.^^ 

§  42  (Ic)  Stock  on  Its  Face  Transferable. — Where  a  corporation 
issues  a  certificate  of  its  stock,  stating  on  its  face  that  it  is  transferable, 
it  has  no  lien  thereon  for  debts  due  the  bank.^" 

§  42  (Id)  Stock  Held  in  Trust. — Where  the  stock  is  held  in  trust, 
to  the  knowledge  of  the  bank  through  its  directors,  there  can  be  no  lien 
unless  given  by  the  clear  and  positive  provisions  of  the  charter.'^^  The 
"holder"  against  whom  such  lien  is  given,  is  not  necessarily  restricted  to 
the  nominal,  but  may  be,  and  as  a  rule,  is  the  beneficial  holder.^^ 


of  the  lien.  Stafford  v.  Produce  Exch. 
Banking  Co.,  16  O.  C.  C.  50,  8  O.  C. 
D.  483,  affirmed  in  61  O.  St.  160,  55 
N.  E.  162. 

86.  Ratification. — The  unauthorized 
act  of  the  directors  of  a  bank  in  in- 
serting in  the  certificates  of  stock  a 
clause  that  it  shall  not  be  transferred 
without  the  consent  of  the  directors, 
by  any  stockholder  who  shall  be  in- 
debted to  the  bank,  is  ratified  by  a 
stockholder  who,  at  various  times  dur- 
ing several  years,  purchased  stock, 
and  received  such  certificates  without 
objection.  Judgment  39  N.  Y.  S.  623, 
6  App.  Div.  62,  affirmed.  Reynolds  v. 
Bank,   158    N.    Y.   740,   53    N.    E.    1131. 

87.  Stock  on  its  face  transferable. — 
Fitzhugh  V.  Bank  (Ky.),  3  T.  R.  Alon. 
126,   16  Am.    Dec.   90. 

88.  Stock  held  in  trust. — Mechanics' 
Bank  v.  Seton  (U.  S.),  1  Pet.  299,  7  L. 
Ed.   152. 

Notice  to  the  board  of  a  bank,  when 
stock  was  transferred  to  a  person,  that 
he  held  it  as  trustee  only,  was  notice 
to  the  bank;  and  no  subsequent  change- 
of  directors  could  require  a  new  notice 
of  this  fact.  So  that,  if  the  bank  has 
sustained  any  injury,  by  reason  of  a 
subsequent  board  not  knowing  that 
such  person  held  the  stock  in  trust,  it 
would  result  from  the  negligence  of 
its  own  agents,  and  could  not  be  visited 
upon  the  complainants.  Mechanics' 
Bank  v.  Seton  (U.  S.),  1  Pet.  299,  7 
L.  Ed.  152. 

If  the  bank  was  chargeable  with 
the  knowledge  that  a  holder  of  stock 
was  a  mere  trustee,  it  could  acquire 
no  title  from  him,  discharged  of  the 
trust;  and  if  necessary,  might  itself 
be  compelled  to  execute  the  trust.  Nor 
has  the  bank  any  title  to  such  stock, 
under  a  transfer  made  by  its  cashier 
by  virtue  '  of  a  power  of  attorney 
Riven  by  the  trustee.  Mechanics' 
Bank  V.  Seton  (U.  S.),  1  Pet.  299,  7 
L.  Ed.  1.52. 

89.  The    act    incorporating    the     Mc- 
1   B  &  B— 9 


chanics'  Bank  of  Alexandria  (section 
3),  after  providing  for  the  opening  of 
the  subscription  books,  and  pointing 
out  the  manner  in  which  the  excess 
shall  be  reduced  in  case  the  subscrip- 
tion for  shares  shall  exceed  the  num- 
ber of  shares  allowed,  provides  that 
■'all  the  subscriptions  and  shares  ob- 
tained in  consequence  thereof  shall  be 
deemed  and  held  to  be  for  the  sole  and 
exclusive  use  of  the  persons  *  *  *  sub- 
scribing." Section  21  provides  that 
shares  shall  not  be  transferable  while 
the  holder  thereof  is  indebted  to  the 
bank.  Held,  that  the  third  section  ap- 
plies only  to  the  first  subscription  to 
stock,  and  was  intended  to  prevent 
one  person  from  subscribing  for  stock 
in  the  name  of  another  for  his  own 
benefit;  and  that,  therefore,  where 
stock  is  held  in  trust,  the  fact  of  the 
trust  being  known  to  the  bank,  it  will 
have  no  lien  on  the  stock  for  his  debt. 
?^lechanics'  Bank  v.  Seton  (U.  S.),  1 
Pet.  299,  7  L.  Ed.  152,  distinguishing 
Union  Bank  v.  Laird,  2  Wheat.  390,  4 
L.  Ed.  269,  as  being  a  case  where  the 
debtor  was  the  real  as  well  as  nominal 
owner  of  the  shares. 

It  is  not  a  correct  construction  of 
the  3d  and  21st  sections  of  the  act  of 
congress,  incorporating  the  Mechanics' 
Bank  of  Alexandria,  that  the  stock  of 
the  bank  shall  be  deemed  to  belong 
.to  the  persons  in  whose  names  it 
stands  upon  the  books  of  the  bank, 
and  that  the  bank  is  not  bound  to 
recognize  the  interests  of  any  cestui 
que  trust,  and  may  refuse  to  permit 
the  stock  to  be  transferred,  whilst  the 
nominal  holder  is  indelitcd  to  the  bank. 
Mechanics'  Bank  v.  Seton  (U.  S.),  1 
Pet.  299,  7  L.   Ed.   152. 

The  third  section  applies  to  the  first 
sul)scription  for  the  stock,  and  was 
intended  to  prevent  one  person  sub- 
scril)ing  for  stock  in  the  name  of 
another,  for  his  own  benefit.  Mechan- 
ics' Bank  v.  Seton  (U.  S.),  1  Pet.  299, 
7  L.  Ed.  152. 


130 


BANKS    AND    BANKING. 


§  42  (Ig) 


§  42  (le)  Shares  Pledged  to  the  Bank. — Where  a  bank  has  a  gen- 
eral hen  upon  the  shares  of  its  stockholders  for  debts  due  the  bank,  the 
bank  has  such  general  lien  on  shares  pledged  to  it  to  secure  the  payment 
of  a  particular  debt  or  note/*"  aliter  where  the  bank  has  no  general  lien.^^ 

Certificate  for  Amount  of  Canceled  Stock. — See  post,  "Assignees 
and  Purchasers,"  §  42   (2db). 

§  42    (If)   Bank  Prohibited  from   Dealing  in  Its   Own   Stock.— 

A  by-law  inconsistent  with  a  statute  prohibiting  a  bank  from  dealing  in 
its  own  stock  is  void.'*-  A  bank's  lien  given  by  a  statute  or  its  charter  is 
not  inconsistent  with  or  defeated  by  a  prohibition  against  dealing  in  its 
own  stock,'''^  unless  such  prohibition  is  by  general  statute  enacted  after  the 
adoption  of  a  by-law  creating  such  lien.^^ 

§  42  (Ig)  Death  of  Stockholder.— The  death  of  a  stockholder 
neither  creates^^  nor  divests^^  a  lien  upon  his  stock  for  his  indebtedness 
to  the  bank. 


90.  Shares  pledged  to  the  bank. — It 

was  so  held  where  the  shares  were 
pledge  with  other  securities.  In  re 
Peebles,  Fed.  Cas.,  Xo.  10,902,  2 
Hughes  394. 

91.  Where  a  private  banking  associa- 
tion, having  no  general  lien  on  the 
shares  of  its  members,  receives  from 
one  of  the  latter  his  stock  to  secure 
a  particular  liability,  the  bank  has  no 
lien  on  the  stock  for  other  claims. 
Neale  v.  Janney,  2  Cranch,  C.  C.  188, 
Fed.    Cas.    No.    10,069. 

92.  Bank  prohibited  from  dealing  in 
its  own  stock. — A  testatrix  held  five 
shares  of  stock  in  the  defendant  bank, 
incorporated  under  the  laws  of  the 
state,  which  her  executor  assigned  to 
plaintiffs,  who  applied  to  defendant  to 
issue  to  them  a  certificate  for  the 
shares  which  had  stood  in  the  name  of 
the  testatrix.  The  defendant  refused 
to  do  so,  claiming  a  lien  on  the  stock 
by  reason  of  a  debt  of  testatrix  arising 
from  a  loan  made  to  a  certain  person 
with  testatrix  as  surety,  which  loan 
the  principal  debtor  had  not  paid,  and 
the  insolvency  of  the  estate  of  testa- 
trix. The  bank  had  adopted  a  by-law 
that  no  transfer  of  stock  should  be 
made  while  the  holder  was  indebted 
to  the  bank,  to  the  prejudice  of  the 
lien  held  by  the  bank  to  secure  the 
debt.  Section  581,  Ky.  St.  (Russell's 
St.  §  2170),  provides  that  no  bank  shall 
take  as  security  for  any  loan  or  dis- 
count a  lien  upon  any  part  of  its 
capital  stock.  Held,  that  the  by-law 
was  inconsistent  with  the  statute  and 
invalid.  Corydon  Deposit  Bank  v. 
McClure,   141    Ky.   481,   133    S.   W.   201. 


93.  Lien  not  defeated  by  prohibition 
against  dealing  in  own  stock. — Where 
a  statute  or  charter  giving  a  bank  a 
lien  or  the  right  to  reserve  a  lien  on 
its  stock  owned  by  its  debtors,  a  pro- 
vision prohibiting  the  bank  from  deal- 
ing in  its  own  stock  or  taking  such 
stock  as  security  for  a  loan  is  not  in- 
consistent with  the  provision  respect- 
ing the  lien.  Stafford  v.  Produce  Exch. 
Banking  Co.,  16  O.  C.  C.  50,  8  O.  C. 
D.  483,  afiirmed  in  61  O.  St.  160,  55 
N.  E.  162;  Conant.  etc.,  Co.  v.  Reed,  1 
O.    St.   298. 

94.  The  Act  of  18S1  (Laws  1881,  c. 
77),  prohibiting  banks  organized  under 
the  laws  of  the  state  from  making 
loans  or  discounts  on  the  security  of 
the  shares  of  their  capital  stock,  is 
effectual  to  prevent  a  bank  from  hav- 
ing a  lien  on  the  shares  of  a  stock- 
holder for  a  debt  thus  created  after 
that  enactment,  though  a  by-law  be- 
fore adopted  had  provided  for  such  a 
lien.  Nicollet  Nat.  Bank  v.  City  Bank, 
38  Minn.  85,  35  N.  W.  577.  8  Am.  St. 
Rep.   643. 

95.  Where  bank  has  no  general  lien. 
— A  stockholder  of  a  bank  which  was 
not  a  bank  of  issue,  and  whose  charter 
did  not  provide  for  its  having  a  Hen 
upon  stock  for  debts  due  from  stock- 
holders, died  owing  the  bank.  Held, 
that  the  stock  passed  to  the  adminis- 
trator of  deceased,  free  from  any  lien 
in  favor  of  the  bank.  Merchants' 
Bank  v.  Shouse  (Pa.).  14  Wkly.  Notes 
Cas.   133. 

96.  In  re  Henry's  Estate  (Pa.),  33 
Pittsb.  Leg.  J.  241.  16  Pittsb.  Leg.  J., 
X.  S.,  241. 


§  42  (2c) 


CAPITAL,    STOCK    AND    DIVIDENDS. 


131 


§  42    (2)   Nature,  Operation  and  Effect— §  42    (2a)  In  General. 

The  lien  of  a  bank  on  the  stock  of  its  debtor  to  secure  his  debt  is  a  lien 

created  by  law,^'^  on  personal  property ,^^  and  is  only  entitled  to  a  prefer- 
ence similar  to  that  allowed  partnership  over  individual  creditors. ^'^ 

§  42  (2b)  As  Extending  to  Dividends. — The  bank's  lien  extends 
to  dividends  as  well  as  to  shares,  though  only  shares  of  stock  be  specifically 
named. ^  The  bank's  lien  does  not  extend  to  dividends  declared  after  the 
bank  has  received  notice  of  an  assignment  of  the  stock. - 

§  42  (2c)  Debts  Secured. — Generallndebtedness. — The  bank's  lien 
on  the  shares  of  its  stock  is  to  secure  the  general  indebtedness  of  a  stock- 
holder,^  as  principal  debtor^  and  contingent  liabilities.^  as  drawer,"  indorser/ 


97.  Nature,  operation  and  effect. — It 

was  so  held  as  to  a  charter  lien.  German 
Security  Bank  v.  Jefferson  (Ky.),  10 
Bush  326. 

98.  Since  the  law  makes  bank  stock 
personal  property,  and  it  is  to  be  dealt 
with  as  personal  property,  any  lien 
upon  it  must  accomplish  the  same  ob- 
jects and  the  same  purposes  that  a 
lien  upon  personal  property  accom- 
plishes. Stafford  v.  Produce  Exch. 
Banking  Co.,  16  O.  C.  C.  50,  8  O.  C.  D. 
483. 

99.  German  Security  Bank  v.  Jeffer- 
son (Ky.),  10  Bush  326. 

1.  Lien  on  dividends. — Bank  v.  Bank, 
5  O.  Dec.  339. 

A  bank  has  the  right  to  hold  a  cash 
dividend  on  stock  as  pledged  for  the 
indebtedness  of  the  stockholder  to 
the  bank.  Hagar  v.  Union  Nat.  Bank, 
63   Me.   509. 

The  Bank  of  Washington  has  no 
specific  lien  upon  the  dividends  of  its 
stockholder,  in  consequence  of  its 
right  to  prevent  a  transfer  of  the  stock, 
until  his  debt  to  the  bank  should  be 
paid.  Brent  v.  Bank,  Fed.  Gas.  No. 
1,834,  2  Cranch   C.  C.  517. 

A  bank's  right  to  apply  the  dividends 
accruing  upon  the  shares  of  a  stock- 
holder against  indebtedness  of  a 
stockholder  to  the  bank,  for  the  divi- 
dend is  a  simple  debt,  owing  from  the 
corporation  to  the  stockholder.  First 
Nat.  Bank  v.  De  Morse  (Civ.  /\pp.),  26 
S.  W.  417,  citing  Continental  Nat. 
Bank  v.  Weems,  69  Tex.  489,  6  S.  W. 
802. 

2.  Though  a  by-law  of  a  bank  sub- 
jected to  a  lien  the  stock  of  any  mem- 
ber who  owed  the  bank  anything, 
where  a  stockholder  assigned  his  stock 
so  as  to  give  the  assignee  an  equitable 
interest   therein,   the   Ijank  has   no  lien 


thereon,  so  as  to  hold  the  dividends 
in  satisfaction  of  a  loan  made  to  the 
original  subscriber  after  it  had  knowl- 
edge of  the  assignment  of  the  stock. 
Nesmith  v.  Washington  Bank  (Mass.), 
6    Pick.    324. 

3.  General  indebtedness. — In  re  Mor- 
rison, Fed.  Cas.  No.  9,839;  Citizens' 
State  Bank  v.  Kalamazoo  County 
Bank,   111   Mich.  313,   69   N.   W.   663. 

Act  March  21,  1814,  §  7,  providing 
that  a  stockholder  indebted  to  a  bank 
shall  not  transfer  his  stock  or  re- 
ceive a  dividend  until  his  debt  has 
been  discharged,  does  not  apply  solely 
to  debts  contracted  on  account  of 
original  stock  subscriptions,  but  ap- 
plies to  all  debts  of  stockholder  to  the 
bank.  Rogers  v.  Huntington  Bank 
(Pa.).  12  Serg.  &  R.  77. 

4.  Unpaid  notes. — The  Bank  of  Po- 
tomac has  a  lien  upon  its  stock  in 
the  hands  of  a  stockholder  whose 
notes  are  lying  over,  unpaid.  Burford 
V.  Crandell,  Fed.  Cas.  No.  2.150.  2 
Cranch,   C.   C.   86. 

Indorsed  note. — .\  bank  has  a  lien 
on  its  stock  for  indebtedness  of  the 
stockholder  on  a  note  executed  by  liim 
to  the  bank,  notwithstanding  that 
there  is  an  indorser  on  the  note.  In 
re    Morrison,    Fed.    Cas.    No.    9,839. 

5.  Leggett  v.  Bank,  24  N.  Y.  283. 

6.  Lyman  7-.  State  Bank,  179  N.  Y. 
577,   72    N.   F.   1145. 

7.  Indorser. — Where  a  bank's  cliartcr 
prohiliitcd  a  transfer  of  its  shares  by 
a  stocklioldcr  indebted  to  the  bank 
until  his  liability  was  paid,  such  pro- 
vision creates  a  valid  lien  on  the  stock 
of  a  shareholder  under  a  contingent 
lial)ility  to  it  as  indorser,  as  against 
an  assignee  of  the  stock  with  notice, 
who  gave  the  bank  no  notice  of  his 
claim    until    the    indorser's   liabilitv   has 


132 


BANKS    AND    BANKING. 


§  42  (2c) 


surety,^  or  otherwise,  or  if  due  and  unpaid,^  and  in  some  cases  to  become 
due  at  a  future  time.^"^  The  statute  may  require  the  note,  etc.,  to  be  pro- 
tested before  the  lien  attaches. ^^ 

Stock  Debts  and  Notes. — Stock  debts  or  stock  notes  are  secured  by 
the  bank's  lien.^- 

Overdrafts. — Balances  due  for  overdrafts  are  secured  by  the  bank's 
lien.^^ 

Partnership  or  Firm  Debts. — The  lien  of  a  bank  on  a  stock  certificate 
for  a  debt  of  the  registered  holder  extends  to  the  holder's  liability  to  the 
bank  on  a  debt  of  a  copartnership  of  which  he  is  or  has  been  a  member. ^^ 


become  fixed.  Leggett  Z'.  Bank,  24  N. 
Y.  283. 

Though  a  debt  due  a  bank  was  a 
note  on  which  the  debtor  was  an  in- 
dorser  merely,  and  his  liabiHty  did  not 
become  absolute  in  his  lifetime,  the  in- 
dorsement of  the  note  gave  the  bank 
an  inchoate  right  to  his  stock,  under 
the  provisions  of  its  charter  giving  a 
lien  on  its  stock  held  by  the  debtor, 
though  the  pledge  of  it  to  the  bank, 
did  not  become  absolute  until  the 
debt  became  payable.  Brent  v.  Bank, 
(U.  S.),  10  Pet.  596,  9  L.   Ed.   547. 

Within  the  charter  giving  to  a  bank 
a  lien  on  the  shares  of  any  stockholder 
"who  may  be  indebted  to  it,"  a  stock- 
holder is  indebted  to  the  bank,  though 
only  an  indorser  of  the  note  on  which 
the  bank  has  not  proceeded  against  the 
maker.  Bank  v.  Bonnie,  102  Ky.  343, 
19   Ky.  L.  Rep.   1372,  43   S.  W.  407. 

8.  Citizens'  State  Bank  v.  Kalama- 
zoo County  Bank,  111  Mich.  313,  69 
N.   W.   663. 

9.  National  Bank  v.  Watsontown 
Bank,  105  U.  S.  217,  221,  26  L.  Ed. 
1039. 

10.  A  provision  in  the  articles  of 
association  of  a  bank  that  no  share 
should  be  transferred  unless  the  holder 
should  pay  all  debts  due  the  bank  by 
him  includes  those  payable  at  a  future 
time.  Leggett  z'.  Bank,  24  N.  Y.  283, 
affirming  25   Barb.  326. 

0!:io. — Downer  z'.  Zanesville  Bank 
(O.),  Wright  477. 

Under  Act  March  21,  1914,  art.  11, 
§  7,  providing  that  no  stockholder  in- 
debted to  a  bank  can  transfer  his  stock 
or  receive  a  dividend  until  the  debt  is 
discharged,  the  bank  may  refuse  to 
permit  a  stockholder  who  is  the  maker 
of  a  note  discounted  to  the  bank  to 
transfer  his  stock  if  he  and  the  in- 
dorser are  insolvent,  though  the  note 
is  not  due  when  the  transfer  is  re- 
quested. Grant  v.  Mechanics'  Bank 
(Pa.),  15  Serg.  &  R.  140. 


11.  Brent  v.  Bank  (U.  S.),  10  Pet. 
596,   9    L.    Ed.   547. 

12.  Stock     debts     and     notes. — The 

stock  held  by  the  stockholders  of  the 
Real-Estate  Bank  is  a  security  for 
their  stock  debt,  and  may  be  sold  to 
satisfy  such  debt.  Duncan  v.  Biscoe, 
7   Ark.  175. 

A  bank,  under  a  by-law  prohibiting 
a  transfer  of  stock  by  one  indebted 
thereto,  has  a  lien  on  stock  to  secure 
stock  notes  of  a  stockholder.  In  re 
Morrison,    Fed.    Cas.   No.   9,839. 

13.  Overdrafts. — Under  a  charter  of 
a  bank  providing  that  the  stock  shall 
be  liable  for  all  debts  due  the  corpo- 
ration by  a  stockholder,  the  lien  at- 
taches for  balances  due  the  bank  for 
overdrafts,  but  not  on  notes  on  which 
the  stockholder  may  be  a  maker  or 
indorser  which  are  not  due  at  the  time 
the  transfer  is  made.  Reese  v.  Bank, 
14  Md.  271,  74  Am.   Dec.   536. 

14.  A  purchaser  of  registered  bank 
stock  can  not  compel  a  transfer  of  the 
stock  on  the  books  of  the  bank,  where 
the  former  owners  are  members  of  a 
firm  which  is  indebted  to  the  bank,  as 
3  How.  Ann.  St.,  §  3208a8,  provides 
that  no  transfer  of  stock  shall  be  valid 
against  a  bank  so  long  as  the  regis- 
tered holder  thereof  is  indebted  to 
the  bank.  Citizens'  State  Bank  v. 
Kalamazoo  County  Bank,  111  Mich. 
313,    69    N.    W.    663. 

The  debt  of  a  firm  to  a  bank  organ- 
ized under  49  Laws,  p.  41  (1  Swan  & 
C.  St.  p.  168),  is  a  dgbt  of  a  member 
of  the  firm,  who  is  a  stockholder  of 
the  bank,  within  §  11,  giving  such  a 
bank  a  lien  on  the  stock  of  its  debtors. 
Franklin  Bank  v.  Commercial  Bank,  5 
O.    Dec.  339. 

Under  Act  March  25,  1820,  art.  11. 
providing  that  no  stockholder  indebted 
to  the  bank  shall  be  authorized  to 
make  a  transfer  until  the  debt  be  dis- 
charged, the  bank  has  a  lien  on  the 
individual    stock   of   a   shareholder,   for 


§  42  (2da) 


CAPITAL,    STOCK    AND   DIVIDENDS. 


133 


Debts  Purchased  by  Bank. — The  lien  given  by  a  bank  charter  on  the 
shares  of  its  stockholders  to  secure  any  indebtedness  by  them  to  the  bank 
extends  only  to  indebtedness  directly  incurred  to  the  bank,  not  to  indebted- 
ness to  third  persons  acquired  by  it.^^ 

Where  colegatees  own  the  bequeathed  shares  in  severalty  the 
shares  of  one  are  not  liable  for  the  debts  of  the  other. ^*^ 

Indebtedness  of  Equitable  Assignee. — The  indebtedness  of  a  mere 
equitable  assignee  is  not  covered  by  the  bank's  lien  on  its  stock. ^" 

Debts  of  Second  Assignee. — Where  a  party  takes  an  assignment  of 
bank  stock  with  notice  of  a  prior  assignment  to  another  person,  and  has 
such  stock  transferred  to  him  on  the  books  of  the  bank,  the  bank,  also  hav- 
ing notice  of  the  prior  assignment,  can  not  assert  a  lien  against  the  stock 
for  debts  due  from  the  second  assignee. ^^ 

§  42  (2d)  Priorities  and  Rights  against  Persons  Dealing  with 
Stockholders — §  42   (2da)  General  Rule  as  to  Notice  of  Lien. — All 

persons  dealing  with  the  stockholders  of  a  bank  which  has  a  charter  lien 
upon  its  stock  to  secure    the    shareholder's  indebtedness  to  it,  must  take 


the  debts  of  his  firm.  Mechanics' 
Bank  v.  Earp  (Pa.),  4  Rawie  384. 

The  Act  of  March  25,  1820,  provides 
that  stockholders  of  a  bank  indebted 
to  it  for  a  debt  actually  due  and  un- 
paid shall  not  be  authorized  to  make 
a  transfer  until  such  debt  be  discharged 
or  security  given,  etc.  Held,  that  a 
bank  has  a  right  to  refuse  a  transfer 
of  the  stock  of  a  member  of  a  firm 
by  reason  of  a  debt  due  to  it  from  the 
partnership,  as  his  separate  property 
was  liable  for  the  debts  of  the  firm. 
Mechanics'  Bank  v.  Earp  (Pa.),  4 
Rawle  384. 

Death  of  partner. — Under  Act  May 
13,  1876,  relating  to  the  incorporation 
of  banks,  a  bank  has  a  lien  upon  the 
stock  of  a  deceased  shareholder  for 
the  amount  of  unpaid  notes  held  by  it, 
and  made  by  a  firm  of  w^hich  said 
shareholder  was  a  member,  and  matur- 
ing after  his  death.  In  re  Henry's 
Estate,  33  Pittsb.  Leg.  J.  241,  16  Pittsb. 
Leg.  J.,  X.  S.,  241. 

15.  The  lien  is  not  extended  to  notes 
of  a  shareholder  to  a  third  person, 
taken  by  the  bank  as  collateral  from 
such  person,  merely  by  the  fact  that 
the  stockholder  was  then  president  of 
the  I)ank.  Boyd  v.  Redd,  120  N.  C. 
335,  27   S.   E.  35,  58   Am.    St.   Rep.  792. 

16.  Debt  of  colegatee. — A  testator 
bequeathed  40  shares  of  bank  stock  to 
be  divided  equally  between  his  four 
sons.  During  the  minority  of  one  of 
the  sons,  the  bank,  with  notice  of  the 


will,  permitted  a  transfer  of  the  shares 
of  the  other  three,  who  were  then  in- 
debted to  it,  but  refused  to  allow  a 
transfer  of  the  remaining  shares  of 
the  minor  son  on  his  arriving  at  ma- 
jority, on  the  ground  that  two  of  the 
other  legatees  were  indebted  to  it. 
Held,  that  the  shares  were  not  owned 
by  the  legatees  in  common,  but  in  sev- 
eralty, and  that  the  Act  of  1824,  author- 
izing banks  to  refuse  to  transfer  its 
stock  so  long  as  the  stockholder  was 
indebted  to  it.^  did  not  authorize  the 
defendant  bank  to  refuse  to  transfer 
the  stock  of  the  younger  legatee  not 
indebted  to  it  because  of  the  indebted- 
ness of  the  others.  Presbyterian  Con- 
gregation  V.    Carlisle    Bank,   5    Pa.   345. 

17.  Indebtedness  of  assignee. — The 
owner  of  a  certificate  of  bank  stock, 
transferable  only  on  the  books  of  the 
bank,  in  person  or  by  attorney,  on 
surrender  of  the  certificate,  made  an 
assignment  thereof,  accompanied  by  a 
power  of  attorney  to  a  person  named. 
The  assignee  then  transferred  the 
same,  and  his  assignee  called  upon  the 
attorney  to  transfer  it  on  the  books, 
which  the  bank  refused  to  allow, 
claiming  a  lien  thereon  for  the  debt 
of  the  intermediate  assignee.  Held, 
that  the  intermediate  assignee  was  not 
a  stockholder,  and  therefore  the  bank 
had  no  lien.  Helm  v.  Svviggett,  12 
Ind.    194. 

18.  Debts  of  second  assignee. — Creed 
V.   Lancaster   Bank,    1    O.   St.   1. 


134 


BANKS    AND    BANKING. 


42   (2dbb) 


notice  of  and  are  bound  by  such  provision  of  the  charter.^^ 

§  42  (2db)  Assignees  and  Purchasers— ^§  42  (2dba)  In  Gen- 
eral.— A  bank's  hen  on  its  stock  for  the  indebtedness  of  a  shareholder 
can  not  be  divested  by  a  subsequent  assignment  thereof  by  such  share- 
holder.-o  The  title  acquired  by  the  delivery  of  the  stock  is  subject  to  the 
lien  of  the  bank.-^  The  transferee  of  bank  stock  is  not  entitled  to  priority 
as  a  bona  fide  purchaser  over  a  statutory  lien  existing  in  favor  of  the 
bank.22 

§  42    (2dbb)   Indebtedness  Incurred  before  Notice  of  Transfer. 

— The  lien  of  the  bank  upon  its  stock  is  superior  to  the  claim  of  one  to 
whom  such  stock  has  been  equitably  assigned  by  the  stockholder,  as  to  all 
indebtedness  of  such  stockholder  to  the  bank  incurred  before  the  bank 
received    notice    of     such     assignment,-^    although    such    indebtedness    was 


19.  Priorities  and  rights  against  per- 
sons dealing  with  stockholders. — Boh- 
mer  v.   Bank,  77  Va.  445. 

20.  Assignees  and  purchasers. — Mo- 
hawk Nat.  Bank  v.  Schenectady  Bank, 
78  Hun  90,  28  N.  Y.  S.  1100,  60  N.  Y. 
St.  Rep.  510;  Bellevue  Bank  v.  Higbee, 
4  O.  C.  C.  222,  2  O.  C.  D.  512;  Reese 
V.  Bank,  14  Md.  271,  74  Am.  Dec.  536. 

A  bank  was  incorporated  under 
Laws  1838,  c.  260,  which  provides 
(§  19)  that  its  shares  of  stock  shall 
be  transferable  on  the  books  in  such 
manner  as  may  be  agreed  on  in  the 
articles  of  association.  The  articles 
of  association  providing  for  the  trans- 
fer of  shares  declared  that  they  should 
be  deemed  pledged  and  held  in  se- 
curity by  the  bank  for  the  payment 
of  the  owner's  debt  to  it.  Held,  that 
the  bank,  on  making  a  loan  to  a  share- 
holder, acquired  a  vested  right  in  his 
shares,  which  could  not  be  devested 
by  a  subsequent  assignment  thereof 
by  the  shareholder.  Mohawk  Nat. 
Bank  v.  Schenectady  Bank,  78  Hun 
90,  28  N.  Y.  1100,  60  N.  Y.  St.  Rep.  510, 
affirmed  in  151  N.  Y.  665,  46  N.  E. 
1149. 

21.  Oakland  County  Sav.  Bank  v. 
State  Bank,  ns  :\Iich.  2S4.  71  N.  W. 
453,  67  Am.  St.  Rep.  463;  Mohawk  Nat. 
Bank  v.  Schenectady  Bank,  78  Hun. 
90,  28  N.  Y.  S.  1100,  60  N.  Y.  St. 
Rep.  510;  Cecil  Nat.  Bank  v.  Watson- 
town  Bank,  105  U.  S.  217,  26  L.  Ed. 
1039,   a   case   of  a   charter  lien. 

The  lien  of  a  bank  on  a  stock  certifi- 
cate issued  by  it  for  a  debt  of  the  reg- 
istered holder  which  is  due  and  un- 
paid at  the  time  of  a  demand  by  a 
purchaser  of  such  certificate  for  a 
transfer  thereof  on  the  books  of  the 
bank,    is    superior   to   the    right   of   the 


purchaser,  under  3  How.  St.,  §  3208a8, 
providing  that  no  transfer  of  stock 
shall  be  valid  against  a  bank,  nor 
shall  any  transfer  be  made  upon  its 
books,  so  long  as  the  registered  holder 
shall  be  liable  to  the  bank  for  a  debt 
which  is  due  and  unpaid.  Citizens' 
State  Bank  v.  Kalamazoo  County 
Bank,  111  Mich.  313.  69  N._W.  663. 

Donee  or  assignee  without  con- 
sideration.— Where  the  by-laws  of  a 
bank  authorize  its  directors  to  with- 
hold dividends  from  a  stockholder 
who  is  indebted  to  the  bank  until  his 
indebtedness  is  paid,  and  the  directors 
have  ordered  the  dividends  of  a  stock- 
holder to  be  withheld,  a  mere  donee 
of  such  dividends,  to  whom  they  were 
assigned  without  consideration  by 
such  stockholder,  can  not  recover 
them  from  the  bank  until  such  in- 
debtedness is  paid,  since  such  assignee 
had  no  better  claim  to  such  dividends 
against  the  bank  than  did  his  assignor, 
although  such  by-law  be  adopted  after 
the  issue  of  the  stock  and  unknown  to 
the  stockholder.  Bellevue  Bank  v. 
Higbee,  4  O.  C.  C.  222,  2  O.  C.  D.  512. 

22.  Transferee  not  bona  fide  pur- 
chaser.—Oakland  County  Sav.  Bank  r. 
State  Bank.  1]3  :\Iicb.  284,  71  N.  W.  453, 
67   Am.    St.    Rep.   463. 

23.  Indebtedness  incurred  before 
transfer. — Union  Bank  v.  Laird  (U.  S.), 
2  \\'heat.  390,  4  L.  Ed.  269.  See,  also, 
National  Bank  v.  Watsontown  Bank, 
105  U.  S.  217,  26  L.  Ed.  1039:  Peoples' 
Bank  v.  Exchange  Bank.  116  Ga.  820, 
43  S.  W.  269,  94  Am.  St.  Rep.  144;  Leg- 
gett  V.  Bank,  24  N.  Y.  283;  Franklin 
Bank  v.  Commercial  Bank.  5  O.  Dec. 
339;  Stafford  v.  Produce  Exch.  Bank- 
ing Co.,  61  O.  St.  160.  55  N.  E.  162,  76 
Am.    St.    Rep.    371,   affirming   16   O.    C. 


§  42  (2dbd)  CAPITAL,  stock  axd  dividends.  135 

incurred  after  the  assignment.-^ 

§  42  (2dbc)  Debts  Contracted  after  Notice  of  Assignment. — 
Debts  contracted  by  the  assignor  after  notice  to  the  bank  of  an  equitable 
assignment  of  his  stock  are  not,  as  against  the  assignee,  liens  upon  such 
stock.25 

What  Constitutes  Notice.— Knowledge  of  an  agent  of  a  bank  of  an 
assignment  of  shares  of  its  stock  officially  acquired  is  to  be  deemed  knowl- 
edge of  the  bank.-*^  Xotice  to  the  cashier  of  a  bank  of  an  assignment  of 
stock  is  notice  to  the  bank,-"  but  the  knowledge  of  the  president  when 
dealing  with  stock  owned  by  him  individually,  is  not  notice  to  the  bank.-^ 

§  42    (2dbd)    Loan  to   Stockholder  Larger    than    Authorized. — 

While  a  bank  which  has  violated  its  charter  by  allowing  a  stockholder  to 
borrow  a  sum  of  money  larger  than  that  which  it  was  authorized  to  loan 
him,  can  not,  as  against  an  assignee  of  such  stockholder,  assert  a  lien  for 
a  greater  amount  than  that  provided  for  in  its  charter;-^  yet  it  is  not  the 
right  of  the  assignee,  if  unwilling  to  himself  pay  the  amount  necessary  to 
discharge  the  lien,  to  demand  a  transfer  of  the  stock  on  the  books  of  his 
bank  until  his  assignor  has  fully  paid  all  of  his  indebtedness  to  the  bank 
which  was  contracted  prior  to  the  date  it  received  notice  that  he  had  as- 
signed his  stock.30  Ijj  ajj  accounting  to  determine  whether  such  indebted- 
ness has  been  fully  paid  off,  the  sole  inquiry  should  be  whether  or  not  the 
bank  has  applied  payments  made  by  the  assignor  as  he  directed,  or,  in  the 
absence  of  any  direction  on  his  part,  in  the  manner  prescribed  by  law.^^ 
The  assignee  has  no  right  to  insist  that  payments  shall  be  applied  other- 

C.  50,  8   O.   C.   D.  483;   Bellevue   Bank  2()9,  9-4  Am.  St.  Rep.  144;  Conant,  etc., 
v.    Higbee,  4  O.    C.  C.  222,  2  O.  C.    D.  Co.  f.  Reed,  1  O.  St.  298. 
512;   Lee  v.   Citizens'    Nat.   Bank,   5   O.  26.  What  constitutes  notice.— Frank- 
Dec.    21;  S.  C,  2  Cin.    Rep.  298,  13    O.  lin    Bank    z:    Commercial    Bank,    5    O. 
Dec.  913.  Dec.  339. 

A  bank  organized  under  49  Laws.  p.  27.     Cashier. — Conant,     etc.,     Co.     v. 

41  (1  Swan  &  C.  St.  p.  168),  has  a  lien  Reed,   1    O.   St.  298. 

on  the  stock  of  its  stockholder  to  se-  28.  The  knowledge  of  the  president 
cure  his  indebtedness  to  it  incurred  of  a  bank  in  assigning  shares  of  stock 
before  notice  of  the  assignment  of  the  owned  by  him  individually  is  not 
stock  by  him,  as  section  11  gives  such  knowledge  to  the  iKuik,  so  as  to  de- 
bank  "a  lien  upon  all  stock  of  its  prive  it  of  a  lien  thereon,  under  49 
debtors."  Franklin  Bank  v.  Commcr-  Laws,  p.  41  (1  Swan  &  C.  St.  p.  lOS). 
cial  Bank,  5  O.  Dec.  339.  for    an    indebtedness    of    the    president 

24.  A  bank's  lien  on  its  stock  reserved  to  the  bank  incurred  subsequent  to 
by  a  stipulation  in  the  stock  certifi-  such  assignment.  Franklin  Bank  7'. 
cates  may  be  asserted  against  a  trans-  Cnniniercial  Bank,  5  ().  Dec.  Rep.  339. 
feree  who  receives  the  stock  before,  2^.  Loan  to  stockholder  larger  than 
but  does  not  present  it  for  transfer  on  authorized. — People's  Bank  v.  Ex- 
the  stock  book  of  the  company  until  change  Bank,  IIG  Ga.  820,  43  S.  E.  269, 
after,   the   original    holder   becomes   in-  94  Am.   St.   Rep.  144. 

debted  to  the  corporation.     Stafford  7'.  30.      People's      Bank  v.      Exchange 

Produce   Kxch.   Banking  Co.,  61    O.   St.  P.ank,  116  Ga.  820,  13  S.  E.  269,  9  1  Am. 

160,  76  Am.   St.   Rep.  371,  55   N.   E.  162.  St.    Rep.    144. 

25.  Debts  contracted  after  notice  of  31.  People's  Bank  zf.  Excliange 
assignment.— People's  Bank  v.  Ex-  Bank,  116  Ga.  820,  43  S.  E.  269,  94  Am. 
change    Bank,    116    Ga.    820,    43    S.    E.  St.   Rep.  144. 


136 


BANKS    AND    BANKING. 


§  42  (2dc) 


wise  than  as  the  assignor  directed,  or  that  a  credit  voluntarily  given  to  him 
by  the  bank  to  which  he  was  not  entitled  shall  go  to  the  extinguishment 
of  a  debt  arising  before  it  received  notice  that  he  had  assigned  his  stock, 
rather  than  to  the  discharge  of  an  indebtedness  thereafter  contracted  by 
him.-^- 

§  42  (2dbe)  Certificate  for  Repayment  of  Cancelled  Stock.— 
The  bank's  lien  does  not  apply  to  a  certificate  for  the  repayment  of  the 
amount  of  certain  cancelled  stock,  after  an  assignment  of  such  certificate, 
although  no  notice  of  the  transfer  had  been  given.^s 

§  42  (2dc)  Pledgees.— A  pledgee  of  bank  stock  as  collateral  secu- 
rity, is  chargeable, with  notice  of  and  takes  subject  to  the  bank's  lien,^^  for 
an  assessment,25  for  an  indebtedness  existing  when  the  pledge  was  made,^^ 


32.  People's  Bank  v.  Exchange  Bank, 
116  Ga.  830,  43  S.  E.  269,  94  Am.  St. 
Rep.   144. 

33.  Certificate  for  repayment  of  can- 
celled stock. — A  bank  issued  a  certifi- 
cate for  the  repayment  to  a  stock- 
holder of  the  amount  of  certain  stock 
canceled,  which  certificate  was  trans- 
ferred by  the  holder  for  value.  After- 
wards the  bank  made  a  loan  to  the 
stockholder,  on  the  supposition  that  he 
still  held  the  certificate.  Held,  that 
the  bank  had  no  lien  on  the  certificate 
as  against  the  assignee,  though  no 
notice  of  the  transfer  had  been  given 
it.     Callanan  z>.  Edwards,  32  N.  Y.  483. 

34.  Pledgee. — A  bank  charter  pro- 
vided that  "the  bank  shall  have  a  lien 
prior  to  all  others  upon  any  stock  held 
by  a  stockholder  for  any  debt  of  said 
stockholder  to  said  bank."  Held,  that 
a  party  to  whom  a  stockholder  pledged 
his  stock  was  affected  with  notice  of 
this  provision  of  the  charter.  Bohmer 
V.  City  Bank,  77  Va.  445. 

The  charter  of  the  bank  provided 
that  the  bank  should  have  a  lien  prior 
to  all  others  on  any  stock  held  by  a 
stockholder  for  any  debt  of  the  stock- 
holder to  the  bank.  The  stock  certifi- 
cates contained  no  notice  of  the  lien, 
but  declared  that  they  were  transfer- 
able only  on  the  books  of  the  bank 
on  the  surrender  of  the  certificate.  A 
stockholder  indebted  to  the  bank  bor- 
rowed money  from  a  third  person,  and 
gave  him  the  certificate  as  collateral, 
with  power  to  transfer  the  stock.  The 
stockholder  became  bankrupt,  and  the 
lender  applied  to  the  bank  to  trans- 
fer the  stock.  Held,  that  the  lien  of 
the  bank  on  the  stock  was  paramount 
to  that  of  the  lender,  and  the  bank 
had  the  right  to  be  first  satisfied  be- 
fore   transferring    the     stock     to     the 


lender,  and  if  the  lender  chose  to  hold 
the  stock,  he  held  subject  to  the  bank's 
lien.  Bohmer  v.  City  Bank,  7  Va.  445. 
Lien  for  levy  to  make  good  impair- 
ment of  capital  stock. — Under  Ky.  St., 
§  586  (Russell's  St.,  §  2175,  authorizing 
the  secretary  of  state  to  require  a 
bank  whose  capital  stock  is  impaired 
to  make  good  the  impairment  by  an 
assessment  on  the  stockholders,  and 
§  580  (§  2169),  authorizing  the  direc- 
tors, on  the  failure  of  a  stockholder 
to  pay  any  installment  on  the  stock 
when  requested,  to  sell  sufficient  stock 
to  pay  the  amount  due,  or  to  collect 
the  amount  due  by  action,  or  to  forfeit 
the  amount  paid  and  sell  or  cancel  the 
stock,  a  bank  making  an  assessment 
to  make  good  an  impairment  of  capital 
stock  may  assert  a  lien  on  the  stock  to 
secure  the  payment  of  the  assessment, 
and  the  lien  may  be  enforced  against 
a  pledgee  of  the  stock  receiving  it 
without  notice  of  the  condition  of  the 
bank  and  advancing  money  under  the 
belief  that  he  is  fully  protected  by  the 
stock.  Corbin  Banking  Co.  v.  Mitchell, 
141    Ky.   172,  132   S.  W.   426. 

35.  Directors  levying  assessment 
where  capital  stock  impaired. — Where 
the  secretary  of  state,  as  authorized 
by  Ky.  St.  §  586  (Russell's  St..  §  2175), 
ordered  a  bank  whose  capital  stock 
was  impaired  to  have  the  impairment 
made  good  by  assessment  on  the 
stockholders,  the  board  of  directors 
levying  an  assessment  could  adopt  a 
by-law  giving  the  bank  a  lien  on 
shares  of  stock  on  the  non-payment  of 
the  assessment  and  enforce  it  against 
a  pledgee  of   stock;    the   action   of  the 

36.  Corbin  Banking  Co.  v.  Mitchell, 
141  Ky.  172,  132  S.  W.  426;  Curtice  v. 
Crawford   County   Bank,   110   Fed.   830. 


§  42  (2dd) 


CAPITAL,    STOCK    AND    DIVIDENDS. 


137 


or  incurred  subsequent  to  the  pledge  but  before  the  bank  had  notice  of  it;^^ 
but  the  lien  of  a  pledgee  of  bank  stock  as  collateral  security,  acquired  be- 
fore the  stockholder  becomes  indebted  to  the  bank,  will  prevail  over  a 
lien  given  the  bank  to  secure  its  debt,  where  the  bank  before  or  at  the  time 
its  debt  was  contracted  had  notice  of  the  pledge,  and  the  burden  of  proving 
notice  is  upon  the  pledgee. ^^ 

§  42  (2dd)  Creditors  and  Purchasers  at  Execution  or  Sheriff's 
Sale. — The  bank's  lien  is  superior  to  that  of  a  judgment  creditor  who  has 
levied  upon  the  judgment  debtor's  stock,^^  or  to  the  right  of  a  purchaser 


board  being  reasonable  and  fair  to  all 
stockholders  and  all  not  stockholders, 
but  in  possession  of  stock.  Corbin 
Banking  Co.  v.  Mitchell,  141  Ky.  172, 
132  S.  W.   426. 

37.  Stafford  v.  Produce  Exch.  Bank- 
ing Co.,  16  O.  C.  C.  50,  8  O.  C.  D. 
483,  afifirmed  in  61  O.  St.  160,  55  N.  E. 
162,  76  Am.  St.  Rep.  371;  Curtice  v. 
Crawford  County  Bank,  56  C.  C.  A. 
174.   118   Fed.   390. 

38.  Bank  having  notice  of  pledge. — 
Curtice  v.  Crawford  County  Bank,  110 
Fed.  830;  Curtice  r.  Crawford  County 
Bank,  56  C.  C.  A.  174,  118  Fed.  390; 
People's  Bank  v.  Exchange  Bank,  11(5 
Va.  820,  43  S.  E.  269,  94  Am.  St.  Rep. 
144. 

It  was  so  held  as  to  a  stockholder 
in  a  bank  who  pledged  his  stock  as 
collateral  security  to  a  third  person 
by  a  written  assignment  and  delivery, 
notwithstanding  a  statute  requiring 
transfers  to  be  made  on  the  books  of 
the  bank.  Curtice  v.  Crawford  County 
Bank,   110   Fed.   830. 

A  bank  charter  provided  that  the 
shares  of  capital  stock  should  be  per- 
sonal estate,  and  transferable,  but 
that  the  corporation  should  hold  a  lien 
on  the  shares  of  any  stockholder  "who 
may  be  indebted  to  it,"  and  the  stock 
should  not  be  transferred  until  such 
debt  was  paid.  A  stockholder  was  in- 
debted to  the  bank,  but  afterwards 
made  a  note  to  another  creditor,  and 
pledged  the  stock  as  collateral  se- 
curity. The  debtor  became  insolvent, 
and,  to  give  a  third  creditor  the  ad- 
vantage of  its  charter  lien,  the  bank 
gratuitously  advised  such  creditor  to 
have  the  notes  held  by  him  discounted 
by  the  bank,  knowing  of  the  prior 
hypothecation  of  the  stock.  Held  that, 
as  against  the  notes  discounted  by  the 
bank  after  the  hypothecation  r)f  the 
stock,  the  pledgee  had  a  prior  lien  on 
the  stock.  Bank  v.  Bonnie,  102  Ky. 
343.  19   Ky.  L.  Rep.  1372,  43  S.  W.  407. 

A  bank  stockholder  gave  her  note  to 


the  bank,  and  then  pledged  her  stock 
for  her  husband's  debt  to  another 
bank.  The  latter  bank  gave  the  first 
bank  notice  of  the  pledge.  The  first 
bank  claimed  a  lien  on  the  stock  to 
secure  the  note  by  virtue  of  a  by-law 
and  an  agreement  with  the  stock- 
holder. The  second  bank  had  no 
knowledge  of  either  agreement  or  by- 
law. Held,  that  the  first  bank  could 
not  assert  a  prior  lien.  Just  v.  State 
Savings  Bank,  132  Mich.  600,  94  N.  W. 
200. 

39.  Judgment,  execution  and  attach- 
ment liens. — The  lien  of  a  bank  on  its 
stock  for  a  debt  of  the  stockholder, 
under  Sand.  &  H.  Dig.,  §  1342,  declar- 
ing that  a  corporation  shall  at  all  times 
have  a  lien  on  the  stock  of  its  mem- 
bers for  debts  due  it  by  them,  is  not 
displaced  by  the  lien  of  an  execution 
levied  thereon,  though  §  1356  declares 
that  the  provisions  for  enforcement  of 
the  corporation's  lien  shall  not  affect 
any  other  lien  or  right  acquired  by  vir- 
tue of  a  levy  of  attachment  or  execu- 
tion on  the  stock,  since  §  1356  applies 
only  to  the  enforcement  of  the  lien, 
and  does  not  affect  its  priority.  Spring- 
field Wagon  Co.  7:  Bank,  68  Ark.  234, 
57   S.   W.   257. 

The  lien  acquired  by  a  liank  on  its 
stock,  under  Sand.  &  H.  Dig.,  §  1342, 
declaring  that  a  corporation  shall  at 
all  times  have  a  lien  on  the  stock  of 
its  members  for  debts  due,  is  superior 
to  that  acquired  by  a  subsequent  judg- 
ment creditor  by  virtue  of  the  levy  of 
an  execution,  and  a  judgment  creditor 
buying  bank  stock  at  its  execution  sale, 
with  notice  of  the  bank's  claim  of  a 
lien  thereon  for  an  indebtedness 
greater  than  the  stock's  value,  can  not 
compel  a  transfer  thereof.  Springfield 
Wagon  Co.  V.  Bank,  68  Ark.  234,  57 
S.  W.  257. 

Under  Act  1814,  art.  II,  wliioli  pro- 
vides that  no  stockholder  indebted  to 
the  bank  shall  make  a  transfer  or  re- 
ceive a  dividend  until   such   debt   is  dis- 


138 


BANKS    AND    BANKING. 


§  42  (2de) 


at  an  execution  or  sheriff's  sale.^^ 

§  42    (2de)   Right    to    Refuse    Transfer. — At  Common  Law. — At 

common  law  a  banking  corporation  has  no  Hen  on  its  stock  to  secure  indebt- 
edness of  a  stockholder  to  the  company,  and  could  not  refuse  to  transfer 
stock  owned  by  its  debtor  to  a  purchaser  from  him.^^ 

Where  Lien  Exists. — A  bank  which  has  under  a  statute  or  by  reason 
of  its  charter  or  legally  enacted  by-law,  a  lien  upon  the  stock  of  a  share- 
holder to  secure  an  indebtedness  from  him  to  it,  may  refuse  a  transfer  of 
his  stock  to  an  assignee,^-  or  to  a  pledgee  of  the  stock  as  collateral  se- 
curity,'*^  until  it  has  been  paid. 

Prohibition  of  Transfer  by  Statute. — A  transfer  of  bank  stock  on 


charged,  or  security  to  the  satisfaction 
of  the  directors  given  for  the  same,  a 
bank  has,  as  against  a  judgment  cred- 
itor who  has  levied  upon  stock,  a  lien 
for  a  note  made  by  the  stockholder 
before  the  levy,  but  maturing  after- 
wards. Sewall  V.  Lancaster  Bank 
(Pa.),   17   Serg.   &  R.  285. 

Reservation  by  law. — Whether  a  by- 
law of  a  bank,  declaring  the  stock  of 
each  stockholder  to  be  pledged  for 
any  sum  which  he  shall  owe  to  the 
bank,  can,  under  any  circumstances, 
create  a  lien  on  the  shares  against 
creditors  of  the  stockholder — quaere. 
Nesmith  v.  Washington  Bank  (Mass.), 
6  Pick.  324.  See  Sargent  v.  Franklin 
Ins.  Co.  (Mass.),  8  Pick.  90,  19  Am. 
Dec.  306;  Plymouth  Bank  v.  Bank 
(Mass.),   10   Pick.   454. 

40.  A  purchaser  under  execution  at 
a  sheriff's  sale,  of  stock  or  shares  of 
a  corporator  of  a  bank  with  notice  of 
a  lien  of  the  bank  upon  such  stock, 
under  a  by-law  of  the  bank,  for  the 
indebtedness  of  such  corporator  to  the 
bank  (the  lien  created  by  such  indebt- 
edness under  the  by-law,  being  prior 
in  point  of  time,  to  the  lien  acquired 
under  the  judgment),  purchased  only 
such  title  as  was  in  the  corporator, 
and  no  other;  and  therefore  was  not 
entitled  to  a  transfer  of  the  stock  so 
purchased,  under  the  Act  of  1822, 
without  first  discharging  the  lien 
created  by  the  corporator's  indebted- 
ness under  the  by-law.  Tuttle  i'.  Wal- 
ton, 1  Ga.  43. 

41.  Right  to  refuse  transfer  at  com- 
mon law. — Stock  Corporation  Law 
(Consol.  Laws,  c.  59),  §  51.  permits  a 
corporation  to  refuse  to  transfer  stock 
on  its  books  until  the  stockholder's 
debt  to  the  company  is  paid,  provided 
the  certificate  shows  on  its  face  that 
the  company  has  that  right.  Held 
that,  where  a  certificate  of  bank  stock 
did  not  contain  the  required  statement, 


the  common-law  rule  obtains,  by 
which  a  corporation  has  no  lien  on 
its  stock,  and  the  bank  could  not  re- 
fuse to  transfer  stock  owned  by  its 
debtor  to  a  purchaser  from  him.  Union 
Bank  v.  United  States  Exch.  Bank. 
143  App.  Div.  128,  127  N.  Y.  S.  661. 

42.  Where  lien  exists. — Tete  v. 
Farmers',  etc..  Bank  (Pa.),  4  Brewst. 
308;   Bohmer  v.  City  Bank,  77  Va.  445. 

A  bank  may  refuse  to  transfer  stock 
of  one  indebted  to  it  until  his  debt  is 
paid.  Downer  v.  Zanesville  Bank 
(O.),  Wright  477. 

43.  Pledgee. — Bank  v.  Pinson,  58 
Miss.  421,  38  Am.   Rep.  330. 

Where  no  demand  has  been  made 
on  a  bank  for  a  transfer  of  stock  till 
the  stockholder's  indebtedness  to  the 
bank  has  matured,  the  bank  may  re- 
fuse to  transfer  on  its  books  the  cer- 
tificate of  stock,  which  had  thereto- 
fore been  pledged  to  a  third  person, 
and  for  the  stockholder's  unpaid  in- 
debtedness may  claim  a  superior  lien, 
under  3  How.  Ann.  St.,  §  3208a8,  which 
provides,  among  other  things,  that 
"no  transfer  of  stock  shall  be  valid 
against  a  bank  so  long  as  the  regis- 
tered holder  thereof  shall  be  liable  as 
to  the  bank  for  any  debt  due  and  un- 
paid. Michigan  Trust  Co.  7>.  Michi- 
gan.   Ill    Mich.    306,    69    N.    W.    645. 

The  charter  of  a  bank  provided  that 
the  shares  of  stock  should  be  trans- 
ferable only  on  the  books,  but  that 
all  debts  due  and  payable  to  the  bank 
by  the  stockholder  would  first  have  to 
be  paid,  unless  the  president  and  di- 
rectors should  otherwise  direct.  Held, 
that  one  taking  an  assignment  of 
stock  as  collateral  security  did  so  sub- 
ject to  an  indebtedness  due  the  bank 
by  the  stockholder,  which  would  have 
to  be  liquidated  before  the  bank  could 
be  comoelled  to  transfer  the  stock. 
Union  Bank  z:  Laird  (U.  S.),  2  Wheat. 
390,  4  L.   Ed.  269. 


§  42  (2de) 


CAPITAL,    STOCK    AND   DIVIDENDS. 


139 


the  bank's  books  where  the  shareholder  is  indebted  to  the  bank,  may  be 
prohibited  by  a  general  statute  which  may  make  exceptions  to  such  pro- 
hibition.-*^ 

Charter  Prohibition. — Tlie  charter  may  contain  the  prohibition  re- 
specting the  transfer  of  the  stock  of  a  shareholder  who  is  indebted  to  the 
bank.-*"'  or  it  may  authorize  the  bank  to  adopt  by-laws  in  respect  thereto, 
etc..  but  any  by-law  inconsistent  with  the  charter  or  general  statute  is 
void.*" 

Unpaid  Calls  on  Stock. — A  general  statute  or  the  charter  of  the  bank 
mav  prohibit  the  transfer  of  an  interest  in  bank  stock  before  payment  of 
the  first  installment,-*'  or  until  the  whole  amount  has  been  paid.-*^  Where 
stock  has  been  paid  for  so  far  as  calls  have  been  made,  the  bank  can  not 
refuse  a  transfer.^^ 


44.  Prohibition  by  statute. — Sess. 
Laws  1897.  p.  118,  c.  47.  §  52,  forbid  a 
transfer  of  shares  of  stock  on  books 
of  a  bank  without  consent  of  the  board 
of  directors,  when  the  registered 
holder  is  indebted  to  the  bank  on  un- 
paid obligations,  and  a  transfer  under 
such  circumstances  may  be  refused  by 
the  bank,  though  the  party  demanding 
the  transfer  acquired  the  shares  from 
the  registered  holder  at  a  time  when 
he  was  not  indebted  to  the  bank. 
Faulkner  v.  Bank,  77  Kan.  385,  94  Pac. 
153. 

Persons  benefited. — The  Act  of  April 
16.  1850.  which  prohibits  the  transfer 
of  bank  stock  or  the  receipt  of  divi- 
dends thereon  by  any  stockholder 
who  may  at  the  time  be  indebted  to 
the  bank,  though  intended  mainly  for 
the  security  of  the  bank,  operates  also 
incidentally  in  favor  of  the  indorsers 
of  such  debtors.  Klopp  v.  Lebanon 
Bank,  46  Pa.  88. 

45.  Charter  provision. — Leggett  v. 
Bank,  24  N.  Y.  283,  alhrming  25  Barb. 
326. 

46.  Corydon  Deposit  Bank  v.  Mc- 
Clure,  141  Ky.  481,  133  S.  W.  201;  Mo- 
hawk Xat.  Bank  z:  Schenectady  Bank, 
78  Hun  90.  28  X.  Y.  S.  1100,  60  X.  Y. 
St.  Rep.  510,  affirmed  in  151  X.  Y.  065, 
46   X.   E.   1149. 

A  stockholder  borrowing  money 
from  his  bank  is  charged  with  notice 
of  a  by-law  prohibiting  transfers  of 
slock  by  debtors  to  the  bank.  Tete  v. 
Farmers',  etc.,  Bank  (Pa.),  4  Brewst. 
308. 

The  general  lianking  law  provides 
that  holders  of  liank  shares  may  trans- 
fer theni  uncr)nditionally,  unless  other- 
wise agreed  l)y  the  articles  of  associ- 
ation. Held,  that  the  bank  directors 
could    not    l)y    a    Ijy-law    create    a    lien 


upon  the  shares  to  secure  the  payi-nent 
of  debts  due  from  the  share  owner  to 
the  bank.  Bank  f.  Manufacturers',  etc., 
Bank,  20  X.  Y.  501. 

47.  Payment  of  installment. — Under 
Rev.  St.  1838,  pp.  107,  108,  subjecting 
subscribers  in  the  state  bank  to  a  for- 
feiture of  all  rights  acquired  by  the 
subscription  on  failure  to  pay  the  first 
installinent  due  for  stock,  no  right  in 
the  stock  can  be  transferred  before 
payment  of  the  installment.  Coleman 
V.   Spencer   (Ind.),  5   Blackf.  197. 

Where,  under  the  statute,  no  interest 
in  bank  stocks  could  be  transferred 
when  the  first  installment  liad  not 
been  paid,  and  the  statute  provided 
that  no  transfer  could  be  made  except 
on  the  books,  an  assignee  of  the  stock 
took  no  interest  therein,  where  the 
transfer  was  not  made  on  the  books, 
though  he  had  himself  paid  the  first 
installment.  Coleman  i'.  Spencer 
(Ind.),  5   Blackf.  197. 

48.  Where  the  charter  of  a  bank 
provides  that  no  part  of  her  capital 
stock  shall  be  sold  or  transferred,  ex- 
cept in  certain  cases,  until  the  whole 
amount  has  been  paid  in,  a  contract 
for  the  transfer  of  shares,  not  falling 
within  the  exceptions  made,  and  to  be 
carried  into  execution  when  but  fifty 
per  cent  is  paid  in,  is  illegal  and  void. 
Merrill  :■.  Call.  15  Me.  428. 

49.  All  calls  paid. — In  a  by-law  of 
a  Inink.  "Xo  transfer  of  stock  shall  be 
allowed  or  valid  so  long  as  the  holder 
is  in  arrears  to  the  bank,  or  in  any 
form  indebted  to  it,"  the  word  "ar- 
rears" refers  to  unpaid  calls,  and  the 
words  "in  any  form  indebted,"  to  in- 
debtedness outside  of  the  stock  sul)- 
scription;  and  the  bank  can  not  refuse 
to  make  a  transfer  to  a  transferee 
from  a  stockholder  on  the  ground  that 


140 


BANKS    AND    BANKING. 


§  42   (3aa) 


Part  of  Stock  Sufficient  to  Satisfy  Debt. — The  bank  may  refuse  to 
transfer  part  of  the  stock  though  the  remainder  is  more  than  sufficient  to 
satisfy  the  debt  of  the  shareholder.^*^ 

When  Right  Becomes  Absolute. — The  right  of  a  bank  to  prevent  a 
transfer  of  stock  by  one  indebted  to  it  becomes  absolute  as  soon  as  any 
debt  becomes  due  and  payable,  and  the  legal  title  to  the  stock  remains  in 
the  bank  for  its  own  security  until  payment,  and  for  the  benefit  of  the 
sureties  of  a  debtor,  if  there  are  any,  afterwards. ^^ 

§  42  (3)  Discharge,  Estoppel,  Forfeiture,  Release  or  Waiver 
— §    42    (3a)    Waiver   or   Discharge — §    42    (3aa)    Authority. — A 

bank's  lien  on  its  stock  may  be  waived  by  the  bank  or  a  duly-authorized 
officer,  such  as  the  cashier,^-  where  he  is  not  prohibited  by  law,^^  or  by 


only  certain  percentage  of  the  stock 
has  been  paid  in,  where  it  has  been 
paid  for  so  far  as  calls  have  been  made. 
Kahn  z'.  Bank,  70  Mo.  262. 

50.  Part  of  stock  sufficient  to  satisfy 
debt. — Under  a  bank  charter  providing 
that  all  debts  due  the  bank  by  a  stock- 
holder must  be  paid  before  a  transfer 
shall  be  made  on  the  books,  the  bank 
may  refuse  to  transfer  a  part  of  the 
stock,  though  what  remains  is  more 
than  sufficient  to  satisfy  the  debt  of 
the  stockholder.  Pierson  v.  Bank,  Fed. 
Cas.  No.   11,155,  3   Cranch,   C.   C.  363. 

51.  When  right  becomes  absolute. — 
Klopp  V.  Lebanon  Bank,  46  Pa.  88. 

When  a  maker  of  a  note  which  was 
held  by  the  bank  assigned  his  stock 
in  the  bank  on  the  last  day  of  grace 
upon  his  note,  and  on  the  following 
day  the  assignment  was  presented  to 
the  bank,  that  a  transfer  of  the  stock 
might  be  made  upon  its  books,  it  was 
held  that  the  bank  had  a  right  to  refuse 
to  transfer,  the  note  being  unpaid. 
Klopp  7'.  Lebanon  Bank,  46  Pa.  88. 

52.  Waiver. — A  complete  transfer 
of  the  title  to  the  stock  upon  the  books 
of  the  bank,  it  is  not  doubted,  would 
have  the  effect  to  vest  it  in  the  trans- 
feree, free  from  any  claim  or  lien  of 
the  bank.  The  consent  of  the  bank, 
made  necessary  to  such  transfer,  is  the 
waiver  of  its  right,  as  its  refusal  would 
be  the  assertion  of  it.  Cecil  Nat. 
Bank  v.  Watsontown  Bank,  105  U.  S. 
217,  26  L.  Ed.  1039. 

"The  clause  which  denies  to  the 
stockholder  the  privilege  of  making 
a  transfer  of  his  stock,  while  a  debtor. 
until  his  debt  is  discharged  or  secured 
to  the  satisfaction  of  the  directors,  does 
not  forbid  the  bank  to  waive  its 
rights,  or  prevent  cashier  from  acting 
for  the  directors,  by  virtue  of  an  ex- 
press or  implied  authority.     Tn  this,  as 


in  other  matters  of  ordinary  business, 
within  the  general  scope  of  his  official 
duty,  he  is  their  appropriate  repre- 
sentative." Cecil  Nat.  Bank  v.  Wat- 
sontown Bank,  105  U.  S.  217,  26  L.  Ed. 
1039,  citing  Case  v.  Citizens'  Bank,  100 
U.  S.  446,  25  L.  Ed.  695. 

Bank  stock  which  had  been  pledged 
as  collateral  by  owner,  with  A.  with 
power  of  sale  on  default  in  debt  se- 
cured, was  sent  by  A.  to  the  cashier  of 
the  bank  with  instructions  to  sell  and 
power  of  attorney  to  transfer  same. 
The  cashier  received  the  certificate, 
telling  A.  there  was  no  need  to  for- 
ward him  a  new  one  as  he  intended 
to  sell,  to  which  A.  assented,  and  made 
the  proper  entries  in  the  stock  book 
showing  the  transfer  to  A.  When  the 
cashier  of  the  bank  received  from  A. 
the  certificate,  with  the  authority  for 
its  transfer  to  him  duly  executed  by 
owner  and,  in  pursuance  of  the  request 
to  make  the  transfer,  charged  it  in  the 
account  against  the  former  owner,  aiid 
gave  to  A.  the  corresponding  credit, 
the  latter  became  a  stockholder  in  the 
bank,  invested  with  the  legal  title  to 
the  stock,  and  with  all  the  rights,  pow- 
ers, and  privileges  belonging  to  that 
character.  Nothing  more  remained  to 
be  done  to  make  the  conveyance  of  ti- 
tle complete  and  absolute,  and,  so  far 
as  the  bank  was  concerned,  it  was  ir- 
revocable. It  had  consented  to  the 
transfer,  and  the  transfer  had  been 
made.  Cecil  Nat.  Bank  v.  Watson- 
town Bank,  105  U.  S.  217,  26  L.  Ed. 
1039. 

On  the  supposition  that  not  the  legal 
title,  but  only  an  equity,  based  on  an 
executory     contract     for     a     transfer, 

53.  Oakland  County  Sav.  Bank  v. 
State  Bank,  113  Mich.  284,  71  N.  W. 
453,  67  Am.   St.  Rep.  463. 


§  42  (3ab) 


CAPITAL.    STOCK    AND    DIVIDEXDS. 


141 


the  directors.'^'* 

§  42  (Sab)  What  Constitutes.— The  terms  of  the  certificate  re- 
specting a  transfer  may  operate  a  waiver  of  the  bank's  hen.^^ 

Transferring  the  stock  on  its  books  is  a  waiver  of  the  bank's  Hen.^*^ 
A  bank's  eflfecting  a  sale  of  the  stock  for  a  pledgee,  who  took  the 

same  as  coHateral  security,  is  a  waiver  of  its  lien  on  such  stock. 5" 

Taking  Collateral  or  Additional  Security. — Taking  collateral  secu- 
rity for  the  debts  of  a  stockholder  discharges  or  releases  the  bank's  lien  in 
some  jurisdictions.^*     In  others  it  does  not.^^     But  it  is  not  waived  where 


passed  to  A.,  by  virtue  of  the  transac- 
tion with  the  cashier  of  the  bank,  his 
right  to  the  relief  prayed  for  is  not 
less  clear.  Aside  from  the  recognition 
of  the  title,  as  complete,  by  accepting 
and  acting  upon  the  power  of  attorney 
to  sell  and  transfer  it  as  his  stock,  and 
the  sale  was  made  to  purchasers  under 
it,  whose  title  is  not  denied,  and  yet 
can  not  be  better  than  that  of  their 
vendor,  which  is  disputed,  the  subse- 
quent conduct  of  the  bank  raises  an 
equity  against  it,  which  is  superior  to 
its  legal  right  to  insist  upon  a  lien  on 
account  of  this  debt.  Cecil  Xat.  Bank 
r.  Watsontown  Bank.  105  U.  S.  217,  26 
L.  Ed.  1039. 

54.  Directors. — A  lien  having  in  view 
the  safety  of  the  bank  and  the  public, 
is  not  to  be  relinquished  unless  by  the 
special  action  of  the  directors'  dispens- 
ing with  it.  or  receiving  other  satis- 
factory security,  collateral  to  the  ob- 
ligation evidencing  the  debt.  Downer 
7'.  Zanesville  Bank  (O.).  Wright  477; 
Conant.  etc..  Co.  v.  Reed.  1  O.  St.  298; 
Franklin  Bank  f.  Commercial  Bank.  5 
O.  Dec.  3.39. 

The  waiver  of  the  bank's  lien  can  be 
made  only  by  a  majority  of  the  direct- 
ors. Franklin  Bank  r.  Commercial 
Bank,  5  O.  Dec.  339. 

55.  Term  of  certificate  a  waiver. — 
The  charter  of  a  l^ank  provided  that 
its  shares  of  stock  "shall  be  transfer- 
able on  the  books  of  the  corporation 
only  according  to  such  rules  as  shall 
be  established  by  the  president  and 
directors,  but  all  debts  actually  due 
and  paya1)le  to  the  corporation  l)y  a 
stockholder  requesting  a  transfer  must 
be  satisfied  1)efore  such  transfer  shall 
be  made,  unless  the  president  and  di- 
rectors shall  direct  to  the  contrary. 
Held,  that  this  lien  on  the  stock  is  not 
waived  by  the  form  of  a  certificate  for 
stock    declaring    that    the    stockholder 

"is  entitled"  to shares  of  stock. 

"transferable  only  at  said  bank,  per- 
sonally or  by  attorney,  on  surrender 
of  this  certificate."     Reese  f.   Bank,  14 


Md.  271.  74  Am.  Dec.  536. 

56.  Transferring  the  stock  on  the 
books. — A  bank  may  waive  the  lien  it 
lias  under  its  charter  on  stock  for  pay- 
ment of  debts  due  it  by  the  stock- 
holder by  transferring  the  stock  on  its 
books.  National  Bank  z:  Watsontown 
Bank.  105  U.  S.  217.  26  L.  Ed.  1039. 

Where  A.,  owning  shares  in  a  bank, 
transfers  them  to  B..  and  the  I^ank  is- 
sues a  new  certificate  to  B.,  the  terms 
of  the  certificate  making  the  shares 
"transferable  after  the  holder  pays  all 
his  liabilities  to  said  bank,"  this  is  a 
waiver  of  the  lien  of  the  bank  upon 
such  shares,  for  payments  due  from  A. 
Hill  r.  Pine  River  Bank,  45  N.  H.  300. 

By  the  provisions  of  the  "act  to  in- 
corporate the  State  Bank  of  Ohio  and 
other  bankinsT  companies''  (43  O.  L. 
24\  a  l)ank  holds  a  lien  on  the  shares 
of  its  stockholder  for  the  amount  of 
its  indebtedness  to  it.  vv^hich  can  not 
be  defeated  by  a  transfer  made  with- 
out the  consent  of  a  majority  of  the 
directors,  nor  will  such  consent  au- 
thorize a  transfer  if  the  debt  is  over- 
due and  unpaid.  Conant.  etc.,  Co.  v. 
Reed.  1   O.  St.  29S. 

57.  Bank's  effecting  sale  for  pledgee- 
— Where  a  liank.  on  lieing  informed  of 
a  transfer  of  stock  by  a  stockholder. 
as  collateral  to  secure  a  debt,  makes  no 
claim  to  a  lien  thereon  for  a  debt  due 
it  by  the  stockholder,  but  offers  to 
negotiate  a  sale  of  the  stock  for  the 
transferee,  and  does  effect  a  sale  of 
part  thereof,  it  is  estopped  to  set  up  its 
lien  as  against  the  transferee.  Na- 
tional Bank  v.  Watsontown  Bank.  105 
U.   S.  217.  26  L.   Ed.  1039. 

58.  Bank's  taking  collateral  security. 
— Collateral  security  iiivcn  hy  a  debtor 
of  a  bank,  wiio  is  also  a  stockholder, 
discharges  the  charter  lien  of  the  liank 
on  tlic  stock.  McEean  v.  Lafayette 
Bank.  Fed.  Cas.  No.  8.888,  3  McLean 
587. 

59.  When  the  charter  of  a  liank  pro- 
vides that  no  stockholder  indebted  to 
the   bank   shall   transfer  his   stock  until 


142 


BANKS    AND    BANKING. 


§  42  (3b) 


the  bank,  holding  a  note  accepted  by  one  of  its  stockholders,  takes  addi- 
tional security  for  the  acceptance  from  the  indorser  thereon,  as  it  has  a 
perfect  right  to  do.*^'^ 

Application  of  Money  Raised  on  Stock  to  Bank's  Debt.— The  fact 
that  a  pledgor  of  bank  stock  applied  the  money  he  raised  by  the  pledge  on 
his  debts  to  the  bank  does  not  discharge  the  bank's  lien  on  such  stock  in 
the  hands  of  the  pledgee.*"'^ 

Option  to  Bank  to  Purchase.— A  by-law  providing  that  shareholders 
desiring  to  sell  shall  give  the  bank  an  option  to  purchase  is  not  a  waiver  of 
the  bank's  lien.*^- 

Tender  of  Amount  Admitted  to  Be  Due.— Under  a  bank  charter  re- 
quiring all  debts  due  the  bank  by  a  stockholder  to  be  paid  before  a  transfer 
of  the  stock  on  the  books  can  be  allowed,  where  the  bank  demands  more 
than  is  due  the  stockholder  must  tender  at  least  what  he  admits  to  be  due, 
in  order  to  be  entitled  to  a  transfer.^^s 

Stockholder  Having  Deposit  Sufficient  to  Pay  the  Debt.— Under 
an  act  providing  that  no  stockholder  indebted  to  the  bank  shall  be  author- 
ized to  transfer  his  stock  until  the  debt  be  discharged  or  security  given 
therefor,  the  fact  that  the  stockholder  has  a  deposit  sufficient  to  pay  the 
debt  does  not  release  the  bank's  lien  on  the  stock.'^^ 

Release  for  a  Specified  Time.— A  bank  may  release  its  lien  for  a 
specified  time.*^^ 

§   42    (3b)    Estoppel.— Although   the   bank   cashier  has   no   power  to 


the  debt  is  paid,  or  collateral  security 
given,  to  the  satisfaction  of  the  board 
of  directors,  the  mere  fact  that  there 
is  security  for  a  debt  due  from  a  stock- 
holder does  not  release  the  bank's  lien. 
Downer  v.  Zanesville  Bank  (O.), 
Wright  477. 

60.  Union  Bank  v.  Laird  (U.  S.),  2 
Wheat.  390,  4  L.  Ed.  269.  See,  also, 
Mechanics"  Bank  v.  Seton  (U.  S.),  1 
Pet.  299,  7  L.  Ed.  152. 

61.  Application  of  money  raised  on 
stock  to  bank's  debt. — A  bank  organ- 
ized under  49  Laws,  p.  41  (1  Swan  & 
C.  St.  p.  168),  retains  its  lien,  under 
section  11,  on  shares  of  stock  to  secure 
debts  due  from  a  stockholder  to  the 
bank,  though  the  stock  was  pledged  to 
secure  a  loan  to  the  stockholder,  who 
applied  the  amount  of  the  loan  on  his 
debts  to  the  bank,  where  the  bank  had 
nothing  to  do  with  tiic  pledging  of  the 
stock,  and  had  no  knowledge  thereof. 
Franklin  Bank  z\  Commercial  Bank,  5 
O.  Dec.  339. 

62.  Option  to  bank  to  purchase. — 
The  lien  in  favor  of  a  bank  on  the 
stock  of  registered  holders  to  the  ex- 


tent of  any  debt  due  from  such  hold- 
ers (3  How.  Ann.  St.,  §  3208a8)  is  not 
waived  by  the  by-law  of  a  bank  which 
provides  that  holders  of  stock  desir- 
ing to  sell  shall  give  the  bank  an  op- 
tion to  purchase;  that  if  it  fails  to  do 
so  "at  the  expiration  of  ten  days'  time, 
the  stockholders  may  sell  at  pleasure." 
Citizens'  State  Bank  v.  Kalamazoo 
County  Bank,  111  Alich.  313,  69  N.  W. 
663. 

63.  Tender  of  amount  admitted  to 
be  due. — Pierson  r.  Bank,  Fed.  Cas. 
Xo.   11,155,  3  Cranch.   C.   C.  363. 

64.  Stockholder  having  deposit  suf- 
ficient to  pay  the  debt. — ^Mechanics 
Bank  z'.    Earp    (Pa.),   4    Rawle   384. 

65.  Release  for  a  specified  time. — 
Where  a  bank  releases  for  a  specified 
time  its  right  to  its  charter  lien  on 
stock  for  debts  due  it  from  the  stock- 
holder, and  within  that  time  the  stock 
is  pledged  for  a  debt,  the  right  of  the 
bank,  after  the  expiration  of  the  time 
to  acquire  its  charter  lien,  is  subordi- 
nate to  the  right  of  the  pledgee^  until 
the  debt  is  paid,  or  the  pledge  is  re- 
leased. Bank  v.  McNeil  (Ky.),  10 
Bush  54. 


§  42  (4a) 


CAPITAL,    STOCK    AND    DIVIDENDS. 


143 


waive  expressly  the  bank's  lien  on  the  stock  of  a  shareholder  indebted  to 
the  bank,  he  may,  by  his  declarations  that  a  shareholder  is  not  indebted, 
in  reply  to  an  inquiry  from  a  prospective  purchaser,  estop  the  bank  from 
subsequently  asserting  the  facts  to  be  otherwise.*'"^ 

§  42  (3c)  Forfeiture. — The  fact  that  a  bank  has  loaned  a  stock- 
holder a  sum  in  excess  of  that  which  it  was  authorized  to  permit  him  to 
borrow  does  not  operate  a  forfeiture  of  a  statutory  lien  on  his  stock  for 
any  indebtedness  by  him  to  the  bank.^" 

§  42    (4)   Enforcement    and   Settlement— §  42    (4a)   Manner.— 

In  some  jurisdictions  the  bank's  lien  may  be  enforced  by  sale  of  the  stock 
by  the  bankj^'s  while  in  others  the  bank  has  no  power  to  make  a  sale  of  the 
stock  but  may  forbid  a  sale  by  the  shareholder.'^^  it  niay  also  be  enforced 
by  refusal  to  transfer.'^*^  Where  a  bank  holding  stock  of  a  deceased  stock- 
holder for  his  indebtedness  to  the  bank  refuses  to  sell  the  stock,  the  court, 
in  a  suit  by  an  administrator  of  the  stockholder,  will  order  the  stock  to  be 
sold,  and  the  proceeds  applied  to  the  satisfaction  of  the  debt.'^'i 


66.  Estoppel. — Oakland  County  Sav. 
Bank  v.  State  Bank,  113  Mich.  284,  71 
N.  W.  453,  67  Am.  St.  Rep.  463. 

Where  the  transferee  of  bank  stock 
without  knowledge  of  any  indebted- 
ness against  such  stock  writes  the 
bank  in  relation  thereto,  the  response 
of  the  cashier  that  there  was  none  will 
estop  the  bank  from  subsequently  as- 
serting the  facts  to  be  otherwise, 
though  under  3  How.  Ann.  St.  §  3208a8, 
stock,  where  the  owner  is  indebted, 
can  be  transferred  only  with  the  con- 
sent of  the  directors.  Oakland  County 
Sav.  Bank  v.  State  Bank,  113  Mich.  284, 
71  N.  W.  4.53,  67  Ain.  St.  Rep.  463. 

67.  Forfeiture. — Citing  Gold-Mining 
Co.  V.  National  Bank,  96  U.  S.  640,  24 
L.  Ed.  648;  National  Bank  v.  Mat- 
thews, 98  U.  S.  621,  25  L.  Ed.  188; 
O'Hare  v.  Second  Nat.  Bank,  77  Pa.  96; 
Corcoran  v.  Batcheldcr.  147  Mass.  541; 
Smith  V.  National  Bank,  45  Neb.  444; 
Ferguson  v.  Oxford  Mercantile  Co., 
78  Miss.  65,  27  So.  877. 

A  bank,  the  charter  of  which  pro- 
vides that  the  total  lial)ility  to  it  of 
any  person  "for  ])orrcwed  money  *  *  * 
shall  at  no  time  exceed  one-tenth  part 
of  the  capital  stock  of  said  bank  paid 
in,"  and  also  that  the  stock  of  any 
stockholder  in  such  liank  "shall  be 
held  bound  to  the  bank  for  any  dues 
or  other  indel)tedncss  by  said  stock- 
holder to  the  bank,"  and  it  shrill  liave 
a  lien  "upon  the  same  superior  to  all 
other  liens,"  lias,  by  virtue  of  its  cliar- 


ter,  a  lien  of  the  highest  dignity  upon 
the  stock  of  a  stockholder  to  an 
amount  not  exceeding  ten  per  cent  of 
the  capital  stock  of  the  bank  actually 
paid  in,  notwithstanding  it  may  have 
violated  the  terms  of  its  charter  by 
loaning  to  such  stockholder  a  sum 
largely  in  excess  of  that  which  it  was 
thereby  authorized  to  permit  him  to 
borrow.  People's  Bank  v.  Exchange 
Bank,  116  Ga.  820,  43  S.  E.  269,  94  Am. 
St.  Rep.  144. 

68.  Sale. — Owens  v.  Atlanta  Trust, 
etc..  Co.,  no  Ga.  924,  47  S.  W.  215. 

The  incorporating  act  of  a  bank  de- 
clared that  all  debts  due  to  a  bank  by 
its  stockholders  should  be  discharged 
before  a  transfer  of  stock  could  be 
made.  Held,  that  the  act  gave  to  the 
l)ank  a  mortgage  or  pledge  of  the 
stock,  which  it  could  enforce  l)y  a  sale, 
as  the  act  did  not  prohiliit  such  a  trans- 
fer by  the  bank.  In  re  Farmers'  Bank 
(Md.),  2  Bland  394. 

69.  That  a  bank  has  a  lien  upon  the 
shares  of  a  stockholder  for  an  indebt- 
edness due  from  him  to  the  bank  does 
not  entitle  them  to  make  a  sale  of  the 
stock  for  payment  of  the  debt.  Tete 
V.  Farmers',  etc..  Bank  (Pa.),  4  Brewst. 
308. 

70.  Refusal  to  transfer. — Owens  v. 
Atlanta  Trust,  etc.,  Co.,  119  Ga.  924, 
■17  S.  W.  215. 

71.  Tn  re  Farmers'  Bank  (Md.),  2 
I'.land  394. 


144 


BANKS    AND    BANKING. 


§  42   (4g) 


§  42  (4b)  Form  of  Action. — The  bank  may  enforce  its  lien  on  the 
stock  of  a  shareholder  who  is  indebted  to  it  by  an  action  to  foreclosed 2 

§  42  (4c)  Jurisdiction.— A  bank's  lien  on  stock  may  be  enforced  by 
a  bill  in  equity  for  an  accounting/ ^  or  in  a  suit  by  a  purchaser  to  compel 
a  transfer.'^ 

§  42  (4d)  Process. — A  bank's  lien  can  not  be  foreclosed  without  mak- 
ing the  indebted  shareholder  a  party  by  proper  process.^^ 

§  42  (4e)  Limitations.— A  bank's  lien  continues,  though  all  other 
remedies  for  the  debt  be  barred  by  the  statute  of  limitationsJ« 

§  42  (4f)  Pleading.— A  bill  to  enforce  a  lien  on  bank  stock  for  debts 
of  a  stockholder  should  particularly  describe  the  debt  or  liability  secured 
by  the  lien,  and  should  aver  that  it  was  necessary,  for  the  payment  of  such 
debt  or  satisfaction  of  such  liability,  to  sell  the  shares  of  stock  on  which 
the  complainant  held  the  lien,  and  also  a  personal  demand  of  payment  or 
satisfaction  before  foreclosure  proceedings,  where  these  are  the  facts 
which  the  statute  requires  to  exist  before  there  can  be  a  foreclosure." 

§  42  (4g)  Redemption. — In  an  action  by  a  bank  to  enforce  its  lien 
against  the  stock  of  a  shareholder  for  the  payment  of  his  debt,  the  court  is 
under  no  obligation,  when  decreeing  a  sale  thereof,  to  appoint  a  day  within 
which  the  defendant  may  redeem.'^ ^ 


72.  Form  of  action. — See  post,  "Ju- 
risdiction," §   42   (4c). 

73.  Sec  Reese  v.  Bank,  14  Md.  ?71, 
74  Am.  Dec.  536. 

A  bill  for  accounting,  brought  by  a 
bank  against  the  administrator  of  its 
deceased  cashier,  contains  equity  in  so 
far  as  it  seeks,  as  incidental  thereto, 
to  declare  and  enforce  a  lien  against 
the  stock  of  respondent's  intestate  un- 
der Code  1907,  §  3476,  conferring  the 
Hen  without  designating  or  naming 
any  court  or  tribunal  in  which  it  shall 
be  enforced,  but  providing  for  fore- 
closure without  suit  or  action.  Wynn 
V.  Tallapoosa  County  Bank,  168  Ala. 
469,   53   So.  228.  _ 

74.  In  a  suit  by  the  purchaser  of 
bank  stock  to  compel  the  transfer  of 
the  stock  on  the  books  of  the  bank, 
the  court  has  jurisdiction  to  award 
foreclosure  of  the  lien  claimed  by  the 
bank  for  a  debt  of  the  registered 
holder  which  is  due  and  unpaid,  though 
such  holder  is  not  a  party  to  the  suit; 
no  personal  decree  being  sought.  Cit- 
izens' State  Bank  v.  Kalamazoo  County 
Bank,  111  Mich.  313,  69  N.  W.  663. 

75.  Where  a  bank  has  a  lien  on  the 
stock  of  a  nonresident  in  the  bank,  un- 
der   its    charter    and    by-laws,    because 


of  a  debt  due  to  the  bank,  such  lien 
can  not  be  foreclosed  by  judicial  pro- 
ceedings, unless  the  debtor  is  duly 
served.  Owens  v.  Atlanta  Trust,  etc., 
Co.,  119   Ga.  924,  47  S.   E.  215. 

Where  the  stock  of  defendant  in 
plaintiff  bank  was  attached  by  it  for  a 
debt,  and  the  defendant  was  not  per- 
sonally served,  the  only  lien  fore- 
closed was  that  created  by  the  attach- 
ment, which  was  inferior  to  a  title  as- 
serted by  one  who  had  purchased  the 
stock  from  the  debtor,  and  the  lien  of 
the  bank  on  the  stock  given  by  its 
charter  was  not  afifected  by  the  pro- 
ceeding. Owens  V.  Atlanta  Trust,  etc., 
Co  ,  119   Ga.  924.  47  S.   E.  215. 

76.  Limitation. — First  Nat.  Bank  v. 
Merchants'  Nat.  Bank,  5  O.  Dec.  150, 
7  N.  P.  381. 

Although  the  legal  remedy  is  barred, 
the  debt  remains  as  an  unextinguished 
right,  the  bank,  when  called  into  a 
court  of  equity,  may  hold  to  any  equi- 
table lien,  or  other  means  in  their 
hands,  till  it  is  discharged.  Brent  v. 
Bank  (U.  S.),  10  Pet.  596,  9  L.  Ed.  547. 

77.  Pleading. — Wynn  v.  Tallapoosa 
County   Bank.  168  Ala.  469,  53  So.  228. 

78.  Redemption. — Reese  v.  Bank,  14 
Md.  271,  74  Am.   Dec.  536. 


§   42i^  CAPITAL,    STOCK    AND    DIVIDENDS.  145 

§  42 1 .  Voting  Power  of  Stock.— When  the  directors  and  legally  con- 
stituted agents  of  a  banking  corporation  have,  for  many  years,  acquiesced 
in  a  subscription  to  stock,  made  by  a  person  in  the  names  of  his  chil- 
dren or  others,  who  have  exercised  acts  of  ownership  over  the  stock,  and 
voted  upon  it,  without  objection,  as  their  own,  the  corporation  will  not 
afterwards  be  allowed  to  treat  the  subscription  as  if  it  were  a  fraudulent 
use,  by  the  original  subscriber,  of  mere  names,  to  secure  a  greater  number 
of  votes  than  he  would  be  entitled  to,  under  the  by-laws,  if  the  stock  had 
stood  in  his  own  narne.'^  If  one  purchase  of  the  bank  a  large  amount  of 
stock  to  multiply  his  votes  for  a  board  of  directors,  vote  upon  such  stock, 
and  immediately  after  the  board  direct  that  the  purchase  money  of  the 
stock  be  returned,  and  the  stock  again  taken  by  the  bank,  equity  will  not 
compel  the  purchaser  to  refund  the  money  and  take  back  the  stock,  where 
the  proofs  show  no  actual  loss  attendant  upon  the  transaction-^^ 

A  pledgee  of  bank  stock  who  receives  it  as  collateral  security  is  not 
such  a  stockholder  as  to  be  entitled  to  vote.^i 

79.  Voting  power  of  stock.— Creed  81.  Pledgee.— McConville  v.  Means 
V.  Lancaster  Bank,  1   O.   St.  1.  10  O.  Dec.  452,  21  Wkly.  L.  Bull    193 

80.  Taylor  v.  Miami  Exporting  Co., 
6  O.  176. 

1   B   &   B— 10 


CHAPTER  IV. 
C.  Stockholders. 

42%.  Persons  Who  May  Be  Stockholders. 
§  43.  Rights  and  Liabilities  as  to  Bank. 
§  43   (1)   Right  to   Inspect  Books. 
§  43   (2)   Ownership  of  Capital  Stock. 
§  43   (2a)   General   Rule. 

§  43   (2b)  Trust   Fund   for   Benefit   of   Creditors. 
§  43   (2ba)    In   General. 
§  43   (2bb)   Priority    of    Bank    Bills. 

§  43   (2bc)   Following  Capital  Stock  as  Trust  Fund  after  Dis- 
tribution. 
§  43   (2c)   Payment  to  Enable  Bank  to  Resume  Business. 
§  43   (3)   Power  to   Bind  Corporation. 
§  43   (4)   Dealings    with    Bank. 

§  43   (4a)  As   Principal   or   Surety   on    Note. 
§  43   (4b)   Sale  of  Stock  to  Bank. 
§  44.  Constitutional   and  Statutory   Provisions. 
§  441^.  Shareholders'    Meetings. 
§  45.  Suing  or  Defending  on   Behalf  of  Bank. 

§  45   (1)   Failure  or  Refusal  of  Bank  to  Sue. 
§  45   (2)   Enjoining  Illegal  Acts  and  Practices. 
§  45   (3)   Recovery  for  Fraudulent  or  Illegal  Acts  or  Practices. 
§  45   (4)   Quo  Warranto  and  Proceedings  in  Nature  Thereof. 
§  45   (4a)  Testing   Legality   of   Incorporation. 
§  45   (4b)   Testing  Validity  of   Election   of   Ofificers. 
§  46.  Liability  for  Debts  and  Acts  of  Bank. 

§  47.  Nature  and  Extent. 

§  47   (1)   In  General. 
§  47   {11/2)   Stockholders'   Agreements. 
§  47   (2)   Charter  and    Statutory    Provisions. 
§  47   (2a)   Special   Charter   Provisions. 
§  47   (2b)   Constitutional  and  Statutory  Provisions. 
§  47   (2ba)   Constitutionality    Generally. 
§  47   (2bb)  Applicability   and    Rules   of   Construction. 
§  47   (2bc)   Retroactive    Efifect. 
§  47   (2bd)    Exterritorial    Operation. 
§  47   (2be)   Repeal. 
§  47   (3)   Contractual. 

§  47   (4)    Primary   and    Secondary    Liability. 
§  47  (5)  Joint  or  Several. 
§  47   (6)   As    Principal   or   Surety. 
§  47   (7)   Banks  to   Which   Applicable. 

§  47   (7a)  What    Constitutes    a    Bank. 
§  47   (7b)    Specially   Chartered   Banks. 
§  47   (7ba)   In   General. 

§  47   (7bb)   Change    of    Name    under    General    Law. 
§  47   (7c)   Banks    of    Issue   Vel    Non. 


STOCKHOLDERS.  147 

§  47   (7d)   Pre-Existing   and    Future    Banks. 
§  47  (7e)   Illegally  or   Irregularly   Organized   Banks. 
§  47  (7f)   Reorganized  Banks. 
§  47   (7g)   State    Banks. 
§  47   (7h)   National   Banks. 
§  47  (8)   Stockholders  Who  Are  Liable. 
§  47   (8a)   Stockholders   Defined. 

§  47   (8b)   Subscribers   and    Stockholders   of   Record 
§  47   (8ba)    General    Rule. 

§  47   (8bb)   Requisites   and    Sufficiency  of  Subscription   or  Ac- 
quisition   of    Shares. 
§  47   (8c)   Agent   or   Broker. 
§  47   (8d)   Pledgee. 

§  47   (8e)   Representatives   and   Trustees. 
§  47   (8f)   Beneficiaries  of  Stock  Held  in  Trust 
§  47   (8g)   State. 

§  47   (8h)   Corporations    and    Other    Banks. 
§  47  (9)   Creditors  and   Indebtedness   Secured 
§  47  (9a)   Retroactive   Effect  of  Statutes. 
§  47   (9b)   Creditors    Entitled   to    Enforce. 
§  47  (9ba)   General    Creditors. 
§  47  (9bb)   Bill   Holder. 
§  47  (9bc)   Indorsers. 
§  47   (9c)   Indebtedness  Secured. 
§  47  (9ca)   When   Payable. 

§  47   (9cb)   Debts    Due   or   Owing   from    Stockholder. 
§  47  (9cc)   Debts   Incurred    Prior   to    Purchase   of   Stock. 
§  47  (9cd)   Debts   Contracted  after   Death  of  Stockholder. 
§  47  (9ce)   Ultra    Vires    Undertakings. 
§  47   (9cea)   In    General. 

§  47   (9ceb)   Establishment   of   Branch    Bank. 
§  47   (9cec)   Agreements   for   Liquidation. 
§  47   (9cf)   Particular   Obligations. 

§  47  (9cfa)   Bank   Bills   or   Notes. 
§  47   (9cfb)    Deposits. 
§  47   (9cfc)   Judgments    against    Bank. 
§  47  (9cfd)   Fees    and    Costs    of    Creditor's    Suit. 
§  47   (9cfe)   Costs    of    Receivership. 
§  47   (9cfif)   Loss   Occasioned   by   Receiver. 
§  47  (9cfg)  Agreements  for  Liquidation   of  Bank. 
§  47  (10)  V/hen  Liability  Arises  and  Conditions   Precedent, 
§  47   (10a)   When   Liability  Arises. 
§  47   (lOaa)    In    General. 
§  47   (lOab)   Bank   Bills  and   Notes. 
§  47  (lOac)   Public    Funds. 
§  47  (lOb)   Demand    of    Payment   and    Protest. 
§  47   (10c)   Proceedings  against   Bank  and   Receivership. 
§  47   (lOca)   Necessity   and    Sufficiency    Generally. 
§  47   (U)cl))   Filing  Claim   with    Receiver. 
§  47   (H)cc)   Judicial  Determination  of  Insolvency. 
§  47   (lOcd)   Judicial    Ascertainment   of    Indol)tcdncss   and    Ex- 
Iiaustion  of  Assets. 
§  47    (  lOcda)    In    General. 


148  BANKS    AND    BANKING. 

§  47   (lOcdb)   Exhaustion  of  Assets. 
§  47   (lOcdc)   In  New  York. 
§  47   (lOce)  Judgment  against  Bank,  Execution  and  Return. 
§  47   (lOd)   Dissolution    of    Corporation. 
§  47  (lOe)   Exhaustion   of   Other   Remedies. 
§  47  (lOf)   Order  of  Court   Directing  Receiver  to   Enforce. 
§  47   (11)   Facts   Relieving  from   Liability   or   Defenses. 

§  47   (11a)   Illegality    or    Irregularities    in    Organization. 
§  47   (llaa)   In    General. 

§  47  (llab)   Denial  of  Corporate  Existence. 
§  47  (lib)   Invalidity  and  Irregularity  in  Issue  of  -Stock. 
§  47   (lie)   Irregularities  in  Methods  of  Business. 
§  47  (lid)   Insolvency  of  Other  Stockholders. 
§  47   (lie)   Payment,    Satisfaction    and    Discharge. 

§  47   (Ilea)   Payment  by  Stockholder  and  Agreements  in  Re- 
spect Thereto. 
§  47   (lleaa)   Payment  to   Other  Creditors. 
§  47  (lleaaa)   Payment    before    Suit. 
§  47   (lleaab)   Payment  after  Suit  Commenced. 
§  47   (lleaac)   Payment  in   Other   Suits. 
S  47   (lleab)   Redemption  of  Bank's  Bills  and  Notes  by 

Stockholder. 
§  47   (lleac)  Agreements    Providing    Funds     to     Cover 

Bank's  Liabilities. 
§  47   (Head)   Dividends  Paid  from  Bank's  Assets. 
§  47   (lleb)   Prior    Recovery    or    Payment    of    Judgment. 
§  47   (llec)   Confession     of    Judgment    in    Favor    of     Anotlier 

Creditor. 
§  47   (lied)   Subsequent    Proceedings   by   Another   to    Enforce 

Same    Liability. 
§  47   (llee)   Former  Judgment   against  the   Bank. 
§  47  (llf)   Bill  Holders  Entitled  to  Priority  as  to  Suing  Creditors. 
§  47   (llg)   Release   by   Bank. 
§  47  (llga)   In    General. 

§  47   (llgb)   Resolution    of    Board    of    Directors. 
§  47  (llh)  Assignment    of    Sufficient    Assets   for    Payment. 
§  47   (Hi)   Reorganization  of  Bank. 

§  47   (llj)   Dissolution,    Expiration    and    Forfeiture    of    Charter. 
§  47   (Ilk)   Discharge  in  Bankruptcy. 

§  47   (111)   Possession    of   Unreported   Assets    by    Receiver. 
§  47   (11m)   Waiver    and    Estoppel. 
§  47   (12)   Measure   or   Amount    of   Liability. 
§  47  (12a)   In    General. 
§  47  (12b)   Ratable    Shares. 

§  47   (12c)   Contingencies   Which    Enlarge   Liability. 
§  47   (12d)   Facts    and    Contingencies    Reducing    Liability. 
§  47  (12da)   Payment   of    Premium   for   Stock. 
§  47   (12db)   Reduction  of  Capital   Stock. 
§  47  (I2dc)  Application   of   Collateral   Security. 
§  47   (12e)   Interest. 

§  48.  Effect   of  Transfer  of   Stock. 

§  48   (1)   Liability  of  Original   Holder. 
§  48   (la)   In    General. 


STOCKHOLDERS.  149 

§  48  (lb)   Requisites  and  Sufficiency  of  Transfer. 
§  48  (Iba)   Persons   Making  Transfer. 
§  48  (Ibaa)   Subscribers. 
§  48   (Ibab)   Pledgees. 
§  48  (Ibb)   Persons  to   Whom  Transfer  Made. 
§  48   (Ibc)  Time    of   Transfer. 
§  48   (Ibd)   Consideration. 

§  48   (Ibe)   Bona   Fides  of  Transferee  and   Solvency   of   Bank. 
§  48  (Ibea)   In   General. 
§  48  (Ibeb)   Intent    to    Avoid    Liability. 
§  48  (Ibec)   Colorable  Transfers. 
§  48   (Ibed)   Gifts. 

§  48  (Ibee)   Transfer  of    Pledged  or  Hypothecated    Stock. 
§  48   (Ibf)   Entry  on   Stock  Book. 
§  48   (Ibg)   Publication  of  Notice  of  Transfer. 
§  48  (Ibh)   Record    in    Clerk's    Office. 
§  48   (Ic)   Nature    and    Extent   of    Liability. 
§  48  (lea)   In    General. 

§  48  (Icb)   Existing  and   Subsequent    Creditors 
§  48  (2)  Transferee's  Liability. 
§  48  (2a)   In   General. 

§  48  (2b)   Requisites   and    Sufficiency   of  Transfer. 
§  48   (2ba)   Consent    of   Transferee. 
§  48  (2bb)   Solvency   of   Bank  at  Time   of  Transfer. 
§  48   (2bc)   Entry   on    Bank's    Books. 
§  48  (2bd)   Pledgee. 

§  48   (2be)  Trustees  and  Representatives. 
§  48   (2c)   Nature,    Duration   and    Extent. 
§  48   (2ca)   Duration. 

§  48  (2cb)   Liability  for  Antecedent  and  Subseqirent  Debts. 
§  48  (2cc)   Dividends   Fraudulently   Received  by  Transferer. 
§  48   (2cd)   Indemnifying   Transferer. 

§  48^.  Assessment  by  State  Official  to  Make  Good  Impairment  of  Capital 

Stock. 

§  49.  Actions  and    Proceedings   to    Enforce. 

§  49  (1)   Nature  and  Forms. 

§  49  (la)   Legislative    Regulations. 
§  49  (laa)   In   General. 

§  49   (lab)   Retroactive    Effect    of    Statutes. 
§  49  (lb)  Statutory  Remedy  Exclusive. 
§  49  (Iba)   In  General. 

§  49   (Ibb)   Ancillary  Suit  in  Other  Jurisdiction. 
§  49   (Ic)   Forms  of  Action. 

§  49   (lea)   Creditor's    Suit    and    Receivership. 
§  49  (Icb)   Action  at  Law  by  Creditor. 
§  49   (Icba)   Right  to  Sue. 

§  49   (Icbb)   Enjoining  Creditors  from  Prosecuting  Suit. 
§  49  (Ice)  Action  at  Law  by  Receiver  of  Bank. 
§  49  (led)  Action  by  (Attorney  General  to   Dissolve   Bank. 
§  49   (Icda)   Right   to   Enforce   Stockholder's   Liability. 
§  49   (Icdb)   Intervention   by   Creditors. 
§  49   (Ice)   Superintendent   of   Bank   Autliorizcd    to    Enforce. 
§  49   (Icf)   Nonresident   Stockholder. 


ISO  BANKS    AND    BANKING. 

§  49  (2)  Jurisdiction. 

§  49   (2a)    Existence   of   Legal   Remedy. 
§  49   (2b)   Court  in  Which  Receivership   Pending. 
§  49   (2c)   Courts   of   Foreign  Jurisdiction. 
§  49   (2d)   Loss   or   Divestiture. 
§  49  (3)   Courts   and   Venue. 
:  §  49   (4)   Set  OflF  and   Counterclaim. 

[  §  49  (4a)   Set  Of¥. 

';  §  49   (4b)   Counterclaim. 

§  49   (5)  Time   to   Sue  and   Limitations   and   Laches. 
§  49   (5a)  Time  to   Sue. 
§  49   (5b)   What   Statutes  Applicable. 
§  49  (5c)   In    What   Actions    Available. 
§  49   (5d)  When   Statute   Begins   to   Run. 

§  49  (5e)   Period   of  Limitations   and   Suspension   of   Statute. 
§  49   (5f)   Operation  and  Stay  of  Proceedings. 
§  49   (5g)   Laches  and  Lapse  of  Time. 
§  49  (51^)   Process  and  Appearance. 
§  49   (6)   Parties. 

§  49   (6a)   Parties  Plaintiff. 

§  49   (6aa)   Necessary  and   Proper   Parties. 

§  49   (6aaa)   Suit  to  Enforce  Liability  for  Debts  of  Bank. 
§  49   (6aaaa)   In   General. 
§  49   (6aaab)   Creditors. 
§  49   (6aaac)   Corporation   or   Bank 
§  49   (6aaad)   Receivers. 

§  49   (6aaae)  Assignees  for  Benefit  of  Creditors. 
§  49   (6aaaf)  Trustees. 
§  49   (6aaag)   Superintendent   of   Banks. 
§  49   (Gaaah)   Comptroller  of   Banks. 
§  49   (6aaai)  Attorney   General. 
§  49   (6aaaj)   County  Treasurer. 
§  49   (6aab)   Suit  for  Public  Moneys. 
§  49   (6aac)   Suit  on   Stockholder's  Bond. 
§  49   (6ab)   Interest. 
§  49   (6ac)   Joinder  of  Parties   Plaintiff. 

§  49   (6aca)   Receivers  and  Creditors. 

§  49   (6acb)   Creditors    and    Assignee    of    Claim    against 
Bank. 
§  49  (6ad)   Bringing  in   Parties   Plaintiff. 
§  49   (6b)   Parties   Defendant. 

§  49   (6ba)   Proper   and    Necessary    Parties. 

§  49   (6baa)   Creditor's    Suit    against    Bank. 
§  49  (6bab)  Actions  against  Stockholder.s  by  Creditors. 
§  49   (6bb)   Joinder   of   Parties. 

§  49   (6bba)   Joinder   of   Stockholders. 

§  49   (6bbaa)  Action  at  Law  by  Creditors. 
§  49   (ebbaaa)   In  General. 
§  49  (ebbaab)   Stockholders      WHio      Trans- 
ferred Stock. 
§  49   (6bbab)   Creditors   Suits. 

§  49   (ebbaba)   In    General. 

§  49   (ebbabb)   Nonresident    Stockholders. 


§  42M 


STOCKHOLDERS.  151 


§  49  (6bbac)  Actions   by   Receiver. 
§  49  (6bbb)  Joinder  of   Bank,   Its  Trustee   or   Assignee. 
§  49   (6bbba)  Actions  by  Creditors. 
§  49  (6bbbb)  Actions   by   Receivers. 
§  49   (6bc)   Bringing  in  Parties  Defendant. 
§  49  (6bd)   Death   of   Party.    Revival. 
§  49  (6be)   Dismissal  and   Striking  Off  Parties. 
§  49  (6J4)   Dismissal  of  Suit. 
§  49  (7)   Pleading. 

§  49   (7a)   Complaint,    Declaration   or    Petition. 
§  49   (7aa)   Necessary  Allegations. 
§  49  (7ab)   Sufficiency   of   Allegations. 
§  49  (7ac)   Prayer  for  Recovery. 
§  49  (7ad)  Amendment   and   Aider   by   Verdict. 
§  49   (7ae)  Affidavit   of   Amount   of   Indebtedness. 
§  49   (7b)   Cross   Bill. 
§  49   (8)   Evidence. 

§  49  (8a)   Presumptions   and   Burden   and   Degree   of   Proof. 
§  49  (8b)  Admissibility. 
§  49   (8c)   Weight  and   Sufficiency. 
§  49   (9)  Trial    and    Judgment. 

§  49   (9a)   Reference  and  Receiver's  Report. 

§  49   (9b)   Findings   of   Fact  and   Conclusions   of   Law. 

§  49   (9c)  Judgment    or    Decree. 

§  49  (9ca)   Form,   Requisites  and   Validity. 

§  49   (9cb)  Amount  for  Which  Rendered. 

§  49   (9cc)   Second   Assessment. 

§  49   (9cd)   Persons   Bound  and  Matters  Concluded. 

§  49   (9cda)  Judgment   in   Creditor's    Suit   against    Bank. 
§  49   (9cdaa)   Persons    Bound. 

§  49   (9cdaaa)   Stockholders. 
§  49   (9cdaab)   Stockholders    Not    Served. 
§  49   (9cdaac)   Nonresident    Stockholders. 
§  49   (9cdab)   Matters    Concluded. 
§  49   (9cdb)  Judgment    against    a    Bank    as    Stockholder. 
§  49  (9ce)   Lien   and    Priority. 
§  49   (9cf)   Payment    and    Discharge. 
§  49   (9cg)    Enforcement. 

§  49   (9cga)    Execution. 

§  49   (9cgb)  Action    on   Judgment    or    Assessment. 
§  49   (19)   Liability   for   Expenses. 

C.  STOCKHOLDERS.  ^ 

§  42 1 .  Persons  Who  May  Be  Stockholders.— Married  Women.— 

The  capacilv   of   married    women   to   sul)scril)e    for  or  take  l)y  assignment 
shares  of  stock  in  national  banks,  is  governed  by  tbe  state  laws.^     A  mar- 

1.     Of    loan,    trust     and      investment  §^  249;    "Actions    and     Proceedings    to 

companies,    see    post,    "Stockholders,"  Enforce,"    §   250.                             ^ 

§  rn3.  Of  savings  l)anks,  see  post,     Corpo- 

Of    national    banks,    see    post,    "Lia-  rators    and    Stockholders."    §   203. 

bility    of    Stockholders    for     Debts      of  2.    Capacity   governed  by   state  law. 

Bank,"    §    247;    "\aturc    and    Extent."  —Under    §    n'.i4    ot    the    di.uest    of    the 

§   248-    "Effect   of   Transfer   of    Stock,"  statutes    of     Arkansas,      i)ul.Iishe(l      in 


152 


BANKS    AND    BANKING. 


§  43  (1) 


ried  woman  is  not  incapacitated  by  the  laws  in  force  in  the  district  of 
Cohimbia  from  becoming  the  owner  of  bank  stock.^ 

State. — A  state  may  own,  in  part  or  entirely,  the  stock  of  a  bank.-*  The 
state,  by  becoming  interested  with  others  in  a  banking  corporation,  does 
not  impart  to  that  corporation  any  of  her  privileges  or  prerogatives,  so  far 
as  it  respects  the  transactions  of  the  corporation.-^ 

Stockholders  in  Other  Corporations. — No  principle  of  law  prevents 
the  stockholders  in  an  insurance  company  or  other  corporations  from  be- 
coming at  the  same  time  stockholders  in  a  bank,  even  where  the  same  stock- 
holders own  all  the  stock  in  the  two  corporations.*^ 

§  43.  Rights  and  Liabilities  as  to  Bank— §  43  (1)  Right  to  In- 
spect Books. — The  weight  of  American  authority  recognizes  the  com- 
mon-law right  of  the  shareholder,  for  proper  purposes  and  under  reason- 
able regulations  as  to  place  and  time,  to  inspect  the  books  of  a  banking 
corporation  of  which  he  is  a  member." 

Enforcement.— Stockholders  of  a  bank  may  force  it  to  submit  to  an 
examination  of  its  affairs."^^  But  in  enforcing  this  right  of  inspection,  the 
courts  will  exercise  a  sound  discretion  and  only  grant  it  with  proper  safe- 


1874,  ch.  93,  p.  756,  if  it  was  in  force 
at  the  time  of  the  transaction,  it  would 
seem  that  a  married  woman  might 
lawfully  have  either  subscribed  for  or 
taken  an  assignment  of  the  shares, 
they  being  shares  of  a  national  bank 
in  Arkansas,  and  the  transaction  be- 
ing, therefore,  governed  by  the  stat- 
utes of  Arkansas,  unless  under  special 
circumstances,  a  different  rule  ought 
to  govern.  Bundy  v.  Cocke,  128  U.  S. 
185,  32  L.  Ed.  396,  9  S.  Ct.  242. 

3.  District  of  Columbia. — Keyser  v. 
Hitz,  133  U.  S.  138,  33  L.  Ed.  531,  10 
S.   Ct.  290. 

4,  State  as  stockholder. — Briscoe  v. 
Bank  (U.  S.),  11  Pet.  257,  9  L.  Ed. 
709;  Bank  v.  Planters'  Bank  (U.  S.), 
9  Wheat.  904,  6  L.  Ed.  244;  Bank  v. 
Wistar,  3  Pet.  431,  7  L.  Ed.  731;  Cur- 
ran  V.  Arkansas  (U.  S.),  15  How.  304, 
14  L.   Ed.  705.     See  the  title  STATE. 

But  by  so  doing  it  imparts  none  of 
the  attributes  of  sovereignty  to  the 
institution,  and  having  paid  in  its 
share  of  the  capital  stock,  is  treated 
like  every  other  stockholder  and  in- 
curs no  public  responsibility  what- 
soever. Briscoe  v.  Bank  (U.  S.),  11 
Pet.  257,  9  L.  Ed.  709;  Curran  z:  Ar- 
kansas (U.  S.),  15  How.  304,  14  L. 
Ed.    705. 

Its  funds  and  property  of  every  de- 
scription are  liable  for  its  debts  and 
may  be   reached  by  legal   or  equitable 


process.     Briscoe   v.   Bank    (U.    S.),   11 
Pet.   257,   9    L.    Ed.   709. 

5.  Robinson  v.  Bank,  18  Ga.  65. 

6.  Stockholder  in  other  corpora- 
tions.— State  V.  Butler,  86  Tenn.  614, 
8  S.  W.   586. 

7.  Right  to  inspect  books. — Guthrie 
V.  Harkness,  199  U.  S.  148,  50  L.  Ed. 
130,  26  S.  Ct.  4;  Hatch  v.  City  Bank 
(La.),    1    Rob.    470. 

"It  is  said  to  be  customary  for 
banking  companies  in  England  to  in- 
sert in  their  constitutions  a  provision 
forbidding  the  inspection  of  customers* 
accounts  by  shareholders  or  creditors. 
:\Iorgan's  Case,  L.  R.  28  Ch.  D.  620; 
Cook  Corp.,  §  517,  note.  The  subject 
appears  to  be  now  regulated  by  stat- 
ute in  England.  Cook  Corp.,  §  518." 
Guthrie  v.  Harkness,  199  U.  S.  148, 
50  L.   Ed.   130,  26   S.   Ct.  4. 

A  stockholder  in  a  corporation  has 
a  right  of  access  to  the  proper  sources 
of  knowledge  to  know  how  the  af- 
fairs of  the  corporation  are  conducted. 
If  his  rights  are  not  restricted  in  that 
respect  by  their  charter,  or  rules  and 
by-laws  passed  in  conformity  thereto, 
a  stockholder  in  a  banking  company 
has  a  right  to  the  inspection  of  the 
"discount  book"  of  the  bank,  within 
proper  and  reasonable  hours.  Cock- 
burn   z:   Union   Bank,   13   La.   Ann.  289. 

7a.  Enforcement. — Robertson  z-.  Ow- 
ensboro  Inv.  Bank  and  Trust  Co. 
(Ky.),   149   S.   W.   1144. 


§  43  (2a) 


STOCKHOLDERS. 


153 


guards  to  the  rights  of  all  concerned.^  And  the  state  courts  have  jurisdic- 
tion to  enforce  it,  even  in  the  case  of  a  national  bank."-* 

Mandamus  is  the  proper  remedy  where  the  right  to  inspect  books,  etc., 
is  denied.^"  Mandamus  will  not  issue  to  enforce  the  right  of  stockholders 
to  inspect  the  books  of  a  bank,  unless  some  just  and  useful  object  or  pur- 
pose is  to  be  effected  and  this  object  or  purpose  must  be  alleged  and 
proved.i^ 

§  43    (2)   Ownership  of  Capital  Stock— §  43    (2a)   General  Rule. 

— The  capital  stock  of  a  bank  is  the  property  of  the  individual  stockhold- 
ers, and  not  in  any  sense  the  property  of  the  corporation. ^2  "Where  the 
directors  of  a  bank  distributed  the  balance  of  the  capital  stock  pro  rata 
among  the   subscribers   who  had  paid   up   their   installments,   refusing  to 


8.  Discretion  of  court. — Guthrie 
z:  Harkness,  199  U.  S.  148,  50  L.  Ed. 
130,  26  S.  Ct.  4. 

"It  does  not  follow  that  the  courts 
will  compel  the  inspection  of  the 
bank's  books  under  all  circumstances. 
In  issuing  the  writ  of  mandamus,  the 
court  will  exercise  a  sound  discre- 
tion and  grant  the  right  under  proper 
safeguards  to  protect  the  interests  of 
all  concerned.  The  writ  should  not 
be  granted  for  speculative  purposes  or 
to  gratify  idle  curiosity  or  to  aid  a 
blackmailer,  but  it  may  not  be  denied 
to  the  stockholder  who  seeks  the  in- 
formation for  legitimate  purposes." 
Guthrie  V.  Harkness,  199  U.  S.  148,  50 
L.  Ed.  130,  26  S.  Ct.  4.  See  the  title 
MANDAMUS. 

9.  Jurisdiction. — If  the  stockholders 
had  the  legal  right  to  enforce  inspec- 
tion of  the  books  of  a  national  bank, 
there  is  no  room  to  question  the  au- 
thority of  the  state  courts  to  enforce 
the  right  by  granting  the  proper  re- 
lief in  a  judicial  proceeding.  Guthrie 
:■.  Harkness,  199  U.  S.  148,  50  L.  Ed. 
130,  26  S.  Ct.  4;  Petri  v.  Commercial 
Xat.  Bank,  143  U.  S.  644,  35  L.  Ed. 
1144,  12  S.  Ct.  325;  Continental  Nat. 
Rank  z:  Buford.  191  U.  S.  119,  48  L. 
Hd.  119.  24  S.   Ct.  54. 

"While_  the  state  has  no  power  to 
enact  legislation  contravening  the  fed- 
eral laws  for  the  control  of  national 
banks,  Davis  v.  Elmira  Sav.  Bank,  161 
U.  S.  275.  40  L.  Ed.  7^0,  16  S.  Ct.  502, 
congress  has  provided  that  for  ac- 
tions against  them  at  law  or  in  equity 
they  sliall  l)e  deemed  citizens  of  the 
state  in  which  they  arc  located,  and 
that  in  snch  cases  the  circuit  and  dis- 
trict courts  of  the  United  States  shall 
have    such    jurisdiction    only    as      they 


would  have  in  cases  between  in- 
dividual citizens  of  the  same  state. 
25  Stat.  433."'  Guthrie  v.  Harkness, 
199  U.  S.  148,  50  L.  Ed.  130,  26  S. 
Ct.    4. 

10.  Mandamus. — Cockburn  v.  Union 
Bank,   13    Ea.    -^-nn.    2S9. 

11.  Hatch  r.  City  Bank  (La.),  1 
Rob.    470. 

Though  one  having  a  legal  interest 
in  the  corporate  books  be  entitled  to 
inspect  and  use  them  as  evidence  of 
his  rights,  yet  where  a  director  al- 
leges that,  for  the  interests  of  the 
bank  and  the  public  he  desires  to  ex- 
amine the  stock  ledger,  or  book  con- 
taining the  list  of  stockholders,  and 
also  the  transfer  book;  that  his  appli- 
cation for  that  purpose  has  been  re- 
fused; and  that  all  access  to  these  and 
the  other  book.=!  is  denied  him — his 
prayer  for  a  mandamus  to  assert  the 
right  will  be  refused  when  no  just  or 
useful  object  is  alleged  or  proved,  and 
it  is  not  shown  in  what  way  the  in- 
terests of  the  bank  or  the  public  are 
to  be  promoted.  Hatch  z:  Citv  Bank 
(La.),    1    Rob     470. 

12.  Ownership  of  capital  stock. — 
Conwell   :•    Connersville,   15   Tnd.  150. 

The  profits  on  sale  of  bonds. — In 
1S24  the  state  became  owner  of  capi- 
tal stock  in  the  Bank  of  Louisiana,  for 
which  it  issued  bonds,  to  be  nego- 
tiated by  the  bank.  These  bonds  were 
sold  by  the  bank  at  a  profit,  to  re- 
cover which  profit  this  action  was 
brought.  Held,  that  it  belonged  ex- 
clusively to  the  stockholders  who 
were  such  at  the  time  of  the  sale,  in 
prnnortion  to  the  stock  held  and  ac- 
tually paid  in  bv  them  respectively 
State   V.   Bank.   6   La.    715. 


154 


BANKS    AND    BANKING. 


§  43   (2bc) 


give  a  portion  to  one  who  was  in  arrear,  the  latter  has  a  right  of  action 
against  the  bank  itself. ^^ 

§  43  (2b)  Trust  Fund  for  Benefit  of  Creditors— §  43  (2ba)  In 
General. — The  capital  stock  of  a  bank  is  a  trust  fund  for  the  benefit  of 
depositors  and  creditors,  and  must  be  preserved  unimpaired  for  the  pay- 
ments of  its  debts.^^ 

§  43  (2bb)  Priority  of  Bank  Bills. — When  the  capital  stock  of  an 
incorporated  bank  is  subscribed  and  paid  in,  it  constitutes  a  trust  fund  for 
the  benefit  of  the  stockholders,  but  when  notes  are  issued  and  circulated 
thereon,  another  and  superior  trust  arises  and  the  stock  must  be  first  ap- 
plied to  the  payment  of  the  notes  of  the  bank.^^ 

§  43  (2bc)  Following  Capital  Stock  as  Trust  Fund  after  Dis- 
tribution.— The  capital  of  a  bank  being  a  trust  fund  for  the  payment  of 
its  debts,  if  it  be  withdrawn  by  a  stockholder  or  other  person  it  is  held  by 
him  thereafter  subject  to  the  trust, ^'^  although  there  was  no  fraud  and  a 


13.  Reese  7:  Bank.  31  Pa.  78,  72  Am. 
Dec.  ;2G. 

14.  Trust  fund  for  creditors. — 
Bishoo's  Fund  7'.  Eajjle  Bank,  7  Conn. 
476. 

While  the  bank  is  solvent,  and  in 
the  full  use  and  enjoyment  of  all  its 
franchises,  the  entire  beneficial  in- 
terest in  its  funds  and  assets  belongs 
to  the  stockholders.  But  after  the 
insolvency  of  the  corporation,  al- 
though the  legal  ownership  of  the  as- 
sets may  continue  as  before,  the  bene- 
ficial interest  of  the  stockholders 
clearly  no  longer  exists.  Marr  v. 
Bank,' 44  Tenn.  (4  Coldw.)  471;  Schley 
V.  Dixon,  24  Ga.  273,  71  Am.  Dec.  121; 
Corbin  Banking  Co.  v.  Mitchell,  141 
Ky.  172,  132  S.  W.  426;  Dabney  v. 
State  Bank,  3   S.  C.   (3   Rich.)   124. 

Tennessee. — The  capital  stock  of  a 
banking  corporation,  is,  by  every  prin- 
ciple of  law  as  well  as  common  sense, 
not  the  absolute  property  of  the  in- 
dividual shareholders.  It  has  uni- 
formly been  deemed  a  pledge  or  trust 
fund,  for  the  payment  of  the  debts  of 
the  bank.  Woodfork  v.  Union  Bank, 
43  Tenn.  (3  Coldw.)  488.  See,  to  the 
same  effect,  Marr  z'.  Bank,  44  Tenn. 
(4    Coldw.)    471. 

"The  capital  stock  of  a  bank  cor- 
poration is  a  fund  set  apart  by  its 
charter  for  the  payment  of  its  debts, 
which  amounts  to  a  contract  with 
those  who  shall  become  its  creditors, 
that  the  fund  shall  not  be  withdrawn 
or    appropriated    to    the    use     of      the 


owner  or  owners  of  the  capital  stock."' 
State  r.   Bank.  64  Tenn.   (5  Baxt.)   1. 

15.  Priority  of  bank  bills. — Schley  Z'. 
Dixon,   24   Ga.   273,   71   Am.   Dec.   121. 

16.  Following  capital  after  distribu- 
tion.— Dabney  v.  State  Bank  (S.  C),  3 
Rich.  124;  Marr  z'.  Bank,  44  Tenn. 
(4   Coldw.)    471. 

State  sole  stockholder. — The  fact 
that  the  state  is  the  sole  stockholder 
does  not  vary  the  rule  Dabney  z'. 
State  Bank  (S.  C),  3  Rich.  124. 

Tennessee.  —  When  the  common 
school  fund  was  made  a  part  of  the 
capital  of  the  Bank  of  Tennessee,  it 
became  assets  of  the  bank  to  which 
creditors  of  the  bank  had  a  right  to 
look,  and  a  trust  fund  applicable  to 
the  payment  of  its  debts.  The  act, 
therefore,  of  February  16th,  1866,  ap- 
propriating the  assets  of  the  bank  as 
school  fund,  impaired  the  obligation 
of  the  contract  between  the  bank  and 
its  creditors  and  was  a  nullity,  as  was 
also  the  assignment  made  in  pursuance 
of  that  act.  so  far  -as  to  give  prefer- 
ence to  the  school  fund.  State  z>. 
Bank,   64   Tenn.    (3    Baxt.)    1. 

The  State  Bank  of  Tennessee. — 
Nashville  <■.  Bank,  31  Tenn.  (l  Swan.) 
269. 

Right  of  charitable  corporation  to 
withdraw  shares. — Where  a  corpora- 
tion for  charitalile  purposes  subscribes 
for  shares  in  a  bank,  it  becomes  a 
stockholder,  and  part  of  the  corpora- 
tion, and  consequently.  after  in- 
solvency of  the  bank,  is  incapable  of 
withdrawing   its    shares,    or   recovering 


§  43   (2bc) 


STOCKHOLDERS. 


155 


distribution  was  authorized  by  la\v;i'  and  a  creditor  may  in  a  court  of 
equity  follow  it  into  the  hands  of  stockholders  or  other  persons  receivincr 
it  with  notice.^* 

Action  at  Law,— Where  a  banking  corporation  divided  its  capital  stock 
among  the  stockholders,  leaving  the  corporate  notes  in  circulation,  an  in- 
dividual stockholder,  who  had  received  his  share  of  the  stock  so  divided,  is 
not  liable  in  an  action  at  law  to  a  holder  of  a  note  of  the  corporation. i'* 

When  Liability  Accrues,  and  Conditions  Precedent.— The  right  of 
creditors  of  a  bank  to  subject  the  capital  stock  in  the  hands  of  stockhold- 
ers to  payment  of  their  claims  does  not  accrue  until  the  bank  has  refused 
payment,  and  is  unable  to  discharge  the  debts.-" 

Stockholder  as  Parties,— Where  the  capital  stock  of  a  bank  has  been 
divided  among  its  stockholders  before  the  expiration  of  its  charter,  with- 
out reserving  a  sufficient  amount  to  pay  its  bank  notes,  a  bill  in  equity  for 
the  purpose  of  subjecting  such  stock,  in  the  hands  of  the  stockholders,  to 
the  payment  of  the  notes,  may  be  maintained  by  some  of  the  holders  of  the 
notes  against  some  of  the  stockholders,  it  appearing  impossible  to  bring  all 
parties  before  the  court.^i     Where  the  shares  of  capital  stock  of  a  bank 


the  amount  as  a  debt  against  the  bank. 
Bishop's  Fund  z\  Eagle  Bank,  7  Conn. 
476. 

17,  Distribution  authorized  by  law 
— Absence  of  fraud. — Capital  stock  of 
a  bank,  which  has  been  divided  among 
the  stockholders  by  the  directors,  is 
still  liable  for  the  debts  of  the  bank, 
though  the  stockholders  were  not 
guilty  of  fraud,  and  the  division  was 
authorised  by  law.  Wood  v.  Dummer, 
Fed.   Cas.    No.   17,944,   3    Mason,   308. 

18.  After  the  capital  stock  of  a  bank- 
has  been  subscribed  and  paid,  it  be- 
comes a  trust  fund  in  the  hands  of  the 
president  and  directors  for  the  benefit 
of  the  creditors  of  the  bank,  who  must 
be  paid  before  the  stock  can  be  with- 
drawn and  distributed  among  the 
stockholders,  and,  if  not  so  paid,  and 
the  bank  becomes  insolvent,  the  bill- 
holders,  may  pursue  the  trust  into  the 
hands  of  the  stockholders.  Schley  v. 
Dixon,  24  Ga.  273,  71  Am.  Dec.  121. 

A  bank  divided  among  its  stock- 
holders three-fourths  of  its  capital 
stock  before  the  expiration  of  its 
charter,  without  providing  funds  suffi- 
cient to  pay  its  outstanding  notes. 
Held  that,  since  the  capital  stock  was 
a  trust  fund  for  the  payment  of  the 
bank's  notes,  it  could  l)e  followed  into 
the  hands  of  the  stockholders.  Wood 
V.  Dummer,  Fed.  Cas.  Xo.  17,044,  3 
Mason,   308. 

"The  stockholders,  having  incurred 
no   personal    lialiility    for    the    del)ts    of 


the  corporation,  have,  in  point  of  fact, 
no  interest  in  the  disposition  of  the 
assets  of  the  bank,  after  its  insolvenc}'. 
In  equity,  as  well  as  at  law,  the  bene- 
ficial interest  therein  belongs  to  the 
creditors.  The  capital  is  the  fund  they 
trusted,  and  to  which,  with  the  after- 
acquired  property  or  assets  of  the  cor- 
poration, they  can  alone  look  for  in- 
demnity. Both  stand  pledged  for  the 
payment  of  the  corporation  debts  (10 
Mass.  R.,  272),  and  a  court  of  equity 
will  follow  them  into  the  hands  of 
stockholders  or  other  persons  receiv- 
ing them  with  notice,  for  the  l)enefit 
of  the  creditors."  Marr  v.  Bank,  44 
Tenn.    (4    Coldw.)    471. 

19.  Action  at  law. — Spear  v.  Grant, 
](•)   Mas.s.   1». 

Action  of  tort. — Where  the  stock- 
holders of  an  incorporated  bank,  after 
the  expiration  of  their  charter,  made 
dividends  of  their  capital  stock  among 
theinselves,  so  there  were  no  cor- 
porate funds  left  for  the  redemption 
of  their  outstanding  notes  or  bills; 
the  possessors  of  such  bills  could  not 
maintain  an  action  of  tort  a,gainst  a 
stockholder  who  had  received  his  pro- 
portion of  such  dividends.  ^^1se  :■. 
Grant.    l.">    Mass.   :,{):>. 

20.  When  liability  accrues,  and  con- 
ditions precedent. — Wood  ;•.  Duinnier, 
Fed.    Cas.    N'm.    17,'.)44.    3    Mason    :!(ts. 

21.  Stockholders  as  parties.— Wood 
7'.  Dumnur.  l-ed.  Cas.  Xo.  I7.<I44.  3 
Mason  308. 


156  BANKS    AND    BANKING.  §    43    (2bc) 

were  each  transferable  either  to  residents  or  nonresidents,  all  the  stock- 
holders need  not  be  made  parties  to  a  suit  by  creditors  to  subject  the  cap- 
ital stock  in  the  hands  of  certain  stockholders  to  payment  of  the  creditors' 
claims,  it  not  being  claimed  that  those  stockholders  joined  do  not  represent 
effectually  the  interests  adverse  to  the  creditors,  or  that  these  not  joined 
could  aid  defendants  in  making  a  more  effectual  defense.-- 

Bank  a  Necessary  Party.— In  a  suit  by  creditors  of  a  bank  to  subject 
to  payment  of  their  claims  the  capital  stock  in  the  hands  of  stockholders, 
the  bank  is  a  necessary  party,  though  a  new  bank  has  been  organized,  pro- 
vided that  the  old  one  is  still  in  existence.-^ 

Presumption  That  Bank  Expired  by  Legislative  Limitation.— 
Where  a  new  bank  was  formed  in  place  of  an  old  one,  and  a  bill  for  cred- 
itors, to  subject  the  capital  stock  to  payment  of  their  debts,  contains  the 
acts  of  the  legislature  continuing  the  existence  of  the  old  bank  for  a  limited 
time,  it  will  be  presumed  that  the  old  bank  expired  by  the  legislative  lim- 
itation, so  as  to  render  it  unnecessary  to  make  it  a  party.^^ 

Pleading.— A  bill  by  creditors  of  a  bank,  to  subject  the  capital  stock 
in  the  hands  of  stockholders  to  payment  of  the  creditors'  claims,  should 
allege  that  the  stock  is  a  trust  fund,  appropriated  by  law  and  the  charter, 
to  payment  of  debts  of  the  bank,  and  that  the  surplus  only  belongs  to  the 
stockholders.25  Where  a  new  bank  has  been  formed  to  take  the  place  of 
an  old  one,  in  a  suit  by  creditors  of  the  latter  to  subject  the  capital  stock 
in  the  hands  of  stockholders  to  payment  of  the  debts,  the  bill  must  allege  that 
the  old  corporation  is  defunct  in  order  to  dispense  with  its  being  made 
a  party. 2<5  Where  a  new  bank  was  organized  in  place  of  another  and  a 
suit  brought  by  creditors  to  subject  to  payment  of  their  claims  the  capital 
stock  in  the  hands  of  stockholders  was  dismissed  as  to  the  new  bank,  ,the 
bill  should  have  been  amended  by  striking  out  allegations  that  the  new  bank 
had  received  large  funds  of  the  old,  since,  if  such  were  true,  the  stock 
could  not  be  subjected  to  liability.^" 

Decree. — Where  a  bank,  before  the  expiration  of  its  charter,  divided 
three-fourths  of  its  capital  stock  among  its  stockholders,  without  providing 
funds  sufficient  to  pay  its  outstanding  bank  notes,  on  a  bill  by  the  holders 
of  the  notes  against  a  part  of  the  stockholders  to  compel  a  payment  of  the 
notes,  the  decree  against  each  stockholder  should  be  for  his  contributory 
share  of  the  debt  in  the  proportion  which  the  stock  held  by  him  bears  to 
the  whole  capital  stock.^s 

22.  Wood  V.  Dummer,  Fed.  Cas.  No.  25.  Pleading. — Wood  v.  Dummer, 
17,944,    3    Mason    308.  Fed.    Cas.    No.    17,944.    3    Mason   308. 

23.  Bank  a  necessary  party. — Wood  26.  Wood  v.  Dummer,  Fed.  Cas.  No. 
V.    Dummer,    Fed.    Cas.    No.    17,944,    3  17,944,   3   Mason  308. 

Mason  308.  27.    Wood  v.  Dummer,  Fed.  Cas.  No. 

24.  Presumption   that   bank   expired       17.944,   3    Mason   308. 

by     legislative     limitation. — Wood      v.  28.       Decree. — Wood      v.       Dummer, 

Dummer,   Fed.   Cas.   No.   17,944,   3   Ma-       Fed.    Cas.    No.    17,944,    3    Mason   308. 
son   308. 


§45    (1)  STOCKHOLDERS. 


157 


§  43    (2c)   Payment   to   Enable   Bank   to   Resume   Business.— A 

payment  made  by  stockholders  to  a  suspended  bank,  in  order  to  enable  it  to 
resume,  is  not  a  payment  in  the  ordinary  course  of  business,  and  does  not 
create  a  debt  from  the  bank  to  the  stockholders. -^ 

§  43  (3)  Power  to  Bind  Corporation.— Stockholders  of  a  bank  can 
not  create  a  corporate  liability  without  special  authority  so  to  do.  Confes- 
sions, admissions,  or  knowledge,  while  not  engaged  in  the  precise  business 
intrusted  to  them,  can  not  attect  the  corporation. ^o 

§  43  (4)  Dealings  with  Bank— §  43  (4a)  As  Principal  or 
Surety  on  Note.— A  stockholder  may  be  legally  bound  to  the  bank  on  a 
note  as  principal  or  surety.^  ^ 

§  43  (4b)  Sale  of  Stock  to  Bank.— See  ante,  "Bank  Itself"  § 
40  (2c). 

§  44  Constitutional  and  Statutory  Provisions.— See  post,  "Consti- 
tutional and  Statutory  Provisions,''   §  47    (2b). 

§  441.  Shareholders'  Meetings.— Where  the  articles  of  association 
of  a  bank  required  meetings  of  shareholders  to  be  called  by  the  board  of 
directors,  or  by  any  three  shareholders,  a  resolution  at  a  meeting  called  In 
the  president  and  cashier  was  not  a  valid  act  of  the  corporation,  all  the 
shareholders  not  being  present. ^2 

§  45.  Suing  or  Defending  on  Behalf  of  Bank.— Enforcement  of 
liabilities  of  officer,  see  post,  "Right  of  Stockholders  to  Enforce  Liability," 

§  54  (5). 

§  45  (1)  Failure  or  Refusal  of  Bank  to  Sue. — Only  under  peculiar 
circumstances  will  a  bank  stockholder  be  permitted  by  courts  of  equity  to 
bring  a  suit  which  the  corporation  has  failed  to  bring.^^  Where  a  banking 
corporation  is  disabled  from  suing — as,  where  the  managing  agents  of  the 
corporation,  its  officers  and  directors,  are  themselves  to  be  the  defendants, 
or  where  the  corporation  wrongfully  and  willfully  refuses  to  sue — then, 
in  either  case,  a  court  of  equity  will  entertain  a  suit  by  a  shareholder,  sub- 

29.  Payment  to  enable  bank  to  re-  did  sign  it  as  a  surety,  and  not  as  a 
sume  business. — P.rodrick  :•.  P.rown,  principal,  states  no  defense.  The  con- 
09    Fed.    49T.  tract  as   surety  was   not  void,   l)Ut   was 

30.  Power  to  bind  corporation. —  as  binding  on  defendant  as  it  would 
Loomis,  etc.,  Co.  f.  Kagle  Pjank,  1  have  been  had  he  not  l)oeji  a  director. 
Disn.  28.5,   12   O.   Dec.  G2;j.  Rank  z:   Triplett   (Ky.),  <>  J.  J.    Marsh 

31.  Principal    or    surety    on    note. —  54'.). 

In    a    suit    instituted    l^y    the    president  32.      Shareholder's      meetings. — Mat- 

and  directors  of  the  bank  of  the  com-  thews  ;■.   CoUmibia   N'al.    r.:iid<,  7'.)   Fed. 

monwealth    on    a    promissory    note    to  558,    reversed    in    Columbia    Nat.    Bank 

the  bank,  a  plea  by  one   of  defendants  7\    Mathews,   8.5    Fed.   9.T4,   20   C.    C.    A. 

that  at  the  time  the  note  sued  on  was  491. 

executed    he    was    a    director     of      the  33.  Failure  of  bank  to  sue.— Wallace 

bank,   and   therefore   not  competent   to  z'.  Lincoln  Sav.  Hank,  89  Tenn.  (>30,  1.5 

sign  said  note  as  a  surety,  and  that  he  S.  W.  448,  24  Am.   St.   Rep.  025. 


158 


BANKS    AND    BANKING. 


§  45  (1) 


stituting  him  to  the  collective  or  corporate  right  of  action.-^-* 

The  mere  refusal  of  a  banking  corporation  to  bring  a  suit  will  not 
authorize  any  stockholder  dissatisfied  with  such  decision  to  conduct  a  suit 
himself,  for  necessarily  a  very  wide  discretion  as  to  suing  is  reposed  in  the 
directors  of  the  corporation.^^ 

Recovery  for  Benefit  of  Corporation,  etc. — Where  a  court  of  equity 
entertains  a  suit  by  a  bank  stockholder  to  enforce  a  corporate  right  of 
action  the  recovery  must  be  for  the  benefit  of  the  corporation,  all  its  cred- 
itors and  shareholders,  innocent  and  guilty,  sharing  proportionately  in  the 
benefits  of  the  degree.-"^*^ 

In  cases  of  the  refusal  of  a  trustee  of  an  insolvent  bank  to  sue  the 
rule  against  a  suit  by  a  stockholder  is  not  as  stringent  as  in  case  of  a  re- 
fusal by  the  directors,  for  the  reason  that  the  trustee  has  not  so  wide  a  dis- 


34.  Wallace  v.  Lincoln  Sav.  Bank, 
89  Tenn.  630,  15  S.  W.  448,  24  Am.  St. 
Rep.   625. 

Where  neither  the  receiver  nor  the 
proper  bank  officer  will  sue  on  de- 
mand of  a  stockholder,  the  latter  may 
sue  for  himself  and  other  stockholders. 
Where  neither  the  bank's  officers  or 
directors,  nor  the  receiver,  nor  the 
comptroller,  would,  on  demand,  bring 
suit,  a  stockholder's  suit  on  behalf  ot 
himself  and  other  stockholders  of  a 
national  bank  to  recover  judgment  in 
the  bank's  favor  lor  the  alleged  wrong- 
ful acts  of  the  managing  agents  of  the 
corporation,  must  be  assumed  to  have 
been  properly  instituted.  In  re  Chet- 
wood,  165  U.  S.  443,  41  L.  Ed.  782, 
citing  Whittemore  v.  Amoskeag  Nat. 
Bank,  134  U.  S.  527,  33  L.  Ed.  1002,  10 
S.   Ct.   592. 

Restraining  collection  of  illegal  tax. 
— Where,  on  demand  of  a  stockholder 
to  do  so,  the  directors  of  a  bank  re- 
fused to  take  any  steps  to  prevent  the 
collection  of  a  tax  on  the  bank  under 
a  certain  law,  though  admitting  that 
the  law  was  unconstitutional,  their  ac- 
tion is  a  breach  of  duty,  and  not  a 
mere  error  of  jtidgment,  so  that  the 
stockholder  has  a  right  to  bring  suit 
in  equity  to  restrain  the  collection  of 
the  tax.  Dodge  v.  Woolsey  (U.  S.), 
18    How.    331,    15    L.    Ed.    401. 

In  a  suit  by  a  stockholder  of  a  bank 
to  restrain  the  collection  of  an  illegal 
tax  on  the  bank,  the  directors,  who  re- 
fused to  take  any  action,  are  properly 
ioined.  Dodge  v.  Woolsey  (U-  ?-^- 
18   How.  331,  15   L.   Ed.  401. 

Suit  to  set  aside  sale  to  directors. — 
Where  directors  of  a  bank  procured 
the  sale  of  mining  stock  held  by  the 
bank  to  themselves,  which,  in  view  of 
their   office    as    directors,   they   had    no 


right  to  purchase,  and  plaintiff,  a 
stockholder,  requested  the  bank  to 
sue  to  set  aside  the  sale,  which  the 
bank  refused  to  do,  and  two-thirds  of 
the  stockholders,  which  were  neces- 
sary to  elect  a  new  board  of  directors, 
were  not  disinterested,  the  plaintiff 
was  entitled  to  sue  on  his  own  behalf; 
he  having  done  all  that  could  be  rea- 
sonably required  to  induce  the  bank 
to  sue,  without  avail.  Morgan  v.  King, 
27    Colo.    539,    63    Pac.    416. 

35.  Mere  refusal  to  sue. — "Strangers 
could  never  know  when  a  settlement, 
compromise,  or  adjustment  was  a 
finality  if  the  matter  was  subject  to  be 
overhauled  at  the  suit  of  any  discon- 
tented shareholder.  So  a  suit  might 
appear  so  desperate,  or  be  so  expen- 
sive, or,  for  good  reason,  impolitic, 
that  directors  might,  in  the  exercise 
of  a  sound  discretion,  deem  it  unwise 
to  engage  in  litigation.  In  such  case, 
if  the  refusal  be  in  good  faith,  the 
courts  will  rarely  suffer  a  shareholder 
to  overturn  such  decision  by  enter- 
taining his  suit  for  the  same  cause  of 
action."  Wallace  v.  Lincoln  Sav. 
Bank,  89  Tenn.  630,  15  S.  W.  48,  24 
Am.  St.  Rep.   625. 

"In  the  case  of  the  refusal  of  the 
managers  of  a  (banking)  corporation, 
an  appeal  would  lie  to  the  general 
meeting  of  the  shareholders;  and  if 
in  such  refusal  they  did  not  represent 
the  will  of  a  majority,  it  could  be  then 
made  to  appear,  and  a  board  dected 
who  could  reverse  their  action."  Wal- 
lace V.  Lincoln  Sav.  Bank,  89  Tenn. 
630,   15   S.  W.  448,  24  Am.  St.   Rep.  625. 

36.  Recovering  for  benefit  of  cor- 
poration.— Wallace  r.  Lincoln  Sav. 
Bank,  89  Tenn.  630,  15  S.  W.  448,  24 
Am.    St.    Rep.    625. 


§    45    (4a)  STOCKHOLDERS. 


159 


cretion  as  to  suing  as  existed  in  the  directors  of  a  solvent  and  going  bank- 
ing corporation.  Also  there  is  no  appeal  from  the  refusal  of  the  trustee 
save  to  a  court  of  equity,  while,  in  case  of  a  refusal  by  the  directors,  an 
appeal  to  the  stockholders'  meeting  can  be  had.''" 

§  45  (2)  Enjoining  Hlegal  Acts  and  Practices.— A  bank  stock- 
holder may  maintain  a  suit  against  the  bank  ofificer  to  restrain  illegal  dis- 
counting,38  and  to  restrain  the  payment  of  an  illegal  tax.^o 

§  45    (3)   Recovery  for  Fraudulent  or  Illegal  Acts  or  Practices. 

— A  bank  stockholder  may  maintain  a  suit  against  the  directors  and  otiier 
officers  of  the  bank  for  unfaithfulness  in  the  discharge  of  their  official 
duties.  Upon  allegation  of  fraudulent  practices  a  stockholder  may  main- 
tain a  bill  in  equity  against  the  bank  officials  for  an  accounting  and  restora- 
tion of  whatever  may  have  been  fraudulently  withdrawn  from  or  lost  to 
the  bank;-!^  or  he  may  sue  at  law  for  damages  resulting  from  the  illegal 
acts  of  such  officials  in  the  discharge  of  their  duties.^' 

§  45  (4)  Quo  Warranto  and  Proceedings  in  Nature  Thereof— 
§  45  (4a)  Testing  Legality  of  Incorporation.— Under  a  state  statute 
allowing  an  information  to  be  filed  against  any  person  or  corporation 
whenever  any  association  or  number  of  persons  shall  act  as  a  corporation 
without  being  legally  incorporated,  and  providing  that  such  information 
may  be  filed  by  any  person  on  his  own  relation,  whenever  he  claims  an 
interest  in  the  corporation,  it  is  unnecessary  that  a  stockholder  in  a  bank 
should  first  make  demand  upon  the  officers  to  cease  to  act  as  a  banking 
corporation.^ 2  \^-^  information  filed  by  a  stockholder  in  such  case  is  suffi- 
cient without  alleging  that  the  bank  has  property.-*^ 

37.  Refusal  of  trustee  of  insolvent  rectors,  and  other  stockholders,  upon 
bank  to  sue.— W  allace  r  Lincoln  bav.  allegations  of  fraudulent  practices,  de- 
Bank  «9  renn^_630,  15  S.  W.  448,  24  preciatinj,-  the  value  of  the  stock,  sus- 
"  To  >^u  ^P'  .■  .  ,  ,  pending  banking  operations,  refusincr 
i  he  act  incorporating  a  bank  cash  payments,  and  withholding  divi^- 
provided  that  ordinary  discounts  may  dcnds;  and  in  such  bill  the  complainant 
he  made  by  the  president  and  four  ^^^y  join  individual  stockholders  with 
Girectors.  and  that  the  rate  of  dis-  the  corporation,  may  pray  for  an  ac- 
count at  which  loans  shall  be  made  count  of  stock  and  funds,  and  for  res- 
shall  not  exceed  one-half  of  1  per  toration  of  whatever  may  have  been 
centum  for  thirty  days.  Held,  that  on  fraudulently  withdrawn  from  ih-  com- 
proof  of  the  discounting  of  paper  by  ,„on  stock.  Taylor  v.  Miami  Kxporl- 
the  cashier  and  president  without  four  ;„„  q^^  5  q  ^(-,0  00  .\,„  p^c  7S.-> 
directors,  and  that  notes  had  been  ",  .'  '.  "'",''  '  "  .  /.,'",• 
discounted  at  rates  greater  than  that  *J-  An  action  at  law  against  the  .1.- 
allowed  by  charter,  was  sufficient  rectors  of  a  bank  or  the  violation  o 
ground  for  a  temporary  injunction  at  ^  ^^  provisions  of  the  b:mking  laws  ot 
the  suit  of  a  stockholder  to  restrain  ^  ^^  -It^tf-  ">•  ^''^'J.  i>"fa|lhf.i  ness  in 
such  practices.  Manderson  v.  Com-  '^^  ''^^^''''%'^.f  their  ofhcal  dudes, 
mercial    Rank,    28    Pa.    .370.  founded  on  ^  ofi.  c.  84.  Comp    St..  may 

39.  Dodge    V.    Woolsey    (U.    S.),    18  'Y,  ^''""^^W  ^'^ .^py  ^^'''^''{1''^'^^'''' 
How.  3.31,   15  L.   Ed.  401  ^"y-     ^"^"  '•  Warner,  .i.t  Vt.  .'",,0. 

40.  Recovery  for  fraudulent  acts  or  42.     Demand.— Albert    ;•      Slate,     n5 
practices.— A    stockholder     in     an      in-  Tnd.    41.3. 

corporated  bank   may  sustain   a  bill   in  43.     Allegation   that   bank   has   prop- 

equity  against  the  corporation,  the  di-       erty. — Allien  v.  State,  05  Ind.  413. 


160  BANKS    AND    BANKING.  §    47    (1) 

§  45  (4b)  Testing  Validity  of  Election  of  Officers.— Though  any 
stockholder  has  a  right  to  inquire,  by  a  quo  warranto,  into  the  election  of 
those  who  assume  to  administer  the  corporation,  yet,  where  the  wrong 
complained  of  w^as  the  result  of  his  own  misconduct  or  neglect,  or  he  has 
acquiesced  or  concurred  in  it,  he  will  not  be  listened  to.  \\'here,  however, 
one  concurs  in  an  election  in  ignorance  of  some  fact  making  it  invalid,  and 
afterwards  shows  the  objection,  and  that  it  has  come  to  his  knowledge 
since  the  election,  he  should  be  heard,  consent,  induced  by  error,  not  being 
binding  in  the  eye  of  the  law.  These  principles  are  applicable,  if  not  to 
municipal,  certainly  to  private,   corporations."*^ 

§  46.  Liability  for  Debts  and  Acts  of  Bank. — Unpaid  Install- 
ments on  Shares  Purchased  by  the  Bank. — See  ante,  "Purchase  of 
Shares  by  Bank,"  §  39  (7cl).  Stockholders  of  trust  companies,  see  post, 
"Stockholders,"  §  313. 

§  47. Nature  and  Extent— §  47  (1)  In  General.— The  individ- 
ual liability  of  holders  of  bank  stock  is  wholly  statutory,^"'  and  depends  upon 
the  law  of  the  state  creating  it.  The  rule  is  that  the  relation  of  bank  and 
depositor  is  that  of  debtor  and  creditor  does  not  create  a  personal  liability 
on  the  part  of  a  stockholder.^^  The  liability  of  stockholders  of  banking 
corporations  is  imposed  for  the  benefit  of  creditors,  and  attaches  by  virtue 
of  the  statute  to  the  owners  of  the  stock.-*'^  The  liability  is  upon  the  stock- 
holders and  not  upon  the  stock  ;'*^  it  is  not  the  loss  of  the  stock  but  in  ad- 
dition thereto.-*'^  The  liability  extends  only  to  the  operations  ordinarily 
incident  to  the  banking  business. ^'^ 

44.  Testing  validity  of  election  of  he  must  allege  and  prove  that  the  lia- 
officers. — Wiltz  v.  Peters,  4  La.  Ann.  bilities  to  pay  which  the  assessment 
339.  was  made  accrued  while  defendant  was 

45.  Statutory. — Bromley  z\  Good-  a  stockholder.  Shuey  v.  Holmes,  21 
win,   95    111.   118;   Smathers  v.  Western  Wash.   223,   57   Pac.   818. 

Carolina  Bank,  155  N.  C.  283,  71  S.  E.  49,    Const.  1868,  art.  12,  §  6,  making 

345;    Myers    v.     Knickerbocker      Trust  stockholders    of   a    bank    liable    to    the 

Co.,  139  Fed.  Ill,  71  C.  C.  A.  199,  1  L.  amount    of    their    stock    for    its    debts, 

R.  A.,  N.  S.,  1171;  Brunswick  Terminal  does  not  limit  the  liability  to  the  loss 

Co.  7'.  National  Bank,  192  U.  S.  386.  48  of  the  stock,  but  makes  it  an  addition 

L.    Ed.    491.    24    S.    Ct.    314;    Carrol    v.  thereto.        Parker     v.      Carolina      Sav. 

Green,  92  U.  S.  509,  23  L.  Ed.  738.  Bank,    53    S.    C.    583,    69    Am.    St.    Rep. 

46.  Bromley  v.  Goodwin.  95  111.  118.  888,  31   S.   E.   673. 

47.  Smathers  z'.  Western  Carolina  50.  Under  Const.,  art.  12,  §  11,  and 
Bank,  155  N.  C.  283,  71  S.  E.  345.               i    Hill's    Code,    §    1511,    providing   that 

48.  Under  Const.,  art.  12,  §  11,  pro-  each  stockholder  of  any  banking  cor- 
viding  that  stockholders  in  banking  poration  shall  be  liable  for  its  debts, 
corporations  shall  be  liable  for  all  con-  to  the  amount  of  his  stock  therein,  in 
tracts,  debts,  and  engagements  "ac-  addition  to  the  amount  invested  in 
cruing  while  they  remain  such  stock-  such  shares,  the  liability  of  stockhold- 
holders,"  to  the  extent  of  the  par  value  ers  of  a  corporation  organized  to  do 
of  their  stock,  the  liability  imposed  is  banking  and  other  business,  and  which 
upon  the  stockholder,  and  not  upon  fails,  extends  only  to  the  obligations 
the  stock;  and,  to  entitle  the  receiver  ordinarily  incident  to  the  banking 
of  an  insolvent  bank  to  recover  an  as-  business.  Kiggins  v.  Munday,  19 
sessment   made   against   a   stockholder.  Wash.    233,    52    Pac.    855. 


§  47  (2ba) 


STOCKHOLDERS. 


161 


§  47  (1|)  Stockholders'  Agreements.— Where  a  stockholder  of  a 
state  bank  advances  his  own  funds  to  pay  the  debts  of  the  bank,  in  pur- 
suance of  an  agreement  of  the  stockholders  that  each  should  contribute 
in  proportion  to  the  number  of  shares  of  stock  held  by  him.  the  advancing 
stockholder  may  maintain  an  action  against  the  other  stockholders  for  an 
accounting  and  contribution  without  having  first  exhausted  the  assets  of 
the  bank.51 

Loan  of  Bonds  to  Bank. — A  loaner  of  bonds  to  a  bank  upon  an  ao-ree- 
ment  of  the  stockholders  to  return  the  same  can  not  maintain  trover  against 
the  shareholders  after  the  bonds  had  been  sold  and  his  title  divested.  All 
that  was  left  to  him  was  an  action  on  his  agreement. ^- 

§  47  (2)  Charter  and  Statutory  Provisions— §  47  (2a)  Special 
Charter  Provisions.— Where  there  is  no  general  law  of  the  state  de- 
claring the  individual  liability  of  stockholders  in  banks,  whether  such  lia- 
bility exists  and  its  extent  depends  upon  the  provisions  of  the  charter  in 
a  given  case.^-'^  And,  as  such  provision  in  the  charter  is  in  derogation  of 
the  common  law,  it  must  not  be  extended  beyond  the  words  used.^* 

§  47  (2b)  Constitutional  and  Statutory  Provisions — §  47  (2ba) 
Constitutionality  Generally.— A  statute  which  attempts  to  establish  a 
different  liability   from  the  one  imposed  by  the  constitution, ^^  or  to  pro- 


51.  Stockholders'        agreements. — 

Davidson    v.    Gretna    State     Bank,      59 
Xeb.   63,   80   X.   W.   256. 

52.  Loan  of  bonds  to  bank. — De- 
fendants, shareholders  of  a  certain 
l)ank,  became  jointly  and  severally  li- 
able for  the  return  of  United  States 
lionds  to  the  value  of  $9,000  belonging 
to  iM.  which  he  had  loaned  to  the  bank. 
The  bank  raised  money  on  the  bonds 
by  depositing  them  as  collateral 
security  in  another  bank.  Certain 
overdrafts  of  the  bank  being  unpaid, 
the  bank  with  which  they  were  de- 
posited sold  the  bonds,  and  placed  the 
proceeds  to  the  credit  of  the  deposit- 
ing bank.  Held,  that  the  depositing 
l^ank  did  not  authorize  the  sale  of  the 
l)onds,  and  hence  there  was  no  breach 
of  trust  or  tortuous  conversion  bj^  de- 
fendants, and  the  bonds  having  I)cen 
sold,  and  the  plaintiff's  right  thereto 
divested,  he  could  not  maintain  an  ac- 
tion of  trover  against  the  defendants 
as  shareholders  of  the  bank.  Duftield 
r:   Miller,   92   Pa.   286. 

53.  Special  charter  provisions. — 
Wheatley  v.  Glover,  125  Ga.  710,  54 
S.  E.  026.  X'^o  such  law  existed  in 
Georgia    prior    to    1893. 

The    Act    of    18.38     (Code      of      1882, 
§   1496)    did   not  have  the  effect   to  im- 
pose  upon   the   stockholders   in   a   bank 
1    B  &  B— 11 


or  other  corporation  a  liability  lieyond 
the  amount  of  the  stock  owned,  i)ut 
merely  provided  a  method  by  wiiicli  a 
stockholder  who  had  transferred  his 
stock  might  relieve  himself  of  an  ex- 
isting individual  liability  imposed  l)y 
the  charter  of  the  corporation. 
Wheatley  r.  Glover,  125  Ga.  TH),  54 
S.    E.   626. 

Xeitlier  was  such  a  liability  im- 
posed by  the  Act  of  1892  (Act,  1892,  p. 
55),  nor  by  the  .\cl  of  1894  (Civil 
Code,  §  1888).  These  acts  simply  prr» 
vide  a  different  manner  of  discharge 
from  liability  from  that  prescribed  in 
the  Act  of  1838.  Wheatley  r.  Glover, 
125  Ga.  710,  54  S.   E.  626. 

54.  Wheatley  v.  Glover,  125  Ga.  710, 
54    S.    E.    626. 

55.  Constitutionality. — Laws  ISST,  p. 
89,  §  6,  provides  tiiat  "the  sliareiiold- 
ers  of  each  association  formed  under 
this  act  sliall  be  individually  respon- 
sible equally  and  ratal)ly,  and  not  one 
for  the  other.  f(ir  all  contracts,  debts, 
and  engagements  of  such  association 
to  the  extent  of  the  amount  of  their 
stock  therein,  at  the  par  value  thereof, 
in  addition  to  the  amount  invested  for 
such  shares,"  is  in  conflict  witii  Const., 
art.  n,  §  6,  which  provides  tliat  every 
stockholder  in  a  banking  corporation 
shall   he  individually  responsible   to  its 


162 


BANKS    AND    BANKING. 


§  47  (2be) 


vide  a  remedy  whereby  such  liability  can  be  enforced  in  violation  of  the 
constitution,^*^  is  void. 

§  47  (2bb)  Applicability  and  Rules  of  Construction. — Where  the 
constitutional  provision  is  self-executing  the  statute  must,  if  possible,  be 
construed  to  make  it  accord  therewith.^" 

Strict  Construction. — Statutes  imposing  on  stockholders  in  banking 
corporations,  liability  for  the  acts  or  debts  of  such  corporations,  being  in 
derogation  of  the  common  law,  should  be  strictly  construed  and  can  not 
be  extended  beyond  the  words  used.^^ 

Applicability. — Idaho  Rev.  Codes,  §  2745,  defining  the  liability  of  stock- 
holders for  corporate  debts,  does  not  apply  to  banking  corporations;  their 
organization,  internal  management,  and  supervision  being  controlled  by 
chapter  13,  art.  1,  beginning  at  section  2968.^^* 

§  47  (2bc)  Retroactive  Effect.— See  post,  "Retroactive  Effect," 
§  47  (9a);  "Retroactive  Effect  of  Statutes,"  §  49  (lab). 

§  47  (2bd)  Exterritorial  Operation. — Statutes  imposing  an  indi- 
vidual liability  upon  holders  of  bank  stock  have  no  exterritorial  operation. ^'■^ 

§  47  (2be)  Repeal. — The  repeal  of  an  act  giving  a  right  of  action 
to  enforce  a  bank  stockholder's  liability,  imposed  by  a  previous  act,  termi- 


creditors  over  and  above  the  amount 
of  stock  by  him  held,  to  an  amotint 
equal  to  his  shares  so  held.  Dupee  v. 
Swigert,    127    111.    494,    21    N.    E.    622. 

56.  Comp.  St.  1895,  c.  8,  §  35,  so  far 
as  it  attempts  to  authorize  actions  by 
the  receiver  of  an  insolvent  bank  to 
recover  unpaid  stock  subscriptions  be- 
fore the  corporate  debts  have  been 
judicially  ascertained  and  the  corpo- 
rate property  exhausted,  is  void,  under 
Const.,  art.  11,  §  4,  making  stockhold- 
ers liable  to  the  extent  of  their  unpaid 
subscriptions  only  after  the  corporate 
debts  have  been  ascertained  and  the 
corporate  property  exhausted.  State 
■V.  German  Sav.  Bank,  50  Neb.  734,  70 
N.    W.    221. 

57.  Rules  of  construction. — Under 
Const.,  art.  18,  §  3,  providing  that  the 
stockholders  of  any  banking  corpora- 
tion shall  be  individually  liable  for  all 
debts  thereof  to  the  extent  of  the 
amount  of  their  stock  therein  at  the 
par  value  thereof,  in  addition  to  the 
amount  invested  in  such  stock,  a 
stockholder  of  an  insolvent  South 
Dakota  bank  is  individually  liable  to 
a  creditor  of  the  bank  up  to  the  par 
value  of  his  shares,  notwithstanding 
Civ.  Code,  §  864,  providing  that  the 
shareholders  of  every  banking  associa- 
tion organized  under  the  laws  of  South 
Dakota    shall    be    individually    respon- 


sible equally  and  ratably,  and  not  one 
for  the  other,  for  all  contracts,  debts, 
and  engagements  of  the  association, 
since  the  constitutional  provision  is 
self-executing,  and  the  statute  must  be 
construed  to  make  it  accord  there- 
with. Union  Xat.  Bank  v.  Halley,  19 
S.    D.   474,    104    X.    W.   213. 

58.  Strict  construction. — Brunswick 
Terminal  Co.  v.  National  Bank,  192 
U.  S.  386,  48  L.  Ed.  491;  Carrol  v. 
Green,  92  U.   S.  509,   23   L.   Ed.   738. 

Statutes  such  as  Pub.  Laws  1897,  p. 
473,  c.  298,  imposing  on  stockholders 
in  banks  a  double  liability,  are  in  dero- 
gation of  the  common  law,  and  should 
be  strictly  construed.  Smathers  v. 
Western  Carolina  Bank,  135  N.  C.  410, 
47    S.    E.    893. 

58a.  Applicability. — AIcTamany  v. 
Day   (Idaho).   128   Pac.  5(53. 

59.  Exterritorial  operations. — Where 
an  act  of  the  legislature  of  another 
state,  incorporating  a  bank  therein, 
provides  that,  without  any  action 
against  a  stockholder  thereof,  his  pri- 
vate property  shall  be  bound  by  a 
judgment  against  the  bank,  and  suli- 
ject  to  execution  on  such  judgment, 
it  iinposes  no  personal  liability  what- 
ever on  the  stockholder  which  can  be 
made  the  ground  of  an  action  against 
him  in  New  York.  Lowry  v.  Inman, 
32   N.   Y.   Super.   Ct.   117. 


§  47  (4) 


STOCKHOLDERS. 


163 


nates  such  right  of  action, ^'^  in  the  absence  of  a  saving  clause,  but  does 
not  affect  the  enforcement  of  a  prior  final  judgment/*^ 

§  47  (3)  Contractual.— Bank  stockholders'  individual  liability  though 
statutory  is  contractual  in  its  nature.*'-  It  is  legal,  and  not  eciuitable.  It 
is  based  upon  the  contract  of  subscription,  an  implied  term  of  that  con- 
tract being  the  declaration  of  the  statute  that  a  certain  contingent  liability 
should  follow  the  subscription.*^^  A  statute  imposing  individual  liability 
upon  holders  of  bank  stock  may  make  it  one  in  tort.*'"* 

§  47  (4)  Primary  and  Secondary  Liability. — P.y  the  weight  of  au- 
thority the  individual  liability  of  bank  stockholders  is  not  primary  and 
total  but  proportional  and  secondary.  This  is  the  rule  in  the  states  of 
Arkansas,^^  Georgia,*'*'  New  York,""  and  Washington  f'^  but  it  is  a  primary 
liability  in  Illinois,*'^  and  South  Carolina.'*^ 


60.  Repeal.— Act  March  18,  1839, 
gave  a  right  of  action  to  enforce  the 
liability  imposed  by  the  Act  of  Jan- 
uary 27,  1816,  upon  the  stockholders 
of  banks  organized  under  such  act,  for 
the  whole  amount  of  the  bills  issued 
by  the  bank  in  violation  of  the  act. 
Held,  that  the  repeal  of  the  act  of 
March  18,  1839,  terminated  such  right 
of  action.  Lawler  v.  Burt,  7  O.  St. 
340. 

61.  St.  1903,  p.  73,  c.  65,  repealing 
the  bank  commission  Act  of  1878,  as 
amended  in  1887  and  1895,  without  a 
saving  clause  as  to  pending  litigation, 
did  not  affect  an  action  to  enforce  an 
assessment  on  bank  corporate  stock 
pursuant  to  a  prior  final  judgment  un- 
der the  act  decreeing  the  corporation 
insolvent,  and  directing  the  enforce- 
ment of  stockholders'  liability,  under 
Civ.  Code,  §  331,  and  §  333,  subd.  1, 
in  liquidation.  Union  Sav.  Bank  v. 
Leiter,   145   Cal.   696,   79   Pac.   441. 

62.  Contractual. — Howarth  v.  Lom- 
bard. 175  Mass.  570,  56  X.  E.  888,  49 
L.    R.   A.   301. 

The  liability  of  stockholders  to 
creditors  of  a  banking  association  un- 
der Acts  Gen.  Assem.  Md.  1892,  p. 
156,  c.  109,  §  851,  declaring  that  each 
stockholder  shall  be  liable  to  de- 
positors and  creditors  for  doul)le  the 
amount  of  stock  at  par  held  by  such 
stockholder,  though  statutory,  was 
contractual  in  its  nature;  each  stock- 
holder voluntarily  agreeing  to  incur 
the  liability  at  the  time  he  became 
such,  which  liability  was  not  a  cor- 
porate asset,  Init  a  debt  due  directly 
by  the  stockholder  to  creditors  of  the 
corporatir)n  who  l)ecame  such  while 
the  stockliolfk'r  held  its  stock.  Myers 
o.   Knickerbocker  Trust    Co.,   139    Fed. 


Ill,   71    C.   C.   A.    199,   1    L.   R.   A.,   N. 
S..   1171. 

63.  Tompkins  z:   Craig.   93   Fed.   885. 

64.  Tort. — The  liability  imposed  upon 
stockholders  by  §  11  of  the  Act  of  Jan- 
uary 27,  1816,  and  the  acts  amendatory 
thereto,  relating  to  unauthorized  bank- 
ing, passed  January  27,  1816,  was  not 
a  liability  in  contract,  but  one  in  tort. 
Lawler  T^  Burt,  7  O.  St.  340,  overruling 
Lawler  v.  Walker,  18  O.  151. 

65.  Arkansas. — Warren  z'.  Ni.x,  97 
Ark.   374,    135    S.    W.   890. 

66.  Georgia. — Lane  z:  Morris,  8  Ga. 
468. 

67.  Nezv  York. — A  bank  stockhold- 
er's liability  under  Banking  Law 
(Consol.  Laws,  c.  2),  §  71,  for  iiis 
l)ank's  debt,  is  secondary,  and  not 
primary;  standing  somewhat  as  a 
surety.  Assets  Realization  Co.  z>. 
Howard,  70  Misc.  Rep.  651,  127  N.  V. 
798. 

It  was  so  held  under  N.  V.  Banking 
Law,  §  303.  Mosler  Safe  Co.  z'.  Guard- 
ian Trust  Co..  138   N.  Y.  S.  298. 

68.  Washington. — Wilson  v.  Book, 
13   Wash.   676,   43   Pac.   939. 

69.  Illinois. — Quccnan  r.  rabiur, 
117   111.  619,  7   N.   K.   613. 

Under  a  charter  providing  that 
"each  stockholder  shall  be  liable  to 
doul)le  the  amount  of  stock  hold  or 
owned  by  him,"  a  stockhohkM-  assumes 
a   primary  liability   to   creditors   of  the 

bank    to   an    amount    doul)le   hi'    " '' 

and    not   a   secondary   liability. 
7^  Leddcn,  87  Til.  310, 

70.  South    Carolina. — Parker 
olina   Sav.   Bank,   53   S.   C.  583, 
St.     Rep.    888,    31     S.     H.    073;     , 
Smathers    v.    Western    Carolina    Hank 
135    N.    C.     no,    47    S.    E.    893. 


stock. 
I'ullcr 

7'.  Car- 
69  Am. 
contra, 


164 


BANKS   AND  BANKING. 


§  47  (6) 


§  47  (5)  Joint  or  Several. — The  liability  of  the  stockholders  is  not 
a  joint  one,  like  that  of  sureties,  but  it  is  a  several  liability  of  each  stock- 
holder, depending  on  the  statutory  contract  arising  from  the  ownership 
of  the  shares.'^ 

§  47  (6)  As  Principal  or  Surety, — Although  a  bank  stockholder 
stands  somewhat  as  a  surety,'-  his  individual  liability  is  not  that  of  sure- 


71.  Joint  or  several  liability. — Car- 
rol V.  Green,  92  U.  S.  509,  23  L.  Ed. 
738;  Godfrey  v.  Terry,  97  U.  S.  171,  24 
L.    Ed.   944. 

Kirby's  Dig.,  §  4420,  providing  that 
joint  obligations  shall  be  construed  as 
"to  have  the  same  effect  as  joint  and 
several  obligations,  and  that  recovery 
may  be  had  thereon  in  like  manner, 
and  §  6010  providing  that,  when  two 
or  more  persons  are  jointly  bound  by 
contract,  an  action  thereon  may  be 
brought  against  any  or  all  of  them  at 
the  plaintiff's  option,  apply  equally  to 
all  cases  where  there  is  a  joint  lia- 
bility created  by  statute,  and  hence, 
under  §  1990,  providing  that  county 
treasurers  may  deposit  funds  in  their 
custody  in  incorporated  banks  for 
safekeeping,  and  that  said  officers  and 
their  sureties  and  the  bank  and  its 
stockholdeis  shall  be  liable  for  all 
funds  if  such  bank,  upon  demand,  shall 
fail  to  pay  the  person  entitled,  to  re- 
ceive the  same,  a  joint  liability  was 
imposed  upon  a  county  treasurer  and 
his  bondsmen  and  the  bank  and  its 
stockholders,  and.  such  liability  be- 
ing several  as  well  as  joint,  the  proper 
party  could  sue  any  or  all  those  that 
were  liable  at  his  election,  especially 
as  §  1990  fixes  a  primary  liability  for 
the  funds  deposited  upon  the  bank  and 
its  stockholders  and  simply  continues 
the  liability  of  the  county  treasurer 
and  his  bondsmen  therefor.  Warren 
V.    Nix,    97    Ark.    374,    135    S.    W.    896. 

New  York.— The  liability  under  N.  Y. 
Banking  Law,  §  303  is  joint  and  sev- 
eral. Moslin  Life  Co.  v.  Guardian 
Trust  Co.,  138  N.  Y.  S.  298. 

Tennessee. — The  liability  of  the 
stockholder  is  not  a  joint  one.  '^The 
stockholder  stands  liable  for  a  definite 
sum  to  the  company  and  notnore.  It 
is  a  severable,  unequal  and  limited  lia- 
bility as  to  which  each  member  stands 
liable  to  the  company  or  corporation 
and  through  it  to  creditors.  Hence, 
if  he  pays  up  his  own  liabiliiy  to  the 
company  or  is  discharged  therefrom, 
it  terminates  his  liability  as  to  stock- 
holder, which  can  not  be  revived  at  the 
instance  of  other  stockholders."  Marr 
V.  Bank,  72  Tenn.   (4  Lea)   578. 

Fact     of     failure. — Where     a     state 


bank  charter  contains  a  provision  that, 
"in  case  of  the  failure  of  the  said 
bank,  each  stockholder,  copartnership, 
or  body  politic,  having  a  share  or 
shares  in  the  said  bank  at  the  time  of 
such  failure,  or  who  shall  have  been 
interested  therein  at  any  time  within 
twelve  months  previous  to  such  fail- 
ure, shall  be  liable  and  held  bound 
individually  for  any  sum  not  exceed- 
ing twice  the  amount  of  his,  her,  or 
their  share  or  shares,"  the  liability  of 
each  one  of  the  stockholders,  if  liable 
at  all,  is  his  several  liability.  It  is  a 
liability  depending  upon  the  statutory 
contract.  It  depends  on  the  fact  of 
the  failure  of  the  bank,  and  on  his 
holding  shares  in  the  bank  when  it 
failed,  or  within  twelve  months  be- 
fore its  failure.  His  liability  depends 
in  every  instance  on  facts  peculiar  to 
his  own  case;  for,  if  the  failure  of  the 
bank  and  the  date  of  the  failure  may 
be  common  to  all  parties  charged,  it 
still  remains  that  the  ownership  of 
shares,  the  number  of  shares,  and  the 
time  when  they  were  owned,  are  facts 
to  be  established  against  each  man 
charged,  and  with  which  no  other  de- 
fendant has  any  connection;  and  in 
regard  to  which,  if  a  prima  facie  case 
is  made,  each  man  may  have  a  distinct 
defense  depending  on  different  testi- 
mony. Godfrey  2'.  Terry,  97  U.  S.  171, 
24    L.    Ed.    944. 

"The  liability  of  the  stockholder 
does  not  depend  on  forfeiture  of  the 
charter.  It  is  a  right  given  to  the 
creditor  of  the  bank  against  its  stock- 
holders whenever  it  fails.  The  duties 
of  the  bank  to  the  state  depend  on 
other  principles,  and  are  within  the 
subsequent  control  of  the  legislature. 
The  right  of  the  creditor  is  beyond  its 
control  altogether."  Godfrey  v.  Terry, 
97   U.   S.   171.   24   L.    Ed.   944. 

72.  Principal  or  surety. — .\ssets  Re- 
alization Co.  V.  Howard,  70  Misc.  Rep. 
651.    127    N.    Y.    798. 

The  relation  which  stockholders 
sustain  toward  the  banking  company 
is  that  of  sureties.  Moultrie  z'.  Smiley, 
16  Ga.  289;  Thornton  r.  Lane.  11  Ga. 
459;  Robinson  ::  Lane,  19  Ga.  337: 
Lane  r.  Morris.  8  Ga.  468;  Belcher  v. 
Willcox.  40  Ga.  391. 


§  47  (7bb) 


STOCKHOLDERS. 


165 


ties,  equally  bound  for  the  same  principal  where  even  a  discharge  of  one 
from  liability  to  the  common  creditor  would  not  release  him  from  liability 
to  his  cosureties,  who  afterwards  paid  ;"-^  but  is  special  and  sub  modo."^ 
as  of  a  partner  within  the  limitations  stated.'^ 

§  47  (7)  Banks  to  Which  Applicable— §  47  (7a)  What  Con- 
stitutes a  Bank.— In  determining  whether  a  corporation  is  a  banking 
institution,  within  the  meaning  of  the  stockholders'  liability  laws,  the  cour^ 
will  look  to  the  articles  of  incorporation,  its  declared  objects,  the  char- 
acter of  the  business  transacted,  and  the  construction  which  the  officers 
place  on  its  charter  powers  in  the  management  of  its  atYairs,  if  such  con- 
struction was  not  unwarranted  by  the  charter."'-  In  order  to  constitute  a 
corporation  a  banking  institution  so  that  stockholders'  in  such  a  corpora- 
tion shall  be  individually  liable  to  its  creditors  for  a  certain  amount,  it  is 
not  necessary  that  the  corporation  exercise  all  the  functions  of  banking 
corporations."" 

§  47    (7b)    Specially  Chartered  Banks— §  47   (7ba)   In  General. 

—Specially  chartered  banks  as  well  as  those  organized  under  general  law 
are   within   the   stockholders'   liability   laws.'^s 

§  47  (7bb)  Change  of  Name  under  General  Law.— A  bank  by 
changing  its  name  under  a  general  statute  substituted  the  stockholder's 
liability  under  it  for  that  under  the  special  charter." =' 


73.  Marr  v.  Bank,  73  Tenn.  (4 
Lea)  578;  Schalucky  v.  Field,  124  111. 
617,   16   N.    E.  904,   7   Am.    St.    Rep.   399. 

74.  Means  Appeal,  85  Pa.  (4  Norris) 
75  followed  Craig's  Appeal,  92  Pa.  396. 

75.  As  partners. — Under  a  bank 
charter  that  provides  that,  on  default 
by.  the  bank  in  the  payment  of  any 
debt  or  liability,  the  stockholders  shall 
be  held  individually  responsible  for 
an  amount  equal  to  the  amount  of 
stock  held  by  them  respectively,  the 
stockholders  are,  in  effect,  partners, 
and  are,  within  the  limitation  stated, 
liable  as  partners,  and  not  as  sureties, 
to  the  creditors  of  the  bank.  Schalucky 
V.  Field,  124  111.  617,  16  N.  E.  904,  7 
Am.    St.    Rep.   399. 

Under  the  general  banking  law 
CRev.  St.,  c.  71,  §  18)  the  liability  of 
bank  stockholders,  except  in  the  statu- 
tory limitations  as  to  its  amount,  is 
similar  to  tliat  of  copartners.  Cole- 
man V.  White,  14  Wis.  700,  SO  Am. 
Dec.    797. 

76.  What  constitutes  a  bank. — 
Hamilton  Nat.  Bank  v.  .'\merican,  etc.. 
Trust   Co.,  66   Neb.  67,  92   N.  W.   189. 

77.  A  corporation  filed  articles  pro- 
viding that  the  general  nature  of  its 
business  would  be  to  negotiate  loans, 
purchase    and    sell    notes,    stocks,    and 


bonds,  borrow  money,  receive  money 
on  deposit,  and  execute  trusts.  It  re- 
ceived money  on  deposit,  paitl  it  out 
on  checks,  and  bought  and  sold  com- 
mercial paper  and  exchange  on  other 
cities.  Held,  that  it  was  a  bank,  so 
as  to  render  its  stockholders  liable  for 
its  debts,  under  Const.,  art.  lib,  §  7. 
Hamilton  Nat.  Bank  v.  American,  etc., 
Trust   Co.,  66  Neb.  67,  92   N.  W.   \m. 

78.  Banks  to  which  applicable.— .\ 
specially  chartered  hank,  ;is  well  as 
one  organized  under  llie  general  law  <>f 
1838,  is  within  tlie  personal  liability 
clause  of  the  constitution  of  IS4C>,  and 
of  St.  April  6,  1849.  In  re  Reciprocity 
Bank,  22  N.  Y.  9.  reversing  29  i'-arlv 
369.    17    How.    Prac.   ;;:•;:. 

79.  Change  of  name  under  general 
law. — Where  a  person  was  the  owner 
of  stock  in  a  banking  corixiratioii  or- 
ganized under  special  charter,  which 
subsequently  changed  its  name,  pur- 
suant to  the  -Act  of  June  H>,  1KH7,  such 
])erson  becomes  relieved  of  any  spe- 
cial stock  lial)ility  imposed  by  tiio 
special  charter  of  the  corporation  in 
whicli  his  stock  was  originally  heM, 
inasmuch  as  the  provisions  of  sncli 
law  of  1887  become  sui)Stitute(l  for 
such  special  charter.  Hoor  -■.  'I'olinan, 
113    111".    App.    322. 


166 


BANKS  AND  BANKING. 


§  47  (7d) 


§  47  (7c)  Banks  of  Issue  Vel  Non.— Where  a  state  constitution 
prescribes  the  hability  of  stockholders  in  banks  of  issue,  the  legislature 
may  extend  such  liability  to  other  banks,-^*^  or  impose  other  measures  of 
liability  upon  them.  Thus  a  general  law  reducing  the  liability  of  stock- 
holders from  a  double  to  a  single  liability, ^^  or  a  provision  limiting  the 
liability  of  stockholders  to  depositors,  is  constitutional.^- 

§  47  (7d)  Pre-Existing  and  Future  Banks. — A  banking  law,  im- 
posing individual  liability  for  debts  of  a  bank  upon  the  stockholders,  is 
applicable  to  corporations  theretofore  organized,  as  well  as  to  those  there- 
after to    be    formed  ;S-    where    the    legislature    has    reserved    the  right  to 


80.    Banks   of  issue    vel     non. — The 

provision  of  Const.,  art.  9,  §  13,  subd. 
3,  making  stockholders  of  banks  of 
issue  liable  in  double  the  amount  of 
stock  owned  by  them  for  the  debts  of 
the  bank,  does  not  restrict  the  power 
of  the  legislature  to  impose  the  same 
liability  on  stockholders  of  banks  not 
of  issue.  Allen  v.  Walsh,  25  Minn. 
543. 

Gen.  St.  186G,  c.  33,  §  21,  which  pro- 
vides that  the  stockholders  in  each 
bank,  formed  pursuant  to  the  pro- 
visions of  that  chapter,  "shall  be  in- 
dividually liable  in  an  amount  equal 
to  double  the  amount  of  stock  owned 
by  them  for  all  the  debts  of  such 
bank,"  is  not,  since  its  amendment  by 
Laws  1869,  c.  85,  confined  to  banks 
of  issue,  but  applies  to  all  banks  or- 
ganized under  the  provisions  of  that 
chapter.  Allen  %k  Walsh,  25  Minn.  543. 
New  York. — Barnes  v.  Arnold,  23 
Misc.  Rep.  197,  51  N.  Y.  S.  1109. 

81.  Gen.  Laws  1895,  c.  145,  being  a 
general  banking  law,  providing  among 
other  things  for  the  reduction  of  the 
liability  of  stockholders  from  a  double 
to  a  single  liability,  is  not  in  violation 
of  Const.,  art.  9,  §  13,  subsec.  3,  pro- 
viding that  the  banking  law  passed 
thereunder  should  apply  only  to  lianks 
issuing  bank  notes,  whose  stockhold- 
ers should  be  individually  liable  in 
double  the  amount  of  stock  owmed  by 
each  of  them  for  all  the  debts  of  such 
corporation  or  association,  since  Act 
1895  (Gen.  Laws  1895,  c.  145),  §  29, 
providing  that  the  powers  of  existing 
banks  shall  be  abridged  or  modified 
to  meet  the  provisions  of  this  act,  will 
be  deemed  to  have  rendered  banks  do- 
ing business  thereunder  no  longer 
banks  of  issue.  Sevmour  v.  Greve,  79 
Minn.  211,   81  N.  W.   1059. 

82.  Const.,  art.  15,  §  3,  making 
stockholders  of  every  banking^  asso- 
ciation issuing  bank  notes  individually 
lial)le    for   "all   debts,"   etc..   to   the   ex- 


tent of  their  stock,  does  not  apply  to 
the  banking  law,  which  is  limited  to 
banks  not  of  issue;  and  hence  the  pro- 
vision of  the  banking  law  limiting  the 
liability  of  the  stockholders  to  "de- 
positors'' is  not  unconstitutional. 
Foster  v.  Broas,  120  Mich.  1,  79  N.  W. 
696,   77  Am.   St.   Rep.  565. 

83.  Pre-existing  and  future  banks. 
— Hirshfeld  v.  Bopp,  27  App.  Div.  180, 
50  N.  Y.  S.  676,  reversed,  Hirshfeld  v. 
Fitzgerald,  157  N.  Y.  166,  51  N.  E. 
997,  46  L.  R.  A.  839;  In  re  Reciprocity 
Bank,  22  N.  Y.  9,  reversing  29  Barb. 
360,  17  How.  Prac.  323;  Hagmayer  v. 
Farley,  23  App.  Div.  426,  48  N.  Y.  S. 
336. 

While  §  52  of  the  banking  law,  im- 
posing upon  the  stockholders  in- 
dividual liability  for  debts  of  a  bank, 
created,  in  respect  to  certain  classes 
of  banks,  a  liability  which  did  not  ex- 
ist before,  yet  it  is  not  unconstitu- 
tional, being  warranted,  as  to  banks 
organized  since  1846,  by  Const.  1846, 
and  Const.  1894,  art.  8,  §  1,  permitting 
the  alteration  of  general  and  special 
acts  of  incorporation.  Hirshfeld  v. 
Bopp,  27  App.  Div.  180,  50  N.  Y._  S. 
676,  reversed  in  Hirshfeld  v.  Fitz- 
gerald, 157  N.  Y.  166,  51  N.  E.  997,  46 
L.    R.   A.   839. 

The  constitutional  provision  (art.  8. 
§  7)  declaring  that  all  stockholders  of 
banking  corporations  shall,  after  Jan- 
uary 1,  1850,  be  individually  respon- 
sible, applies  to  pre-existent  as  well 
as  to  future  corporations.  In  re  Re- 
ciprocity Bank,  29  Barb.  369,  17  How. 
Prac.  323,  reversed  in  22  N.  Y.  9;  In 
re  Gibson,  21  N.  Y.  9. 

If  a  bank  was,  at  a  time  when_  a 
given  indebtedness  came  due,  carrying 
on  its  business  under  Laws  1892._  c. 
689,  its  stockholders  would  l:>e  subject 
to  the  individual  liability  imposed  by 
§  52,  irrespective  of  the  act  under 
which   it  may  have  been   originally  in- 


§  47  (7d) 


STOCKHOLDERS. 


167 


repeal  or  amend  the  charter,^^^  it  supersedes  a  charter  provision  for  non- 
liability,s5  or  operates  as  an  amendment  thereto  which  the  stockholders 
are  deemed  to  accept.sc     Both  the  bank  and  the  stockholders  are  estopped 

corporated.      Hagmayer    v.    Farley,    23 
App.   Div.  426,  48   N.   Y.   S.  336. 

Bank  organized  prior  to  law  of  New 
York  of  1892. — Laws,  1882,  c.  409,  im- 
posed upon  stockholders  of  banks  no 
personal  liability  for  debts  of  a  bank 
not  issuing  notes.  Banking  Law  1892, 
§  52,  imposed  a  liability  on  stockhold- 
ers of  banks,  whether  incorporated  be- 
fore or  in  business  after  the  passage 
of  that  act.  This  latter  act  repealed 
the  Act  of  1882.  Statutory  Construc- 
tion Law,  §  31,  declares  that  the  re- 
peal of  a  statute  shall  not  affect  any 
act  done  or  right  accruing  or  acquired 
prior  to  the  time  when  such  repeal 
takes  efifect.  Section  1  provides  that 
the  statutory  construction  law  shall 
apply  to  every  statute,  unless  its  gen- 
eral object,  or  the  context  of  the  lan- 
guage construed,  or  other  provisions 
of  law,  indicates  that  a  different  mean- 
ing or  application  was  intended  from 
that  required  to  be  given  by  this 
chapter.  Held,  that  as  the  banking 
law  of  1892  shows  an  intent  to  make 
the  stockholders  of  every  bank  per- 
sonally liable  for  its  debts,  whether 
they  became  such  before  or  after  that 
law  took  effect,  the  stockholders  of  a 
bank  organized  prior  to  the  law  of 
1892  were  not  exempt  from  personal 
liability.  Hagmayer  v.  Alten,  36  Misc. 
Rep.  59,   72   N.   Y.   S.   623. 

84.  Such  a  liability  may  be  im- 
posed, by  a  constitutional  amendment 
and  act  to  carry  it  into  effect,  upon 
the  stockholders  of  banks  organized 
previously  under  a  general  banking 
law  which  made  the  assumption  of 
such  liability  optional  with  the  banks, 
but  reserved  to  the  legislature  the 
right  to  repeal  any  provision  of  it  at 
any  time.  Sherman  v.  Smith  (U.  S.), 
1    Black    587,    17    L.    Ed.    163. 

Defendants  were  stockholders  in  an 
insolvent  bank  organized  under  a 
general  law  of  New  York  providing 
that  stockholders  should  not  be  liable 
for  debts  of  the  bank  unless  by  their 
own  agreement,  as  provided  in  its 
charter,  but  reserving  to  the  state  the 
right  to  repeal  or  change  the  law.  The 
charter  of  the  bank  provided  for  the 
nonliability  of  its  stockholders,  Init  l)y 
Act  1849,  subsequently  passed,  stock- 
holders of  all  banks  continuing  to  is- 
sue notes  within  the  state  after  a 
specified  time  were  made  individually 
liable  for  the  debts  of  the  liank  to  an 
amount    equal    to    their    stock.      Held, 


that  the  Act  of  1849  was  constitu- 
tional, and  binding  on  the  bank  of 
which  defendants  were  stockholders, 
and  that  they  were  individually  liable 
for  its  debts.  Sherman  v.  Smith  (U 
S.),   1   Black   587,   17   L.   Ed.   163. 

The  articles  of  association  made  by 
the  stockholders  at  the  time  they  or- 
ganized themselves  as  a  bank,  were  not 
a  contract  with  the  state,  and  there 
was  no  necessity  or  propriety  in  in- 
corporating the  law  as  to  individual 
liability  therein.  Sherman  v.  Smith 
(U.   S.),   1   Black  587,   17   L.   Ed.   163. 

The  changes  made  by  the  constitu- 
tion and  subsequent  act  of  the  legis- 
lature were  not  the  less  constitutional 
and  valid,  as  against  this  bank,  be- 
cause the  stockholders,  in  their  ar- 
ticles of  association,  had  declared  that 
they  would  not  be  individually  bound 
for  the  debts  of  the  concern.  Slier- 
man  V.  Smith  (U.  S.),  1  Black  587,  17 
L.    Ed.    163. 

The  saving  clause  in  the  constitution 
of  the  state  of  New  York,  which  pro- 
vided, that  nothing  contained  in  this 
constitution  shall  affect  any  grants  or 
charters  to  bodies  politic  or  corporate 
made  by  this  state,  or  by  persons  act- 
ing under  its  authority,  saved  the 
charter  of  the  bank  in  this  case  and 
all  others  organized  under  the  gen- 
eral banking  law.  as  well  as  all  those 
created  by  special  charters,  but  it 
saved  each  of  them  as  a  whole,  as  an 
entirety;  the  charters  remained  after 
the  adoption  of  the  constitution  the 
same  as  before,  with  all  their  privi- 
leges and  disabilities  intact.  This  has 
no  bearing  on  the  present  case.  Sher- 
man V.  Smith  (U.  S.),  1  Black  587, 
17   L.   Ed.   163. 

85.  Where  stockholders  incorpo- 
rated under  the  general  banking  law 
had,  by  their  articles  of  association, 
agreed  that  they  should  not  bo  in- 
dividually lial)le  for  the  debts  of  llie 
corporation,  but  under  the  right  of 
repeal  reserved  in  the  general  law, 
both  l)y  the  new  constitution  and  !)y 
statute,  it  had  been  declared  liiat, 
after  a  certain  date,  stockholders  in 
such  corporation,  in  case  of  the  is- 
suing of  bank  notes  by  them,  should 
be  personally  liable,  it  was  held  that 
the  provisions  in  the  articles  could 
not  exonerate  them  fmni  Ii;ibilily.  In 
re  Gibson,  21   X.  Y.  9. 

86.  The  stockholders  of  a  bank  cre- 
ated   under    the    general    banking    law 


168 


BANKS   AND   BANKING. 


§  47  (7e) 


from  denying  the  acceptance  thereof  as  against  the  claims  of  third  per- 
sons by  exercising  privileges  secured  by  it,*"^  unless  the  statute  provides 
that  it  shall  apply  only  to  banks  chartered  subsequent  to  its  enactment. ^^ 

§  47  (7e)  Illegally  or  Irregularly  Organized  Banks. — Persons 
who  carry  on  a  banking  business,  in  the  name  of  a  corporation,  in  viola- 
tion of  law,  are  not  protected  by  the  corporate  privileges  from  personal 
liability  for  debts  contracted  by  them  in  the  transaction  of  such  business. 8» 


subsequent  to  the  action  of  1849. 
changing  its  provision  so  as  to  make 
a  stockholder  liable  for  its  contracts, 
are  deemed  to  have  voluntarily  as- 
sumed the  provision  of  the  amenda- 
tory act.  United  States  Trust  Co.  v. 
United  States  Fire  Ins.  Co.,  18  N.  Y. 
199,   8   App.   Prac.   192. 

Estoppel  to  deny  liability  by  accept- 
ance of  charter. — Owen  v.  Purdy,  12 
O.  St.  73. 

87.  The  fact  that  after  the  amend- 
ment of  the  original  charter  of  a 
Banking  Co.  by  Sp.  Laws  1889,  p.  5-13, 
c.  349,  its  stockholders  allowed  the 
corporation  to  continue  in  business  and 
exercise  the  new  powers  provided  in 
the  amendment,  and  to  make  the  con- 
tracts therein  authorized,  was  suffi- 
cient evidence  of  their  acceptance  of 
the  liability  imposed  on  them  by  §  6, 
making  them  liable  to  the  amount  of 
their  stock  in  addition  to  the  amount 
invested  therein.  Flynn  v.  American, 
etc.,  Trust  Co.,  104  Me.  141,  69  Atl. 
771. 

The  Act  of  loth  February,  1844,  re- 
lating to  the  Bank  of  Wooster  (2  Cur- 
wen,  1012),  provides  that  upon  the 
assent  of  each  and  all  of  the  stock- 
holders, by  a  written  declaration,  filed 
with  the  auditor  of  state,  to  the  indi- 
vidual liability  mentioned  in  the  second 
section  of  the  act,  the  bank  shall  en- 
joy all  the  rights  originally  granted, 
free  from  certain  restrictive  laws, 
which  would  otherwise  apply.  Held, 
that  the  act  was  to  be  regarded  as 
an  amendment  to  the  charter  of  the 
Bank  of  Wooster,  ofifered  to  the  stock- 
holders for  their  acceptance  in  a  pre- 
scribed mode,  and  that,  although  this 
mode  was  not  pursued,  some  of  the 
stockholders  not  uniting  in  the  writ- 
ten declaration,  yet,  if  the  bank  pro- 
ceeded to  exercise  the  privileges  se- 
cured by  the  amendment,  neither  it, 
nor  such  of  its  stockholders  as  were 
consenting  thereto,  could  deny  the  ac- 
ceptance of  such  amendment  as 
against  the  claims  of  third  persons. 
Owen   V.    Purdy,    12   O.    St.   73. 

Ohio    Free   Banking    Act. — See    Citi- 


zens'   Bank    v.    Wright,    6    O.    St.    318; 
Cowles  V.   Bartell,  2  O.   Dec.   424. 

Persons  who  carry  on  a  banking 
business,  in  the  name  of  such  corpora- 
tion, in  violation  of  said  §  44  of  the  Act 
of  March  21,  1851,  prohibiting  the  issue 
of  notes  to  circulate  as  money,  with- 
out having  previously  deposited  cer- 
tain securities  with  the  state,  were  not 
protected  by  the  corporate  privileges 
from  personal  liability  for  debts  con- 
tracted by  them  in  the  transaction  of 
such  unlawful  business.  Such  liability 
did  not  attach  to  the  stockholders  of 
such  corporation  as  partners,  but  to 
those  only  who  engage  in  such  busi- 
ness, and  to  those  who  authorize  or 
sanction  it.  Medill  v.  Collier,  16  O. 
St.   599. 

88.  St.  1836,  c.  233,  entitled  "Further 
to  regulate  banks  and  banking,"  does 
not  render  stockholders  in  a  bank,  who 
had  become  proprietors  of  their  stock 
before  the  passage  of  that  act,  per- 
sonally liable  for  the  debts  of  the 
bank.  Wheeler  v.  Frontier  Bank,  23 
Me.    308. 

South  Carolina. — Under  Const.  1895, 
art.  9,  §  16,  providing  that  it  shall  ap- 
ply only  to  charters  under  which  or- 
ganizations have  not  in  good  faith 
taken  place  at  the  adoption  of  the  con- 
stitution, the  liability  of  stockholders 
of  a  bank  chartered  prior  to  the  adop- 
tion of  that  constitution  is  not  gov- 
erned thereby.  ]\Ian  r.  Boykin,  79  S. 
C.  1,  60  S.   E.  17,  128  Am.  St.  Rep.  830. 

89.  Persons  carrying  on  unauthor- 
ized banking  business. — Dickason  z'. 
Grafton  Sav.  Bank  Co.,  6  O.  C.  C,  N. 
S..  329,  17-27   O.   C.  D.  357. 

Though  a  creditor  seeking  to  en- 
force the  secondary  liability  of  the 
stockholders  of  an  insolvent  bank 
may  have  brought  his  action  against 
the  individuals  who  actively  assumed 
the  e.xercise  of  corporate  franchises 
without  lawful  authority,  he  also  had 
the  right  to  bring  an  action  against 
the  stockholders,  as  such,  to  enforce 
their  subscription  and  liability,  rely- 
ing on  the  doctrine  of  estoopel.  Dicka- 
son V.  Grafton  Sav.  Bank  Co.,  6  O.  C. 
C,  N.  S.,  329,  17-27  O.  C.  C.  357. 


§   47    (7g)  STOCKHOLDERS.  169 

Incorporation  for  other  purposes  than  banking  did  not  relieve  the 
stockholders  who  engage  in  unauthorized  banking  from  personal  liability 
for  the  unauthorized  circulation  of  such  corporation.  Stockholders,  how- 
ever, acting  within  the  scope  of  the  charter,  and  not  participating  in  the 
unauthorized  acts,  were  not  liable.^° 

Where  a  bank  is  not  legally  created,  those  who  were  instrumental 
in  bringing  it  into  life — its  stockholders  and  officers — are  responsible  for 
its  issues.  When  such  a  state  of  things  exist,  the  pretended  cori)orators 
are  regarded  as  partners,  or  joint  stockholders,  liable,  individually,  to  ful- 
fill what  the  corporate  body  would  be  compelled  to  do  if  it  had  a  legal 
existence.^  ^ 

Irregularities  in  organizing  a  corporation  does  not  necessarily  de- 
prive the  officers  and  stockholders  of  the  protection  of  the  charter,  or  sub- 
ject them  to  private  liability  when  sued  as  unauthorized  bankers.  Such 
organization,  to  protect  them,  had  to  be  substantially  in  accordance  with  the 
charter. ^- 

Fraud  upon  the  charter  of  a  corporation,  and  combination  to  defraud 
the  public,  prevents  those  participating  in  it  from  claiming  any  jirotection 
under  its  provisions  to  escape  private  responsibility  as  unauthorized 
bankers. '^•'^ 

§  47  (7f)  Reorganized  Banks. — See  post,  "Requisites  and  Suffi- 
ciency of  Subscription  or  Acquisition  of  Shares,"  §  47   (8bb). 

§   47    (7g)    State  Banks.— See  post,  "State,"  §  47  (8g). 

90.    Incorporation  for  purpose  other  bills  and  notes,  but  that  all  such  notes, 

than    banking. — Kearny    v.    Buttles,    1  bills,      bonds,      and      other     securities, 

O.   St.   .362.  should    be    holden     and    taken    in    all 

After  the  repeal  of  §  23   of  the  Act  courts  as  absolutely  void.     Johnson  z'. 

of    1824,    to    regulate    judicial    proceed-  Bentley,   16   O.   97;   Kearny  v.   Buttles, 

ings  where  banks  and  bankers  are  par-  1  O.  St.  362. 

ties,    the    stockholders    and    officers    of  This    act    prevented    action    only    on 

an    unauthorized     banking      association  notes    and    bills    thereafter    issued     to 

were  liable,  in  their  individual  capacity,  circulate    as    money,    and    did    not   pre- 

for  the  bills  and  notes  of  such  associa-  elude  an  action  on  a  certificate  of  dc- 

tion    issued    and    intended    to    pass    as  posit    issued    for    money    deposited    in 

money,    although    issued    prior    to    the  the    bank,   and    not    intended    to   circu- 

repeal  of  said  §  23.     Johnson  v.   Bent-  late    as    money.      Porter   v.    Porter,    M 

ley,    16    O.    97;    Kearney   v.    Buttles,    1  O.  220;  Porter  r.   Kepler,  14  O.   127. 

O.   St.   362.  So  much  of  this  act  as  declared  tliat 

The    Act   of   the    Ohio   legislature    of  no  action  should  be  brouglit  upi>ii  sucli 

1824,    to    regulate    judicial    proceedings  bills  or  notes  was  repealed  by  the  .\ct 

where   banks   and    l)ankers   are   parties,  of    March    23,    1840.    to    further   amend 

provided    that    no     action     should      be  the    act   of   1816.     Johnson   r.    Bentley. 

brought  upon  any  notes  or  bills  here-  16   O.  97;   Kearny  f.   Buttles.   1    O.   St. 

after    issued    by    any    ])ank,    banker    or  362.     See  Fulton  7-.  Bates,  1  O.  Dec.  59. 

bankers,   and    intended    for   circulation,  91.    Bank  not  legally  created.— Ale.x- 

or  upon  any  note,   bill,   bond,   or  other  andcr    r'.    F.rdwii,    :.'     Disn.    ."(9.').    13    O. 

security    given    and    made    payable    to  Dec.   241.                                        _      , 

any  such  bank,  l)anker  or  bankers,  un-  92.     Irregularities    in    organization.— 

less    such    bank,     banker      or      bankers  Bartliolnmew   :•.    P.entU-y,    I    n.    St.   37. 

should  be  incorporated  and  authorized  93.   Fraud  on  charter. -il.irilinlomcw 

by  the  laws  of  this  state  to  issue  such  v.    Beiuley,   1    O.   St.  .'17. 


170  BANKS  AND  BANKING.  §    47    (8bb) 

§  47  (7h)  National  Banks.— See  post,  "Liability  of  Stockholders 
for  Debts  of  Bank,"  §  247. 

§  47  (8)  Stockholders  Who  Are  Liable— §  47  (8a)  Stockhold- 
ers Defined. — The  word  "stockholders,"  applies  not  only  to  such  persons 
as  appear  by  the  books  of  the  corporation  to  be  such,  but  to  any  equitable 
owner  of  stock,  although  the  stock  appears  on  the  books  of  the  corporation 
in  the  name  of  another.^-* 

§  47  (8b)  Subscribers  and  Stockholders  of  Record— §  47  (8ba) 
General  Rule. — Stockholders  of  record  are  liable  under  bank  stockhold- 
ers' personal  liability  laws.  As  a  general  rule,  in  all  cases  between  the 
creditors  of  a  bank  and  a  person  standing  on  the  books  of  the  bank  as  a 
shareholder,  such  person  is  estopped  from  denying  that  he  is  a  shareholder ; 
certainly  where  he  held  himself  out  to  the  creditors  of  the  bank  as  own- 
ing it.95 

§  47  (8bb)  Requisites  and  Sufficiency  of  Subscription  or  Ac- 
quisition of  Shares. — Necessity  for  Formal  Transfer. — One  to  whom 
a  certificate  of  stock  in  a  state  bank  is  issued,  and  who  receives  dividends 
thereon  for  several  years,  can  not  escape  the  double  liability  imposed  on 
stockholders  by  the  Banking  Act,  on  the  ground  that  he  was  not  an  original 
subscriber  to  the  stock,  and  that  no  formal  transfer  from  such  a  subscriber 
to  him  appears  on  the  bank  books.^*^ 

Unauthorized  Entry  of  Name  on  Stock  Book. — An  entry  of  the 
name  of  a  person  in  the  stock  book  of  a  bank  as  a  shareholder,  without  proof 
of  knowledge,  assent,  or  confirmatory  act  on  his  part,  is  not  sufficient  to  es- 
tablish the  relation  and  charge  his  estate  after  his  death  with  a  statutory 
liability  as  a  stockholder.^" 

Issuance  of  Certificate  to  Shareholders. — The  fact  that  a  share- 
holder of  bank  has  not  received  a  certificate  of  stock  for  which  he  gave  a 
note,  which  is  unpaid,  does  not  relieve  him  from  individual  liability  for  the 
bank's  debts.^s 

94.  Stockholders  defined.— Joecken  therefor  standing  in  his  name,  and  he 
i^  Cuyahoga  Sav..  etc.,  Co.,  24  O.  C    C.       being  a  director  and  vice  president  of 

s    oo-n°".   'd"'"-'^.  ^a^^'-    ^c^^^-    °^o  ^^'°'  the    bank,    and    the    certificate    having 

§   32^,9,  ;2   Bates    Anno.    Stats     §   3259;  been  indorsed  by  him  in  his  own  name. 

o~^fI^i   ^T  St^t.,  §  3821-2;  Act  Jan.  O'Connor    v.    Witherlv,    111    Cal.    523. 

2t,  1816,  and  acts  amendatory  thereof;  44  p^^    007 

Porter  v.   Kepler,   14  O.   127;   Porter  v.  q„     t.t~~  '    v      r        r  1   ^         r 

Porter,    14    O.    220;    Lawler  V    Bnrt,    7  ^      '  u    ^^     I      L    ^'^'^f'    Y-V^H-"'^ 

O.  St.  340;  Kearny  v.  Buttles,  1  O.  St.  ^'r''f}."-    ^^a  h,    93    Mich.   4<2    5.    N. 

362;  Bartholomew  v.  Bentley,  1   O.   St.  ^\^^'\  ««,  l?old,ng  as   to  the   habihtj' 

37;  Lawler  v.  Walker,  18  O.  151;  John-  ""^.^'  ^he  Michigan  Banking  Act  1887, 

son  V.  Bentley,  16  O.  97;  Alexander  z\  ^ 

Brown,  2  Disn.  395.  13  O.  Dec.  241.  ^'^'    Unauthorized  entry  of  name  on 

95.  Subscribers  and  stockholders  of  stockbook.— Foote  :■.  Anderson.  123 
record.— Man  v.  Boykin,  79  S.  C.  1,  ^^^-  ^'^•^-  "^"'l  C.  C.  A.  5;  O'Connor  r. 
60  S.  E.  17,  127  Am.  St.  Rep.  830.  Witherby,   111    Cal.   523,   44   Pac.  227. 

As   against   creditors   of  a  bank,   one  98.     Shareholder    to    whom    no    cer- 

can    not    allege    that    he    was    not    the       tificate   issued. — Robertson   z:   Conwaj', 
owner   of  stock  therein,   the  certificate       110  C.  C.  A.  377,  188  Fed.  579. 


47  (8bb) 


STOCKHOLDERS. 


171 


Conditional  Subscription  or  Signature.— A  subscriber  to  the  stock 
of  a  banking  corporation  can  not  defeat  his  personal  liability  to  creditors 
by  showing  a  conditional  subscription  or  signature  of  the  articles  of  asso- 
ciation.^^ 

Subscription  or  Purchase  Induced  by  Fraud.— That  a  holder  of 
bank  stock  was  induced  to  become  such  by  the  fraud  of  officers  or  di- 
rectors of  the  bank  does  not  relieve  him  from  individual  responsibility  for 
the  bank's  debts  ;i  nor  does  the  fact  that  he  has  br(|ught  suit  to  rescind  his 
subscription  on  the  ground  of  fraud  have  that  effect. - 

Stockholder  under  Illegal  Contract. — That  a  holder  of  bank  stock 
became  such  by  an  illegal  contract  does  not  relieve  him   from   individual 


99.  Conditional  signature  or  subscrip- 
tion.—Rev.  St.  1898,  §  2024,  subsec.  47, 
provides  that  stockholders  in  every 
banking  corporation  organized  under 
this  act  shall  be  individually  respon- 
sible to  the  amount  of  their  respective 
shares  for  all  its  indebtedness  and  lia- 
bilities of  every  kind.  S.,  the  pro- 
moter of  a  bank,  secured  the  signature 
of  W.  R.  and  R.  R.  to  the  articles  of 
incorporation,  with  the  understanding 
that  they  were  not  to  be  liable  unless 
the  signature  of  M.  R.  should  be 
secured,  and  his  consent  that  the  firm 
of  R.'s  Sons  should  take  twenty-five 
shares.  M.  R.  refused  to  sign  the  ar- 
ticles, and  S.,  after  being  informed  of 
such  refusal,  and  without  the  knowl- 
edge of  W.R.  and  R.  R.,  filed  the 
articles  of  incorporation  with  their 
signatures,  and  subsequently  tendered 
twenty-five  shares  to  the  firm,  which 
were  refused.  In  all  the  reports  of 
the  bank  to  the  state  treasurer  W.  R. 
and  R.  R.  were  returned  as  stockhold- 
ers. Held,  that  W.  _R.  and  R.  R.  be- 
came stockholders  in  the  bank,  and 
hence  were  individually  liable  under 
the  statute,  since  it  would  be  against 
pul)lic  policy  to  allow  them  to  -  im- 
peach the  record  as  against  the  inter- 
vening rights  of  creditors  by  showing 
the  conditional  signature  of  the  ar- 
ticles. Rehljein  v.  Rahr,  109  Wis.  13€, 
8.5   N.   W.   315. 

Rev.  St.  1898,  §  2024,  subsec.  18,  pro- 
vides that  any  number  of  persons  may 
associate  and  become  incorporated, 
and  suljsection  19  declares  that  such 
persons  shall  make  a  certificate  stat- 
ing the  names  of  the  sharclioldcrs  and 
the  amount  su1)scribed  by  each,  and 
Fubsoction  47  im])nses  on  stockholders 
an  individual  lial)tlity  for  the  del)ts  of 
the  corporatifin  to  the  amount  of  their 
shares.  Held,  that  the  fact  that  ar- 
ticles of  incorporation  for  ?  bank 
were  signed  liy  W.   R.  and    1\.    R.,  two 


of  the  three  members  of  the  firm  of 
R.'s  Sons,  and  that  the  stock  was 
listed  in  the  name  of  R.'s  Sons,  and 
that  it  was  the  intention  of  W.  R.  and 
R.  R.  to  bind  the  firm,  did  not  pre- 
vent the  enforcement  of  the  individual 
liability  of  W.  R.  and  R.  R.,  since  as 
the  statute  required  the  articles  to  be 
signed  by  stockholders,  and  as  W.  R. 
and  R.  R.  could  not  bind  the  firm,  it 
will  be  presumed  they  intended  to 
bind  themselves,  and  the  record  can 
not  be  varied  by  parol  evidence  of  an 
intention  to  bind  the  firm.  Rchbein  :■. 
Rahr.  109  Wis.  KJii.  85  X.  W.  :n:>. 

1.  Subscription  or  purchase  induced 
by  fraud. — In  re  Empire  City  Bank 
(N.    Y.),   6   Abb.    Prac.   385. 

A  stockholder  in  a  bank,  who  has 
received  dividends  for  years,  can  not, 
after  the  bank  has  become  insolvent 
and  gone  into  a  receiver's  hands,  re- 
pudiate his  dou1)le  lial)ility  to  creditors 
imposed  by  Banking  Act  1887,  §  46, 
on  the  ground  tliat  he  was  induced  to 
become  a  stockholder  by  the  fraud  of 
the  ofiicers  of  the  bank.  Bisscll  r. 
Heath,   98   Mich.   472.   57   N.  W.  5S5. 

Where  a  receiver  of  an  insolvent 
l)ank  is  proceeding  to  enforce  the  in- 
dividual iial)ility  of  stockholders  for 
the  benefit  of  depositors,  it  is  loi)  late 
for  one  who  has  for  four  years  al- 
lowed his  name  to  appear  as  a  stock- 
holder to  avoid  lial)ility  l)ccause  his 
subscription  was  obtained  by  fraud. 
Foster  r.  Broas,  120  Mich.  1,  79  N.  W. 
(i96,    77    Am.    St.    Rep.    505. 

2.  Under  Ky.  St..  §  547  (Russoll's 
St.,  §  2131),  where  a  defendant  retained 
his  stock  for  two  years,  and  until 
after  the  corporation  became  insolvent 
witliout  olijection,  it  is  not  a  defonsc 
that  he  then  brougiU  a  suit  against  (lie 
corporation  to  rescind  his  subscription 
on  the  ground  of  fraud.  Robertson  r. 
Conway,  110  C.  C.  A.  377.  1SS  Fed. 
579. 


172  BANKS  AND  BANKING.  §    47    (8bb) 

liability  for  the  bank's  clebts.^ 

Payment  for  Stock. — The  individual  liability  of  holders  of  bank  stock 
exists  without  regard  to  the  question  whether  or  not  the  stock  had  been 
paid  for  in  full  to  the  bank.-*  The  fact  that  a  holder  gave  notes  for  the 
stock  which  are  unpaid  does  not  relieve  him  from  such  liability.^ 

Purchasers  of  Stock  of  Insolvent  Bank. — As  against  creditors  of  a 
bank  whose  rights  have  become  vested  by  its  insolvency,  purchasers  of 
stock  issued  and  transferred  to  them  several  months  before,  can  not  rescind 
the  purchase  because  the  issue  was  invalid  where  an  examination  of  the 
bank's  books  would  have  disclosed  that  it  was  in  fact  insolvent  when  the 
stock  was  issued,  and  a  large  part  of  the  corporate  indebtedness  has  been 
since  incurred.*' 

Holders  of  New  Stock  Issued  upon  Increase  of  Capital  Stock. — 
Holders  of  new  stock  issued  under  an  amendment  to  the  articles  of  incor- 
poration authorizing  an  increase  of  capital  stock,  but  which  was  not  prop- 
erly filed  and  published,  as  to  creditors  who  have  become  such  on  the  faith 
of  the  issue  thereof,  are  estopped  to  deny  its  validity,  but  as  to  those  who 
became  creditors  prior  to  such  issue  of  stock,  there  is  no  estoppel.'^  As 
against  those  who  became  creditors  prior  to  an  issue  of  such  stock,  the 
holders  of  the  new  stock,  who  received  it  from  the  bank  in  lieu  of  claims 
which  they  formerly  held  as  creditors  of  the  bank,  are  entitled  to  rescind 
and  stand   as  creditors,  not  stockholders.'^ 

Stockholders  in  Reorganized  Bank. — Where,  after  insolvency  of  a 
bank,  it  was  reorganized,  and  the  new  bank  received  all  the  property  and 
effects  of  the  old  bank,  and  used  them  in  its  business,  the  stockholders 
thereof  are  subject  to  the  stockholders'  statutory  liability.'^ 

3.  Stockholder  under  illegal  contract.  bank. — Olson  z\  State  Bank,  67  Minn. 
— A   stockholder   in   an    insolvent    bank       267,    69    X.    W.    904. 

can    not    resist    apportionment    on    the  7.     Subscribers    for    increased    stock. 

ground    that    he    became    such    by    an  — Palmer  v.  Bank,  72  Minn.  266,  75  N. 

illegal    contract.    In    re     Empire    City  W.  380. 

Bank    (N.   Y.),   6   Abb.   Prac.   385.  By    reason    of    a    failure    to'  comply 

4.  Payment  for  stock. — Act  April  with  certain  formalities,  creditors  who 
10,  1873  (P.  L.  674),  incorporating  the  had  subscribed  for  new  stock  in  pay- 
Miners'  Bank  of  Summit  Hill,  which  ment  of  their  debts  became  liable  as 
provides  (§  13)  that  "the  stockholders  stockholders  only  to  those  who  be- 
of  said  bank  shall  be  held  individually  came  creditors  subsequent  to  the  at- 
responsible  *  *  *  fQ,-  ^11  contracts,  tempted  increase  cf  stock.  With  the 
debts,  and  engagements  of  said  bank,  exception  of  this  liai:)ility,  they  re- 
to  the  extent  of  double  the  amount  of  mained  merely  creditors  of  the  bank, 
the  stock  subscribed  for  or  held  by  Held,  that  the  amounts  which  the_  new 
them,"  creates  a  liability  in  favor  of  stockholders,  standing  as  creditors, 
creditors  against  the  stockholders  in  could  collect  from  the  old  stockhold- 
twice  the  amount  of  stock  held  by  ers  on  their  double  liability,  should  be 
them,  respectively,  without  regard  to  applied,  as  far  as  necessary,  in  pay- 
the  question  whether  or  not  the  stock  ment  of  the  creditors  to  whom  such 
has  been  paid  for  in  full  to  the  cor-  new  stockholders  were  liable.  Palmer 
poration.  Dreisbach  z>.  Price,  133  Pa.  v.  Bank.  72  Minn.  266,  75  N.  W.  380. 
St.   560,   19   Atl.   569.  8.    Palmer  z'.  Bank.   72   Minn.  266.  75 

5.  Robertson   v.    Conway,    110    C.    C.  X.   W.   380. 

A.   377.   188   Fed.   579.  9.    Stockholders  in  reorganized  bank. 

6.  Purchase    of    stock    of    insolvent       — Willius  z\  :\Iann,  91  Minn.  494,  98  X. 


§  47  (8e) 


STOCKHOLDERS. 


173 


The  sole  stockholder  of  a  bank  and  possessor  of  its  assets,  if  they 
equal  a  claim  against  it,  is  bound  therefor. i*^ 

Persons  Carrying  on  Unauthorized  Banking  Business  and  Stock- 
holders in  Illegal  or  Irregularly  Organized  Banks.— See  ante.  -Illegal 

or  Irregularly  Organized  Banks,"  §  47  (  7e ) . 

§  47  (8c)  Agent  or  Broker.— An  agent  or  broker  buying  for  an- 
other to  whom  he  delivers  the  stock  is  not  subject  to  stockholders'  personal 
liability.il 

§  47  (8d)  Pledgee.— A  pledgee  of  national  bank  stock  is  not  a  stock- 
holder in  such  a  sense  as  to  be  liable  as  a  stockholder.12  And  a  holder  of 
state  bank  stock  as  collateral  is  not  subject  to  the  stockholder's  personal 
liability  under  the  New  York  banking  law  ;i-  but  in  Maine  persons  appear- 
ing by  the  stock  books  and  stock  certificates  to  be  the  absolute  owners  of 
stock  in  a  banking  and  trust  company  are  subject  to  the  statutory  liability 
of  stockholders,  though  they  only  hold  the  stock  as  security  for  debts  ilu'e 
them  by  the  real  owners.  1^ 

§  47  (Be)  Representatives  and  Trustees.— Holders  of  state  bank 
stock  in  a  representative  capacity  are  not  subject  to  stockholder's  personal 
liability.!^  The  mere  fact  that  on  the  stock  books  and  stock  certificates  of 
a  banking  and  trust  company  the  word  "trustee"  appears  after  the  name 


W.   341,   rehearing  denied   in   98   X.   W. 

867. 

An  insolvent  bank  was  reorganized 
and  its  name  changed,  and  each  stock- 
holder surrendered  a  specified  num- 
ber of  shares  for  the  purpose  of  aiding- 
in  restoring  the  impaired  capital  of  the 
t  ank.  _  Held,  that  a  stockholder,  by 
participating  in  the  organization 
scheme,  was  estopped  to  deny  its 
stockholder's  liability.  Hunt  ■:■. 
Hauscr  Malting  Co.,  95  Minn.  206,  10.3 
N.   W.   1032. 

On  insolvency  of  a  bank,  and  claim 
of  certain  alleged  stockholders  in  a 
reorganized  bank  that  their  liability  on 
such  stock  was  that  of  transferrers 
only,  evidence  held  to  fail  to  identify 
the  stock  of  the  appellants,  for  wliich 
they  did  not  accept  new  certificates  on 
reorganization  of  the  bank,  with  the 
shares  of  stock  issued  to  creditors  in 
in  payment  of  their  deoosits.  Pope  v. 
Hermania  Rank,  106  Minn.  446,  119  N. 
W.    61. 

10.  Sole    stockholders     of      bank. — 

Robertson   7'.    Conway,   5    I,a.    ;\nn.   297. 

11.  Agent  or  broker. — Where  a 
broker  and  member  of  the  stock  ex- 
change  holds   stock   indorsed   in   blank 


with  instructions  to  sell  for  the  best 
price  obtainable,  and  offers  it  on  the 
exchange  and  it  is  bid  off  by  anotlier 
broker  and  member,  who  pays  for  it 
with  his  own  check,  stating  that  he  is 
buying  for  another,  but  not  disclosing 
his  principal's  name,  and  then  de- 
livers the  stock  to  his  principal,  the 
purchasing  broker  is  not  at  any  time 
the  legal  or  equitable  owner  of  such 
stock,  nor  suliject  to  a  stockholder's 
statutory  liability  thereon.  Toockon 
V.  Cuyahoga  Sav.,  etc.,  Co.,  24  6.  C.  C. 
60,5. 

12.  Pledgee.— McConville  v.  Means. 
21  Wkly.  L.  Bull.  193,  10  O.  Dec.  452. 
See  post,  "Lial)ility  of  ricdgees," 
§   248    (4). 

13.  Banking  Law.  1892.  §  .')2:  Hag- 
mayer  v.  Alten,  36  Misc.  Rep.  .'SO,  72 
N.  Y.  S.  623. 

14.  Flynn  v.  .'\morican.  etc.,  Trust 
Co.,   104   Me.   141,   69   \x\.   771. 

15.  Representatives  and  trustees. — 
Pub.  Laws  N.  C.  189:!,  c.  471.  §  1: 
Smathers  v.  Western  Carolina  Bank, 
1.').')  N.  C.  283,  71  S.  K.  34.');  N.  V. 
Banking  Laws.  1892.  §  .'52;  Hagmaycr 
V.  Alten,  36  Misc.  Rep.  59.  72  N.  V. 
S.  623. 


174 


BANKS   AND  BANKING. 


§  47  (9a) 


of  the  holder  does  not  exempt  him  from  the  statutory  hability  of  stock- 
holders,^^ 

§  47  (8f)  Beneficiaries  of  Stock  Held  in  Trust. — The  beneficiaries 
of  bank  stock  held  in  trust  by  a  trustee  is  subject  to  the  stockholder's  stat- 
utory liability.^''' 

§  47  (8g)  State. — The  state  is  not  subject  to  stockholders'  statutory 
liability.^  s 

§  47  (8h)  Corporations  and  Other  Banks, — A  corporation  pur- 
chasing bank  stock  in  violation  of  its  charter  is  not  subject  to  stockholders' 
statutory  liability.^'' 

Bank  Purchasing  Stock  in  Other  Banks, — A  banking  corporation  au- 
thorized to  "discount  bills,  notes,  and  other  securities"  has  power  to  buy 
from  a  stockholder  in  another  bank  stock  therein,  and  hence,  having  done 
so,  is  individually  liable  thereon  as  a  stockholder.-'^ 

§  47  (9)  Creditors  and  Indebtedness  Secured— §  47  (9a)  Re- 
troactive Effect  of  Statutes. — General  laws  imposing  or  changing  the 
statutory  liability  of  stockholders  of  banks  are  not  retroactive  in  effect  as 
to  nature  and  extent  of  the  liability.  Debts  contracted  prior  to  the  enact- 
ment,-^ modification,--  or  repeal--^  of  laws  imposing  stockholder's  liability 
are  not  affected  thereby. 


16.  Flynn  v.  American,  etc.,  Trust 
Co.,    10-1    Ale.    141,   69   Atl.    771. 

17.  Beneficiaries  of  stock  held  in 
trust,— Pub.  Laws,  1893,  c.  471,  §  1; 
Pub.  Laws,  1897,  c.  298;  Smathers  v. 
Western  Carolina  Bank,  155  N.  C.  283, 
71    S.    E.   345. 

18.  State  a  stockholder. — Act  Feb. 
19,  1828,  §  7,  amending  the  charter  of 
the  Consolidated  Association  of  the 
Planters  of  Louisiana,  which  makes 
the  state  a  stockholder  to  the  amount 
of  $1,000,000  as  a  bonus,  did  not  make 
it  liable  for  contributions  as  ordinary- 
stockholders  were.  Consolidated  Bank 
V.  State.  5   La.   Ann.  44. 

19.  Corporation  purchasing  bank 
stock. — Where  a  corporation,  in  viola- 
tion of  Code  of  Laws  1902,  §  1843, 
subd.  "e,"  providing  that  no  part  of  the 
capital  stock  of  a  corporation  shall  be 
used  in  banking  operations  or  for  any 
purpose  inconsistent  with  its  charter, 
purchased  shares  of  stock  in  a  bank, 
it  is  not  liable  to  creditors  of  the  bank, 
on  its  insolvency,  on  the  stock  sub- 
scribed and  paid  for  by  such  corpora- 
tion, on  which  it  has  collected  divi- 
dends. White  V.  Commercial,  etc., 
Bank,  66  S.  C.  491,  97  Am.  St.  Rep.  803, 
45   S.   E.  94. 

20.  Bank  purchasing   stock  in   other 


banks. — Latimer      v.      Citizens'      State 
Bank,   102   Iowa   162,   71   N.   W.   225. 

21.  Retroactive  effect. — Pub.  Laws 
1897,  p.  473,  c.  298,  which  imposes  on 
bank  stockholders  an  additional  per- 
sonal liability  to  the  extent  of  the 
amount  of  their  stock,  and  repeals  all 
exemptions  from  personal  liability  con- 
tained in  charters,  should  be  construed 
to  effect  only  a  prospective  charge  in 
charters,  and  not  so  as  to  fix  such  lia- 
l)ility  on  stockholders  for  debts  con- 
tracted prior  to  the  enactment  of  the 
statute,  and,  when  so  construed,  is  not 
constitutionally  objectionable.  Smath- 
ers V.  Western  Carolina  Bank,  135  N. 
C.   410,  47   S.   E.   893. 

Section  55,  c.  47,  Laws  1897,  which 
authorizes  a  receiver  of  an  insolvent 
bank   to    institute    actions    for    the    en- 

22.  The  Banking  Act  of  1895  (Gen. 
Laws  1895,  c.  145),  providing  for  a 
single  instead  of  a  double  liability  on 
the  part  of  the  stockholders  of  a  bank 
to  its  creditors,  does  not  reduce  the 
liability  of  stockholders  on  any  obliga- 
tion created  between  the  passage  of 
such  act  and  the  time  when,  by  its 
terms,  it  was  to  take  eflfect.  Seymour 
V.  Greve,  79  Minn.  211.  81   N.  W.  1059. 

23.  See  ante,  "Repeal,"  §  47   (2be). 


47  (9ba) 


STOCKHOLDERS. 


175 


Debts  incurred  after  the  enactment,  etc.,  of  a  stockholder's  liability 
law  are  within  such  laws.^'* 
Renewal  of  Certificates  of  Deposit.— Where  certificates  of  deposit 

are  renewed  after  the  passage  of  such  act.  the  new  certificates  will  be  deemed 
to  be  new  contracts. ^s 

§  47  (9b)  Creditors  Entitled  to  Enforce— §  47  (9ba)  General 
Creditors. — The  general  creditors  of  a  bank  have  a  right  to  resort  to  the 
statutory  liability  of  stockholders  to  satisfy  their  demands. -''' 

Creditors  who  made  settlements  after  the  bank  was  put  into  liqui- 
dation and  received  from  the  president  in  that  settlement  paper  of  the 
bank,  or,  as  in  some  cases,  the  individual  notes  of  the  president  himself, 
endorsed  or  guaranteed  in  the  name  of  the  bank,  are  not  to  be  considered 
as  creditors  of  the  bank  entitled  to  subject  the  stockholders  to  individual 
liability.  The  individual  liability  of  the  stockholders,  as  imposed  by  and  ex- 
pressed in  the  statute,  is  indeed  for  all  the  contracts,  debts,  and  engagements 
of  such  association,  but  that  must  be  restricted  in  its  meaning  to  such  con- 
tracts, debts,  and  engagements  as  have  been  duly  contracted  in  the  ordinary 
course  of  its  business.  That  business  ceased  when  the  bank  went  into  liqui- 
dation.-" 


forcement  of  the  statutory  liability  of 
the  stockholders  of  the  bank  for  equal 
distribution  among  its  creditors,  and 
which  suspends  the  creditor's  right, 
previously  given,  to  proceed  for  him- 
self against  the  stockholder,  for  one 
year,  to  await  the  action  of  the  re- 
ceiver, can  not  be  allowed  to  apply 
between  those  who  were  creditors  and 
stockholders  before  the  time  of  its 
taking  effect.  Woodworth  v.  Bowles, 
61   Kan.  569,  60  Pac.  331. 

24.  Debts  incurred  after  act  took 
effect.— Gen.  Laws,  c.  37,  §  52,  pro- 
vides that  the  stockholders  of  every 
banking  corporation  shall  be  indi- 
vidually responsible  for  all  debts  of 
such  corporation,  to  the  extent  of 
the  amount  of  their  stock,  at  its  par 
value,  in  addition  to  the  amount  in- 
vested in  such  shares.  Held,  that  §  52 
applies  to  stockholders  of  banks  organ- 
ized before  that  section  took  efifect, 
as  to  debts  incurred  after  that  section 
took  effect.  Barnes  v.  Arnold,  23  Misc. 
Rep.    197,    51    N.    Y.    S.    1109. 

25.  Renewal  of  certificates  of  de- 
posit.— Where  certificates  of  deposit, 
issued  before  the  passage  of  the  Act 
of  1895  (Laws  1895,  c.  145),  providing 
for  a  single  in  place  of  a  double  lia- 
bility for  the  stockholders  of  insolvent 
banks,  are  renewed  after  such  passage, 
the  old  certificates  being  surrendered 
and  new  ones  taken  in  their  stead  (in 
some    casies    a    part     of     the     principal 


being  paid,  and  in  other  cases  inter- 
est), the  new  certificates  will  be 
deemed,  for  the  purpose  of  estimating 
the  stockholders'  liability,  new  and  in- 
dependent contracts.  Seymour  v.  Greve, 
79  Alinn.  211,  81   N.   W.  1059. 

26.  Creditors  entitled  to  enforce. — 
Where  the  holders  of  notes  guaranteed 
by  a  banking  and  trust  company  reas- 
signed them  to  the  company  or  its  re- 
ceiver, and  proved  their  claims  there- 
for against  the  company,  and  the 
receiver  collected  the  notes,  but,  in- 
stead of  paying  the  proceeds  to  tlie 
former  holders,  turned  them  into  tlie 
general  fund  for  creditors  with  tlie 
approval  of  the  court,  such  holders 
are  entitled  to  be  regarded  as  general 
creditors  with  the  same  right  to  resort 
to  the  statutory  liability  of  stockhold- 
ers, notwithstanding  that,  if  such  pro- 
ceeds had  been  paid  to  them,  tlu-y 
would  have  been  paid  in  full.  Flyuii 
V.  American,  etc.,  Trust  Co.,  101  Me. 
141,    09    All.    771. 

27.  Creditors  settling  with  bank 
after  suspension. —  RicliTiiond  v.  Irons, 
121  U.  S.  27,  30  L.   Kd.  8()4.  7  S.  Ct.  7SS. 

Where  the  bank  was  in  li(|ui(lati<>ii, 
and  the  officers  were  not  autliorizrd 
to  enter  into  new  contracts,  the  pre- 
sumption is,  in  every  case  where  the 
creditor  accepted  paper  in  settlcmiiit 
of  his  claim,  that  it  was  received  in 
payment  and  operated  as  a  satisfac- 
tion.     If    there    was   any   other   agree- 


176 


BANKS    AND    BANKING. 


§  47  (9cb) 


§  47  (9bb)  Bill  Holder.— See  post,  "Liability  of  Stockholders  or  Of- 
ficers," §  211. 

§  47  (9bc)  Indorsers. — See  post,  "Debts  Due  or  Owing  from  Stock- 
holders," §  47  (9cb). 

§  47   (9c)   Indebtedness   Secured— §  47(9ca)  When  Payable.— 

Under  the  New  York  laws  stockholders  are  not  liable  for  any  indebtedness 
not  payable  within  two  years  after  it  was  contracted,-^  but  that  law  does 
not  relieve  stockholders  from  claims  for  deposits.-'-^ 

Drafts  drawn  by  a  bank  on  other  banks  in  payment  of  borrowed 
money  become  liabilities  of  the  drawing  bank  as  soon  as  they  are  protested.^^ 

§  47  (9cb)  Debts  Due  or  Owing  from  Stockholder. — Debts  due 
or  owing  from  stockholders  to  the  bank  are  within  the  stockholders'  stat- 
utory liability.^^ 


ment  by  which  that  paper  was  received 
merely  as  collateral  to  the  original  debt 
and  received  as  security  and  not  in 
payment,  it  must  be  affirmatively 
shown.  Richmond  v.  Irons,  121  U.  S. 
27,   30   L.    Ed.   864,  7   S-   Ct.   788. 

Such  settlements  can  not  be  set 
aside,  and  the  creditors,  restored  to 
the  situation  in  which  they  were  at 
the  time  of  the  suspension  of  the  bank. 
The  circumstances  of  the  situation 
have  greatly  changed  by  the  lapse  of 
time.  The  creditors  who  entered  into 
these  settlements  have  no  ground  of 
complaint  against  the  bank  as  a  cor- 
poration or  as  against  its  stockholders; 
they  were  not  misled  to  their  hurt  l^y 
any  fraudulent  misrepresentations  or 
concealments  of  any  matters  of  fact. 
Whatever  mistake  was  made  was  their 
own,  and  it  was  a  mistake  consisting 
merely  in  a  misapprehension  of  their 
legal  rights.  Richmond  v.  Irons,  121 
U.  S.  27,  30  L.  Ed    864,  7  S.  Ct.  788. 

28.  When  payable. — Hagmayer  v. 
Alten,  36  Misc.  Rep.  59,  72  N.  Y.  S. 
623;  Barnes  v.  Arnold,  23  Misc.  Rep. 
197,  51  N.  Y.  S.   1109. 

_An  agreement  by  one  bank  to  liq- 
iiidate  another  at  most  gave  the 
liquidating  bank  right  of  action  against 
the  liquidated  bank  for  any  balance 
existing  after  application  of  the  assets 
to  the  advances,  defeating  the  stock- 
holders' personal  liability  under  Bank- 
ing Taw  (Consol.  Laws,  c.  2),  §  71, 
because  the  indebtedness  was  not  pay- 
able within  two  years.  Assets  Reali- 
zation Co.  V.  Howard,  70  Misc.  Rep. 
651,    127    N.    Y.    798. 

29.  The  stock  corporation  law  (Laws 
1890,  c.  564,  §  58)  which  applies  to 
stockholders  of  an  insolvent  bank,  de- 


clares that  no  stockholder  shall  be 
personally  liable  for  a  corporate  debt 
not  payable  within  two  years  from  the 
time  it  is  contracted,  nor  unless  the 
corporation  is  sued  for  it  within  two 
years  after  it  became  due.  Held,  not 
to  relieve  stockholders  of  an  insolvent 
bank  from  claims  for  deposits,  since 
the  deposits  are  due,  within  the  statute, 
as  they  are  legally  enforceable  at  the 
option  of  the  creditor  within  the 
statutory  limit,  and,  conceding  that 
they  are  not  due  unless  demanded,  the 
commencement  of  the  action  against 
the  stockholders  is  equivalent  to  a 
formal  demand.  Barnes  v.  Trevor,  45 
App.  Div.  314,  61  N.  Y.  S.  85,  affirmed. 
Barnes  v.  Arnold,  169  N.  Y.  611,  62  N. 
E.   1093. 

Gen.  Laws,  c.  36,  §  55,  provides  that 
"no  stockholder  shall  be  personally 
liable  for  any  debt  of  the  corporation 
not  payable  within  two  years  from 
the  time  it  is  contracted."  Held,  that 
deposits  in  a  bank,  subject  to  check, 
become  due  when  the  bank  suspends 
payment,  whether  the  interest  is  paid 
on  balance  or  not,  and  bringing  suit 
against  the  receiver  and  the  stockhold- 
ers constitutes  a  demand.  Barnes  v. 
Arnold,  23  Misc.  Rep.  197,  51  N.  Y.  S. 
1109. 

30.  Drafts  drawn  by  bank  on  other 
bank. — Barnes  v.  Arnold,  23  Misc.  Rep. 
197,  51   N.  Y.  S.  1109. 

31.  Debts  due  or  owing  from  stock- 
holders.— The  charter  of  a  bank  pro- 
vided that  "the  stock  of  each  stock- 
holder shall  at  all  times  be  pledged 
and  liable  for  the  payment  of  any  debt 
(other  than  an  original  installment) 
due  or  owing  from  said  stockholder  to 
the  bank,  and  may  be  sold,  or  so  many 


§  47  (9cfa) 


STOCKHOLDERS. 


177 


§  47  (9cc)  Debts  Incurred  Prior  to  Purchase  of  Stock. — That 
stockholders  purchased  their  stock  at  different  times,  some  before  and  some 
after  particular  contracts,  debts  and  engagements,  on  which  the  corpora- 
tion defaulted,  were  entered  into,  is  not  a  defense  to  this  liability.-"^- 

§  47    (9cd)   Debts  Contracted  after  Death  of  Stockholder.— The 

estate  of  a  stockholder  is  liable  for  debts  of  the  bank  contracted  after  his 
death.33 

§  47    (9ce)   Ultra  Vires  Undertakings— §  47    (9cea)   In  General. 

— Banking  laws  making  stockholders  liable  for  a  bank's  obHgations  do  nui 
apply  to  ultra  vires  undertakings.^^ 

§  47  (9ceb)  Establishment  of  Branch  Bank. — Though  the  act  of  a 
state  bank  in  establishing  branch  banks  was  ultra  vires,  the  stockholders  of 
the  state  bank  who  shared  in  the  profits  of  the  branch  banks  with  knowledge 
of  the  relation  can  not  escape  liability  to  creditors,  who,  in  good  faith,  dealt 
with  the  branch  banks  as  a  part  of  the  state  bank.^^ 

§  47  (9cec)  Agreements  for  Liquidation.— See  post,  "Agreements 
for  Liquidation  of  Bank,"  §  47  (9cfg). 

§  47    (9cf)   Particular   Obligations— §  47    (9cfa)   Bank  Bills   or 

Notes.— The  stockholders  in  a  bank  are  liable  for  the  ultimate  redemption 
of  all  the  notes  or  bills  issued  by  that  bank.^'^ 


shares  thereof  as  shall  be  necessary, 
at  public  auction,  for  such  debt,  on  de- 
fault of  payment  thereof."  Held,  that 
this  provision  was  not  adopted  with 
the  view  to  secure  indorsers,  though 
they  might  unquestionably  be  entitled 
to  relief  against  any  abuse  of  the 
power  which  it  conferred.  Cross  r. 
Phenix   Bank.   1    R.   I.   39. 

32.  Debts  incurred  prior  to  purchase 
of  stock. — It  was  so  held  under  Sp. 
Laws  1889,  p.  547,  c.  349,  §  6,  in 
amendment  of  the  original  charter  of 
the  American  Banking  &  Trust  Com- 
pany, making  stockholders  liable  for 
all  contracts,  debts,  and  engagements 
of  the  corporation  to  the  amount  of 
their  stock  in  addition  to  the  amount 
invested  therein.  Flynn  v.  American, 
etc.,  Trust  Co.,  104  Me.  141,  69  Atl. 
771. 

33.  Debts  contracted  after  death  of 
stockholder. — It  wa.i  so  held  under 
Civ.  Code  of  Cal.,  §  322,  where  a  non- 
resident stockholder  of  a  California 
bank  died,  and  the  bank  afterwards 
contracts  a  debt.  Lanigan  v.  North,  69 
Ark.  62,  63  S.  W.  62;  Lanigan  v.  Gor- 
don, 69  Ark.  6,-)9,  6:'.  S.   W.   n:;i. 

34.  Ultra  vires  undertakings. — It 
was     so     held     as     to     Banking     Laws 

1    B    &    B— 12 


(Consol.  Laws,  c.  2),  §  71,  of  N.  Y.; 
(Assets  Realization  Co.  v.  Howard,  70 
.Alisc.   Rep.  631.    127   X.   V.  798. 

35.  Establishment  of  branch  banks. 
— A  state  bank  established  branch 
banks  without  capital  except  as  fur- 
nished by  the  state  bank.  Notes  taken 
by  the  branch  banks  were  made  pay- 
able to  the  state  bank,  and  all  moneys 
deposited  there  were  used  by  the  state 
Ijank  as  its  own.  From  the  profits  of 
the  state  bank  and  the  branch  banks 
dividends  were  declared.  Such  course 
of  business  continued  for  about  eight 
years.  Each  depositor  and  borrower 
in  the  branch  banks  knew  the  relation 
to  the  state  bank.  The  stockholders 
of  the  state  bank  who  shared  in  the 
profits  of  the  branch  banks  with  knowl- 
edge of  the  relations  were  hold  to  he 
liable  to  creditors  who,  in  good  faith, 
dealt  with  the  branch  l)anks  as  a  part 
of  the  state  bank.  Kipp  v.  Miller.  47 
Colo.    598,    108    Pac.    164. 

36.  Bank  bills  or  notes.— Thornton 
V.  Lane,  11  Ga.  459:  R.il)iiis()n  v.  Lane, 
19  Ga.  337;  Robison  v.  Beall.  20  Ga. 
17-  Adkins  v.  Thornton,  19  Ga.  32.^. 
See  post.  "Liability  of  Stockholders  or 
Officers."  §  211. 


178 


BANKS   AND   BANKING. 


§  47   (9cfd) 


§  47  (9cfb)  Deposits. — Deposits  are  debts  of  a  bank  ordinarily  pro- 
tected by  statutes  imposing  individual  liability  on  the  stockholders,  but  every 
deposit  of  money  that  might  be  made  in  the  bank  is  not  embraced  by  a  stat- 
ute imposing  such  liability  as  to  all  funds  deposited  "as  savings  and  in 
trust."^^  The  time  when  the  deposits  were  actually  made  is  immaterial. ^^ 
The  issuance  of  a  certificate  of  deposit  by  one  bank  to  another  to  cover  over- 
drafts is  not  a  deposit.-^^ 

Amount  Unpaid. — The  delivery  by  a  bank  to  a  depositor  of  drafts,  in 
exchange  for  checks  on  his  deposit,  where  such  drafts  are  not  paid  on  pre- 
sentation does  not  constitute  a  pro  tanto  payment  of  such  deposit  and  re- 
duction of  the  amount  for  which  the  stockholders  are  liable.'**^  In  determin- 
ing whether  deposits  made  in  a  bank  before  the  date  when  a  stockholders' 
liability  law  took  effect  are  still  unpaid,  payments  by  the  bank  will  be  ap- 
plied first  to  the  earliest  items  of  indebtedness.'* ^ 

§  47  (9cfc)  Judgments  against  Bank. — A  judgment  against  the 
bank  is  a  debt  within  the  stockholder's  statutory  liability. ■*- 

§  47  (9cfd)  Fees  and  Costs  of  Creditor's  Suit. — While,  as  between 
the  creditors,  in  an  action  against  an  insolvent  bank  by  one  of  its  creditors 
on  behalf  of  himself  and  the  other  creditors,  for  distribution  of  its  assets, 
the  fees  for  plaintiff's  counsel  are  properly  first  paid  from  the  fund  realized 
for  creditors,  such  fees  are  not  to  be  considered  part  of  the  bank's  debt, 
or  to  be  deducted  from  its  assets,  in  determining  the  amount  of  the  bank's 
debts  remaining  for  which  its  stockholders  are  liable.'*-'^ 


37.  The  provision  of  Act  Feb.  21, 
1861,  chartering  the  Marine  Company 
of  Chicago,  that  the  stockholders 
shall,  as  to  all  funds  deposited  "as  sav- 
ings, and  in  trust  with  said  corpora- 
tion," while  they  are  stockholders,  be 
individually  liable  to  the  extent  of  their 
stock,  held  not  to  embrace  every  de- 
posit of  money  that'might  be  made  in 
the  bank.  Bromley  v.  Goodwin,  95 
111.  118. 

38.  Foster  v.  Row,  120  Mich.  1,  79 
N.  W.  696.  See  ante,  "When  payable," 
§  47   (9ca). 

39.  A  bank  gave  its  certificate  of  de- 
posit to  another  bank,  and  in  considera- 
tion therefor  was  allowed  to  draw  on 
the  payee  bank  for  the  same  amount. 
It  drew  in  excess  of  this  sum,  and  gave 
another  certificate  of  deposit  for  the 
excess.  Held,  that  the  certificates  were 
not  entitled  to  a  dividend  of  moneys 
collected  by  the  receiver  of  the  former 
bank  from  its  stockholders,  the  trans- 
action resulting  in  their  issuance  not 
being  a  deposit,  within  3  How.  Ann. 
St.,  §  3208e5,  making  bank  stockhold- 
ers liable  to  depositors  to  the  amount 
of    their    stock.      State    Sav.     Bank     v. 


Foster,    118    Mich.    268,    76    N.    W.    499, 
4  Detroit  Leg.  N.  499,  42  L.  R.  A.  404. 

40.  Amount  unpaid. — ^A  depositor 
paid  his  bank  checks  on  his  deposit  for 
drafts  on  Chicago.  His  bank  book 
was  then  balanced,  showing  the  amount 
of  his  deposit  after  deducting  the 
checks.  Two  days  later  the  bank  failed, 
and,  the  drafts  not  being  paid,  and  re- 
turned to  the  depositor,  he  subse- 
quently surrendered  them  to  the  bank, 
and  it  credited  their  amount  of  his 
account  in  his  pass  book.  Held,  in  an 
action  to  enforce  a  stockholders'  lia- 
bility, that  the  delivery  of  the  drafts 
did  not  constitute  payment  pro  tanto 
of  his  deposit,  and  that  the  depositor's 
claim  at  the  time  of  the  failure  was 
the  amount  of  the  original  deposit. 
Dingley  v.  McDonald,  124  Cal.  90,  56 
Pac.   790. 

41.  Barnes  v.  Arnold,  23  Misc.  Rep. 
197,    51    N.   Y.    S.    1109. 

42.  Judgments  against  bank. — Lowry 
7'.  Parsons.  52  Ga.  356;  Thornton  v. 
Lane,   11   Ga.   459. 

43.  Fees  and  costs. — Buist  v.  Wil- 
liams,  81   S.   C.   495,  62  S.   E.   859. 


§  47  (lOaa)  stockholders.  j-c) 

§  47  (9cfe)  Costs  of  Receivership.-The  expenses  of  a  receivership 
including  the  fees  of  the  receiver's  attorney  are  considered  part  of  the  bank's 
debt,  ni  determniing  the  debts  for  which  its  stockholders  are  liable  ■'^  Crecf 
itors  are  entitled  to  recover  receiver's  fees,  in  addition  to  their  debts  and 
statutory  costs  and  disbursements,  not  exceeding  the  amount  of  the  stock- 
holders' statutory  liability.^o 

§  47  (9cff)  Loss  Occasioned  by  Receiver.-\\  here,  in  proceedings 
against  a  defaulting  banking  and  trust  company  for  sequestration  and  ad- 
ministration of  its  assets,  loss  of  assets  results  from  misconduct  of  the  re- 
ceiver, the  loss  must  be  borne  by  the  stockholders,  and  not  the  creditors.-"' 

§   47    (Ocfg)   Agreements  for  Liquidation  of  Bank.— A  law  makinor 

stockholders  liable  for  a  bank's  contract,  etc.,  to  the  amount  of  their  stock^ 
does  not  make  them  liable  on  an  agreement  for  liquidation  of  the  bank' 
And  a  stockholder  sought  to  be  held  liable  on  such  contract  is  not  estopped, 
by  accepting  payment  of  his  deposits  in  the  bank  under  it,  to  show  that  it 
was  ultra  vires. ^" 

§  47  (10)  When  Liability  Arises  and  Conditions  Precedent— 
§  47  (10a)  When  Liability  Arises— §  47  (lOaa)  In  General.— The 
time  when  the  liability  of  a  stockholder  of  an  insolvent  bank  for  the  debt  of 
the  bank  arises  or  becomes  fixed  depends  upon  the  language  of  the  statute 
creating  such  liability.  This  liability  may  be  fixed  when  default  in  pay- 
ment is  made,^«  when  specie  payment  is  suspended,-*-'  when  the  bank 
suspends   business,^'*   or   it   may   be   incident   to   a   compulsory   assignment 

44.   Costs    of    receivership.— Buist  v.  ments  by  the  bank  constitutes  a  failure 

W  ilhams,  81   S.   C.  495    G2   S.    E.  859.  within   the  meaning  of  such   provisio.,. 

ro    AT     ^^^''P^';  ''•   Carroll.   66   Minn.   487,  and    the    liability    of    a    stockholder    in 

^«    T         ^"'    ^•'^'''-  .     u  ^"^'^  a  ^'-^se  is  that  of  simple  contract. 

46.    1.0SS   occasioned    by    receiver.—  and  not  a  statutory  liability.     Terry  ;■ 

-blynn  v.  American,  etc..  Trust  Co.,  104  Calnan,  13  S    C    2-'() 

-Me.  141,  69  Atl.  771  ca     o            '  •   '        r     u      • 

47      Ao-r««r„»^*     f^^     T      -J  .•            1-  ^0-    Suspension    of     business.— W  hen 

bank      U^  w  .      f     ^!Z     ^Td^J,^°"  .  °f  an  involuntary  suspension  of  a  banking- 

Laws    o     N     V     rr          T\^'    ^-^nkn^'^  corporation    is    caused     by     the     bank 

klT\Zet'Z'J    "^       r  ^^^^   "■   '  '  commissioner  taking  possession  of  the 

7o\lit    R.,f  ^''1'^o°"M°v•^^r'"''  '"'^"'^'    ^"^h   corporation    has   suspended 

.«    wu       '  •■   u-,                    ^'    '•'^-  I)usiness,    within    the    meaning  of    Gen. 

48.  When  liability  arises— Default  in  St.  1889,  §  1200,  which  provides  that  a 
P??'"^^"*-—^;  ^^'■''^^■'i  ■'-'■  ^''^'  '■>"  Ark.  374,  corporation  shall  I)e  deemed  to  be  (lis- 

'aq    c         ^■"•'  r  solved  for  the  purpose  of  enabling  the 

49.  buspension  of  specie  payment.—  creditors  of  such  corporation  to  prose- 
A  siispension  and  fadure  to  pay  specie  cute  suits  against  the  stockholders 
on  deinand  to  l)ill  holders,  generally,  thereof  to  enforce  their  individual  lia- 
is  suthcient  to  enable  the  bill  holder  biliiy.  if  it  is  shown  that  such  cor- 
to  sue.  He  need  not  prove  a  special  poration  has  suspended  business  for 
flemand   in   his   case.      Lane  v.   Morris,  more  than  one  year.     Crocker  7-.   Ball. 

wv, '^*'^'  '"  ^"^^"-  App.  .■Ui4,  59  Pac.  Ofll. 
.  Where  a  bank  charter  provides  "that  A  bank  suspends  business,  within 
m  case  of  the  failure  of  said  bank,  tlie  meaning  of  Gen.  St.  Kan.  ISH9. 
each  stockholder  shall  be  liable  and  pars.  1200,  1204,  providing  for  an 
held  bound,  individually,  for  any  sum  action  against  the  stockholders  of  a 
not  exceeding  twice  the  amount  of  corporation  where  it  slial!  have  sus- 
his   share,"    suspension    of    specie    pay-  pended    business    for    more    than    fine 


180 


BANKS    AND    BANKING. 


§  47  (10b) 


only.^^  In  some  jurisdictions  this  liability  only  arises  when  the  ratable 
share  of  the  deficiency  has  been  ascertained  and  liquidated,^-  and  in  others 
where  the  assets  of  the  bank  have  been  exhausted. ^^ 

Notes  Issued  before  Capital  Paid  in. — If  the  charter  require  a  cer- 
tain amount  of  the  capital  stock  to  be  paid  in  before  notes  can  be  issued, 
but  the  directors  nevertheless  proceed  to  issue  notes,  if  the  bank  fail  or 
become  insolvent,  the  creditors  of  the  bank  may  proceed  at  once  against  the 
stockholders  and  directors.^'* 


§  47    (lOab)   Bank  Bills  and  Notes. 
holders  or  Officers,"  §  211. 


-See  post,  "LiabiHty  of  Stock- 


§  47  (lOac)  Public  Funds. — Under  a  statute  providing  that  the  stock- 
holders of  a  bank  shall  be  liable  for  the  public  funds  therein  deposited,  when 
the  bank  shall  fail  to  make  payment  upon  demand,  fixes  the  time  when  such 
liability  arises  as  the  time  when  default  in  payment  is  made,  so  that  the 
liability  thereunder  is  against  only  those  who  are  stockholders  at  the  time 
of  such  default. ^^ 

§  47  (10b)  Demand  of  Payment  and  Protest. — A  creditor  of  an 
insolvent  bank  need  not,  before  suing  a, stockholder  on  his  statutory  liabil- 
ity, demand  payment  of  his  claim  against  the  bank.^*^ 

Suit  as  a  Demand. — A  suit  by  a  depositor  whose  deposit  is  subject  to 
check  against  the  receiver  constitutes  a  demand.^'" 


year,  where  it  suspends  payment,  al- 
though a  receiver  is  appointed,  who 
afterwards  pays  dividends  to  creditors. 
Stebbins  f.  Scott,  172  Mass.  356,  52  N. 
E.   535. 

51.  Compulsory  assignment. — A  char- 
ter provided  for  forfeiture  upon  certain 
contingencies,  in  which  case  the  di- 
rectors should  make  an  assignment. 
Section  15  provided  that  the  stockhold- 
ers should  be  liable  to  the  creditors  of 
the  bank,  the  liability  to  be  enforced 
as  follows:  In  case  the  bank  shall  vio- 
late any  act  so  as  to  forfeit  its  charter, 
and  is  compelled  to  make  an  assign- 
ment, the  assignees  are  to  make  an  ap- 
praisement of  assets  and  a  list  of  debts, 
and  the  stockholders  shall  be  liable  to 
make  good  any  deficiency  in  such  .as- 
sets, in  proportion  to  the  amounts  of 
stock  held  by  them.  Held,  that  the 
individual  liability  of  the  stockholders 
is  incident  to  a  compulsory  assign- 
ment only.  Gunkle's  .A.ppeal,  48  Pa. 
(12   Wright)    13. 

52.  When  ratable  share  of  deficiency 
ascertained. — Richards  z'.  Gill.  138  App. 
Div.  75,  122  N.  Y.  Supp.  620.  See  post, 
"Creditor's  Suit  and  Receivership," 
§  49   (lea). 


53.  Means'  Appeal,  85  Pa.  (4  Norris) 
75;   Craig's  Appeal,  92  Pa.  396. 

54.  Bank  bills. — Schley  Z'.  Dixon,  24 
Ga.  273,  71  Am.   Dec.  121. 

55.  Public  funds. — Warren  v.  Nix,  97 
Ark.  374,  135  S.  W.  896,  so  holding 
under   Kirby's   Dig.,   §   1990. 

56.  Demand  upon  bank  and  protest. 
— Parker  v.  Adams,  38  Misc.  Rep.  325. 
77  X.  Y.  S.  861.  See  ante,  "When 
Payable,"  §  47  (9ca). 

Certificates  of  deposit. — Where  a 
bank  charter  makes  its  stockholders 
individually  liable  on  its  default,  the 
owner  of  a  certificate  of  deposit  maj^ 
sue  a  stockholder  without  first  making 
demand  upon  the  bank,  where  the  bank 
fails  and  closes.  Hodgson  v.  Cheever, 
8   Mo.   App.   318. 

Presentation  of  certificates  of  de- 
posit payable  on  returri  of  certificates 
and  demand  is  dispensed  with  by  the 
failure  of  the  bank,  and  the  bringing 
of  an  action  against  the  receiver  of 
the  bank  and  its  stockholders  is  suffi- 
cient demand.  Barnes  t'.  Arnold,  23 
Misc.  Rep.  197,  51  N.  Y.  S.  1109. 

57.  Suit  as  constituting  demand. — 
Barnes  z:  Arnold,  23  Misc.  Rep.  197, 
51   N.  Y.  S.  1109. 


§  47   ( lOcc) 


STOCKHOLDERS. 


181 


§  47  (10c)  Proceedings  against  Bank  and  Receivership— §  47 
(lOca)  Necessity  and  Sufficiency  Generally.— liank  stockholders' 
statutor}^  liability  can  not  be  enforced  by  the  corporate  creditors  iiKlei)end- 
ent  of  any  action  against  the  bank.^s  But  the  bank  may  waive  coiicHtions 
as  to  the  time  which  must  elapse  after  demand  and  refusal  before  applyin^^ 
for  a  distribution  of  the  assets  by  a  receiver. °^ 

§  47  (lOcb)  Filing  Claim  with  Receiver.- While  claims  against  an 
insolvent  bank  should  be  filed  with  the  receiver  in  the  original  suit,  it  is  no 
defense  to  an  action  to  enforce  a  stockholder's  personal  liability  that  the 
claim  sued  on  was  not  filed.''*^ 

§  47  (lOcc)  Judicial  Determination  of  Insolvency. — Many  of  the 
statutes  require  the  fact  of  insolvency  to  be  judicially  determined  before 
the  statutory  liability  of  bank  stockholders  can  be  enforced.'' ^  Stockhold- 
ers of  a  bank  are  concluded  by  a  judgment  in  an  action  in  which  the  bank 
was  a  party,  by  which  a  receiver  was  appointed  and  the  court,  having  found 
that  the  assets  of  the  bank  had  all  been  disposed  of  and  the  proceeds  paid 
out  and  applied  in  pursuance  of  the  order  of  court,  that  there  had  been 
claims  adjudicated  against  the  bank,  and  that  the  bank  was  wholly  insolvent 
and  had  no  property,  authorized  the  receiver  to  bring  suits  against  its  stock- 
holders.^2 


58.  Proceedings  against  bank  and  re- 
ceivership.— Under  Const.,  art.  12, 
§  11,  providing  that  stockholders  "of 
any  banking  *  *  *  corporations  *  *  * 
shall  be  individually  and  personally 
liable  *  *  *  for  all  contracts,  debts  or 
engagement  of  such  corporations  ac- 
cruing while  they  remain  stockhold- 
ers, to  the  extent  of  the  amount  of 
their  stock,  *  *  *  in  addition  to  the 
amount  invested  in  such  shares,"  a 
stockholder's  liability  is  secondary,  and 
can  not  be  enforced  by  the  corporate 
creditors,  independent  of  any  action 
against  the  corporation.  Wilson  v. 
Book,  13  Wash.  676,  43   Pac.  93'J. 

59.  Under  a  statute  providing  for  the 
enforcement  by  a  creditor  of  the  indi- 
vidual liability  of  stockholders  of  a 
bank,  by  issuing  execution,  and  show- 
ing that  it  can  not  be  satisfied  out 
of  the  bank's  property,  or  waiting  10 
days  after  demand  and  refusal,  and  then 
applying  for  distribution  of  the  assets 
Ijy  a  receiver,  and  the  apportionment 
of  the  unpaid  deljts  among  the  stock- 
holders, the  bank  may  waive  such  con- 
ditions; so  that  where  a  creditor  com- 
menced suit,  served  an  order  to  show 
cause,  made  it  returnable,  and  obtained 
the  appointment  of  a  receiver  on  the 
same  day,  the  l)ank's  counsel  appearing 
and  not  objecting,  the  proceeding  is 
valid.     Ex  parte  Bowery  Bank  (N.  Y.), 


16  How.  Prac.  50,  5  Abb.  Prac.  415. 

60.  Filing  claim  with  receiver, — 
Where  the  court  in  which  the  settle- 
ment of  the  affairs  of  an  insolvent 
bank  was  pending  permitted  a  creditor 
to  establish  his  claim  in  a  separate 
suit,  and,  after  the  claimant's  judgment 
was  reported  to  the  court,  it  appointed 
a  special  receiver  to  enforce  the  stock- 
holders' liability  to  pay  the  same,  it 
was  no  defense  to  a  suit  against  a 
stockholder  that  the  claim  should  have 
been  filed  with  the  receiver  in  the 
original  suit.  Covell  z:  Fowler,  144 
Fed.   53."). 

61.  Judicial  determination. — Before  a 
bill  can  be  maintained  against  the 
stockholders  of  a  bank  under  tlie  pro- 
visions of  Rev.  St.  1841,  c.  77,  it  must 
be  judicially  determined  that  there 
has  been  a  loss  occasioned  in  the 
capital  stock,  and  that  the  directors 
are  unal)le  to  make  good  the  loss. 
Hewett  V.  Adams,  50  Me.  271. 

By  the  express  provisions  of  Rev. 
St.  c.  47,  the  court  must  decide  that 
the  assets  are  insutTicient  to  pay  tlio 
claims  against  the  bank,  before  the 
receivers  can  file  a  bill  in  equity  against 
the  stockholders.  Hewett  v.  Adams. 
54    Me.   206. 

62.  Francis  v.  Hazlett,  1!»2  Mass.  1.(7. 
78    N.    !•:.   405,   116  Am.    St.    Rep.   230. 


182 


BANKS    AND    BANKING. 


§  47  (lOcdb) 


§  47  (lOcd)  Judicial  Ascertainment  of  Indebtedness  and  Ex- 
haustion of  Assets — §  47  (lOcda)  In  General. — In  a  number  of  the 
states  the  indebtedness  proposed  to  be  enforced  against  bank  stockholders 
must  be  judicially  ascertained  before  suit  can  be  maintained  against  an  in-' 
dividual  stockholder.*^'^  This  rule  applies  to  a  suit  in  Wyoming  by  a  cred- 
itor of  a  nonresident  Utah  bank  against  a  stockholder  resident  in  the  former 
state.*^^ 

§  47  (lOcdb)  Exhaustion  of  Assets. — It  is  necessary  that  the  as- 
sets of  the  bank  be  extinguished  or  converted  into  cash  and  applied  to  the 
debts  of  the  bank  before  the  stockholder's  statutory  liability  can  be  en- 
forced under  the  laws  of  Minnesota/'-^  Nebraska,*"'*"*  and  Pennsylvania;'*"^ 
but  the  receiver  need  not  wait  until  such  assets  are  exhausted  before  en- 
forcing the   stockholder's  statutory  liability  under  the  statutes  of  lowa,^^ 


63.  Judicial  ascertainment  of  in- 
debtedness and  exhaustion  of  assets. — 

Farmers'  Loan,  etc.,  Co.  z'.  Funk.  49 
Neb.  353,  68  N.  W.  520;  Hastings  v. 
Barnd,  55  Neb.  93,  75  N.  W.  49;  Hamil- 
ton Nat.  Bank  v.  American  Loan,  etc., 
Co.,  66  Neb.   67,  92  N.  W.  189. 

Nebraska. — The  requirement  of 
Const.,  art.  11,  §  4,  that  before  the  in- 
dividual liability  of  stockholders  can 
be  enforced  the  indebtedness  of  the 
corporation  must  be  judicially  ascer- 
tained, applies  to  §  7,  fixing  the  lia- 
bility of  stockholders  in  a  bank  for 
the  bank's  indebtedness.  German  Nat. 
Bank  v.  Farmers,'  etc..  Bank.  54  Neb. 
593,  74  N.  W.  1086;  Hastings  v. 
Barnd,  55  Neb.  93,  75  N.  W.  49;  Ham- 
ilton Nat.  Bank  v.  American  Loan, 
etc..  Co.,  66   Neb.  67.  92   N.  W.  189. 

Utah. — Under  Comp.  Laws  Utah, 
§  2513.  providing  that  shareholders  in 
banks  shall  be  individually  responsible 
"ratably,  and  not  one  for  another,"  for 
the  debts  of  the  bank  to  the  extent 
of  their  stock  therein,  an  accounting 
in  equity  must  be  had  to  establish  the 
aggregate  of  the  deficit  which  the 
statutory  liability  of  the  shareholders 
is  to  cover,  before  action  can  be 
brought  against  the  stockholders.  Mc- 
Laughlin V.  O'Neill,  7  Wyo.  187,  51 
Pac.   243. 

64.  A  suit  can  not  be  maintained  in 
Wyoming  under  the  statutes  of  Utah 
fixing  the  liability  of  stockholders  in 
banking  corporations,  by  a  creditor  of 
such  a  corporation,  against  a  resident 
stockholder,  before  it  is  judicially  de- 
termined what  the  amount  of  the  defi- 
cit is  which  the  statutory  liability  of 
stockholders  is  required  to  cover.  Mc- 
Laughlin V.  O'Neill,  7  Wyo.  187,  51 
Pac.  243. 

Where,   on    insolvency   of  a   bank  of 


Utah,  a  creditors'  suit  was  brought, 
wherein  all  the  stockholders  of  the 
corporation  were  made  parties,  and  a 
special  receiver  was  appointed,  but 
there  had  been  no  accounting,  or  de- 
termination of  the  debts  and  assets  of 
the  corporation,  and  no  ascertainment 
of  the  amount  required  by  the  stock- 
holders, a  suit  will  not  lie.  in  another 
state,  brought  by  the  identical  creditor 
suing  in  Utah,  against  a  stockholder, 
to  recover  for  the  same  liability.  Mc- 
Laughlin V.  O'Neill,  7  Wyo.  187,  51 
Pac.  243. 

65.  Exhaustion  of  assets. — Minnesota. 
— Willius  V.  Mann,  91  Minn.  494,  98 
N.  W.  341,  rehearing  denied  in  98  N. 
W.   867. 

66.  Nebraska. — Const.,  art.  11,  §  4,  re- 
lating to  miscellanous  corporations, 
and  providing  that  before  the  enforce- 
ment of  individual  liability  of  stock- 
holders the  assets  of  the  corporation 
must  be  first  extinguished,  applies  to 
the  liability  of  stockholders  of  banking 
corporations  or  institutions  as  fixed 
by  §  7.  Farmers'  Loan,  etc.,  Co.  z'. 
Funk.  49  Neb.  353,  68  N.  W.  520; 
Hastings  z:  Barnd,  55  Neb.  93,  '75  N. 
W.  49;  Hamilton  Nat.  Bank  t'.  Ameri- 
can, etc..  Trust  Co.,  66  Neb.  67,  92  N. 
W.   189. 

67.  Pennsvhc'ania. — Before  resorting 
to  the  liability  of  the  stockholders, 
the  assets  of  the  bank  must  be  ex- 
hausted. Means'  Appeal,  85  Pa.  (4 
Norris)    75. 

68.  lozi'a. — Acts  18th  Gen.  Assem.  c. 
208,  §  1.  makes  each  stockholder  of  a 
banking  corporation  individually  liable 
to  the  creditors  over  and  above  the 
stock  held  by  him,  to  an  amount  equal 
to  his  shares,  and  provides  that,  should 
the  bank  become  insolvent,  and  its  as- 
sets   prove    insufhcient,    the    stockhold- 


§  47   ( lOce 


STOCKHOLDERS. 


183 


]\Iichigan,,''«  Xorth  Carolina"'^  and  Wisconsin.'i 

§  47  (lOcdc)  In  New  York.-Formerly,  under  the  New  York  law 
all  the  convertible  assets  in  the  hands  of  the  receiver  must  be  actually  con- 
verted, and  go  into  the  first  dividend  before  resorting  to  the  personal  liabil- 
ity of  the  stockholders,'^  but,  under  the  present  law,  where  the  assets  of 
an  insolvent  bank  are  insufficient  to  pay  its  debts,  suit  mav  be  commenced 
for  the  enforcement  of  the  stockholders'  liability  before  the  amount  of  the 
deficiency  has  been  definitely  ascertained  by  the  conversion  of  the  assets 
into  cash."^ 

§  47    (lOce)   Judgment  against  Bank,  Execution  and  Return.— 

Where  the  stockholders  of  a  bank  are  secondarily  liable  for  its  debts,  "re- 
account  to  1)6  taken  of  the  property 
and  debts  due  to  and  from  such  cor- 
poration, and  appoint  a  receiver;  but 
II,  on  the  filing  of  the  answer  or  tak- 
mg  of  the  account,  it  appear  that  the 
corporation  is  insolvent,  and  has  no 
property  to  satisfy  such  creditor,  the 
court  may  proceed  without  appointing 
a  receiver  to  ascertain  the  respective 
liabilities  of  such  stockholders,  and 
enforce  the  same  by  its  judgment  as 
m  other  cases.  Held,  that  it  is  not 
necessary  that  the  assets  of  the  cor- 
poration be  fully  exhausted  before  the 
creditors  proceed  to  judgment  against 
stockholders,  but  it  is  sufficient  if  the 
liability  of  the  stockholders  will  ulti- 
mately have  to  be  exhausted  in  order 
to  fully  pay  the  debts.  Booth  v.  Dear, 
96   Wis.   516,  71    N.    VV.   816. 

72.  New  York.— In  re  Reciprocity 
Bank,  22  N.  Y.  9,  reversing  29  Barb. 
369.    17    How.    Prac.   32,1. 

73.  Persons  v.  Gardner,  42  .App.  Div. 
490,    56    N.    Y.    S.    822,    59    N.    Y.    S.    463. 

.A.  suit  in  equity  may  be  maintained 
by  the  creditors  of  an  insolvent  bank 
against  the  stockholders,  to  enforce 
their  statutory  liability,  without  wait- 
ing until  the  receiver  has  converted  and 
applied  all  the  assets,  or  alleging  that 
a  deficit  will  remain  after  all  the  as- 
sets are  applied  to  the  payment  of 
debts.  Barnes  v.  Arnold,  23  Misc.  Rep 
197,   51    N.   Y.    S.    1109. 

A  creditor's  action  may  be  main- 
tained to  collect  the  individual  Iial)i!ily 
of  stockholders  of  an  insolvent  bank, 
under  Laws  1892.  c.  689.  before  the 
receivers  have  finally  wound  up  tiie 
bank's  affairs,  where  it  is  shown  that 
the  deficiency  will  exceed  the  amount 
for  which  the  stockholders  ;u"e  Iial>lc. 
Mahoney  v  Bernhardt,  27  Misc.  Rep. 
3.39,  58  N.  Y.  S.  748:  Mahoney  v. 
r.ernard,  45  App.  Div.  499,  63  .V.  Y.  S. 
'■.  ">  affirmed  in  lf.9  \'.  V.  5K9,  62  N.  I-:. 
1097. 


ers  may  be  compelled  to  pay  such  de- 
ficiency in  proportion  to  the  amount 
of  stock  held  by  each,  not  to  exceed 
the  extent  of  the  additional  liability. 
Held,  that  it  is  not  necessary  for  the 
receiver  to  first  exhaust  all  the  assets 
before  enforcing  the  stockholders'  lia- 
bility. State  V.  Union  Stock  Yards, 
etc..  Bank,  103  Iowa  549,  70  N.  VV. 
752;   S.  C.,  72   N.  W.  1076.  • 

69.  Michigan. — The  receiver  of  an  in- 
solvent bank  need  not  wait  until  the 
assets  are  exhausted  before  enforcing 
the  liability  of  the  stockholders.  Fos- 
ter V.  Broas.  120  Mich.  1,  79  N.  W.  696, 
77  Am.   St.   Rep.  565. 

70.  North  Carolina. — The  double  statu- 
tory liability  imposed  on  stockholders 
in  banks  by  Pub.  Laws  1897,  p.  473,  c. 
298,  may  be  enforced  by  the  receiver 
whenever  it  appears  that  the  other  as- 
sets of  the  bank  will  be  insufficient, 
and  he  need  not  wait  until  other  assets 
are  completely  exhausted.  Smathers 
V.  Western  Carolina  Bank,  135  N.  C. 
410,  47   S.   E.   893. 

71.  Wisconsin. — The  liability  of  a 
stockholder  in  a  bank  for  the  corpo- 
rate debts,  under  Rev.  St.  1858,  c.  71, 
becomes  fixed  at  the  date  of  the  judg- 
ment by  which  it  is  ascertained  that 
the  assets  of  the  bank  have  been  ex- 
hausted, and  that  the  deficiency  ex- 
ceeds the  amount  of  his  stock.  Cleve- 
land V.  Burnham,  64  Wis.  347,  25  N.  W. 
407 

Laws  1852,  c.  479,  §  47,  provides  that 
the  stockholders  of  a  state  banking 
corporation  shall  be  individually  re- 
sponsible to  the  amount  of  their  stock 
for  its  indebtedness.  Rev.  St.  1878,  §§ 
3223,  3224,  provide  that,  when  a  creditor 
of  a  corporation  seeks  to  charge  the 
stockholders  on  account  of  any  lia- 
bility created  by  law,  he  may  bring  an 
action  therefor,  and  may  at  his  elec- 
tion join  the  corporation;  that  the 
court    shall,   when    necessary,   cause   an 


184 


BANKS   AND   BANKING. 


47   (lOd) 


covery  of  a  judgment  against  the  bank  and  an  execution  thereon  returned 
unsatisfied,  are  conditions  precedent  to  a  suit  against  holders  of  bank  stock 
to  enforce  their  statutory  liability,'^  unless  the  plaintiff  aver  and  show  that 
no  judgment  could  have  been  obtained. "^^  The  insolvency  of  a  bank,  the 
appointment  of  a  receiver,  judgment  of  dissolution  and  forfeiture,  and  the 
issuance  of  an  injunction  restraining  its  creditors  from  bringing  any  action 
against  it,  dispense  with  the  above  statutory  conditions  precedent  to  bring- 
ing suit  against  the  stockholder.'^*' 

Where  the  statutory  liability  is  primary,  such  return  is  not  neces- 
sary in  any  event.'''" 

In  Action  by  Receiver. — A  receiver  of  an  insolvent  bank  need  not  pro- 
cure executions  against  himself  and  a  return  of  nulla  bona  on  all  claims 
against  the  bank  before  commencing  actions  to  enforce  stockholders'  lia- 
bility.'^» 

Suit  by  Superintendent  of  Banks. — These  conditions  precedent  do 
not  apply  to  a  suit  by  the  superintendent  of  banks  to  enforce  stockholders' 
statutory  liability.'''^ 

§  47  (lOd)  Dissolution  of  Corporation. — Dissolution  of  the  cor- 
poration is  made  a  condition  precedent  to  the  enforcement  of  bank  stock- 
holders' statutory  liability  by  the  statute  of  Missouri. 8«) 


74.  Judgment  against  bank,  execu- 
tion and  return. — Lane  v.  Harris.  16 
Ga.  217;  Barnes  v.  Arnold,  23  Misc. 
Rep.  197,  51  N.  Y.  S.  1109;  Blake  v. 
Hinkle,   18  Tenn.    (10   Yerg.)    218. 

Under  Stock  Corporation  Law,  Laws 
1892,  p.  1841,  c.  688,  §  55,  providing  that 
no  action  shall  be  brought  against  a 
stockholder  for  a  corporate  debt  until 
judgment  has  been  obtained  against 
the  corporation  and  execution  returned 
unsatisfied,  and  Banking  Law,  Laws 
1892,  p.  1913,  c.  689,  §  162,  making 
stockholders  personally  liable  for  debts 
of  the  corporation,  no  action  can  be 
maintained  against  a  stockholder  in  a 
bank  on  a  debt  by  the  bank  until  judg- 
ment has  been  obtained  against  it. 
Cause  V.  Boldt,  49  Misc.  Rep.  340,  99 
N.  Y.   S.  422;   S.  C,  100  N.  Y.   S.  1117. 

Bank  bills  and  notes. — See  post, 
"Necessity  for  Insolvency,"  §  211   (2b). 

75.  Blake  v.  Hinkle,  18  Tenn.  (10 
Yerg.)   218. 

76.  Barnes  v.  Arnold,  23  Misc.  Rep. 
197,  51  N.  Y.  S.  1109,  so  holding  under 
N.  Y.  Cen.  Laws,  c.  36,  §  55. 

77.  Liability  primary. — Parker  v. 
Carolina  Sav.  Bank,  53  S.  C.  583,  31 
S.    E.   673,   69  Am.   St.   Rep.   888. 

Under  Act  Dec.  24,  1885  (19  St.  at 
Large,  p.  212),  §  4,  making  stockhold- 
ers of  a  bank  liable  to  the  amount  of 
five  per  cent  of  their  stock  in  addition 


thereto  for  its  debts,  a  return  of  exe- 
cution nulla  bona  is  not  a  condition 
precedent  to  a  suit  to  enforce  the  lia- 
bility, where  the  bank  is  insolvent,  since 
execution  would  be  a  useless  proceed- 
ing. Parker  v.  Carolina  Sav.  Bank,  53 
S.  C.  583,  31  S.  E.  673,  69  Am.  St. 
Rep.    888. 

78.  Action  by  receiver. — Brinkworth 
v.    Hazlett,   64   Neb.  592,  90   N.   W.   537. 

79.  Suit  by  superintendent  of  banks. 
— Stock  Corp.  Law  (Consol.  Laws 
1909,  c.  59)  §  59,  requiring  judgments 
against  a  corporation  and  the  return 
of  an  execution  unsatisfied  as  a  con- 
dition precedent  to  an  action  to  en- 
force individual  liability  of  stockhold- 
ers, does  not  apply  to  a  suit  by  the 
superintendent  of  banks  under  Bank- 
ing Law  (Consol.  Laws  1909,  c.  2)  §  19, 
to  enforce  stockholder's  individual  lia- 
bility to  pay  debts  of  the  bank  prior 
to  dissolution;  there  being  no  authority 
in  the  superintendent  to  sue  for  and 
recover  judgment  on  claims  of  credit- 
ors, or  authority  to  issue  execution 
thereon,  as  contemplated  by  section  59. 
Cheney  z'.  Scharmann,  145  App.  Div. 
456,  129  N.  Y.   Supp.  993. 

80.  Dissolution  of  corporation. — The 
fact  that  a  banking  corporation  had 
ceased  to  receive  deposits,  and  had 
not  been  able  to  resume  business,  and 
did  not  intend  to  do  so,  is  not  suffi- 
cient to   show   that    it    was    dissolved. 


47  (llaa) 


STOCKHOI,DERS. 


185 


§  47  (lOe)  Exhaustion  of  Other  Remedies.— Where  the  statutory 
liability  of  stockholders  is  secondary  creditors  should  exhaust  their  rem- 
edies against  the  bank  or  persons  primarily  liable  for  their  debts,'''  and 
against  culpable  officers  and  sureties  before  resorting  to  such  stockholders' 
liability,*-  aliter  where  the  shareholders'  liability  is  primary.**^ 

Construction  of  Order  of  Court.— Order  of  the  court  that  all  remedies 
must  be  exhausted  against  stockholders  primarily  liable  for  the  debts  of  an 
insolvent  bank  before  its  reorganization,  before  any  action  to  collect  an 
assessment  against  stockholders  secondarily  liable,  is  not  to  be  construed 
as  requiring  the  exhaustion  of  all  remedies  against  stockholders  primarily 
liable  in  favor  of  whom  limitations  had  run.*-* 

§  47  (lOf)  Order  of  Court  Directing  Receiver  to  Enforce.— The 
liability  of  stockholders  of  a  banking  institution  to  its  creditors  is  not  an 
asset  of  the  corporation,  collectible  by  the  officers  of  the  corporation,  or  a 
receiver  in  their  stead,  but  is  wholly  distinct  therefrom,  and  a  receiver  can 
enforce  such  liability  only  at  the  instance  of  the  creditors,  and  by  direction 
of  the  court  after  the  creditors'  claims  have  been  ascertained  and  the  as- 
sets exhausted,*^  but  in  Minnesota  the  receiver  of  an  insolvent  bank  need 
not  obtain  an  order  of  court  to  maintain  proceedings  to  enforce  the  indi- 
vidual liability  of  stockholders.*" 

Construction  of  Order  as  to  Exhaustion  of  Other  Remedies. — See 
ante,  "Exhaustion  of  Other  Remedies,"  47   (lOe). 

§  47  (11)  Facts  Relieving  from  Liability  or  Defenses— §  47 
(11a)  Illegality  or  Irregularities  in  Organization — §  47  (llaa) 
In    General. — In   a   proceeding  to   enforce   the    secondary   liability   of   the 


within  Rev.  St.,  §  745,  giving  creditors 
of  a  dissolved  corporation  the  right 
to  sue  the  stockholders.  Donnelly  v. 
Hodgson.  14  Mo.  App.  548.  See,  also, 
Daugherty  v.  Poundstone,  120  Mo. 
App.    300.   96    S.    W.    728. 

81.  Exhaustion  of  other  remedies. — 
Where,  after  insolvency  of  a  bank  it 
was  reorganized,  and  the  new  bank  re- 
ceived all  the  property  and  effects  of 
the  old  bank,  and  used  them  in  its 
business,  the  stockholders  thereof  arc 
primarily  liable  for  all  the  debts  of 
the  old  bank,  and  all  remedies  against 
them  should  be  exhausted,  before  re- 
sorting to  stockholders  of  the  old  bank 
who  did  not  become  members  of  the 
new  concern,  and  who  are  sccnntlarily 
liable  only.  Willius  v.  Mann,  91  Minn. 
494,  98  N.  W.  341,  rehearing  denied 
98   N.   W.  867. 

82.  The  trustees  of  a  dissolved  bank- 
ing corporation  can  not  maintain  a 
suit  against  a  stockholder  to  recover 
a  dividend,  which  should  have  been 
applied  to  a  judgment  obtained  against 
the    trustees    by    a    depositor    for     the 


amount  of  a  deposit  paid  by  the 
disbursing  officers  on  unauthorized 
checks,  until  they  have  exhausted  their 
remedy  against  the  culpable  officers 
and  their  sureties.  Daugherty  r. 
Poundstone.  120  Mo.  App.  300,  96  S. 
VV.  728.  See  6  Cent.  Dig.  Banks.  §§ 
()9,   70. 

83.  The  liability  of  stockholders  was 
to  "make  good  all  losses  to  depositors 
or  others."  This  created  a  primary 
liability  against  a  stockholder,  ami  it 
was  not  necessary  for  the  dci)ositors 
first  to  exhaust  their  remedy  against 
the  corporation.  Ouccnan  7'.  Palnu-r, 
117   III    019,  7    N.   E.   f.l.'J. 

84.  Construction  of  order  of  court.— 
Pope  V.  Gcrmania  Bank,  KXi  Minn  \U\. 
119   N.   W.  f)l. 

85.  Order  of  court  directing  receiver 
to  enforce. — It  was  so  held  iindri  Nch. 
Const.,  art.  lib,  §  7;  Hamilton  Nat. 
Bank  v.  Airerican,  etc..  Trust  Co.,  CO 
Neb.    07,   92    N.    W.    189, 

86.  It  was  so  held  under  Minn,  l.aws. 
1895,  c.  145,  §  20:  Ueland  v.  Hangn". 
70    Minn    .'i49,   7.1    N.    W.    109. 


186 


BANKS   AND   BANKING. 


§  47  (lie) 


stockholders  of  an  insolvent  bank  as  may  be  deemed  necessary  to  pay  the 
debts  incurred  by  its  acting  board  of  directors,  mere  irregularities  in  the 
organization  of  the  bank  can  not  be  set  up  as  a  defense. ^'^ 

§  47  (llab)  Denial  of  Corporate  Existence. — A  holder  of  bank 
stock  is  estopped  to  deny  the  corporate  existence  of  the  bank  in  an  action 
to  enforce  his  individual  liability  for  the  debts  of  the  bank.^^ 

§  47  (lib)  Invalidity  and  Irregularity  in  Issue  of  Stock. — In- 
validity of  the  issue  of  shares  of  stock  is  no  defense  to  an  action  to  en- 
force the  individual  liability  of  holders  of  bank  stock  ;*^  and  ex.  gr.  mere 
irregularities  in  the  issue  of  bank  stock  will  not  relieve  the  stockholder 
from  his  individual  liability  to  creditors. ^° 

§  47  (lie)  Irregularities  in  Methods  of  Business. — Irregular- 
ities in  a  bank's  method  of  doing  busmess  can  not  be  set  up  as  a  defense 
to  a  suit  to  enforce  the  secondary  liability  of  its  shareholders  for  its  debts. ^^ 


87.  Irregularities    in     organization. — 

Dickason    v.    Grafton    Sav.    Bank    Co., 
6  O.  C.  C,  N.  S.,  329,  17-27  O.  C.  D.  357. 

Signature  to  resolution  changing 
name  not  properly  authenticated. — In 
an  action  against  a  stockholder  in  a 
reorganized  bank  on  his  liability  on 
its  subsequent  insolvency,  an  objection 
that  at  a  meeting  of  the  stockholders 
for  the  purpose  of  organizing,  where 
a  resolution  to  change  the  name  of 
the  l)ank  was  adopted,  the  signature 
attached  to  such  resolution  was  not 
properly  authenticated,  was  imma- 
terial. Hunt  V.  Hauser  Malting  C6., 
9.5    Minn.   206,    103    N.    W.   10.32. 

Directors  not  legally  elected. — In  a 
suit  to  enforce  tlie  secondary  liability 
of  stockholders  of  an  insolvent  bank, 
that  there  was  no  legally  elected  board 
of  directors  because  of  failure  to  com- 
ply with  Rev.  St.,  §  3798,  can  not  be 
set  up  as  a  defense  Dickason  v. 
Grafton  Sav.  Bank  Co..  6  O.  C.  C.  N. 
S.,    329,    17-27    O.    C.    D.    3.57. 

A  subscriber  for  such  stock  by  the 
act  of  subscribing  is  estopped  from 
setting  up  such  irregularities  as  de- 
fenses to  an  action  brought  by  cred- 
itors of  the  corporation  for  the  collec- 
tion of  unpaid  subscriptions  to  its 
stock.  Dickason  v.  Grafton  Sav.  Bank 
Co.,  6  O.  C.  C,  N.  S.,  329,  17-27  O.  C. 
D.    357. 

88.  Denial  of  corporate  existence. — 
Lehman  v.  Warner,  61  Ala.  455; 
Palmer  v.  Lawrence,  5  N.  Y.  Super. 
Ct.,  161;  Dickason  v.  Grafton  Sav. 
Bank   Co.,  6   O.   C.   C,   N.   S.,  339,   17-27 


O.    C.    D.    357.      And,    see    Voorhees    v. 
Bank.    19    O.    463. 

Where  the  charter  of  a  bank  makes 
the  stock  a  fund  pledged  for  the  se- 
curity of  depositors,  a  subscriber  who 
has  paid  a  portion  of  his  subscrip- 
tion, and  acquiesced  in  the  bank's 
carrying  on  business,  is  estopped  to 
withdraw  his  assent,  to  the  prejudice 
of  other  depositors,  or  deny  the  cor- 
porate existence  of  the  bank.  Lehman 
V.    Warner,   61   Ala.   455. 

89.  Invalidity  of  issue. — Palmer  v. 
Lawrence,  5   N.   Y.   Super.  Ct.  161. 

90.  Irregularities  in  issue. — ^Man  v. 
Boykin,  79  S.  C.  1,  60  S.  E.  17,  128  Am. 
St.    Rep.    830. 

Certificate  not  filed  with  security  of 
state. — A  bank  authorized  by  law  to 
increase  its  capital  stock  did  so,  a 
large  part  of  the  increased  stock  was 
purchased  by  the  original  corporators, 
and  dividends  were  paid  on  it.  The 
certificates  of  stock  showed  the  capital 
of  the  bank  to  be  the  original  capital 
plus  the  increase,  and  for  about  ten 
years  the  bank  held  itself  out  as  hav- 
ing a  capital  of  that  amount.  Held, 
that  the  stockholders  are  estopped  to 
deny  their  liability  on  the  ground  that 
no  certificate  was  filed  with  the  secre- 
tary of  state.  Man  v.  Boykin,  79  S. 
C.  1,  60  S.  E.  17,  128  Am.  St.  Rep. 
S30, 

91.  Irregularities  in  methods  of  busi- 
ness.— Dickason  v.  Grafton  Sav.  Bank 
Co.,  6  O.  C.  C,  N.  S.,  329,  17-27  O. 
C.  D.  357.  See,  also,  Voorhees  v. 
Bank,    19    O.    463. 


§  47   (lleac)  stockholders.  1S7 

§  47  (lid)  Insolvency  of  Other  Stockholders.— The  solvency  or 
insolvency  of  other  stockholders  does  not  affect  the  liability  of  any  partic- 
ular holder  of  bank  stock. *'- 

§  47  (lie)  Payment,  Satisfaction  and  Discharge — §  47  (Ilea) 
Payment  by  Stockholder  and  Agreements  in  Respect  Thereto— 
§  47  (lleaa)  Payment  to  Other  Creditors— §  47  (lleaaa)  Pay- 
ment before  Suit. — The  individual  liability  of  a  holder  of  bank  stock  is 
extinguished  by  payment  of  the  actual  amount  of  liability  to  another  cred- 
itor before  suit.^'' 

§  47    (lleaab)   Payment   after  Suit   Commenced. — .\  stockholder 

can  not,  after  any  one  depositor  has  commenced  suit  against  him  on  his 
liability,  defeat  said  suit  by  paying  other  depositors  than  the  plaintiff',  even 
though  he  pay  to  the  full  amount  of  his  liability.  Such  payment,  after 
notice  of  suit,  is  in  fraud  of  the  plaintift"s  claim,  and  contrary  to  the  i)ol- 
icy  of  the  act  creating  the  liability,  and  if  allowed  would  jiractically  defeat 
the  object  of  the  legislature  in  imposing  the  obligation.''^ 

§  47  (lleaac)  Payment  in  Other  Suits. — Stockholders  of  an  in- 
solvent bank  who  have  been  compelled  to  pay  in  suits  by  depositors,  where 
sued  in  subsequent  actions  by  depositors  in  which  other  stockholders  are 
joined,  are  entitled  to  have  such  prior  payments  considered  in  adjusting 
their  liability  as  against  the  other  defendants.''^ 

§  47  (lleab)  Redemption  of  Bank's  Bills  and  Notes  by  Stock- 
nolder. — See  post,  "Liability  of  Stockholders  or  Officers."  §  211. 

§  47  (lleac)  Agreements  Providing  Funds  to  Cover  Bank's 
Liabilities. — An  agreement  between  an  insolvent  bank  and  its  stockhoM- 

92.  Insolvency  of  other  stockholders.  plaintiff  an  amount  equal  to  the  full 
— Each  stockholder  in  an  insolvent  proportion  his  stock  hears  to  the 
hanking  corporation  under  Act  1849,  c.  whole  amount  due  the  depositor.  Jones 
226,  making  him  responsible  "equally  -.  Wiltberger,  42  Ga.  575;  Marr  v. 
and     ratably"     to     the     extent     of     his  Bank,  72  Tenn.   (4  Lef)    578. 

shares    of   the    stock   for    the    debts    of  Prooi  of  payment  by  stockholder.— 

the  corporation,  is  subject  to  a  liability  j^^    ^   g^^j^    ,^y     .^    depositor    against     :f 

determined     by     the     statute     without  stockholder,     the     production     of     the 

reference  to  the  solvency  of  any  other  ori"inal    evidence    of    deposit,    or    the 

stockholder.     In   re  Hollister  Bank,  27  certificate  of  the  assignee  of  the  bank 

N.   Y.   .-593,   84   Am.   Dec.   292:   Hollister  ^^   ^,^^   indebtedness,   with    the   oath   of 

V.   Hollister  Bank,  41  N.  Y.   (2  Keyes)  ^j^^   assignee   that   the   stockholder   has 

245,   2   Abb.    Dec.   367.  surrendered    to    him    such    evidence    of 

93.  Payment  to  other  creditors  be-  deposit,  with  the  receipts  thereon,  to 
fore  suit  instituted.— In  a  suit  against  a  ^^^^  stockholder,  of  the  owners  thereof, 
stockholder  oi  a  savings  bank  l)y  a  de-  j^  g^jd^^jice  to  go  to  the  jury  to  prove 
positor  on  his  individual  liability  for  tiie  ^^^^  payment  of  the  same  by  the  stock- 
ukimate  redemption  of  the  deposits  in  i,oldcr.  Jones  ?■.  \Vihl)orger,  42  C.a. 
proportion  to  the  amount  of  stock  held  by  ^^. 

him  in  the  bank    the  stockholder  may  '^      payment   after   suit   commenced. 

defend   the   suit   by   showing   that    pre-  _«            V  ^viltl,crger,  42  (^.a.  .57.5. 

viously    to    the    commencement    of    the  j  "  <-                         i^ 

suit  he  has  discharged  his  obligation  by  95.    Payment   m    other  ^suits.—  \\  ooa 

paying    to    other    depositors    than    the  v.  Wood,  40   III.  .\pp.    1^- 


188  BANKS  AND  BANKING,  §    47    (llcc) 

ers,  binding  them  to  give  their  notes  to  it  to  the  amount  of  their  holdings 
of  stock,  to  be  collected  in  case  there  is  a  shortage  of  assets  to  cover  lia- 
bilities, and  providing  that  payment  thereon  should  pro  tanto  discharge  the 
payor's  statutory  liability,  is  not  void  for  want  of  consideration,  since  pay- 
ments thereunder  constitute  a  trust  fund  in  the  hands  of  the  bank,  in  which 
creditors  can  not  participate  except  by  releasing  pro  tanto  their  rights 
against  the  stockholders  under  the  statute.^*^ 

§  47  (Head)  Dividends  Paid  from  Bank's  Assets. — A  stock- 
holder of  an  insolvent  state  bank  is  not  relieved  from  his  proportionate  in- 
dividual liability,  to  the  extent  of  the  amount  of  his  stock  at  the  par  value 
thereof,  to  a  depositor  for  interest  on  unpaid  balances  from  the  time  of 
the  closing  of  the  bank  down  to  the  time  of  the  payment  of  the  last  divi- 
dend, because  of  a  payment  made  to  the  depositor,  by  various  dividends 
of  the  full  amount  due  at  the  time  of  its  closing,  for  the  deposit  and  con- 
tractual interest  thereon.^" 

§  47  (11  eb)  Prior  Recovery  or  Payment  of  Judgment. — A  prior 
recovery  by  the  creditor  bringing  the  suit  or  by  another  of  the  amount  of 
the  statutory  liability  of  a  holder  of  bank  stock  is  a  bar  to  any  further 
recovery  against  him.^^ 

Discharge  of  Judgment  by  Payment  of  Less  Sum. — Where  judg- 
ments have  been  recovered  against  a  stockholder  to  the  amount  of  his  lia- 
bility, and  the  judgments  discharged  by  the  stockholder  by  the  payment  of 
a  sum  less  than  the  amount  of  the  judgments,  he  will  be  regarded  as  having 
discharged  his  liability  only  to  the  amount  which  he  actually  paid/*"* 

§  47  (llec)  Confession  of  Judgment  in  Favor  of  Another  Cred- 
itor.— The  individual  liability  of  a  holder  of  bank  stock  is  not  extinguished 
by  confession  of  judgment  in  amount  of  his  liability  in  favor  of  another 
creditor  after  suit  commenced. ^ 

96.  Agreements  providing  funds  to  98.  Prior  recovery  from  stockholder, 
cover   bank's   liabilities, — Thompson    v.      — Lane  z\   Harris,   16  Ga.  217. 

Gross,   106  Wis.  34,  81   N.  W.   1061.  99.    Discharge    of   judgment   by   pay- 

The   reorganization   of    an    insolvent  ment     of     less     sum, — Kunkelnian     v. 

bank,    and    the    mutual    agreement    be-  Rentchler,    l.j    111.    App.    271. 

tween    its    stockholders    to    effect    that  1,    Confession   of   judgment   in   favor 

result    by    increasing    its    capital    stock  of     another      creditor, — Where      A,     a 

and   canceling  part  of  its  liabilities  by  stockholder   in   an   insolvent   bank,   be- 

allowing     creditors     to     subscribe     for  came  liable  in  the  sum  of  $1,200,  under 

stock  in  satisfaction  of  their  claims,  is  a  double  liability  lav^^,  to  the  creditors 

a      sufficient      consideration      for      an  of    the    bank,    and    was    sued    for    that 

agreement  binding  the  stockholders  to  iimount  by  B,  an  admitted  cre^Htor,  and 

give    their    notes    to    the    bank,    to    be  A,    a    few^    days   thereafter,   and    before 

collected   in   case   there   is   a   deficiency  judgment    could    be    had    in    the    ordi- 

of   assets    to    cover    the    remaining   lia-  nary    course,    agreed    with    C    that,    if 

bilities.     Thompson  -'.   Gross,   106  Wis.  the  latter  would  buy  up  claims  against 

.34,  81   N.   W.   1061.  _  the  hank  to  the  amount  of  his  liability, 

97.  Dividends  paid  from  bank's  as-  he  would  confess  judgment  in  his 
sets. — Parker  v.  Adams,  38  Misc.  Rep.  favor,  and  C  accordingly  bought  up 
325,  77   N.  Y.  S.  861.  claims   to   that  amount'at   a  large  dis- 


§    47    (llgb)  STOCKHOLDERS. 


180 


§  47  (lied)  Subsequent  Proceedings  by  Another  to  Enforce 
Same  Liability.— An  action  by  a  creditor  of  a  bank  against  a  stocklioUler 
of  tbe  corporation,  brought  under  an  act  permitting  such  action  where  any 
company  formed  under  the  act  concerning  corporations  has  dissolved  leav- 
ing  debts  unpaid,  is  not  barred  by  the  subsequent  fiUng  of  a  motion  by  a 
judgment  creditor  of  the  bank  to  enforce  the  same  stockholder's  hability.- 

§  47  (llee)  Former  Judgment  against  the  Bank.— A  proceeding? 
to  enforce  the  personal  Hability  of  stockholders  of  an  insolvent  bank  for 
the  balance  of  its  debts  after  its  assets  have  been  exhausted,  is  not  barred 
by  a  previous  judgment  recovered  in  an  action  by  a  stockholder,  directing 
its  assets  to  be  so  applied,  and  appointing  a  receiver  to  carry  out  the  judg- 
ment.-^ 

§  47  (llf)  Bill  Holders  Entitled  to  Priority  as  to  Suing  Cred- 
itors.— That  bill  holders  of  a  bank  are  entitled  to  priority  of  jxivment  is  not 
a  defense  to  a  suit  brought  by  a  general  creditor  to  enforce  a  stockholder's 
individual  liability.^ 

§  47    (llg)   Release    by    Bank— §  47    (llga)   In  General.— The 

individual  liability  imposed  on  stockholders  by  bank  laws  is  an  obligation 
to  the  corporation  in  trust  for  the  security  of  its  creditors ;  and  while  un- 
paid subscriptions  on  stock  should  be  first  resorted  to,  before  enforcing  the 
double  liability,  which  is  a  secondary  one,  such  liability  can  not.  as  against 
creditors  or  other  stockholders,  be  released  by  the  corporation,  and  in  case 
of  its  insolvency  it  may  be  enforced  by  the  receiver  of  the  cori^oration  for 
the  benefit  of  creditors.-'' 

§  47  (llgb)  Resolution  of  Board  of  Directors. — Directors  can 
not  set  up  a  secret  agreement  with  the  bank  that  they  should  not  incur  any 
liability  by  reason  of  the  issuance  of  stock  to  them,  but  should  hold  it  for 
the  benefit  of  the  corporation.^' 

count  from  a  stockholder  in  said  I>ank,  4.  Bill  holders  entitled  to  priority  as 

and  A  confessed  judgment  in  his  favor  to    suing    creditor. — W'liere,    in    a    no'i- 

for  the  full  amount  of  the  claims,  and  cral   law,   under  whicli   a   bank   was  or- 

paid    the    same,    held,    that    such   judg-  ganized,   it   was  provided   that   the   liiil 

ment    and    satisfaction    could    not    be  holders  of  the  bank  sliould  1)C  entitled 

pleaded  in   bar  to  the  suit  brought  by  to  a  priority  of  payment,  it   was   licit! 

B.     Manville   v.    Karst,   16   Fed.   644,   5  that    that    fact    alone    could    not    avail 

McCrary  142.  an    individual    stockholder,    made    indi- 

2.  Subsequent  proceeding  by  another  vidually  lialile  for  tiie  debts  of  tlie 
to  enforce  same  liability. — Bittner  v.  l)ank,  in  a  suit  against  him  by  tlie 
Hardy.  12  Mo.  App.  ."JOfi,  an  action  holder  of  a  draft  issued  by  the  bank. 
brouglit    under    Kev.    Stats.,    S    745.  Paine  t'.   Stewart.  :^:!   Conn.   .'iUi. 

3.  Former  judgment  against  bank.  5.  Release  by  bank. — Smatlicrs  ?'. 
— It  was  so  held  as  to  a  proceeding  Western  Carolina  Bank,  i:!.'')  N'.  C.  410. 
under   N.  Y.   Laws,  1849,  p.  343,  where  47   S.    IC.  S'.K!. 

a    stockholder    had    recovered    a    judg-  6.   Resolution   of  board   of  directors. 

ment    under    2    Rev.    Stats.,    p.    463,    §§  — Barto  v.   Ni.\,   IT)   Wash.   .•.(;;[,  46   Tac. 

30-40;    Diven    v.    Duncan    (N.    Y.),    41  1033. 
Barb.   .'320. 


190 


BANKS   AND   BANKING. 


47    (Ilk) 


§  47  (llh)  Assignment  of  Sufficient  Assets  for  Payment. — The 
fact  that  under  an  assignment  for  the  benefit  of  creditors  assets  sufficient 
to  pay  the  creditors  were  turned  over  by  the  bank  to  the  assignee,  chosen 
and  selected  by  itself,  and  over  whom  it  had,  by  law,  coordinate  control 
with  the  creditors ;  does  not  relieve  a  stockholder  from  responsibility  un- 
der an  individual  liability  clause  in  the  bank's  charter." 

§  47  (Hi)  Reorganization  of  Bank. — The  reorganization  of  an  in- 
solvent bank  does  not  discharge  the  stockholders  who  did  not  become 
members  of  the  new  bank  from  their  statutory  liability.'^ 

§  47    (llj)   Dissolution,  Expiration  and  Forfeiture  of  Charter.^ 

Where  there  is  no  provision  in  the  charter  of  a  bank  to  the  contrary  the 
individual  liability  of  the  stockholders  thereof  expires  with  the  expiration 
of  the  charter.'*  But  where  such  provision  exists,  such  liability  survive'5 
the  dissolution  of  the  bank,  and  is  not  extinguished  by  the  judicial  forfei- 
ture of  the  charter.^*' 

§  47  (Ilk)  Discharge  in  Bankruptcy. — The  liability  of  a  holder  of 
bank  stock  being  a  fixed,  definite  sum.  is  provable  before  a  bankrupt  court, 


7.  Assignment  of  sufficient  assets  for 
payment. — Robinson  v.  Lane,  19  Ga. 
337. 

8.  Reorganization  of  bank. — A  bank 
became  insolvent  and  made  a  general 
assignment,  and  subsequently  was  re- 
organized under  Gen.  Laws  1897,  p. 
109,  c.  89.  The  capital  stock  was  re- 
duced, and  the  amount  thereof  sub- 
scribed, and  the  property  and  assets 
were  turned  over  to  the  officers  of  the 
new  bank,  who  issued  certificates  of 
deposit  to  creditors  for  the  amounts 
due  them.  Certain  stockholders  in  the 
old  bank  did  not  become  stockholders 
in  the  new.  The  bank  again  became 
insolvent,  and  a  receiver  was  ap- 
pointed, who,  on  an  order  of  the  court, 
assessed  all  the  stockholders  in  both 
the  old  and  the  new  bank  100  per  cent 
of  the  amount  of  their  holdings.  Held, 
that  the  issuance  by  the  reorganized 
bank  of  new  certificates  of  deposit  to 
the  creditors  for  the  amounts  due  them 
was  not  a  payment  of  their  claims,  so 
as  to  discharge  the  stockholders  who 
did  not  become  members  of  the  new 
bank  from  their  statutory  liability. 
Willius  V.  Mann,  91  Minn.  494,  98  N. 
W.  341.  Rehearing  denied  98  N.  W. 
867. 

9.  Dissolution,  expiration  and  for- 
feiture of  charter. — Robison  v.  Beall, 
26  Ga.  17. 

Since    all    debts    incurred    by    a    cor- 


poration are  extinguished  on  its  dis- 
solution, in  the  absence  of  a  statute  to 
the  contrary,  the  liability  of  the  stock- 
holders in  the  Planters'  &  Mechanics' 
Bank  of  Columbus  expired  with  its 
charter.      Robison   v.   Beall,  26   Ga.   17. 

Rev.  St.  c.  36,  §  30,  provides  that,  if 
any  loss  or  deficiency  of  the  capital 
stock  in  any  bank  shall  arise  from  the 
official  mismanagement  of  the  direct-, 
ors,  the  stockholders  at  the  time  of 
such  mismanagement  shall,  in  their 
individual  capacity,  be  liable  to  pay  the 
same.  Held,  that  after  the  insolvency 
of  a  bank,  and  the  forfeiture  of  its 
charter,  creditors  could  not  maintain 
an  action  against  stockholders  to  re- 
cover their  claims,  as  the  statute  was 
only  intended  to  protect  against  a  de- 
ficiency in  the  capital  stock  and  in- 
solvency during  the  existence  of  the 
bank,  and  not  to  provide  a  remedy  for 
creditors  after  insolvency  and  for- 
feiture. Baker  v.  Atlas  Bank  (Mass.), 
9   Mctc.   182. 

10.  When  stockholders'  liability  not 
aflfected  by  dissolution. — Thornton  z\ 
Lane,  11  Ga.  459;  Robinson  z'.  Lane,  19 
Ga.  337;  Hargroves  z'.  Chambers,  30 
Ga.  580,  are  cases  in  which  it  was  held 
that  the  liability  of  the  stockholder  to 
a  bill-holder  for  the  ultimate  redemp- 
tion of  the  notes  of  the  bank,  is  not 
extinguished  by  the  dissolution  of  the 
bank. 


§  47   (12a) 


STOCKHOLDERS. 


1"1 


and  a  discharge  in  bankruptcy  will  release  such  stockholders  from  hi- 
bility.ii 

§  47    (111)   Possession  of  Unreported  Assets  by  Receiver.— It  is 

no  defense  in  an  action  by  the  receiver  of  an  insolvent  bank  to  enforce 
stockholders'  liability  that  the  receiver  was  in  possession  of  unrc])orted 
assets. 1- 

§  47  (11m)  Waiver  and  Estoppel.— Formal  Waiver  by  Depos- 
itor.— A  waiver  of  stockholder's  liability,  classed  as  one  of  the  by-laws  of 
a  banking  corporation  and  printed  with  them  in  each  depositor's  book,  and 
followed  by  a  formal  agreement  to  be  signed,  is  of  no  effect  unless  actually 
signed  by  the  depositor.^^ 

By  State  a  Co -Corporator.— A  state  which  is  a  corporator  of  a  bank 
can  not  disregard  its  obligation,  diminish  the  fund  provided  for  the  protec- 
tion of  the  other  corporations  and  then  claim  a  forfeiture  by  its  co-corpora- 
tors resulting  in  part  from  its  wrongful  act.^"* 

§  47  (12)  Measure  or  Amount  of  Liability— §  47  (12a)  In 
General. — The  measure  or  amount  of  bank  stockholders'  individual  liabil- 
ity is  that  provided  by  the  statute  which  creates  it.'-'^  It  is  often  an  addi- 
tional amount  equal  to  the  par  value  of  the  stock  owned  by  the  share- 
holder. ^'^     The  statutory  liability  may  be  greater  than  the  amount  of  stock 


11.  Discharge    in   bankruptcy. — Marr 

v.  Bank.  72  Tenn.   (4  Lea)   JTS. 

12.  Possession  of  unreported  assets 
by  receiver. — Brinkworth  v.  Hazlett, 
64   Neb.    592.   90    N.    W.    537. 

13.  Formal  waiver  by  depositor. — • 
Wells  c'.  Black,  117  Cal.  157,  48  Pac. 
1090,  37  L.  R.  A.  619,  59  Am.  St.  Rep. 
162. 

14.  By  state,  a  co-corporator. — The 
state,  by  appropriating  $200,000  of  the 
capital  stock  of  the  bank  established 
by  Act  1838,  c.  107,  to  the  improve- 
ment of  certain  rivers,  after  its  sub- 
scription to  the  stock  of  several  in- 
ternal improvement  companies,  di- 
minished the  fund  appropriated  by  the 
act  of  1838  to  the  payment  of  interest 
upon  state  bonds,  and  released  the  in- 
dividual stockholders  from  all  liability 
to  contribute  to  the  payment  of  defi- 
cient interest.  State  v.  Central  'l\irn- 
pike  Co.,  29  Tcnn.    (10   Humph.)    388. 

15.  Measure  or  amount  of  liability. — 
Terry  z:  Little,  101  U.  S.  216,  25  L.  Hd. 
864. 

Under  Gen.  St.  1889,  par.  1204.  a 
stockholder  of  a  banking  corporation, 
which  has  been  dissolved  having  debts 
unpaid,  is  primarily  liable,  in  an  action 
against  him,  in  the  amount  provided 
by  statute.  Sterne  v.  Atherton,  7  Kan. 
App.  20,  51  Pac.  791. 


Ohio. — Where  the  insolvent  corpora- 
tion is  a  bank  organized  under  tlie 
laws  of  Ohio,  an  allegation  that  a  tlo- 
fendant  stockholder  is  not  lial)le  for 
anything  beyond  the  subscription  price 
of  his  stock,  does  not  state  a  good  de- 
fense. Umsteatter  v.  Newark  Sav. 
Bank  Co.,  4  N.  P.,  N.  S.,  150,  17  O.  D. 
N.   P.  30. 

16.  The  subscribers  to  the  stock  of 
the  Citizens'  Bank  of  Louisiana,  in 
subscril)ing,  not  only  subjected  their 
property  to  mortgage,  but  incurred 
personal  responsibility  to  the  amouiU 
of  the  stock.  Succession  of  Thomson, 
46   La.   Ann.    1074.   15   So.   379. 

The  stockholders  of  a  bank  organ- 
ized under  the  state  law,  which  is 
not  a  bank  of  issue  or  circulation,  are 
liable  under  Const.,  art.  10,  §  3.  pro- 
viding that  each  stockholder  in  any 
corporation  shall  be  lial)Ie  to  (he 
amount  of  stock  held  or  owned  l)y  liini 
for  the  debts  of  the  corporation. 
Northwestern  Trust  Co.  v.  Bradbury. 
112   Minn.  76,  127   N.  W.  386. 

The  liability  of  a  stockholder  is  n.il 
limited  to  the  amount  of  capita!  stock 
which  he  has  agreed  to  pay  in,  but 
extends  to  an  amount  equal  to  llic 
stock  held  by  him  additional  tlicrolo. 
United    States    Trust    Co.    v.    United 


192 


BANKS   AND   BANKING. 


§  47  (12b) 


owned  by  the  shareholder.^^  Some  statutes  fix  the  stockholder's  liability 
at  an  amount  not  greater  than  double  the  amount  of  stock  or  an  amount 
equal  to  their  subscriptions.^^ 

§  47  (12b)  Ratable  Shares. — The  liability  of  a  stockholder  may  be 
for  a  ratable  share  of  the  deficiency  to  be  ascertained  by  the  following  pro- 
portion :  as  the  capital  stock  is  to  the  deficiency,  so  is  each  stockholder's 
share  to  his  part  of  the  indebtedness.!'-* 

The  value  of  the  stock  is  to  be  estimated  according  to  the  valuation 
placed  upon  it  by  the  charter.-*' 


States   Fire   Ins.   Co.,   18    N.   Y.    199,   8 
Abb.   Prac.  192. 

In  New  York,  the  liability  of  a  stock, 
holder  of  an  insolvent  bank  for  the 
debts  of  the  bank  does  not  exceed  the 
amount  of  his  stock.  Richards  v. 
Gill,  138  i.A.pp.  Div.  75,  122  N.  Y.  S. 
620. 

17.  Const.  18G8,  art.  12,  §  6,  provides 
that  the  general  assembly  shall  grant 
no  banking  charter,  except  on  condi- 
tion that  the  stockholders  shall  be 
liable  to  the  amount  of  their  stock 
for  the  bank's  debts;  §  4  provides  that 
dues  from  corporations  shall  be  se- 
cured by  such  individual  liability  and 
other  means  as  may  be  prescribed  by 
law;  and  §  5  provides  that  all  laws 
passed  pursuant  to  it  shall  provide  for 
fixing  the  personal  liability  of  stock- 
holders under  proper  limitations,  etc. 
Held,  that  §  6  does  not  prohibit  the 
legislature  from  imposing  a  greater 
liability  than  the  amount  of  stock, 
since  the  provision  is  not  self-execut- 
ing. Parker  v.  Carolina  Sav.  Bank,  53 
S.  C.  583,  31  S.  E.  673,  69  Am.  St.  Rep. 
888. 

18.  Fuller  v.  Ledden,  87  111.  310; 
Smathers  v.  Western  Carolina  Bank, 
135  N.  C.  410,  47  S.  E.  893;  Means'  Ap- 
peal, 85  Pa.  (4  Norris)  75;  Craig's  Ap- 
peal, 92  Pa.  396. 

"His  liability  is  not  limited  to  the 
par  value  of  his  stock,  neither  is  he 
bound  absolutely  for  the  payment  of 
the  full  amount  of  that.  He  must  pay 
a  sum  which  shall  bear  the  same  pro- 
portion to  the  whole  indebtedness  that 
his  stock  bears  to  the  whole  capital, 
and  is  not  required  to  pay  more."  Pol- 
lard V.  Bailey  (U.  S.),  20  Wall.  520, 
22  L.   Ed.  376. 

Under  1  Mills'  Ann.  St.,  §  533,  pro- 
viding that  stockholders  in  banks  shall 
be  individually  responsible  for  debts  in 
double  the  amount  of  the  par  value  of 
the  stock  owned  by  them,  the  maxi- 
mum   liability    to    which    such     stock- 


holders are  liable  to  creditors,  is 
double  the  amount  of  the  par  value 
of  their  stock  without  interest.  Adams 
V.  Clark,  36  Colo.  65,  85  Pac.  642. 

19.  Ratable  share. — Chatham  Bank 
V.  Brobston,  99  Ga.  801,  27  S.  E.  790; 
Richards  v.  Gill,  138  App.  Div.  75,  122 
N.    Y.   S.   620. 

The  liability  of  stockholders  being 
no  more  than  a  ratable  share  of  the 
debts  of  the  bank,  proportional  to  the 
amount  of  their  stock,  an  auditor  of 
an  account  of  the  bank's  assignee  can 
not  compel  an  advance  contribution 
from  them  by  disallowing  their  claims 
against  said  estate.  Craig's  Appeal,  92 
Pa.   396. 

Circulating  bills. — T  h  e  aggregate 
body  of  stockholders  are  liable,  for  all 
the  bills  issued  by  the  bank;  and  the 
liability  of  each  stockholder  is  ascer- 
tained and  fixed  by  the  following  pro- 
portion: as  the  whole  capital  stock  is 
to  the  entire  outstanding  circulation, 
so  is  each  stockholder's  share  to  his 
part  to  be  redeemed.  Robinson  v. 
Ldane,  19  Ga.  337;  Adkins  v.  Thornton, 
19  Ga.  325;  Branch  v.  Baker,  53  Ga. 
502. 

The  stockholders  of  the  bank  of  Co- 
lumbus are  declared  by  the  charter  to 
be  personally,  individually  and  sever- 
ally bound  for  the  payment  of  the  bills 
of  the  bank,  to  the  creditors  holding 
bills  unpaid,  in  the  proportion  that  the 
stock  subscribed  for  by  each  bears  to 
the  whole  stock  of  said  bank.  Under 
this  provision  of  the  charter  the  stock- 
holders are  sureties  for  the  payment 
of  the  bills  of  the  bank  liable  to  be 
sued  separately,  but  they  are  not 
partners  with  the  bank,  and  the  law 
governing  in  case  of  partnership  is  not 
applicable.  Belcher  v.  Willcox,  40  Ga. 
391. 

20.  Valuation  of  stock. — Lane  v. 
Morris,  10  Ga.  162;  Thornton  v.  Lane, 
11  Ga.  459;  Hargroves  v.  Chambers,  30 
Ga.  580. 


§  47  (12e) 


STOCKHOLDERS. 


193 


§  47  (12c)  Contingencies  Which  Enlarge  Liability.— Failure  to 
Keep  Banking  and  Other  Accounts  Separate.— Where  stockholders  of 
a  corporation  doing  banking  and  other  business  become  hable  for  the  ob- 
hgations  incident  to  banking,  the  faikire  to  keep  the  banking  and  other  ac- 
counts separate  can  not  enlarge  the  liability  of  the  stockholders. 21 

§  47  (12d)  Facts  and  Contingencies  Reducing  Liability— 
§  47  (12da)  Payment  of  Premium  for  Stock.— A  holder  of  bank 
stock  is  not  entitled  to  any  reduction  of  his  statutory  liability  because  he 
paid  a  premium  for  the  stock. 22 

§  47  (12db)  Reduction  of  Capital  Stock. — An  authorized  reduction 
of  the  capital  stock  of  a  bank  will  exonerate  the  stockholders  from  individ- 
ual liability  beyond  the  reduced  stock  ;23  aliter  as  to  a  reduction  without  the 
consent  of  the  legislature.-^ 

§  47  (12dc)  Application  of  Collateral  Security. — As  affecting  a 
stockholder's  liability  on  the  bank's  note,  the  creditor  had  no  right  to  apply 
collateral  securing  the  note  to  the  bank's  general  indebtedness. ^s 

§  47  (12e)  Interest.— Liability  on  Debts  of  Bank. — As  the  liabil- 
ity of  the  shareholder  is  for  the  contracts,  debts,  and  engagements  of  the 
bank,  the  creditor  has  against  the  shareholder  the  same  right  to  recover 
interest  which,  according  to  the  nature  of  the  contract  or  debt,  would  exist 
as  against  the  bank  itself ;  of  course,  not  in  excess  of  the  maximum  lia- 
bility as  fixed  by  the  statute. ^^ 


21.  Failure  to  keep  banking  and 
other  accounts  separate. — Kigg-ns  v. 
Muiiday,   19    Wash.   233,   52   Pac.   855. 

22.  Payment  of  premium  for  stock. 
—Robertson  z:  Conway,  110  C.  C.  A. 
377.   188   Fed.   .'-)79. 

23.  Reduction  of  stock. — An  act 
authorizing  a  reduction  of  stock  to 
the  amount  paid  in  at  a  certain  period, 
accepted  by  the  stockholders,  will  ex- 
onerate them  from  liability  beyond  the 
reduced  stock,  as  to  subsequent  cred- 
itors; otherwise  if  not  accepted  by  the 
stockholders,  or  a  majority  of  them. 
Hepburn  v.  Commissioners,  4  La.  Ann. 
87;  Palfrey  z:  Paulding,  7  La.  Ann.  363; 
Stark  V.   Burke,  9   La.   Ann.   344. 

24.  Under  1  Rev.  St.,  p.  GOl,  §  2,  for- 
bidding  any  corporation  reducing  its 
capital  stock  witliout  the  consent  of 
the  legislature,  if  stock  in  a  bank  is 
held  by  an  individual  in  trust  for  such 
bank,  it  is  not  thereby  extinguished, 
I)Ut  is  valid  in  the  hands  of  the  trus- 
tee, and  he  is  liable,  as  a  stockholder, 
to  lie  apportioned  therefor,  in  case 
t!ic  bank  l)ccomes  insolvent.  In  re  ICm- 
pire  City  Bank  (N.  Y.),  0  Abb.  Prac. 
38,'j. 

1    B   &   B— 13 


25.  Application  of  collateral  securing 
bank's  debt. — It  was  so  held  under 
X.  Y.  Banking  Law  (Consol.  Laws, 
c.  2),  §  71;  Assets  Realization  Co.  Z'. 
Howard,  70  Misc.  Rep.  651,  127  N.  Y. 
798. 

26.  Interest^,— Where  the  assets  of 
a  Banking  Co.  when  fully  administered, 
only  suffice  for  the  payment  of  the 
principal  of  the  debts  of  the  corpora- 
tion, the  statutory  •  liability  of  the 
stockholders  imposed  by  Sp.  Laws 
1889,  p.  547,  c.  349,  §  6,  in  amendment 
of  its  original  charter,  may  be  re- 
sorted to  for  such  interest  as  would 
have  been  recoverable  from  the  cor- 
poration had  it  continued  solvent 
without  receivership.  Flynn  z'.  Ameri- 
can, etc..  Trust  Co.,  104  Mo.  141,  09 
Atl.   771. 

"In  the  case  of  book  accounts  in 
favor  of  depositors,  which  was  the  na- 
ture of  the  claims  in  this  case,  inter- 
est would  begin  to  accrue  as  against 
the  bank  from  the  date  of  its  suspen- 
sion. The  act  of  going  into  liquida- 
tion dispenses  with  the  necessity  of 
any  demand  on  the  part  of  the  credit- 
ors, and  it  follows  that  interest  should 


194  BANKS    AND    BANKING.  §    48    (la) 

Liability  Where  Stockholder  in  Default. — There  is  no  general  rule 
as  to  the  time  from  which  interest  may  be  exacted  on  the  amounts  due  from 
the  stockholders  of  insolvent  banks  or  whether  it  can  increase  their  liability 
beyond  the  amount  fixed  by  the  law. 

In  Michigan,  the  stockholders  of  a  bank,  which  has  been  closed  by  the 
banking  commissioners,  are  not  in  default  in  the  payment  of  the  statutory 
liability  until  the  amount  of  the  liability  is  due,  and  until  that  time  interest 
on  the  amount  of  the  liability  may  not  be  exacted,  and  interest  can  only  be 
computed  from  the  time  it  was  determined  by  the  court  that  it  was  necessary 
to  enforce  the  liability.-'^ 

In  Minnesota,  the  stockholders'  double  liability  is  an  unliquidated  de- 
mand ;  hence,  interest  should  be  allowed  on  the  amount  of  the  liability 
only  from  the  time  of  filing  the  decision  in  the  trial  court. -'^ 

In  Missouri  a  stockholder  becomes  liable  for  interest  from  the  com- 
mencement of  a  suit  to  enforce  his  liability  to  an  individual  depositor,  even 
though  such  interest  increases  his  liability  beyond  the  amount  fixed  by  the 
law.2» 

In  New  York  stockholders  were  primarily  liable  for  interest  from  the 
commencement  of  an  action  against  them  f^  but  under  Laws  1892,  c.  689, 
imposing  a  liability  on  stockholders  of  an  insolvent  bank  equal  to  the  par 
value  of  their  stock,  they  are  only  chargeable  with  interest  on  the  judgment 
fixing  the  amount  of  their  liability,  though  interest  may  enter  into  the  proc- 
ess of  ascertaining  the  same,  provided  they  are  not  made  to  pay  more  than 
the  par  value  of  their  stock;  and  they  can  not  be  charged  with  interest 
from  the  commencement  of  the  action.^^ 

§  48.  Effect   of   Transfer   of   Stock— §  48    (1)   Liability  of 

Original  Holder— §   48    (la)   In  General.— Shareholders  of  the  stock  of 

be    computed    upon    the    amounts    then  27.     Michigan. — Wedemeyer    z'.    Hin- 

due    as    against    the    shareholders    to  delang,   161    Mich.  600,   1?6   N.  W.   708. 

the    time    of    payment."      Richmond   v.  28.    Minnesota. — Palmer    v.    Bank,    72 

Irons,  121  U.  S.  27,  30  L.  Ed.  864,  7   S.  Minn.  266.  75  N.  W.  380. 

Ct.  788.  29.      Missouri. — Millisack     v.     Moore, 

When  interest  begins  to  run.— Inter-  76  Mo.  App.  528. 

est    on    claims    of    creditors    of    an    in-  30.     Gen.   Laws,   c.  37,   §   52,  provides 

solvent   bank   begins   to   run   when   the  that  the  stockholders  of  every  banking 

bank     suspends     payment.       Barnes    v.  corporation    shall    be    individually    re- 

.\rnold,  23  Misc.  Rep.  197,  51  N.  Y.  S.  sponsible   for  all   debts  of  such   corpo- 

1100.            ^  ration,  to  the  extent  of  the  amount  of 

Bank    bills. — In    an    action    brought  their   stock,   at   its   par  value,    in    addi- 

l)y  a  bill  holder  against  a  stockholder,  tion    to    the    amount  invested    in    such 

under   §   11   of  the   charter   incorporat-  shares.       Held,     that     interest     begins 

ing  the  Planter's  and  Mechanics"  Bank  to    run    on    the    amount  due  from    the 

of  Columbus,  for  the  ultimate  redemp-  stockholders    of    an    insolvent    bank    at 

tion    of    the    bills  issued    by  the    bank,  the    date    of   the   commencement   of   an 

the  stockholder  was  only  liable  to  pay  action    against    them.       Barnes   v.    Ar- 

mterest  on  the  bills  from  the  time   of  nold,    23    Misc.  Rep.    197,  51    N.  Y.    S. 

demand   of  payment  thereof,   made  by  1109. 

the  bill  holder  on  the  stockholder,  and  31.    Mahoney    v.    Bernhard,    169    N. 

not  from   the   time   of  demand   of  pay-  Y.  589,  62  N.  E.  1097,  affirming  45  App. 

ment  made  on  the  bank.     Lane  v.  Mor-  Div.  499,  63  N.  Y.  642,  which  modified 

ns,  10  Ga.  162.  07   Misc.  Rep.  339,  58  N.  Y.  S.  748. 


§  48  (Ibb) 


STOCKHOLDERS. 


195 


a  bank  generally  have  a  right  to  transfer  their  shares,  and  thus  disconnect 
themselves  from  the  corporation  and  from  any  responsibility  on  account  of 
it,-^-  but  the  fact  that  a  transfer  of  bank  stock  is  made  at  a  time  when  the 
bank  is  doing  business  and  is  able  to  pay  its  debt,  and  is  made  to  a  solvent 
person  does  not  necessarily  relieve  the  transferrer  from  charter  or  stat- 
utory liability.  Its  effect  depends  upon  the  stipulations  of  the  charter  or 
provisions  of  the  statute  in  respect  thereto.^3 

§  48  (lb)  Requisites  and  Sufficiency  of  Transfer— §  48  (Iba) 
Persons  Making  Transfer— §  48  (Ibaa)  Subscribers.— An  original 
subscriber,  who  transferred  his  stock,  before  paying  anything  thereon,  to 
which  transfer  the  bank  consented,  is  not  liable.^-* 

§  48    (Ibab)    Pledgees.— See  post,  "Pledgee,"  §  48  (2bd). 

§  48  (Ibb)  Persons  to  Whom  Transfer  Made.— A  transfer  of  bank 
stock  to  exonerate  the  shareholder  from  his  individual  statutory  liability 
must  be  to  a  transferree  who  succeeds  to  such  liability.-"-'' 

A  transfer  to  the  bank  of  its  own  stock  does  not  exonerate  the  trans- 
ferrer from  the  statutory  liability.^" 

Nonresident.— The  fact  that  the  transfer  of  bank  stock  while  the  bank 
was  insolvent  was  to  a  nonresident  does  not  affect  it,  there  being  nothing  to 
prevent  enforcing  the  liability  against  the  nonresident.^"^ 

Minor  Children.— See  post,  "Intent  to  Avoid  Liability,"  §  48  (Ibeb). 


32.  Right   to    terminate   liability   by 

transfer. — Germania  Xat.  Rank  z\  Case, 
ii'J  U.  S.  628,   25  L.   Ed.  448. 

Where  one  indebted  on  a  stock  note 
to  a  bank  transferred  the  stock  to  an- 
other, and  the  note  was  delivered  up 
by  the  cashier  of  the  bank  upon  the 
verbal  undertaking  of  the  purchaser  to 
pay  the  amount  of  the  subscription, 
and  the  Ijank  subsequently  ratified  the 
transaction,  and  the  purchaser  was 
elected  a  director,  held,  that  the  orig- 
inal stockholder  could  not  be  made 
chargeable  as  a  debtor  to  the  bank 
npon  a  liability  incurred  by  the  bank 
some  years  thereafter.  Mott  v.  Sem- 
mes,  24  Ga.  540. 

Under  Act  1852,  c.  338,  §  9,  relative 
to  the  individual  liability  of  stockhold- 
ers, the  stockholders  are  not  liable  for 
debts  contracted  Ijy  the  company  sub- 
sequent to  their  parting  with  their 
stock.  Matthews  v.  Albert,  24  Md. 
527. 

33.  Robison  v.  Beall,  Sfi  Ga.  17;  Mc- 
l^ougald  r-.   Bellamy,   18   Ga.   411. 

34.  Subscriber  who  has  not  paid  for 
stock.— Laws  1838,  c.  260,  declares  that 
every   one   becoming  a  stockholder  by 


transfer  shall  succeed  to  all  liabilities 
of  the  former  shareholder.  Laws  1849, 
c.  226,  p.  340,  provides  that  one  who 
has  transferred  stock  on  the  books  to 
a  resident,  in  good  faith,  previous  to 
any  default  in  payment  of  a  debt  of 
the  bank,  shall  not  be  liable  for  such 
debt.  Held,  that  an  original  sub- 
scriber, who  transferred,  in  good  faith, 
stock,  before  paying  anything  thereon, 
to  which  transfer  the  bank  consented, 
was  not  liable.  Cowles  z/.  Cromwell 
(N.  Y.),  25  Barb.  413. 

35.  Persons  to  whom  transfer  made. 
— In  re  Reciprocity  Bank.  22  N.  Y.  9. 
See,  also.  Harper  :-.  Carroll,  66  Minn. 
487.   69   N.   W.   610,   1069. 

36.  Transfer  to  bank.— Laws  1849, 
c.  226,  §  3,  exonerating  a  stockholder 
of  a  bank  upon  his  making  a  bona  fide 
transfer  of  his  stock  to  a  resident  of 
the  state,  is  not  satisfied  liy  a  transfer 
to  the  bank  itself,  since  the  transferee 
must  be  one  who  succeeds  to  a  per- 
sonal liability  distinct  from  and  in  ad- 
dition to  that  of  the  bank.  In  re  Re- 
ciprocity  Bank.  22   N.  Y.  9. 

37.  Nonresident. — Foster  zj.  Rroas. 
120  Mich.  1,  79  N.  W.  696,  77  Am.  St. 
Rep.  565. 


196 


BANKS    AND    BANKING. 


§  48  (Ibc) 


§  48  (Ibc)  Time  of  Transfer.— Time  of  Transfer  Prior  to  Insol- 
vency.—By  the  laws  of  many  of  the  states,  a  transferrer  of  bank  stock 
is  liable  as  a  stockholder  if  the  insolvency  of  the  bank  occur  within  some 
prescribed  time  after  the  transfer.  This  time  is  six  months  in  Wisconsin  ;38 
and  one  year  in  Alaine^"  and  Minnesota.-^^ 

In  Georgia  stockholders  who  have  actually  parted  with  their  stock  and 
transferred  it  on  the  books  of  the  bank  before  suit  was  brought  against 
the  bank  by  its  creditors  are  not  liable.  Those  who  were  stockholders  at 
the  time  suit  was  brought  against  the  bank  by  its  creditors  are  liable.*^ 

In  Massachusetts,  those  who  were  stockholders  at  the  time  payment 
was  refused  are  liable."*^ 

In  Michigan,  the  stockholders  who  are  liable  are  those  wdio  were  such 
when  the  bank  became  insolvent,  or  at  the  time  of  suspension  of  the  bank.^3 


38.  Time  of  transfer  prior  to  insol- 
vency.— Jl'isconsiii. — Gager  7'.  Paul,  111 
Wis.  ()38.  87  N.  W.  875. 

Under  Wisconsin  Laws,  chap.  71, 
Rev.  Stat.  ]858,  the  stockholders  at 
the  time  an  action  was  commenced 
were  liable.  Cleveland  v.  Bnrnham, 
55  Wis.  598,  13  N.  W.  677. 

39.  Maine. — Flynn  v.  American,  etc.. 
Trust  Co.,  104  Me.  141,  69  Atl.  771. 

40.  Minnesota. — Hunt  v.  Roosen,  87 
Minn.  68,  91  N.  W.  259;  Hunt  i:  See- 
ger,  91  Minn.  264,  98  N.  W.  91;  Harper 
V.  Carroll,  66  Minn.  487,  69  N.  W.  610. 
1069. 

Reorganization  proceedings. — Under 
Laws  1897,  c.  89,  §  4,  providing  that 
stockholders  of  an  insolvent  bank  who 
sell  their  stock  shall  be  liable  as  stock- 
holders for  one  year,  stockholders, 
notwithstanding  a  sale  of  their  stock, 
are  liable  for  one  year  beyond  the  time 
fixed  for  the  payment  of  debts  in  pro- 
ceedings under  reorganization  of  banks 
authorized  by  the  statute.  Hunt  z: 
Roosen.  87  Minn.  68,  91  N.  W.  259. 

41.  Transfer  before  suit. — Georgia. 
— The  provision  in  the  charter  of  the 
Bank  of  Americus  that  "the  individual 
property  of  the  stockholders  at  the 
time  of  suits  shall  be  liable  for  the  ul- 
timate payment  of  the  debts  of  the 
company  in  proportion  to  the  amount 
of  stock  owned  by  each  stockholder" 
renders  liable  only  the  individual 
property  of  those  who  are  stockhold- 
ers at  the  time  that  suits  are  brought 
against  the  company  by  its  creditors. 
Stockholders  who  may  have  transfer- 
red their  stock  prior  to  the  filing  of 
suits  against  the  company  are  not  in- 
dividually liable  to  the  creditors  of  the 
bank.  Wheatlev  v.  Glover,  125  Ga. 
710.  54  S.  E.  626,  overruling  Brobston 
V.   Downing,   95   Ga.   505,   22   S.   E.   277, 


and  Chatham  Bank  z'.  Brobston,  99  Ga. 
801,  27  S.  E.  790,  so  far  as  they  conflict 
with  the  foregoing  rulings. 

When  a  charter  of  a  bank  provides 
that  "the  individual  property  of  the 
stockholders  at  the  time  of  suits  shall 
l:>e  liable  for  the  ultimate  payments  of 
debts  of  the  company  in  proportion  to 
the  amount  of  stock  owned  by  each 
stockholder,"  a  stockholder  is  not  lia- 
ble who  has  actually  parted  with  his 
stock  and  has  transferred  it  upon  the 
liooks  of  the  bank  before  any  suit  is 
Iirought  against  the  bank  by  a  creditor. 
Wheatley  r.  Glover,  125  Ga.  710,  54  S. 
E.  626. 

42.  Transfer  after  payment  refused. 
— Massachusetts. — An  act  incorporat- 
ing a  banking  company  provided  that, 
if  the  corporation  should  refuse  or 
neglect  to  pay  their  bills  on  demand, 
"their  original  stockholders,  their  suc- 
cessors, assigns,  and  the  members  of 
the  corporation"  should,  in  their  pri- 
vate capacities,  be  liable  to  the  holder. 
Held,  that  such  only  of  the  original 
stockholders,  their  successors,  etc.,  as 
were  members  of  the  corporation  at 
the  time  payment  was  refused,  were 
liable.  Bond  z'.  Appleton,  8  Mass.  472, 
5  Am.  Dec.  111. 

43.  Stockholders  at  insolvency  or 
suspension.  —  Michigan.  —  Foster  v. 
Broas,  120  Mich.  1,  79  N.  W.  696,  77 
Am.   St.   Rep.  565. 

Under  Comp.  Laws,  §  6135,  provid- 
ing that  the  stockholders  of  every 
bank  shall  be  individuallj'  liable  to  an 
amount  equal  to  the  par  value  of  their 
stock,  for  the  benefit  of  the  depositors, 
the  owner  of  stock  at  the  time  of  the 
suspension  of  a  bank  is  so  liable, 
though  he  subsequently  transfers  his 
stock.  May  v.  McQuillan,  129  Mich. 
392,   89   N.  W.   45. 


§  48  (Ibeb) 


STOCKHOLDERS. 


197 


In  Ohio  the  stockholders  interested  in  the  bank  at  the  date  of  the  obHga- 
tion  or  contract  are  liable  without  respect  to  a  subsequent  transfer.  The 
liability  can  not  be  avoided  by  a  transfer  after  it  attaches.'*^ 

§  48  (Ibd)  Consideration.— Colorable  Transfers.— See  post,  "Col- 
orable Transfers,"  §  48  (Ibec). 

"Gift."— See  post,  "Gifts,"  §  48  (Ibed). 

§  48  (Ibe)  Bona  Fides  of  Transferee  and  Solvency  of  Bank— 
§  48  (Ibea)  In  General. — By  the  weight  of  authority,  the  controlling 
consideration  is  the  good  faith  of  the  stockholder  in  making  the  transfer 
and  in  believing  the  bank  to  be  solvent,  for  such  transfer  can  not  be  made 
as  against  creditors  after  the  bank  is  known  to  be  insolvent.^  ^  A  few  cases 
apparently  maintain  a  dissenting  view.-*^  Insolvency  of  a  bank  does  not 
avoid  a  transfer  of  stock,  as  an  attempt  to  escape  individual  liability,  where 
the  transferrer  is  not  shown  to  have  known  of  the  insolvency.^" 

In  New  York,  the  transfer  must  be  made  in  good  faith  and  while  the 
bank  is  solvent.^"^ 

The  mere  reduction  of  the  reserve  below  the  standard  does  not  con- 
stitute insolvency.'*'"^ 

§  48  (Ibeb)  Intent  to  Avoid  Liability. — A  transfer  by  a  stockholder 
for  the  mere  purpose  of  avoiding  his  statutory  liability  is  fraudulent  and 
void,  and  he  remains  still  liable. ^'^    The  intent  to  avoid  liability,  when  coupled 


44.  Transfer  after  date  of  note  or 
obligation.  —  Ohio.  —  Under  Act  1816, 
providing  that,  wliere  notes  are  issued 
by  any  unauthorized  banl<,  the  holder 
may  recover  against  any  person  "in- 
terested in  such  bank,  at  the  date  of 
such  note,  *  *  *  or  who  became  inter- 
ested in  such  bank  at  any  time  l^etween 
that  and  the  commencement  of  suit," 
after  the  liability  attaches  it  can  not 
be  avoided  by  a  transfer  of  interest  in 
the  bank.  Kearny  z'.  Buttles,  1  O.  St. 
363. 

45.  Solvency  of  bank  and  bona  fides 
of  transfer. — McDonald  v.  Dewey,  202 
U.  S.  "jIO,  521,  50  L.  Ed.  1128,  26  S.  Ct. 
731;  Man  v.  Boykin,  79  S.  C.  1,  60  S. 
E.  17,  128  Am.  St.  Rep.  830. 

46.  See  Whitney  v.  Butler,  118  U. 
S.  655,  30  L.  Ed.  266,  7  S.  Ct.  61,  fol- 
lowed by  Young  v.  McKay,  50  Fed. 
394. 

47.  Foster  v.  Broas,  120  Mich.  1,  79 
N.  W.  696,  77  Am.  St.   Rep.  565. 

48.  Nezu  York. — Under  Const.,  art. 
8,  §  7,  making  stockh(jlders  of  banking 
corporations  individually  rcsponsil)le 
to  the  amount  of  their  respective  shares 
for  the  debts  of  tlie  corporations,  and 
I'-anking  Law,  §§  52,  53  (Laws  1892,  p. 
1H69,  c.   689),  making  a   stockholder   of 


a  banking  corporation  liable  to  the 
amount  of  his  stock  in  addition  to  the 
amount  invested  therein,  and  declar- 
ing that  no  person,  who  has  in  good 
faith  transferred  his  stock  "on  the 
books  of  the  corporation  when  sol- 
vent" shall  be  subject  to  any  personal 
liability,  the  transfer  of  bank  stock  to 
relieve  the  transferrer  from  lial)ility  for 
the  debts  of  the  bank  must  be  made  in 
good  faith  and  while  it  is  solvent. 
Persons  v.  Gardner,  188  N.  Y.  571,  SO 
N.  E.  1118;  S.  C,  98  N.  Y.  S.  807,  113 
App.  Div.  597. 

49.  Earle  v.  Carson,  188  U.  S.  42,  44, 
47   L.   Ed.  373,  23  S.  Ct.  254. 

50.  Transfer  to  avoid  liability  void. 
— Germania  Xat.  Bank  :-.  Case,  99  U. 
S.  628,  25  L.  Ed.  448;  Rankin  v.  Fidel- 
ity Ins.,  etc.,  Co..  189  U.  S.  242,  47  L. 
Ed.  792,  23  S.  Ct.  553;  Ohio  Valley 
Nat.  Bank  v.  Hulitt,  204  U.  S.  162,  167, 
51  L.  Ed.  423;  Stuart  v.  Haydcn,  169 
U.  S.  1,  43  L.  Ed.  639,  IS  S.  Ct.  274; 
Peters  v.  Bain,  133  U.  S.  670,  33  L. 
Ed.   696,    10   S.    Ct.    354. 

If  the  real  owner  of  the  sliarcs 
transfers  them  to  another  person,  or 
causes  them  to  be  placed  on  the  books 
of  tlie  association  in  the  name  of  an- 
other   person,    with    the    intent    simply 


198 


BANKS    AND    BANKING. 


§  48  (Ibc) 


with  knowledge  or  reasonable  belief  by  transferrer  that  the  bank  is  insol- 
vent or  failing,  will  avoid  the  attempted  transfer.^^     The  intent  to  avoid 


to  evade  the  responsibility  imposed  by 
§  5151  on  shareholders  of  national 
banking  associations,  such  owner  may 
be  treated,  for  the  purposes  of  that 
section,  as  a  shareholder,  and  liable 
as  therein  prescribed.  Pauly  v.  State 
Loan,  etc.,  Co.,  165  U.  S.  606.  619,  41 
L.  Ed.  844.  17  S.  Ct.  465;  reaffirmed  in 
Harmon  v.  National  Park  Bank,  172 
U.  S.  644,  43  L.  Ed.  1182,  19  S.  Ct.  877. 

It  is  true  that  the  case  of  Matteson 
V.  Dent,  176  U.  S.  521,  44  L.  Ed.  571, 
20  S.  Ct.  419,  did  not  involve  the 
question  here  presented,  but,  in  de- 
livering the  opinion,  the  prior  cases 
of  Germania  Xat.  Bank  v.  Case,  99 
U.  S.  628,  25  L.  Ed.  448,  and  Bowden 
V.  Johnson,  107  U.  S.  251,  27  L.  Ed. 
386,  2  S.  Ct.  246,  were  cited  in  support 
of  the  proposition,  treated  as  elemen- 
tary, that  "where  a  transfer  has  been 
fraudulently  or  collusively  made  to 
avoid  an  obligation  to  pay  assess- 
iTients,  such  transfer  will  be  disre- 
garded, and  the  real  owner  be  held 
liable."  McDonald  v.  Dewey,  202  U. 
S.^510,  50  L.   Ed.  1128,  26  S.   Ct.  731. 

"That  the  transfer  of  stock  in  cor- 
porations, even  when  in  failing  cir- 
cumstances, should  not  be  unduly 
impeded,  is  essential  not  only  to  the 
prosperity  of  such  corporations  and 
the  value  of  their  stock,  but  to  the  in- 
terest of  stockholders  who  may  desire 
for  legitimate  reasons  to  change  their 
investments  or  to  raise  money  for 
debts  incurred  outside  the  business  of 
such  corporation.  Bank  v.  Lanier.  11 
Wall.  369,  377,  20  L.  Ed.  173.  At  the 
same  time  the  frequency  with  which 
such  transfers  are  made  for  the  pur- 
pose of  evading  the  double  liability 
imposed  by  the  National  Banking 
Act.  has  given  rise  to  a  large  amount 
of  litigation  turning  upon  their  le- 
gality. _  In  this  connection  certain 
propositions  have  been  laid  down  by 
so  many  courts  and  in  so  many  cases 
that  they  may  be  regarded  as  funda- 
mental principles  of  law  applicable  to 
all  cases  of  this  character."  IVIcDon- 
ald  V.  Dewey,  202  U.  S.  510,  50  L.  Ed 
1128.    26    S.    Ct.    731. 

Where  the  transferrer,  possessed  of 
information  showing  that  there  is 
good  ground  to  apprehend  the  failure 
of  the  bank,  colludes  and  combines, 
with  an  irresponsible  transferee,  with 
the  design  of  substituting  the  latter  in 
his  place,  ^nd  of  thus  leaving  no  one 
with  any  liability  to  respond  for  the 
individual    liability     imposed     by      the 


statute,  in  respect  of  the  shares  of 
stock  transferred,  the  transaction  will 
be  decreed  to  be  a  fraud  on  the  cred- 
itors, and  he  will  be  held  to  the 
same  liability  to  the  creditors  as  be- 
fore the  transfer.  He  will  be  still 
regarded  as  a  shareholder  quoad  the 
creditors,  although  he  may  be  able 
to  show  that  there  was  a  full  or  a 
partial  consideration  for  the  transfer 
as  between  him  and  the  transferee. 
Bowden  v.  Johnson,  107  U.  S.  251.  27 
L.    Ed.    386.    2    S.    Ct.    246. 

Secret  transfer  in  violation  of 
promise  to  creditor. — Where  a  gen- 
eral banking  law  of  a  state  imposed 
upon  the  stockholders  of  banks  which 
should  be  organized  under  it  indi- 
vidual liability  to  double  the  amount 
of  their  stock  while  they  continued 
stockholders  and  one  year  thereafter, 
and  a  creditor  of  the  bank  made  de- 
mand of  a  stockholder  for  the  pay- 
ment of  his  debt,  the  bank  being  in- 
solvent, and  the  stockholder  requested 
delay,  promising  not  to  transfer  his 
stock,  but  did  secretly  and  fraudu- 
lently transfer  it,  it  was  held,  in  a 
suit  brought  more  than  one  year  after 
such  transfer,  that  it  was  inoperative 
as  to  such  creditor.  Paine  v.  Stewart, 
33    Conn.    516. 

51.  Intent  a  material  point. — Stuart 
v.  Hayden.  169  U.  S.  1.  42  L.  Ed.  639, 
1204,  18  S.  Ct.  274;  McDonald  v. 
Dewey.  202  U.  S.  510.  50  L.  Ed. 
1128.  26  S.  Ct.  731;  Bowden  v.  John- 
son. 107  U.  S.  251,  27  L.  Ed.  386,  2  S. 
Ct.   246. 

One  who  holds  national  bank  shares 
— the  bank  being  at  the  time  insolvent 
-ycan  not  escape  the  individual  lia- 
bility imposed  by  the  statute  by 
transferring  his  stock  with  intent 
simply  to  avoid  that  liability,  knowing 
or  having  reason  to  believe,  at  the 
time  of  the  transfer  on  the  books  of 
the  bank.  Richmond  v.  Irons.  121  U. 
S.  27._  58.  30  L.  Ed.  864,  7  S.  Ct.  788, 
that  it  is  insolvent  or  about  to  fail. 
Stuart  r.  Hayden,  169  U.  S.  1.  8.  42 
L.    Ed.    639.    1204.    18    S.    Ct.    274. 

"Cases  are  also  to  be  found  in  the 
books  where  transfers,  made  by 
shareholders  in  anticipation  of  a 
bank's  insolvency,  to  irresponsible 
persons,  have  been  held  to  be  a  fraud 
on  the  statute  (§  5139.  Rev.  Stat.,  U. 
S.),  and  inefficacious  to  relieve  the 
original  holder  from  liability.  Bow- 
den V.  Johnson,  107  U.  S.  251.  27  L. 
Ed.    386.    2    S.    Ct.    246;    Richmond    v. 


§  -+8  (Ibc) 


STOCKHOLDERS. 


199 


liability  may  be  gathered  from  declarations,  or  facts  and  circumstances,^^ 
but  mere  insolvency  of  the  vendee,  while  doubtless  evidence  of  fraudulent 


Irons.  121  U.  S.  27,  30  L.  Ed.  864,  7  S. 
Ct.  788;  Pauly  v.  State  Loan,  etc  ,  Co., 
165  U.  S.  606,  619,  41  L.  Ed.  844,  17 
S.  Ct.  465;  Matteson  z:  Dent,  176  U. 
S.  521,  44  L.  Ed.  571,  20  S.  Ct.  419." 
Robinson  z'.  Southern  Nat.  Bank,  180 
U.   S.  295,  45  L.   Ed.  536,  21   S.   Ct.  383. 

If  a  registered  owner,  acting  in  bad 
faith,  transfers  his  stock  in  a  failing 
lank  to'  an  irresponsible  person,  for 
the  purpose  of  escaping  liability,  or 
if  his  transfer  is  colorable  only,  the 
transaction  is  void  as  to  creditors. 
Citing  Germania  Nat.  Bank  v.  Case, 
99  U.  S.  628,  25  L.  Ed.  448;  Bowden 
r.  Johnson.  107  U.  S.  251.  27  L.  Ed. 
386,  2  S.  Ct.  246.  It  was  further  said 
to  be  bej^ond  question  that  the  bene- 
ficial owner  of  stock  registered  in  the 
name  of  an  irresponsible  person  may, 
under  some  circumstances,  be  liable 
to  creditors  as  the  real  shareholder. 
Pauly  V.  State  Loan,  etc.,  Co.,  165  U. 
S.  606,  41  L.  Ed.  844,  17  S.  Ct.  465, 
reaffirmed  in  Harmon  v.  National  Park 
Bank,  172  U.  S.  644,  43  L.  Ed.  1182,  19 
S.  Ct.  877;  Anderson  z\  Philadelphia 
Warehouse  Co.,  Ill  U.  S.  479.  483,  28 
L.   Ed.   478,  4   S.   Ct.   525. 

It  is  proper  deduction  from  the 
prior  cases,  and  as  such  held  to  be  the 
law,  that  the  gist  of  the  liability  is  the 
fraud  implied  in  selling,  with  notice 
of  the  insolvency  of  the  bank  and  with 
intent  to  evade  the  double  liability 
imposed  upon  the  stockholder  by  the 
National  Banking  Act.  In  short,  the 
question  of  liability  is  largely  de- 
terminable by  the  presence  or  absence 
of  an  intent  to  evade  liability.  Mc- 
Donald z:  Dewey,  202  U.  S.  510,  50 
L.   Ed.   1128,  26   S.   Ct.  731. 

The  contention  that  if  the  transfer 
was  absolute  and  to  persons  who 
were  at  the  time  solvent  and  able  to 
respond  to  an  assessment  upon  the 
shares,  the  motive  with  which  the 
transfer  was  made  is  of  no  conse- 
quence seems  to  find  some  support  in 
the  general  language  used  in  a  few 
cases,  but  it  will  be  found  upon  ex- 
amination that  those  cases  were  dealt 
with  upon  the  basis  that  the  facts 
tlicrcin  showed  not  only  an  intent 
upon  the  part  of  the  shareholder  to 
escape  liability  by  transferring  his 
stock,  but  that  the  transfer  was  either 
colorable  or  to  a  person  who  was 
financially  irresponsible  at  the  time 
of  such  transfer.  There  is  no  case 
in    wliich   this   court  has  held   that  the 


intent  with  which  the  shareholder  got 
rid  of  his  stock  was  of  no  conse- 
quence; certainly,  no  case  in  which  the 
intent  was  held  to  be  immaterial,  when 
coupled  with  knowledge  or  reason- 
able belief  upon  the  part  of  the  trans- 
ferrer that  the  bank  was  insolvent  or 
in  a  failing  condition.  Stuart  v.  Hay- 
den,  169  U.  S.  1,  7,  42  L.  Ed.  639,  1204, 
18  S.  Ct.  274.  And  see  McDonald  v. 
Dewey,  202  U.  S.  510,  50  L.  Ed.  1128, 
26  S.  Ct.  731,  and  quoting  this  para- 
graph at  p.  523. 

A  stockholder  of  a  national  bank, 
who  was  also  an  officer  thereof,  sold 
some  of  his  stock  through  one  who 
acted  merely  as  agent  but  held  it  for 
vendor  in  his  name,  at  a  time  when 
the  bank  was  insolvent  in  realitj',  as 
was  known,  or  should  have  been 
known,  to  the  vendor,  and  the  bank 
suspended  two  years  afterwards,  v/ith 
this  stock  standing  on  the  books  in 
the  name  of  the  irresponsible  agent. 
It  was  held,  in  a  suit  by  the  receiver 
of  the  bank  to  enforce  against  the 
transferrer  his  statutory  liability  to  an 
assessment,  that  he  was  liable  for  his 
full  assessment  on  such  shares.  Mc- 
Donald V.  Dewey,  202  U.  S.  510,  50 
L.    Ed.    1128,    26    S.    Ct.    731. 

Transfer  to  minor  children. — A 
transfer  of  his  stock  by  a  stockliolder 
in  a  national  bank  made  to  his  minor 
children,  when,  though  perhaps  not 
supposing  the  bank  to  be  actually  in- 
solvent, he  had  reason  to  suspect  its 
soundness,  and  with  the  intent  that, 
il  all  came  out  well,  the  children 
should  have  the  stock,  and,  if  the 
bank  failed,  he  would  not  have  to  pay, 
can  not  stand  against  the  creditors  of 
the  bank.  Foster  v.  Lincoln,  24  C.  C. 
A.  470,  79  Fed.  170. 

52.  Evidence  of  intent. — The  intent 
with  which  the  act  was  done  may  be 
proved  by  the  declarations  of  the  party 
concerned,  or  by  facts  and  circum- 
stances from  which  the  existence  of 
tlie  intent  may  be  reasonably  inferred. 
Stuart  r.  Haydcn,  169  U.  S.  1,  -12  L. 
Ed.  639,  1204,  IS  S.  Ct.  274. 

The  sale  and  transfer  of  national 
l)ank  stock  upon  the  very  day  wlien 
the  insolvency  of  the  bank  occurred, 
must  be  presumed  to  lirive  bet'ii  in 
contemplation  thereof  and  frau(hiloiU 
in  law  as  to  creditors,  and  the  stock- 
holder's liability  is  unaflfectcd  thereby. 
Richmond  z\  Irons,  121  U.  S.  27,  58, 
30   L.   Ed.   864,  7    S.   Ct.   788. 


200 


BANKS    AND     BANKING. 


§  48  (Ibc) 


intent,  is  not  sufficient  to  avoid  a  transfer  without  notice  of  the  bank's  in- 
solvency.-^-^  The  vendee's  insolvency  must  be  known  to  the  vendor. ^^  But 
even  if  such  is  the  intent,  if  the  transfer  is  to  a  person  of  proven  financial 
responsibility,  it  is  effectual  to  terminate  liability,  though  alleging  or  prov- 
ing the  negative  is  not  a  part  of  the  creditor's  or  receiver's  case,  and  he 
may  proceed  against  the  transferrer  without  regard  thereto.  It  is  purely 
matter  of  defense  and  must  be  proved  affirmatively  r'*^  at  least  if  vendee 


53.  Insolvency  of  bank  and  knowl- 
edge thereof. — The  fact  that  the  sale 
was  made  to  an  insolvent  buyer  is 
doubtless  additional  evidence  of  the 
original  fraudulent  intent,  but  would 
not  be  in  itself  sufficient  to  constitute 
fraud  without  notice  of  the  insolvency 
of  the  bank.  The  stockholder  is  not 
deprived  of  his  right  to  sell  his  stock 
by  the  fact  that  the  sale  is  made  to  an 
insolvent  person,  unless  it  be  made 
with  knowledge  of  the  insolvency  of 
the  bank.  This  was  practically  the 
ruling  in  Earle  v.  Carson,  188  U.  S. 
42,  47  L.  Ed.  373,  23  S.  Ct.  254,  in 
which  it  was  held  that  a  bona  fide 
sale  would  not  be  void,  though  the 
vendee  were  insolvent,  if  the  fact  of 
such  insolvency  were  at  the  time  un- 
known to  the  seller.  jMcDonald  v. 
Dewey,  202  U.  S.  510,  50  L.  Ed.  1128, 
26   S.   Ct.   731. 

Although  the  exercise  of  the  power 
to  transfer  stock  in  a  national  bank  is 
controlled  by  the  rules  of  good  faith 
applicable  to  other  contracts,  the 
qualification  just  stated  gives  no  sup- 
port to  the  proposition  that  where  a 
sale  of  stock  in  a  national  bank  is 
made  in  good  faith,  nevertheless  the 
consequences  of  the  sale  are  avoided 
if  subsequently  it  developed  that  the 
bank  was  insolvent  at  the  time  of  the 
transfer,  in  the  sense  that  its  assets 
were  then  unequal  to  the  discharge  of 
its  liabilities,  when  such  fact  was  un- 
known to  the  seller  of  the  stock  at 
the  time  of  the  sale.  Earle  v.  Carson, 
188  U.  S.  42,  49.  47  L.  Ed.  373,  23  S. 
Ct.  254.  See  quc-ere  in  Stuart  v.  Hay- 
den.  169  U.  S.  1,  42  L.  Ed.  639,  1204, 
18    S.    Ct.   274. 

54.  Vendee's  insolvency  unknown  to 
vendor. — Wliere  the  person  to  whom 
the  stock  was  sold  in  the  case  in 
question  was  in  fact  insolvent,  and 
hence  unable  to  respond  to  the  double 
liability,  the  sale  was  not  void,  if  the 
.fact  of  such  insolvency  of  the  buyer 
was  unknown  to  the  seller.  Earle  v 
Carson,  188  U.  S.  42.  47  L.  Ed.  373  '>3 
S.   Ct.  254. 

55.  Transfer  to  responsible  person. 
— McDonald  v.   Dewey.   202   U.   S.   510, 


526,  50  L.  Ed.  1128.  26  S.  Ct.  731,  dis- 
tinguishing and  approving  Pauly  v. 
State  Loan,  etc.,  Co..  165  U.  S.  606, 
41  L.  Ed.  844.  17  S.  Ct.  465;  Stuart  v. 
Hayden,  169  U.  S.  1,  42  L.  Ed.  639, 
1204,  18  S.  Ct.  274;  Matteson  v.  Dent, 
176  U.  S.  521,  44  L.  Ed.  571,  20  S.  Ct. 
419;  Earle  v.  Carson,  188  U.  S.  42,  47 
L.    Ed.   373,  23    S.   Ct.   254. 

Bad  faith  may  be  shown  by  the  fact 
that  the  bank  was  known  to  vendor 
to  be  insolvent;  but  notwithstanding 
this  the  transfer  would  be  valid  if 
made  to  a  person  of  known  financial 
responsibility,  since  the  creditors 
could  not  sufifer  by  the  substitution  of 
one  solvent  stockholder  in  place  of 
another.  McDonald  v.  Dewey,  202  U. 
S.   510,  50  L.   Ed.   1128.  26  S.   Ct.  731. 

The  solvency  of  the  vendee  is  perti- 
nent in  showing  that  no  damage  could 
have  resulted  to  the  creditors  of  the 
bank  by  the  transfer.  Though  not  a 
necessary  part  of  the  plaintiff's  case, 
it  may  be  a  complete  defense,  if  it  be 
shown  that  the  sale,  however  fraudu- 
lent, was  made  to  a  vendee  who  was 
as  able  to  respond  to  the  double  lia- 
bility as  was  the  vendor,  but,  on  the 
proposition  that  the  vendors  are  not 
responsible  because  the  sales  were 
made  to  solvent  vendees,  being  defen- 
sive in  its  character,  the  burden  of 
proof  was  upon  them.  McDonald  v. 
Dewey.  202  U.  S.  510,  50  L.  Ed.  1128, 
26   S.    Ct.    731. 

The  fraud  was  consummated  by  the 
sale  of  the  stock  of  a  bank  known  to 
be  insolvent,  with  intent  to  evade  lia- 
bility, and  the  fraud  is  not  less  though 
the  transferees  happened  to  be  sol- 
vent, but  their  solvency  may  be  proved 
to  rebut  the  presumption  that  injury 
resulted  to  *:he  creditors  from  the 
transfers.  [McDonald  v.  Dewey,  202 
U.  S.  510,  527,  50  L.  Ed.  1128,  26  S.  Ct. 
731.  vSee,  however.  Stuart  v.  Haj^den, 
169  U.  S.  1,  9,  42  L.  Ed.  639,  1204,  18 
S.  Ct.  274,  where  it  was  said:  "Tf  the 
bank  be  solvent  at  the  time  of  the 
transfer,  that  is.  able  to  meet  its  ex- 
isting contracts,  debts  and  engage- 
ments, the  motive  with  which  the 
transfer   is   made   is,    of   course,    imma- 


§    48    (Ibc)  STOCKHOLDERS.  201 

is  responsible  to  an  amount  sufficient  to  prevent  injury  to  creditors. =** 


terial.  But  if  the  bank  be  insolvent, 
the  receiver  may,  at  least,  without  su- 
ing the  transferee  and  litigating  the 
question  of  his  liability,  look  to  those 
shareholders  who,  knowing  or  having 
reason  to  know,  at  the  time,  that  the 
bank  was  insolvent,  got  rid  of  their 
stock  in  order  to  escape  the  in- 
dividual liability  to  which  the  statute 
subjected    them.'' 

And  "A  transfer  with  such  intent 
and  under  such  circumstances,  is  a 
fraud  upon  the  creditors  of  the  bank, 
and  may  be  treated  by  the  receiver  as 
inoperative  between  the  transferrer 
and  himself  and  the  former  held  liable 
as  a  shareholder  without  reference  to 
the  financial  condition  of  the  trans- 
feree." Stuart  V.  Hayden,  169  U.  S. 
1,  8,  42  L.  Ed.  639,  1204,  18  S.  Ct.  274. 
And  "The  right  of  creditors  of  a  na- 
tional bank  to  look  to  the  individual 
liability  of  shareholders,  to  the  extent 
indicated  by  the  statute,  for  its  con- 
tracts, debts  and  engagements,  at- 
taches when  the  bank  becomes  in- 
solvent, and  the  shareholder  can  not, 
by  transferrmg  his  stock,  require 
creditors  to  surrender  this  security  as 
to  him,  and  compel  the  receiver  ana 
creditors  to  look  to  the  person  to 
whom  his  stock  has  been  transferred." 
Stuart  V.  Hayden,  169  U.  S.  1,  42  L. 
Ed.    639,    1204,    18   S.    Ct.   274. 

It  was  there  held  that  where  the  evi- 
dence shows  that  a  stockholder  in  a 
national  bank,  with  knowledge  of  the 
insolvency  of  the  bank,  or  at  all  events 
with  such  knowledge  ot  facts  as  rea- 
sonably justified  the  belief  that  in- 
solvency existed  or  was  impending, 
sold  and  transferred  his  stock  with 
the  intent  to  escape  the  individual  lia- 
bility which  the  statute  imposed  upon 
shareholders  of  national  banks  for 
their  contracts,  debts  and  engage- 
ments, and  the  bank  having  been,  in 
fact,  insolvent  at  the  time  of  the  trans- 
fer of  his  stock — which  fact  is  not 
disputed — he  remained,  notwithstand- 
ing such  transfer,  and  as  between  the 
receiver  and  himself,  a  shareholder, 
subject  to  the  individual  lial)ility  im- 
posed by  §  0151.  Stuart  v.  Hayden, 
109  U.  S.  l',  42  L.  Ed.  639,  1204,  18  S. 
Ct.   274. 

It,  commenting  on  Stuart  v.  Hay- 
den, 169  U.  S.  1,  42  L.  Ed.  639,  1204, 
18  S.  Ct.  274,  Brown,  J.,  speaking  for 
the  majority  of  the  court,  said:  "No 
stress  was  laid  upon  their  (the  trans- 
ferees")   financial    condition,     but      the 


case  was  disposed  of  as  one  of  bad 
faith  *  *  *  in  transferring  the  shares 
at  a  time  when  he  knew  the  bank  to 
be  insolvent.  There  is  certainly  noth- 
ing in  this  case  to  justify  the  inference 
that  the  receiver  was  bound  in  making 
out  his  case  to  establish  the  fact  that 
the  transferee  was  insolvent,  and  was 
known  to  the  stockholder  to  be  so 
when  he  transferred  his  stock."  Mc- 
Donald V.  Dewey,  202  U.  S.  510,  50 
L.    Ed.   1128,  26   S.   Ct.   731. 

Thus  the  cases  are  reconcilable,  as 
is  apparent  from  the  approval,  in  Mc- 
Donald V.  Dewey,  202  U.  S.  510,  50 
L.  Ed.  1128.  26  S.  Ct.  731,  of  Stuart  v. 
Hayden,  169  U.  S.  1,  42  L.  Ed.  639, 
1204,  18  S.  Ct.  274.  The  earlier  case 
simply  held  that  the  receiver  could 
proceed  against  the  transferrer  with- 
out regard  to  the  financial  respon- 
sibility of  transferee,  so  far  as  mak- 
ing out  his  case  is  concerned,  and  this 
is  expressly  approved  in  McDonald  v. 
Dewey.  The  insolvency  of  the  trans- 
feree was  really  not  a  point  in  the 
case,  being  merely  alleged  by  defend- 
ant, and  the  question  whether  it  would 
have  been  a  defense  if  proved  was  not 
touched.  The  claim  that  tlie  receiver 
had  to  negative  the  solvency  of  trans- 
feree, on  the  ground  that  the  motive 
would  then  be  immaterial,  was  refuted, 
and  this  was  approved  by  the  later 
case.  In  McDonald  v.  Dewey,  not 
only  was  the  claim  made  that  the 
transferee  was  solvent,  but  evidence 
thereof  was  introduced.  The  court 
held,  following  Stuart  v.  Hayden.  that 
the  receiver  did  not  have  to  establish 
insolvency  of  transferee  in  order  to 
make  out  his  case,  but  held,  as  well, 
that  such  insolvency  would  be  a  de- 
fense to  defendant  if  established  by 
him  (in  which  case,  presumably,  the 
receiver  would  be  turned  over  to  an- 
other suit  against  the  transferee  for 
his  remedv).  McDonald  v.  Dewey, 
202  U.  S.'SIO,  50  L.  Ed.  1128,  26  S. 
Ct.    731. 

56.  Degree  of  responsibility. — As  to 
wliether  tlie  transferees  were  finan- 
cially responsil)le  to  the  amount  of 
the  assessment,  it  is  not  necessary  to 
show  that  they  were  persons  of  re- 
sponsibility equal  to  tliat  of  the  origi- 
nal stockholder.  It  is  sufficient  that 
they  were  responsible  to  tlie  amount 
called  for  by  the  necessities  of  the 
case — in  other  words,  in  an  amount 
sufficient  to  indicate  that  the  creditors 
of  the  l>ank  were  not  dainnificd  by  the 
change    of    ownership.      McDonald    v. 


202 


BANKS    AND    BANKING. 


§  48  (Ibec) 


§  48  (Ibec)  Colorable  Transfers. — A  merely  colorable  transfer  on 
the  books  of  the  bank,  without  a  real  transfer  of  the  ownership  as  between 
the  parties  being  intended,  is  ineffectual  liability,^"  regardless  of  whether 
there  was  a  full  or  partial  consideration  for  such  transfer  or  not.^* 


Dewey,  202  U.  S.  510,  50  L.  Ed.  1128, 
26  S.  Ct.  731. 

This  burden  of  proof  is  not  sustained 
where  there  is  no  satisfactorj'  evi- 
dence that  a  decree  against  any  one 
of  the  vendees  for  the  amount  of  his 
assessment  could  have  been  collected 
by  ordinary  process  of  law.  McDon- 
ald V.  Dewey,  202  U.  S.  510,  50  L.  Ed. 
1128,    2G    S.    Ct.    731. 

57,  Colorable  transfer. — McDonald 
V.  Dewey,  202  U.  S.  510,  50  L.  Ed.  1128, 
26  S.  Ct.  731;  Anderson  v.  Philadelphia 
Warehouse  Co.,  Ill  U.  S.  479,  483,  28 
L.  Ed.  478,  4  S.  Ct.  525;  Rankin  v. 
Fidelity  Ins.,  etc.,  Co.,  189  U.  S.  242, 
47  L.  Ed.  792.  23  S.  Ct.  553;  Ohio  Val- 
ley Xat.  Bank  v.  Hulitt,  204  U.  S.  162, 
51  L.  Ed.  423;  Germania  Nat.  Bank  v. 
Case,  99  U.  S.  628,  25  L.  Ed.  448; 
Bowden  v.  Johnson,  107  U.  S.  251,  27 
L.  Ed.  386,  2  S.  Ct.  246;  Pauly  v.  State 
Loan,  etc.,  Co.,  165  U.  S.  606,  41  L. 
Ed.  844,  17  S.  Ct.  465.  reaffirmed  in 
Harmon  v.  National  Park  Bank,  172 
U   S.  644,  43   L.  Ed.  1182,  19  S.   Ct.  877. 

"It  was  held  by  this  court  in  Ger- 
mania Nat.  Bank  v.  Case,  99  U.  S. 
628,  25  L.  Ed.  448,  that  a  transfer  on 
the  books  of  the  bank  is  not  in  all 
cases  enough  to  extinguish  liability. 
The  court,  in  that  case,  defined  as 
one  limit  of  the  right  to  transfer,  that 
the  transfer  must  be  out  and  out,  or 
one  really  transferring  the  ownership 
as  between  the  parties  to  it.  But  there 
is  nothing  in  the  statute  excluding,  as 
another  limit,  that  the  transfer  must 
not  be  to  a  person  known  to  be  irre- 
sponsible, and  coUusively  made,  with 
the  intent  of  escaping  liability,  and 
defeating  the  rights  given  by  statute 
to  creditors."  Bowden  v.  Jolmson, 
107  U.  S.  251,  27  L.  Ed.  386,  2  S.  Ct. 
246. 

The  transferee  might  be  liable  as  a 
shareholder  succeeding  to  the  lia- 
bilities, because  he  has  voluntarily  as- 
sumed that  position;  but  that  is  no  rea- 
son why  transferrer  should  not,  at  the 
election  of  creditors,  still  be  treated 
as  a  shareholder,  he  having,  to  es- 
cape liability,  perpetrated  a  fraud  on 
the  statute.  Bowden  v.  Johnson,  107 
U.    S.   251,    27    L.    Ed.   386.   2    S.    Ct.   246. 

"Under  the  English  law  a  share- 
holder may  transfer  his  shares  to  an 
irresponsible  party  for  a  nominal  con- 
sideration, though  the  sole  purpose  of 


the  transfer  be  to  escape  liability,  pro- 
vided the  transfer  be  out  and  out,  and 
not  merely  colorable  or  collusive,  with 
a  secret  trust  attached.  Under  such 
circumstances  the  person  making  the 
transfer  is  released  from  liability,  both 
as  to  corporate  creditors  and  the  other 
shareholders.  Cook  on  Stockholders, 
§  266;  2  Morawetz  on  Private  Cor- 
porations, §  859."  McDonald  v. 
Dewey,  202  U.  S.  510,  50  L.  Ed.  1128, 
26  S.  Ct.  731. 

"The  law  is  quite  different  in  this 
country.  At  the  same  time  the  origi- 
nal stockholder  can  not  be  held  liable, 
unless  the  bank  were  practically  in- 
solvent at  the  time  the  transfer  was 
made,  and  its  condition  was  known  or 
ought  to  have  been  known  to  the 
stockholder  making  the  transfer.  If 
the  bank  were  in  fact  solvent  and  able 
to  pay  its  debts  as  they  matured 
when  the  transfer  was  made,  the 
creditors  having  ample  security  in  the 
solvency  of  the  bank,  have  no  special 
interest  in  knowing  who  the  stock- 
holders are,  since  their  only  recourse 
to  them  would  be  in  the  remote  con- 
tingency of  the  insolvency  of  the 
bank.  The  transferrer  can  only  be 
held  liable  if  the  bank  be  insolvent, 
and  such  insolvency  be  known,  or 
ought  to  have  been  known,  to  him 
from  his  relations  to  the  bank,  since 
the  transfer  is  prima  facie  valid,  and 
shifts  to  the  transferee  the  burden  of 
the  responsibility,  which  can  be  laid 
upon  the  original  stockholder  only  in 
case  of  bad  faith,  or  evidence  of  a  pur- 
pose to  evade  liability."  McDonald  v. 
Dewe3^  202  U.  S.  510,  50  L.  Ed.  1128, 
26    S.    Ct.   731. 

The  real  owner  of  national  bank 
shares  can  not  avoid  liability  by  list- 
ing them  in  the  name  of  another. 
Rankin  •;•.  Fidelitv  Ins.,  etc.,  Co.,  189 
U.    S.  242,   47   L.   Ed.   792,   23    S.   Ct.   553. 

58.  Consideration  immaterial. — "The 
same  result  follows  if  the  stockholder, 
knowing,  or  having  good  reason  to 
know,  the  insolvency  of  the  bank,  col- 
ludes with  an  irresponsible  person 
with  design  to  substitute  the  latter  in 
his  place,  and  thus  escape  individual 
liability,  and  transfers  his  stock  to 
such  person.  It  is  immaterial  in  such 
case  that  he  may  be  able  to  show  a 
full  or  partial  consideration  for  the 
transfer    as    between    himself    and    the 


§  48   (Ibf) 


STOCKHOLDERS. 


203 


§  48  (Ibed)  Gifts. — A  bona  fide  transfer  by  gift  of  bank  stock  before 
insolvency   will   relieve  the  transferrer  of  his  statutory  liability  thereon. ^'^ 

§  48    (Ibee)   Transfer   of   Pledged   or  Hypothecated   Stock. — In 

case  of  pledge  of  stock  and  transfer  to  an  irresponsible  person  at  request  of 
pledgee,  the  fonner  owners  still  remained  the  owners  of  the  stock,  though 
registered  in  the  name  of  others,  and  pledged  as  collateral  security  for  their 
debt.  They  consented  to  the  transfer,  not  to  escape  liability  as  sharehold- 
ers, but  to  save  the  pledgee  from  a  liability  he  was  unwilling  to  assume,  and 
at  the  same  time  to  perfect  the  security  required  for  the  credit  to  be  given.*"' 

§  48  (Ibf)  Entry  on  Stock  Book.— The  transfer  of  bank  stock  not 
regularly  entered  on  the  stock  books  is  ineffectual  to  cut  off  the  individual 
liability  of  the  stockholder  ;*'i    unless  the  transferrer  has  done  all  that  can  be 


transferee.  Bowden  v.  Johnson,  107 
U.  S.  251,  27  L.  Ed.  386,  2  S.  Ct.  246." 
McDonald  v.  Dewey.  202  U.  S.  510,  50 
L.    Ed.   1128,   26   S.   Ct.   731. 

59.  Gift.— Foster  v.  Broas,  120 
]\Iich.  1,  79  N.  W.  696,  77  Am.  St.  Rep. 
565. 

60.  Pledged  stock. — Anderson  v. 
Philadelphia  Warehouse  Co.,  Ill  U. 
S.  479,  28  L.  Ed.  478,  4  S.  Ct.  525.  See 
post,    "Pledgee,"    §    48    (2hd). 

61.  Transfer  on  registry  books 
essential. — As  a  general  rule,  the  legal 
owner  of  stock  of  a  bank — that  is,  the 
one  in  whose  name  stock  stands  on 
the  books  of  the  association — remains 
liable  for  an  assessment  so  long  as 
the  stock  is  allowed  to  stand  in  his 
I'.ame  on  the  books,  and,  although  the 
registered  owner  may  have  made  a 
transfer  to  another  person,  unless  it 
has  been  accompanied  by  a  transfer 
on  the  books  of  registry  of  the  asso- 
ciation, such  registered  owner  re- 
mains liable.  Matteson  z\  Dent,  176 
U.  S.  521,  44  L.  Ed.  571,  20  S.  Ct.  419; 
Upton  V.  Tribilcock,  91  U.  S.  45,  23 
L.  Ed.  203;  Sanger  v.  Upton,  91  U. 
S.  56,  23  L.  Ed.  220;  Webster  z:  Up- 
ton, 91  U.  S.  65,  23  L.  Ed.  384;  Pull- 
man V.  Upton,  96  U.  S.  .'528,  24  L.  Ed. 
818;  Anderson  v.  Philadelphia  Ware- 
house Co.,  Ill  U.  S.  479,  28  L.  Ed.  478, 
4  S.  Ct.  525;  Richmond  7'.  Irons.  121 
U.  S.  27,  58,  30  L.  Ed.  864,  7  S.  Ct. 
788. 

Where  the  stockholder  died  l)efore 
insolvency  of  the  bank  and  his  estate 
was  distributed  under  the  state  law, 
but  no  notice  thereof  conveyed  to  the 
Itank,  or  any  transfer  made  on  its 
liooks,  and  suit  was  brouglit  by  the 
receiver  under  the  state  statute  against 
tlie  distriljutees  to  recover  an  assess- 
ment on  the  stock,  held  that  as  in  this 


case  the  stock  remained  on  the  books 
in  the  name  of  the  deceased  owner, 
continued  as  a  liability  of  the  estate 
and  was  never  transferred  under  the 
allotment,  it  follows  that  the  allottees 
have  no  right  to  complain  because  the 
receiver  has  availed  himself  of  the 
provisions  of  the  state  statute.  The 
estate  remained  liable,  and  the  as- 
sessment could  be  recovered  from  the 
distributees  served  in  the  suit  to  the 
extent  that  they  had  received  the  es- 
tate. Matteson  v.  Dent,  176  U.  S.  521, 
44    L.    Ed.    571,    20    S.    Ct.    419. 

Where  the  issue  is  between  the  re- 
ceiver, representing  the  creditors,  and 
the  person  standing  on  the  register 
of  the  bank  as  a  shareholder,  it  is 
said,  generally,  that  the  creditors  of 
a  national  l)ank  are  entitled  to  know 
who,  as  shareholders,  have  pledged 
their  individual  lial^ility  as  security  for 
its  debts,  engagements,  and  contracts; 
that  if  a  person  permits  his  name  to 
appear  and  remain  in  its  outstanding 
certificates  of  stock,  and  on  its  reg- 
ister, as  a  shareholder,  he  is  estopped, 
as  I)ctvvecn  himself  and  the  creditors 
of  the  l)ank,  to  deny  that  he  is  a 
shareholder;  and  that  his  individual 
lialjility  continues  until  there  is  a 
transfer  of  the  stock  on  the  l)ooks  of 
the  1)ank,  even  where  he  has  in  good 
faith  previously  sold  it  and  delivered 
to  the  buyer  the  certificate  of  stock, 
with  a  power  of  attorney  in  such 
form  as  to  enal)le  the  transfer  to  he 
made.  Whitney  t.  Butler,  lis  U.  S. 
655.    30    L.    Ed.    266,    7    S.    Ct.    61. 

Sotith  Carolina. — Under  I  Cm(K'  of 
Laws  1902,  §  1894,  providing  llial  ni> 
transfer  of  stock  shall  be  valid,  ex- 
cept as  between  tlie  parties,  uiUil  the 
same  shall  have  been  regularly  entered 
on  the  corporate  books,  where  a  trans- 


204 


BANKS    AND   EANKIXG. 


48   (Ibf) 


required  of  him  to  obtain  a  transfer  on  the  books,  the  failure  to  make  it 
being  due  to  neglect  of  the  officials  of  the  bank.*^-     It  is  not  enough  to  rely 


fer  of  bank  stock  is  not  so  regularly 
entered  the  transferrer  is  liable  to  the 
creditors  of  the  bank.  Alan  v.  Boykin, 
79  S.  C.  1,  60  S.  E.  17,  128  Am.  St. 
Rep.   830. 

Where  stockholders  of  a  bank,  in 
good  faith,  for  value  received,  trans- 
ferred the  stock  to  the  cashier,,  with 
instructions  to  enter  the  transfer  on 
the  books  of  the  bank,  but  the  cashier 
failed  so  to  do,  the  attempted  trans- 
fer was  insufficient,  under  Code  of 
Laws  1902,  §  1894,  providing  that  no 
transfer  shall  be  valid,  except  as  be- 
tween the  parties,  until  regularly  en- 
tered on  the  books  of  the  corpora- 
tion, and  the  holders  of  the  stock  are 
liable  to  rhe  creditors  of  the  bank  on 
its  insolvency  for  the  amount  of  the 
stock  originally  held  by  them.  White 
V.  Commercial,  etc.,  Bank,  66  S.  C. 
491,  45  S.  E.  94,  97  Am.  St.   Rep.  803. 

Registry  of  transfer  to  bank  after 
assignment  for  benefit  of  creditors. — 
A  transfer  of  stock  was  not  registered 
on  the  books  of  the  bank  until  after 
the  bank  had  failed  and  made  an  as- 
signment, and  it  was  then  registered 
as  a  transfer  from  the  stockholder  to 
the  bank.  Held,  that  it  was  error  to 
hold  the  assignor  liable  only  as  a 
transferrer  on  the  indebtedness  exist- 
ing at  the  time  of  the  transfer.  He 
should  have  been  held  liable  as  a 
stockholder.  Harper  v.  Carroll,  66 
Minn.    487,    69    N.    W.    610,    1069. 

62.  Diligence  to  obtain  transfer. — 
Matteson  z:  Dent.  176  U.  S.  521,  44  L. 
Ed.  571,  20  S.  Ct.  419;  Briggs  v. 
Spaulding,  141  U.  S.  132,  35  L.  Ed. 
662,  11  S.  Ct.  924;  Whitney  v.  Butler, 
118  U.  S.  655,  30  L.  Ed.  266,  7  S.  Ct. 
61;  McDonald  v.  Dewey,  202  U  S 
510,    50    L.    Ed.    1128,    26    S.    Ct.   731. 

The  presumption  of  liability  begot- 
ten by  the  presence  of  the  name  on 
the  stock  register  would  be  rebutted 
if  the  jury  found  the  fact  to  be  that  a 
bona  fide  sale  of  the  stock  had  been 
made  and  that  the  transferrer  had  per- 
formed every  duty  which  the  law  im- 
posed on  him  in  order  to  secure  a 
transfer  on  the  registry  of  the  bank. 
Earle  v.  Carson,  188  U.  S.  42  47  L 
Ed.  373,  23  S.  Ct.  254;  Alatteson  :•. 
Dent,  176  U.  S.  521.  44  L.  Ed.  571,  20 
S.  Ct.  419;  Whitney  z:  Butler,  118  U. 
S.    655,    30    L.    Ed.    266,    7    S.    Ct.    61. 

"Where  a  transfer  of  stock  is  made 
and  delivered  to  officers  of  a  bank, 
and  such  officials  fail  to  make  entry 
of  It,  the  acts  referred  to  will  operate 


a  transfer  on  the  books,  and  ex- 
tinguish the  liability  as  stockholder  oi 
the  transferrer.  Whitney  v.  Butler, 
118  U.  S.  655,  30  L.  Ed.  266,  7  S.  Ct. 
61."  Matteson  v.  Dent,  176  U.  S.  521, 
44    L.    Ed.   571,   20    S.    Ct.    419. 

Arkansas. — The  failure  of  the  bank 
officers  to  make  the  transfer  on  the 
books  of  the  bank  will  not  continue 
the  seller's  liability  as  ?  stockholder. 
Warren  v.  Nix,  97  Ark.  374,  135  S. 
W.    896. 

Director  instructing  cashier  to  per- 
fect transfer  of  his  stock. — Where  a 
director  of  a  bank  sold  his  stock  in 
good  faith,  and  directed  the  cashier 
to  do  everything  connected  with  the 
transfer  necessary  to  perfect  it  in  a 
legal  way,  and  was  informed  that 
there  was  nothing  more  to  be  done, 
he  was  relieved  from  liability  as  a 
shareholder,  though  the  transfer  was 
not  recorded  on  the  bocks  of  the 
bank  as  expressly  required  by  Kv.  St. 
1903,  §§  545,  546.  Bracken  v.  N'ichol, 
30  Ky.   L.   Rep.   864,  99   S.  W.   920. 

Indorsing  in  blank  and  delivery  of 
certificate  to  president  of  bank. — "In 
Whitney  v.  Butler,  118  U.  S.  655,  30 
L.  Ed.  266,  7  S.  Ct.  61,  it  was  held 
that  vv'here  stock  had  been  sold,  and 
the  certificates,  with  power  of  at- 
torney for  transfer  duly  executed  in 
blank,  delivered  to  the  president  of 
the  bank,  the  responsibility  of  the 
original  stockholder  terminated." 
Briggs  V.  Spaulding,  141  U.  S.  132,  35 
L.    Ed.    662,    11    S.    Ct.    924. 

A  stockholder  in  a  national  bank, 
having  no  reason  to  suspect  insol- 
vency, placed  his  certificates  in  the 
hands  c-l  brokers  for  sale,  with  power 
of  attorney  executed  m  Mank  to  make 
transfer  thereof.  The  brokers  of- 
fered the  stock  for  sale  at  auction  and 
it  was  bought  bv  E.  ?^  the  lequest  of 
the  president  of  the  bank,  witii  whom 
C.  had  placed  an  order  for  stock  of 
the  bank  and  a  special  deposit  to  pay 
therefor.  The  stock  was  paid  for  to 
the  brokers  and  the  certificates  and 
power  of  attorne)'^  delivered,  the 
former  owner  receiving  the  proceeds 
without  knowing  who  the  purchaser 
was.  The  bank  president  received  and 
held  the  certificates  waiting  until  he 
should  fill  C.'s  order,  intending  then 
to  transfer  same  to  him.  C.  never 
took  the  stock,  nor  was  it  transferred 
to  him,  and,  the  bank  having  failed, 
the  receiver  found  the  certificates  in 
an  envelope  purporting  to  represent  a 


48  (Ibf) 


STOCKHOLDERS. 


205 


on  the  vendee  to  have  the  transfer  made.  The  certificates  must  be  delivered 
to  the  bank  with  all  information  necessary  to  transfer  them,*'^  and  not 
merely  to  an  officer  acting,  not  in  an  official,  but  in  a  personal  capacity .**■* 

Time  of  Entry  on  Registry. — The  transfer  of  stock  in  a  bank  must 
be  entered  on  the  stock  transfer  books  of  the  bank  more  than  a  year  be- 


security  for  a  demand  loan  ro  the 
president.  It  was  held,  that  tlie  lornier 
owner  had  done  all  that  was  required 
of  him  to  terminate  his  liability  as  a 
stockholder  and  his  responsibility 
ceased  upon  the  delivery  of  th2  cer- 
tificates to  the  bank  with  the  power 
of  attorney  to  effect  the  transfer,  and 
for  that  purpose  to  the  knowledge  of 
the  president.  Whitney  v.  Butler,  IIS 
U.    S.   655,   30   L.   Ed.   26G,   7   S.   Ct.   61. 

Had  anything  occurred  that  would 
have  justified  the  former  owner  in 
Vielieving,  or  even  in  suspecting,  that 
the  transfer  had  not  been  promptlj' 
made  on  the  books  of  the  bank,  the}' 
would,  perhaps,  have  been  wanting  in 
due  diligence  had  they  not,  b^'  in- 
spection of  the  bank's  stock  register, 
ascertained  whether  the  proper  trans- 
fer had  in  fact  been  made.  Whitney 
c'.  Butler,  118  U.  S.  655,  30  L.  Ed.  266, 
7    S.    Ct.   61. 

Delivery  to  cashier. — Where  the 
stockholders  of  a  solvent  banking  cor- 
poration in  good  faith  sold  their  stock, 
indorsing  the  shares  in  blank,  and  de- 
livering them  to  the  bank's  cashier, 
with  the  understanding  that  he  would 
do  what  was  necessary  to  effectuate 
a  transfer  on  the  bank's  books,  and 
the  cashier  failed  so  to  do,  such  stock- 
holders were  not  after  two  years  and 
on  the  bank's  becoming  insolvent  li- 
able to  its  creditors  under  Kv.  St., 
§  547  (Russell's  St.,  §  2131).  imposing 
a  double  lia))ilitv.  Weakley  v.  IMc- 
Clarty    (Ky.V    125    S.    W.    265. 

Sale  to  cashier  who  is  recognized  by 
bank  as  a  stockholder. — Title  of  C.  to 
stock  in  a  bank  is  devested  so  as  to 
relieve  him  of  lial)ility  for  an  assess- 
ment levied  four  years  thereafter,  on 
the  bank  becoming  insolvent,  where 
he  employed  auctioneers  to  sell  it,  and 
put  into  their  hands  his  stock  certifi- 
cate, having  indorsed  thereon  an  as- 
signment in  blank,  and  a  power  of  at- 
torney in  l)lank  to  transfer  the  stock, 
duly  executed  l)y  him,  and  they 
knocked  down  the  stock  to  S.,  who 
was  cashier  of  the  bank,  and  took  the 
certificate  to  the  banking  house  and 
delivered  it  to  S.,  "as  cashier"  of  the 
bank,  and  requested  him  to  transfer 
the  shares  to  the  purchaser  thereof; 
and  this,  notwithstanding  a  l)y-law  of 
the   bank    that    "no   officer   *   *   *    shall. 


without  permission  of  the  directors, 
hold  stock  in  the  bank,''  the  inference 
from  the  payment  of  semiannual  divi- 
dends to  S.  for  the  four  j^ears  being 
that  the  bank  had  accepted  him  as  a 
stockholder.  Earle  v.  Coyle,  38  C.  C. 
A.  226,  97  Fed.  410. 

63.  Essential  steps  by  vendor. — 
"Some  of  the  cases  hold  that  the  seller 
is  liable  as  a  shareholder  even  where 
the  buyer  agreed  to  have  the  transfer 
made  on  the  books  of  the  bank,  l)Ut 
fraudulently  or  negligentlj^  failed  to 
do  so.  But  it  will  be  found,  upon  care- 
ful examination,  that  in  no  one  of  the 
cases  in  which  these  general  prin- 
ciples have  been  announced,  as  be- 
tween creditors  and  shareholders,  does 
it  appear  that  the  precaution  was 
taken,  after  the  sale  of  the  stock,  to 
surrender  the  certificates  therefor  to 
the  bank  itself,  accompanied  (where 
such  surrender  was  not  by  the  share- 
holder in  person)  by  a  power  of  at- 
torney, which  would  enable  its  of- 
ficers to  make  the  transfer  on  the 
register."  Whitney  z:  Butler,  118  U. 
S.  655,  661,  30  L.   Ed.  266,  7  S.   Ct.  61. 

"Where  the  seller  delivers  the  stock 
certificate  and  power  of  attorney  to 
the  l)uyer,  relying  upon  the  promise 
of  the  latter  to  have  the  necessarj' 
transfer  made,  or  where  the  certificate 
and  power  of  attorney  are  delivered 
to  the  bank  without  communicating  to 
its  officers  the  name  of  the  buyer,  the 
seller  may  well  l)e  held  lialile  as  a 
shareholder  until,  at  least,  he  shall 
have  done  all  that  he  reasonal:)ly  can 
do  to  effect  a  transfer  on  the  stock- 
register."  Whitney  z\  Butler,  118  U. 
S.    655,   30   L.    Ed.   266,   7    S.   Ct.   61. 

64.  Delivery  to  president  as  vendee. 
— The  sale  of  national  bank  stock'  w  iili- 
out  actual  transfer  on  the  liooks,  will 
not  release  the  individual  liability 
within  the  rule  laid  down  in  Whitney 
:'.  Butler,  118  U.  S.  655,  30  L.  Ed.  266, 
7  S.  Ct.  61.  where  there  is  no  proof, 
as  there  was  in  that  case,  of  the  de- 
livery of  the  certificates  to  the  bank 
and  a  power  of  attorney  authorizing 
its  transfer,  with  a  request  to  do  so 
made  at  the  time  of  the  transaction. 
The  delivery  to  the  president,  not  as 
president,  but  as  vendee,  is  not  suffi- 
cient. Richmond  7'.  Irons.  121  U.  S. 
27,    58,    30    E.    Ed.    864,    7    S.    Ct.    788. 


206 


BANKS   AND   BANKING. 


48  (Ibg) 


fore  insolvency,  in  order  to  relieve  the  owner  from  liability  on  assessments 
ordered  in  a  receiver's  suit  to  liquidate  the  debts  of  the  bank.^s 

Abandonment  of  Intention  to  Transfer.— A  member  of  a  banking 
association  may  abandon  an  inchoate  transfer  of  his  stock  and  waive  his 
notice  of  withdrawal  and  remain  an  associate  and  liable  as  such.  Whether 
or  not  he  has  done  so  is  a  question  for  the  jury.'^^ 

§  48  (Ibg)  Publication  of  Notice  of  Transfer. — Where  notice  of  a 
transfer  of  bank  stock  is  required  to  be  given  by  publication,  as  a  condi- 
tion precedent  to  exemption  of  the  transferrer  from  statutory  liability,  a 
transferrer  who  has  not  given  notice  conformably  to  the  statute  remains 
liable  after  a  transfer  of  his  stock.  But  stockholders  who  comply  with 
such  requirement  are  exempt  after  the  time  during  which  the  act  expressly 
continues  a  transferrer's  liability.*''''  This  was  formerly  the  law  of  Georgia, 
but  the  Acts  of  1894,  p.  76,  Civ.  Code,  §  1888,  dispense  with  publication  of 
notice  of  a  transfer.*'^ 


65.  Time   of    entry     on     registry. — 

Hunt  V.  Seeger,  91  Minn.  264,  98  N. 
\V.  91.  See  ante,  "Time  of  Transfer," 
§   48   (Ibc). 

66.  Abandonment  of  intention  to 
transfer. — Where  a  member  of  a  vol- 
untary association  conducting  a  bank- 
ing business,  after  notifying  the  di- 
rectors of  his  withdrawal  as  a  mem- 
ber, directing  them  to  transfer  his 
stock  to  another  person,  and  deliver- 
ing his  shares  of  stock  to  the  secre- 
tary, on  the  failure  of  the  directors  to 
transfer  his  stock  as  directed,  con- 
tinues to  act  as  a  director  with  knowl- 
edge that  his  name  is  printed  on 
leaflets  of  the  bank  as  a  director,  and 
votes  his  stock  in  person  or  by 
proxy,  it  is  not  error  for  the  trial 
court,  in  a  suit  by  a  depositor  against 
such  member,  after  the  insolvency  of 
the  association,  in  which  suit  he  is 
charged  as  partner,  to  submit  to  the 
jury  the  question  of  whether  the  de- 
fendant had  abandoned  his  intention 
to  transfer  his  shares  and  waived  his 
notice  of  withdrawal  and  remained 
liable  as  a  partner.  Bradford  v.  Na- 
tional  Ben.   Ass'n,   26   App.   D.   C.   268. 

67.  Publication  of  notice  of  trans- 
fer.— Lane  v.  Morris,  8  Ga.  468;  Brob- 
ston  r.  Downing,  95  Ga.  505,  22  S.  E. 
277.  See,  also,  Brunswick  Terminal 
Co.  V.  National  Bank,  192  U.  S.  386, 
391,  48  L.  Ed.  491,  24  S.  Ct.  314;  Mc- 
Dougald   z.'.    Bellamy,    18    Ga.   411. 

68.  Georgia. — A  stockholder  in  the 
Brunswick  State  Bank  is  liable  for  his 
pro  rata  part  of  the  debts  of  the  cor- 
poration created  after  he  transferred 
his  shares,  unless  he  gave  notice  of 
the    transfer    as    prescribed     in      Code 


1882,  §  1496.  Chatham  Bank  :-.  Brob- 
ston,  99  Ga.  801,  27  S.  E.  790;  Brobston 
V.  Downing,  95  Ga.  505,  22  S.  E.  277. 

Where  the  charter  of  a  bank  ren- 
ders the  stockholders  liable  after  a 
transfer  of  stock,  unless  sixty  days' 
notice  of  sale  is  given  in  one  of  the 
public  gazettes  of  the  state,  and  pro- 
vided the  transfer  is  made  six  months 
before  the  failure  of  the  corporation, 
all  stockholders  who  have  given  no- 
tice in  terms  of  the  act  are  exempt,  un- 
less the  failure  occurs  within  six 
months  thereafter.  All  other  stock- 
holders are  liable  for  the  redemption 
of  the  bills,  whether  they  have  trans- 
ferred or  not.  This  liability  is  not 
primary  nor  total,  but  secondary  and 
proportional.  Lane  v.  Morris,  8  Ga. 
468. 

Defendant,  owner  of  all  the  stock 
in  a  bank,  transferred  it  without  con- 
sideration to  third  persons  who  de- 
sired to  obtain  the  charter  and  carry 
on  the  business,  and  at  the  same  time 
the  bank  transferred  all  of  its  prop- 
erty and  assets  to  defendant.  Of  this 
transfer  of  his  stock  defendant  gave 
notice  by  publication,  as  required  by 
Code,  §  1496.  At  that  time  the  bank 
owed  no  debts,  and  the  purchasers  of 
the  stock  and  charter  paid  in  its  capi- 
tal. Held,  that  defendant  was  not 
liable  to  subsequent  creditors  who 
gave  credit  to  the  bank  after  its  reor- 
ganization, and  who  were  not  misled 
by  defendant.  Morgan  v.  Brower,  77 
Ga.    627. 

Lender  the  eleventh  section  of  the 
charter  of  the  Planters'  &  Mechanics' 
Bank  of  Columbus,  any  one  who  has 
been  at  any  time  a  stockholder  therein. 


§   48    (Icb)  STOCKHOLDERS.  207 

§  48  (Ibh)  Record  in  Clerk's  Office. — Failure  of  the  transferee  to 
file  a  certificate  of  the  transfer  in  the  county  clerk's  ofiice  to  avoid  liability 
for  the  debts  of  the  seller  will  not  continue  the  liability  of  the  seller  as  a 
stockholder.^^ 

§  48  (Ic)  Nature  and  Extent  of  Liability— §  48  (lea)  In  Gen- 
eral.—Secondary. — The  liability,  of  one  who  has  transferred  his  stock 
prior  to  the  insolvency,  is  secondary  only  to  the  liability  of  the  succeeding 
holders  of  the  same  stock,  and  not  to  the  liability  of  all  subsequent  trans- 
ferrers of  other  stock. "'^ 

Collection  of  Amount  from  Others. — A  transferrer  of  stock,  upon  the 
insolvency  of  the  bank,  is  liable  only  for  his  share  of  the  existing  indebted- 
ness which  also  existed  at  the  time  of  the  transfer ;  but  he  is  not  released 
because  this  amount  has  been  collected  from  others  reached  before  him,  in 
the  order  of  liability  adopted  by  the  court. "^ 

Dividends  Realized  from  Corporate  Assets. — A  transferrer  of  stock, 
upon  the  insolvency  of  the  bank  within  a  year  after  the  transfer,  is  entitled 
to  the  benefit  of  any  dividend  realized  from  the  corporate  assets."^- 

But  One  Satisfaction  upon  Each  Share. — Where  two  or  more  suc- 
cessive owners  of  the  same  shares  are  alike  liable,  one  of  them  because  he 
owns  the  shares  now,  and  another,  or  others,  because  of  past  ownership, 
the  creditors,  though  entitled  to  recover  severally  against  each,  as  though 
the  liability  were  wdiolly  his  own,  and  the  other  or  others  were  not  liable, 
can  have  but  one  satisfaction,  and  this  being  had,  it  will  operate  as  satis- 
faction as  to  all,  save  in  respect  to  costs. '^•'^ 

§  48    (Icb)   Existing  and  Subsequent  Creditors. — It  is  only  cred- 

and  who  has   not  transferred  his  stock  stockliolder      on      the       subsequent    in- 

and    given    sixty    days'    notice    thereof  solvency    of    the    bank;    the     tiling      of 

in    some    public    gazette    of    the    state,  such   certificate   being  the   dutj--  of  the 

continues    liable    to    the    bill    holders;  transferee.      Warren    a.    Nix,    97    Ark. 

but    his    rights    and    obligations    as    a  374,    135    S.   W.   890. 

member   of   the    corporation,    inside    of  70.    Nature  and  extent  of  liability. — 

the    charter,    cease    from    the    time    of  Harper  v.  Carroll,  60  Minn.  487,  G9  N. 

the   transfer  of  the   stock.    McDougald  W.    610,    1069,    construing    Gen.    Stat., 

r.    Rcllamy,   18    Ga.   411.  1894,   §   2501. 

69.  Failure  to  record  certificate  of  Since,  under  Gen.  St.  1894,  §  2501, 
transfer  in  clerk's  office. — Under  Kir-  a  stockholder  who  has  transferred  his 
by"s  Dig.,  §  849,  providing  that  a  cer-  stock  within  a  year  before  tiie  in- 
lificate  of  the  transfer  of  stock  in  any  solvency  is  only  secondarily  liable,  ex- 
corporation  organized  under  that  ecution  should  not  issue  against  him 
chapter  must  be  promptly  filed  in  the  until  his  transferee  fails  to  respond  to 
county  clerk's  office,  in  order  to  avoid  execution.  Harper  v.  Carroll,  66 
liability  for  the  debts  of  the  seUer,  Minn.  487,  69  N.  W.  610,  1069. 
where  a  stockholder  in  a  bank  in  good  71.  Collection  of  amount  from  oth- 
faith  sold  his  stock,  and  executed  and  ers. — Harper  f.  Carroll,  66  Minn.  487, 
delivered  all  the  necessary  instruments  69  N.  W.  610,  1069. 
to  allow  transfer  of  the  stock  on  the  72.  Dividends  realized  from  corpo- 
bank's  books,  and  placed  the  same  in  rate  assets. — Harixr  :•.  Carroll,  M 
the  hands  of  the  proper  bank  official,  Minn.  487,  69  N.  W.  610,  1069. 
the  mere  fact  that  no  certificate  of  the  73.  But  one  satisfaction  upon  each 
transfer  was  filed  with  the  countv  share. — Chatham  Bank  z>.  Brol)Ston, 
clerk   will   not   render   him   liable   as   a  99    Ga.   801,   27    S.    E.   790. 


208 


BANKS   AND   BANKING. 


§  48  (2a) 


itors  existing  at  the  time  of  the  fraudulent  transfer  who  are  injured  thereby, 
and  only  as  to  such  is  the  transfer  invalid.  The  transferrer  is  liable  to 
assessment  to  satisfy  creditor  existing  at  the  time  of  the  transfer,  but  not 
subsequent  creditors.'-*  The  rule  of  nonliability  in  favor  of  subsequent 
creditors  applies  to  a  transfer  of  the  charter  by  means  of  a  transfer  of  all 
the  stock.'''^ 

§  48  (2)  Transferee's  Liability— §  48  (2a)  In  General.— Ordi- 
narily a  transferee  of  bank  stock  is  subject  to  the  individual  liability  pre- 
scribed by  the  statute,' '^   but   in   some   instances   the   statutory  liability  of 


74.  Existing  and  subsequent  cred- 
itors.— In  cases  in  which  the  courts 
have  used  the  general  expres- 
sion that  in  the  event  of  a  fraudu- 
lent transfer  of  stock  the  si-ockholder 
remains  liable  to  the  creditors  of  the 
bank,  they  were  not  called  upon  to 
discriminate  between  existing  and 
subsequent  creditors,  since  as  a  rule 
the  insolvency  of  the  bank  followed 
soon  after  the  transfer,  and  counsel 
did  not  call  attention  to  the  distinc- 
tion. McDonald  v.  Dewey,  202  U.  S. 
510,   50   L.   Ed.   1128,   26   S.    Ct.   731. 

"In  the  event  of  insolvency  it  is 
only  existing  creditors  who  can  claim 
to  have  been  damnified  by  a  fraudu- 
lent transfer  of  shares.  As  to  them 
such  transfer  is  voidable.  Subsequent 
creditors  are  apprised  bj^  the  published 
list  of  the  names  of  the  shareholders, 
to  whom  transfers  have  been  made, 
and  of  the  persons  to  whom  they  may 
have  recourse  for  the  double  liability." 
:\IcDonald  v.  Dewey,  203  U.  S.  510,  50 
L.   Ed.  1128,  26   S.   Ct.  731. 

Georgia. — A  was  indebted,  by  stock 
note,  to  the  M.  &  M.  Bank  of  Colum- 
bus. By  contract  with  B,  the  stock 
was  transferred  from  A  to  B,  and  A's 
note  delivered  up  to  him  by  the  cashier 
of  the  bank,  upon  the  verbal  under- 
taking of  B,  to  pay  the  amount  of 
the  subscription  to  the  bank.  The 
bank  subsequently  ratified  this  trans- 
action, B  having  been  elected  a  di- 
rector upon  the  faith  of  this  stock. 
Held,  that  A  could  not  be  made 
chargeable  as  a  debtor  to  the  bank, 
upon  a  liability  incurred  by  the  bank 
some  years  thereafter;  and  if  respon- 
sible at  all,  it  could  only  be  in  equity, 
for  fraudulently  abstracting  the  as- 
sets of  the  corporation.  Mott  v. 
Semmes,    24    Ga.    540. 

Minnesota. — Under  Gen.  St.  1894, 
§  2501,  providing  that  stockholders  of 
banks  of  deposit  and  discount  shall  be 
individually  liable,  in  an  amount  equal 
to  double  the  amount   of  stock  owned 


by  them,  for  all  debts  of  the  bank, 
*  *  '^  after  a  transfer  of  their  stock, 
tlie  individual  liabilit}^  of  a  stock- 
holder who  transferred  his  shares  in 
good  faith  is  limited  to  such  debts  as 
were  incurred  prior  to  the  transfer. 
Harper  v.  Carroll,  62  INIinn.  152,  64  N. 
W.  145. 

Wisconsin. — Under  Rev.  St.  1898, 
§  2024,  subsec.  16,  providing  that  any 
person  holding  stock  in  any  bank  who 
shall  sell  or  assign  his  stock  shall  be 
held  for  six  months  after  such  sale 
personally  liable  to  the  amount  of 
such  stock  for  all  debts  of  such  bank 
existing  at  the  time  of  such  sale  or  as- 
signment, the  liability  is  limited  to 
those  who  are  creditors  at  the  time  of 
the  transfer.  Gager  v.  Paul,  111  Wis. 
(-.38,   87    N.   W.   875. 

75.  Transfer  of  charter. — Where 
one  owned  all  the  shares  in  a 
l)ank  which  ow-ed  no  debts,  and 
he  was  proceeding  to  wind  up  its 
business,  when  certain  oihers  solicited 
a  transfer  of  the  charter  to  them  in 
order  that  they  might  do  a  banking 
business,  and  under  advice  of  counsel 
as  to  how  it  could  be  done  without 
liability  on  his  part,  he  transferred  all 
the  stock  to  such  other  persons  w'ith- 
out  any  consideration  therefor,  and 
the  bank  transferred  to  him  all  of  the 
assets  and  propertj'  belonging  to  it, 
he  giving  notice  of  ihe  transfer  of  the 
stock  under  §  1496  of  the  Code,  and 
thereupon  the  new  owners  of  the 
stock  paid  in  more  than  the  amount  of 
the  property  before  the  transfer  and 
proceeded  to  do  a  banking  business, 
subsequent  creditors  of  the  bank,  who 
became  such  after  the  notice  of  the 
transfer  of  the  stock  was  published, 
pnd  who  did  not  know  of  or  rely  on 
the  conduct  of  the  original  stock- 
holder, had  no  right  of  action  against 
liim,  he  having  acted  in  good  faith 
throughout  the  transaction.  Morgan 
V.    Brower,   77    Ga.   627. 

76.  Transferee's     liability. — Bowden 


§  48  (2bc) 


STOCKHOLDERS. 


209 


stockholders  is  imposed  on  subscribing  stockholders  and  does  not  extend 
to  stockholders  by  way  of  succession."^' 

§  48  (2b)  Requisites  and  Sufficiency  of  Transfer— §  48  (2ba) 
Consent  of  Transferee. — The  mere  transfer  of  the  stocks  on  the  books 
of  the  bank,  to  the  name  of  the  transferee,  does  not  impose  upon  him  the 
individual  liability  attached  by  law  to  the  position  of  shareholder  in  a  bank 
or  banking  association.  If  the  transfers  were,  in  fact,  without  his  knowl- 
edge and  consent,  and  he  was  not  informed  of  what  was  so  done — nothing 
more  appearing — he  would  not  be  held  to  have  assumed  or  incurred  lia- 
bility for  the  debts,  contracts  and  engagements  of  the  bank.  But  if,  after 
the  transfers,  he  joined  in  the  application  to  convert  the  savings  bank  into 
a  national  bank,  or  in  any  other  mode  approved,  ratified  or  acquiesced  in 
such  transfers,  or  accepted  any  of  the  benefits  arising  from  the  ownership 
of  the  stock  thus  put  in  his  name  on  the  books  of  the  bank,  he  was  liable 
to  be  treated  as  a  shareholder,  with  such  responsibility  as  the  law  imposes 
upon  the  shareholder  of  national  banks.'^^ 

§  48    (2bb)    Solvency  of  Bank  at  Time   of  Transfer.— That  the 

transfer  of  stock  is  made  after  the  failure  of  the  bank  does  not  render  the 
transfer  void,  but  the  transferee  becomes  a  stockholder  and  as  such  is  liable 
upon  his  stock." '^ 

§  48    (2bc)    Entry  on  Bank's  Books. — It  is  not  necessary  that  the 
stock  be  actually  transferred  to  the  purchaser  on  the  books  of  the  bank.^*^ 


V.   Johnson,    107    U.    S.    251,   27    L.    Ed. 
386,    2    S.    Ct.    246. 

If  a  party  makes  an  actual  purchase 
of  shares  from  an  individual  or  the 
l)ank  (even  if  the  latter  had  no  au- 
thority to  buy  or  sell  its  own  stock), 
and  voluntarily  allows  his  name  to  sjo 
on  the  books  as  a  stockholder,  he  is 
liable  as  such.  In  re  Reciprocity 
Bank,  22   N.    Y.   9. 

77.  A  provision  in  a  charter  granted 
prior  to  Acts  1893,  p.  76  (Civ.  Code 
189.5,  §§  1903-1911),  to  promoters  of  a 
t)ank,  to  the  efifect  that  each  stock- 
holder shall  be  individually  liable  for 
the  debts  of  the  company  to  the 
amount  of  his  unpaid  subscription, 
and  for  an  additional  amount  equal 
to  the  subscription,  is,  in  view  of  the 
policy  adopted  l)y  such  act,  of  provid- 
inj.,'  to  what  extent  owners  of  stock  in 
such  institution  may  be  held  lial:)le,  to 
be  understood  as  imposing  individual 
liability  on  the  stockholders  subscril)- 
ing  to  the  capital  stock,  and  not  on 
shareholders  who  by  way  of  succes- 
sion become  owners  of  stock.  Reid 
V.  De  Jarnette,  123  Ga.  787,  51  S.  H. 
770. 

78.  Consent    of    transferee.  —  Kcyser 
1    15   &   I!  — 14 


V.  Hitz,  133  U.  S.  138,  149,  33  L.  Ed. 
531,   10   S.   Ct.  290. 

Where  the  shares  of  a  bank  are 
transferred  by  A  to  B  without  con- 
sideration, and  without  the  knowledge 
or  consent  of  B,  B  is  not  the  owner, 
in  contemplation  of  the  charter,  and 
can  only  l)e  made  liable  on  the  ground 
of  fraud,  viz:  acquiescing  in  the  trans- 
fer, after  the  fact  is  brought  to  his 
notice,  for  the  benefit  of  some  other 
person,  and  to  the  injury  of  the 
creditors  of  the  corporation.  Robin- 
son V.   Lane,   19   Ga.   3:!7. 

79.  Transfer  after  failure. — Robison 
c'.   Beall,   2(5   Ga.   17. 

80  Entry  on  books  of  bank. — The 
purchaser  of  bank  stock  deposited  it 
as  collateral  with  the  bank  for  a  loan, 
with  wdiich  the  stock  was  purchased; 
Init,  on  repayment  of  the  loan,  the 
l)ank  having  suspended,  he  refused  to 
take  the  stock.  Held,  that  he  \vas 
ihe  owner  of  it.  and  individually  liable, 
notwithstanding  the  stock  liad  never 
been  transferred  to  him  on  the  books 
of  the  l)ank.  Foster  v.  Broas,  120 
Mich.  1,  79  X.  W.  606,  77  Am.  St.  Rep. 
.")65. 


210 


BANKS    AND   BANKING. 


§  48   (2bd) 


§  48  (2bd)  Pledgee, — As  a  general  rule  the  holders  of  bank  stock 
as  collateral  security  or  by  way  of  hypothecation  are  liable  as  if  they  were 
absolute  owners;  this  is  the  rule  in  Georgia,^^  Massachusetts,^-  Minnesota.^s 
and  New  York,"*^  but  the  statutes  of  California, ^^  and  Colorado'^*^  provide 
that  the  holder  of  bank  stock  as  collateral  security  is  exempted  from  lia- 
bility to  creditors  when  it  appears  on  face  of  the  bank's  books  that  he  holds 
only  as  a  pledgee,  and  under  the  statutes  of  Michigan^"  a  pledgee  of  bank 


81.  Pledgee. — Georgia. — Where  the 
charter  of  a  bank  imposes  on  all  its 
stockholders  personal  liability  to  its 
creditors,  one  who  holds  the  legal  title 
to  stock  as  collateral  security  for 
debts  due  him  becomes  liable  as 
though  he  had  purchased  the  stock. 
Chatham  Bank  v.  Brobston,  99  Ga.  801, 
37    S.    E.    790. 

82.  Massachusetts. — Crease  v.  Bab- 
cock,    51    Mass.    (10    Mete.)    52.5. 

83.  Minnesota. — A  pledgee  o\  stock, 
by  registering  it  on  the  books  of 
the  bank  as  transferred  to  him  abso- 
lutely, voluntarily  makes  himself  a 
stockholder,  and  is  liable  as  such  upon 
the  subsequent  insolvency  of  the  bank. 
Harper  v.  Carroll,  66  ?vlinn.  487,  69  N. 
W.    610,    1069. 

Gen.  St.  1894,  §  2501,  making  the 
stockholder  of  a  bank  individually  li- 
able in  an  amount  equal  to  double  the 
amount  of  stock  standing  on  the  books 
of  the  corporation  in  his  name,  for  all 
the  debts  of  such  bank,  during  the 
time  he  so  holds  said  stock,  and  for 
one  year  after  any  transfer  or  sale  by 
him  of  such  stock,  applies  to  one  who 
holds  the  stock  merely  as  collateral 
security.  State  v.  Bank,  70  Minn.  398, 
73    N.    W.    153.    68   Am.    St.    Rep.    538. 

84.  Nczv  York. — Under  the  Act  of 
1849,  persons  to  whom  stock  has  been 
transferred  by  way  of  hypothecation 
for  debts,  and  in  whose  name  it  stands 
at  the  time  of  default,  are  stockhold- 
ers, and  as  such  are  liable  to  an  equal 
additional  amount  for  the  outstand- 
ing debts  of  the  bank.  In  re  Empire 
City  Bank.  18  N.  Y.  199.  8  Abb.  Prac. 
192,    reversing   6    Abb.    Prac.    385. 

The  person  liable  as  a  stockholder 
is  the  one  in  whose  name  the  stock 
stands  on  the  books  of  the  bank,  al- 
though in  fact  it  belonged  to  another 
person,  who  had  transferred  it  to  the 
person  charged  by  way  of  hypotheca- 
tion. In  re  Empire  City  Bank,  18  N. 
Y.  199,  8  Abb.  Prac.  192,  reversing 
(1858)    6    .^bb.    Prac.    385. 

85._  California. — Civ.  Code,  §  321, 
provides  that  every  banking  corpora- 
tion shall  keen  in  a  place  accessible  to 
the       stockholders,       depositors,      and 


creditors  thereof  a  book  containing  a 
list  of  all  stockholders  and  the  num- 
ber of  shares  held  by  each;  that  the 
entries  in  such  book  shall  be  con- 
clusive evidence  as  to  the  number  of 
shares  held.  Section  322  provides  that 
the  term  "stockholder"  shall  apply  to 
persons  appearing  to  be  such  on  the 
books  of  the  corporation,  and  every 
equitable  owner  of  stock,  etc.,  but  that 
stock  held  as  collateral  security  does 
not  make  the  holder  a  stockholder, 
except  in  cases  above  mentioned,  so 
as  to  charge  him  with  the  debts  and 
liabilities  of  the  corporation.  Held 
that,  while  the  holder  of  bank  stock 
as  collateral  security  is  exempted 
from  liability  to  creditors,  such  ex- 
emption can  only  be  availed  of  where 
it  appears  on  the  face  of  the  corpora- 
tion's books  that  he  holds  the  stock 
only  as  pledgee.  Hurlburt  z'.  Arthur, 
140  Cal.  103,  73  Pac.  734,  93  Am.  St. 
Rep.    17. 

86.  Colorado.— 1  Mills'  Ann.  St., 
§  495,  provides  that  no  person  holding 
stock  in  any  corporation  as  collateral 
securit}^  shall  be  personally  subject  to 
any  liability  as  a  stockholder  of  such 
corporation,  but  the  person  pledging 
the  stock  shall  be  considered  as  hold- 
ing the  same.  Held,  that  where  cer- 
tain stock  of  an  insolvent  bank  stood 
in  the  name  of  another  bank  as  owner, 
and  there  was  nothing  on  the  stock- 
books  to  show  that  the  stock  was  held 
as  collateral  security  or  otherwise 
than  as  the  absolute  owner,  the  bank 
holding  such  stock  could  not  escape 
double  liability  imposed  by  1  ^Mills' 
Ann.  St.,  §  533,  on  the  ground  that  it 
held  the  stock  as  collateral  security. 
Adams  z:  Clark.  36  Colo.  65,  85  Pac. 
642. 

87.  Michigan. — B.  owning  stock  of 
I.  Bank,  deposited  it  with  defendant 
bank  as  collateral.  On  the  request  of 
an  officer  of  defendant  bank,  a  new 
certificate  of  stock  was  issued  by  the 
T.  Bank  to  defendant  for  the  purpose 
of  transferring  the  stock  to  the  latter, 
to  be  held  by  it  as  such  collateral. 
The  certificate  was  issued  with  this 
understanding,  but  it  was  issued  to  de- 


§  48  (2be) 


STOCKHOLDERS. 


211 


stock  is  not  liable  to  the  creditors  of  the  bank  although  the  certificate  was 
issued  to  him  as  absolute  owner.  After  the  stock  is  transferred  back  to  the 
owner,  the  pledgee  is  not  liable  for  debts  subsequently  contracted. ^'^ 

§  48  (2be)  Trustees  and  Representatives. — Transferees  who  hold 
bank  stock  in  trust  as  executor  or  administrator  are  liable  in  their  repre- 
sentative capacity  as  for  other  debts  of  their  decedents ;  and  under  some 
statutes  they  are  liable  as  absolute  owners.^'-* 


fendant  as  absolute  owner.  Defend- 
ant always  held  such  stock  as  security, 
and  not  otherwise.  Held,  that  defend- 
ant bank  was  not  liable  upon  an  as- 
sessment as  a  stockholder,  under  3 
How.  Ann.  St.,  §  3208e5,  providing  that 
persons  holding  stock  as  collateral 
security  shall  not  be  personally  liable 
to  the  depositors  as  stockholders. 
May  V.  Genesee  County  Sav.  Bank, 
120   Mich.   330,   79    X.    W.   630. 

88.  Debts  contracted  after  retrans- 
fer  to  pledgor. — A  transfer  of  bank 
stock  on  the  books  of  the  bank  in 
favor  of  a  pledgee  which  held  it  as 
collateral  security  does  not  render 
such  pledgee  liable  as  a  stockholder 
for  the  bank's  indebtedness  created 
after  the  stock  has  been  retransferred 
on  the  books  of  the  pledgor  upon  pay- 
ment of  the  loan,  notwithstanding  the 
pledgee's  failure  to  give  notice  of  the 
retransfer,  which,  under  Code  Ga. 
1882,  §  1496,  is  requisite  to  exempt 
from  an  existing  individual  liability  as 
a  stockholder  under  a  corporate  char- 
ter, where  the  stockholder's  individual 
liability  under  the  charter  of  the  bank 
in  question  is  limited  to  the  par  value 
of  his  stock,  "at  the  time  the  debt  was 
created."  Decree  (C.  C  1901)  112  F. 
812,  affirmed.  Brunswick  Terminal 
Co.  V.  National  Bank,  192  U.  S.  38G, 
48   L.    Ed.    491,   24    S.    Ct.   314. 

The  charter  of  a  state  l)ank  in  Geor- 
gia provided  that,  in  addition  to  the 
liability  of  the  l)ank,  the  stockholders 
should  be  individually  liable  as  sure- 
ties to  its  creditors  "to  the  extent  of 
the  amount  of  their  stock  therein,  at 
the  par  value  thereof,  respectively,  at 
the  time  the  debt  was  created."  A 
statute  of  the  state  (Code  1882,  §  1496) 
provided  that  "when  a  stockholder  in 
any  bank  or  other  corporation  is  in- 
dividually lial)le  under  its  charter  and 
sliall  transfer  his  stock  he  shall  be  ex- 
empt from  such  lialiility  unless  lie 
receives  a  written  notice  from  a 
creditor  within  six  months  after  such 
transfer  of  his  intention  to  hold  him 
liable,  provided  he  shall  give  notice 
once  a  month,  for  six  months,  of  such 


transfer  immediately  thereafter,''  etc. 
Held,  that  one  who  lor  a  short  time 
held  stock  of  such  bank  as  collateral 
security  during  which  time  it  stood  in 
his  name,  and  was  then  transferred 
back  to  the  owner,  was  not  liable  for 
debts  of  the  bank  subsequently  con- 
tracted, without  any  reference  to  his 
holding  of  the  stock,  although  no  no- 
tice of  the  retransfer  of  the  stock  was 
published,  but  that  the  statute  was 
intended  only  to  enable  stockholders 
who  had  become  lial^le  for  existing 
debts  to  terminate  such  liability  by 
giving  the  prescribed  notice,  and  did 
not  apply  to  a  case  where  the  stock- 
holder was  never  in  fact  liable  under 
the  terms  of  the  charter,  because  he 
did  not  hold  the  stock  at  the  time  the 
debt  was  created.  Brunswick  Termi- 
nal Co.  V.  National  Bank,  112  Fed.  812, 
affirmed  192  U.  S.  386,  48  L.  Ed.  49i, 
24    S.    Ct.    314. 

National  bank  a  pledgee  of  state 
bank  stock. — Whore  a  national  l)ank, 
a  pledgee  of  stock  of  a  state  bank,  ac- 
quired the  stock  as  pledgee,  August 
25,  1890,  and  the  note  to  which  it  was 
collateral  having  been  paid,  retrans- 
ferred it  Octol)er  20,  1890,  the  retrans- 
fer being  regularly  entered  on  the 
books  of  the  l)ank,  and  after  this  in- 
debtedness to  complainants  arose,  the 
national  l)ank  was  not  liable  to  such 
sul)sequent  creditor,  there  being  no 
element  of  estoppel  involved.  Bruns- 
wick Terminal  Co.  v.  National  Bank, 
192  U.  S.  386,  48  L-  Ed.  491,  24  S.  Ct. 
314. 

89.  Trustees  and  representatives. — 
Rights  and  liabilities  of  transferees  of 
stock  in  general,  sec  ante,  "Transfer 
of   vSlock,"   §   40. 

Under  Rev.  St.,  c.  3(),  j^  31,  provid- 
ing that  the  holders  of  slock  in  any 
liank  at  the  time  wlun  its  charter 
shall  expire  shall  be  lial)k'  for  the 
debts  of  the  l)ank,  those  who  hold 
stock  as  collateral  security,  and  those 
who  hold  it  in  trust,  wliethcr  ilie  trust 
does  or  does  not  appear  on  the  books 
of  the  bank,  are  lial)le  as  if  they  wore 
tlio    aI)Solutc    owners;    and    adniinistra- 


212 


BANKS   AND   BANKING. 


48  (2cc) 


§  48    (2c)  Nature,  Duration  and  Extent — §  48    (2ca)  Duration. 

— Where  a  transferee  of  bank  stock  is  subject  to  the  individual  liability 
prescribed  by  the  statute,  this  liabiHty  attaches  to  him  until,  without  fraud 
as  against  the  creditors  of  the  bank,  for  whose  protection  the  liability  was 
imposed,  he  relieves  himself  from  it.^^ 

§  48    (2cb)  Liability  for  Antecedent  and  Subsequent  Debts. — As 

a  general  rule  a  transferee  of  bank  stock  is  individually  liable  for  his  pro 
rata  part  of  the  debts  of  said  corporation  created  before  he  acquired  his 
stock  by  transfer,  as  well  as  for  a  like  part  of  those  created  during  his 
ownership,*'!  but  the  terms  of  the  charter  or  articles  of  association  may  be 
such  as  to  relieve  such  transferee  from  liability  for  antecedent  deposits.^^ 

§  48    (2cc)   Dividends  Fraudulently  Received  by  Transferrer. — 

The  transferee  of  bank  stock  can  not  be  held  liable  to  account  to  creditors 
of  a  bank  for  unlawful  dividends  received  by  the  original  holder  of  the 
stock.^3 


tors  of  deceased  stockholders  are  li- 
able in  their  representative  capacity  as 
for  other  debts  of  their  intestator. 
Crease  v.  Babcock,  51  Mass.  (lO 
Mete.)    525. 

Under  Laws  1892,  c.  689,  §§  52,  53, 
making  a  person  in  whose  name  bank 
stock  stands  at  the  time  of  the  bank's 
insolvency  liable  as  a  stockholder  for 
its  debts,  an  executor  is  liable  where 
bank  stock  was  in  intestate's  name 
when  the  bank  became  insolvent, 
though  the  executor  had  transferred 
the  shares  to  himself  as  trustee,  pur- 
suant to  the  surrogate's  decree,  be- 
fore the  failure  of  the  bank,  where 
such  transfer  was  not  made  on  the 
books  of  the  bank.  jMahoney  v.  Bern- 
hardt, 27  INIisc.  Rep.  3.39,  58  N.  Y.  S. 
74.8;  Mahoney  v.  Bernhard,  45  App.  Div. 
499,  63  N.  Y.  S.  642.  affirmed  in  169  X. 
Y.  589,  62  N.  E.  1097. 

In  a  proceeding  under  Laws  1849, 
p.  343,  to  enforce  the  personal  liability 
of  stockholders  of  an  insolvent  bank 
for  the  payment  of  its  debts  after  its 
assets  are  exhausted,  executors  m.ay 
be  properly  charged  as  holders  of 
stock  appearing  on  the  bank's  books  to 
have  been  originallj^  held  by  their 
testator,  and  subsequently  transferred 
to  them.  Diven  v.  Duncan  (N.  Y.),  41 
Barb.   520. 

90.  Duration  of  liability. — Bowden 
V.  Johnson,  107  U.  S.  251,  261,  27  L. 
Ed.    386,   2    S.    Ct.   246. 

Pledgee. — See  ante,  "Pledgee,"'  S  48 
(2bd). 

91.  Liability  for  antecedent  and  sub- 
sequent debts. — It  was  so  held  under 
the    charter    of    the    Brunswick    State 


Bank.  Chatham  Bank  -v.  Brobston,  99 
Ga.  801,  27  S.  E.  790. 

Under  Rev.  St.  1858,  c.  71,  which 
provides  that  stockholders  of  a  bank 
shall  be  individually^  responsible  to 
the  amounts  of  their  respective  shares 
of  stock  for  all  liabilities  of  the  bank, 
that  the  shares  shall  be  transferable, 
and  that  every  person  becoming  a 
shareholder  by  such  transfer  shall,  in 
proportion  to  his  shares,  succeed  to  all 
the  rights  and  be  subject  to  all  the  lia- 
bilities of  prior  shareholders,  it  is  not 
the  shareholders  at  the  time  a  debt 
accrued,  but  the  shareholders  at  the 
time  an  action  is  commenced  thereon, 
who  are  individually  responsible. 
Cleveland  v.  Burnham,  55  Wis.  598. 
13   N.  W.   677. 

Pledgee. — See  ante,  "Pledgee,"  §  48 
(2bdj. 

92.  Antecedent  deposits. — The  fact 
that  partnership  articles  of  a  banking 
firm  allowed  members  thereof  to  sell 
their  stock,  after  offering  it  to  the 
bank  at  a  stated  price,  and  require  the 
transfer  to  be  made  on  the  bank's 
books,  and  provide  that  all  stockhold- 
ers are  individually  bound  to  make 
good  to  all  depositors  the  amount  of 
their  deposits,  does  not  render  a  pur- 
chaser of  stock  liable  for  antecedent 
deposits.  Christy  v.  Sill,  131  Pa.  492, 
19    Atl.   295.   297. 

93.  Dividends  fraudulently  received 
by  transferrer. — Under  Rev.  St.  c.  94,  § 
22,  providing  that  every  person  be- 
coming a  shareholder  in  a  banking  cor- 
poration, by  transfer  of  shares,  "shall, 
in  proportion  to  his  shares,  succeed  to 
all  the  rights,  and  be  subject  to  all  the 


§  48/. 


STOCKHOLDERS. 


213 


§  48  (2cd)  Indemnifying  Transferrer. — A  transferrer  of  bank  stock 
may  recover  from  the  transferee  the  amount  the  transferrer  has  been  held 
liable  for  to  creditors  of  the  bank  because  the  transfer  was  not  regularly 
entered  on  the  books  of  the  bank  in  compliance  with  the  statute.''^ 


§   48|. 


Assessment  by  State  Official  to  Make  Good  Impair- 


ment of  Capital  Stock. — The  statute  of  Indiana  authorizes  the  auditor  of 
the  state,^'^  and  those  of  Kentucky'*'^  authorize  the  secretary  of  state  when  the 
capital  of  a  state  bank  becomes  impaired,  to  levy  an  assessment  in  any 
amount  deemed  necessary,  not  exceeding  the  par  value  of  the  stock,  upon 
the  shareholder  to  make  good  the  deficiency;  and  the  court  will  not  inter- 
fere with  his  determination  unless  it  is  clearly  shown  that  he  has  abused 
the  discretion  vested  in  him.'''  A  stockholder  of  a  bank  takes  and  holds 
his  stock  with  the  understanding  that  the  capital  stock  must  not  be  per- 
mitted to  be  impaired,  and,  when  it  is,  an  assessment  may  be  made  on  the 
stockholders  to  restore  the  stock.  The  statute  is  a  part  of  the  contract  be- 
tween the  bank  and  its  stockholders,  and  any  person  to  whom  stock  is  sold 
and  transferred  by  a  stockholder  takes  it  subject  to  the  statutory  burdens.'"^ 
Enforcement. — Under  a  state  banking  act  which  provides  that,  when 
the  capital  of  a  state  bank  becomes  impaired,  the  state  auditor  shall  levy 
an  assessment  upon  the  shareholders  to  make  good  the  deficiency,  and  if 
any  shareholder  fails  to  pay  such  assessment,  shall  cause  his  stock  to  be 
sold  to  the  highest  bidder,  the  proceeds  of  a  sale  do  not  belong  to  the  bank, 
but,  after  deducting  the  amount  of  the  assessment  and  the  cost  of  such  sale, 
must  be  paid  to  the  shareholder.^*' 


liabilities,  of  prior  shareholders,"  when 
a  shareholder  in  an  insolvent  banking 
corporation,  who  has  received  unlaw- 
ful dividends,  transfers  his  stock  to 
another  party,  the  transferee  can  not 
be  held  liable  to  account  to  the  credit- 
ors of  the  bank  for  the  amount  thus 
fraudulently  received  and  appropri- 
ated by  the  original  holder  of  the 
stock.  Hurlbut  v.  Tayler,  62  Wis.  607, 
22   X.  W.  855. 

94.  Indemnifying  transferrer. — Man 
V.  Boykin,  70  S.  C.  1,  60  S.  E.  17,  128 
Am.  St.  Rep.  830;  1  S.  C.  Code  of 
Laws,  1902,  §  1894. 

95.  Indiana. — Section  13  Ind.  Bank 
.\ct  as  amended  March  9.  1895.  Chicago 
Title,  etc.,  Co.  v.  State  Bank,  30  C.  C. 
A.  443.  86   Fed.  863. 

96.  Kentucky  under  Ky.  St..  §  586 
('Russell  Stat..  §  2175),  Corbin  Banking 
Co.  V.  Mitchell,  141  Ky.  172,  132  S.  W. 
426. 

97.  Corbin  Banking  Co.  v.  Mitchell, 
141    Ky.   172.   132   S.  W.  426. 

98.  Corl)in  P.anking  Co.  v.  Mitchell, 
141    Ky.   17:2,   132   S.  W.   426. 

A  pledgee   of  bank  stock,   not  l)cing 


legally  bound  to  pay  an  assessment 
levied  to  make  good  an  impairment  of 
the  capital  of  the  bank,  may  surrender 
the  stock,  and  thus  relieve  himself 
from  liability.  Corbin  Banking  Co.  v. 
Mitchell,  141   Ky.  172,  132  S.  VV.  426. 

99.  Enforcement. — Chicago  Title, 
etc.,  Co.  z\  State  Bank,  30  C.  C.  A.  443, 
86   Fed.   863. 

Under  the  statute  of  Indiana  (4 
Burns'  Supp.  1897,  §  13)  which  pro- 
vides that  when  the  state  auditor  de- 
termines that  the  stock  of  a  state  liank 
has  become  reduced,  by  impairment  or 
otherwise,  below  the  amount  re- 
quired by  law,  an  assessment  sliall  be 
levied  on  the  stockholders,  who  shall 
be  liable  to  an  amount  equal  to  the 
par  value  of  their  stock,  and  that  on 
default  in  payment  of  such  assessment 
for  60  days  the  stock  shall  be  sold  by 
the  directors,  the  proceeds  of  such 
a  sale,  less  the  costs  thereof,  arc  the 
property  of  the  stockholders,  who  may 
recover  the  same  in  an  action  at  law 
as  for  money  had  and  received;  and 
the  only  requisite  of  a  complaint  in 
such  an  action,  to  establish  a  prcsump- 


214 


BANKS   AND   BANKING. 


§  49  (lab) 


§  49.  Actions  and  Proceedings  to  Enforce— §  49    (1)  Nature 

and  Forms. — Compromise  of  doubtful  claims  by  receiver,  see  post,  "Col- 
lection and  Protection  of  Assets,"  §  77  (4).  Conditions  precedent,  see 
ante,  "When  Liability  Arises  and  Conditions  Precedent,"  §  47  (10).  En- 
forcement in  action  against  consolidated  corporation,  see  post,  "Consoli- 
dation," §  Q . 

§  49    (la)   Legislative    Regulations— §  49    (laa)   In    General.— 

The  manner  of  enforcing  the  statutory  liability  of  holders  of  bank  stock  is 
a  subject  of  remedial  legislation,  unless  the  remedy  enters  into  and  forms 
part  of  the  obligation  which  the  statute  creates. ^ 

§  49  (lab)  Retroactive  Effect  of  Statutes. — Laws  respecting  the 
remedy  by  which  the  individual  liability  of  holders  of  bank  stock  is  to  be 
enforced  operate  retroactively,-  but  do  not  apply  to  actions  already  pend- 
ing.^ 


live  right  of  recovery,  is  that  it  shall 
show  ownership  of  the  stock  in  plain- 
tiff; any  lien  of  the  bank  or  liability  of 
the  stockholder  for  unpaid  stock,  or 
otherwise,  being  matter  of  defense,  or 
to  be  asserted  in  a  suit  in  equity. 
Chicago  Title,  etc.,  Co.  v.  State  Bank, 
57   C.  C.  A.  398,   121   Fed.  58. 

1.  Remedial  legislation.— Terry  v. 
Anderson,  95  U.  S.  628,  24  L.  Ed.  3G5; 
Pollard  V.  Bailey  (U.  S.),  20  Wall.  520, 
22  L.  Ed.  376;  Fourth  Nat.  Bank  v. 
Francklyn,  120  U.  S.  747,  30  L.  Ed.  825, 
7  S.  Ct.  757. 

As  to  the  distinction  between  the  ad- 
ministration of  the  effects  of  an  in- 
solvent Ohio  banking  corporation  and 
of  those  of  a  national  banking  associa- 
tion, see  King  v.  Armstrong,  50  O.  St. 
222,  34    N.   E.   163. 

2.  Retroactive  effect. — Laws  1897, 
c.  441,  amending  Banking  Law,  §  52 
(Laws  1892,  c.  689),  by  providing  that 
actions  to  enforce  the  liability  of 
stockholders  of  insolvent  banks  shall 
be  brought  in  the  name  of  a  receiver, 
where  the  bank  has  been  dissolved,  and 
a  receiver  appointed,  applies  to  banks 
in  liquidation  at  the  time  of  its  adop- 
tion. Persons  v.  Gardner,  26  JNIisc. 
Rep.  6G3,  56  X.  Y.  S.  822,  42  App.  Div. 
490,  affirmed  59  X.  Y.  S.  463,  42  App. 
Div.  490. 

Laws  1897,  c.  441,  amending  §  52,  c. 
689,  Laws  1892,  relating  to  banking 
corporations,  and  fixing  liability  of 
stockholders,  providing  that  if  such  a 
corporation  shall  be  dissolved,  and  a 
permanent  receiver  appointed,  all  pro- 
ceedings to  enforce  the  liability  of 
stockholders  shall  be  taken  in  the 
name  of  such  receiver,  unless  he  shall 
refuse  to  act   on  proper  request   made 


by  a  creditor,  and  in  that  event  such 
proceeding  may  be  taken  by  any  cred- 
itor, is  retroactive;  and  receivers  of  an 
insolvent  bank,  appointed  prior  to  the 
above  statute,  may  maintain  proceed- 
ings to  enforce  the  liability  of  stock- 
holders of  such  corporation.  Persons 
z.  Gardner,  26  Misc.  Rep.  663,  42  App. 
Div.  490,  56  X.  Y.  S.  822,  affirmed  50 
X.  Y.   S.  463. 

3.  Pending  suits. — Laws  1897,  c.  441, 
amending  Laws  1892,  c.  689,  §  52,  pro- 
vides that,  on  the  dissolution  of  a 
bank  and  the  appointment  of  a  receiver, 
actions  or  proceedings  to  enforce  lia- 
bility of  stockholders  "shall  be  taken 
and  prosecuted  only  in  the  name  and 
behalf  of  such  receiver,"  unless  the 
latter  shall  refuse  to  take  action. 
Held,  not  to  apply  to  actions  actually 
pending  on  its  passage,  though  operat- 
ing retrospectively  where  actions  have 
not  already  been  commenced.  Ma- 
honey  V.  Bernhard,  169  X.  Y.  589,  62  X. 
E.  1097,  affirming  45  App.  Div.  499,  63 
X.  Y.  S.  642,  which  modified  Mahoney 
z'.  Bernhardt,  27  Misc.  Rep.  339,  58  X^ 
Y.   S.  748. 

Laws  1897,  c.  441,  providing  that  all 
proceedings  to  enforce  the  individual 
liability  of  stockholders  for  the  debts 
of  a  bank  "shall  be''  prosecuted  only 
in  the  name  of  the  receivers,  where 
receivers  willing  to  prosecute  such 
proceedings  have  been  appointed,  does 
not  abate  an  action  commenced  by  a 
creditor  under  Laws  1892,  c.  689,  §  52, 
against  stockholders  of  an  insolvent 
bank,  before  the  passage  of  the  chap- 
ter, though  receivers  have  been  ap- 
pointed, and  only  a  part  of  the  stock- 
holders were  served  with  summons  be- 
fore  such    passage,    in  view    of  Laws 


§  49  (Ibb) 


STOCKHOLDERS. 


215 


§  49  (lb)  Statutory  Remedy  Exclusive— §  49  (Iba)  In  Gen- 
eral.— Where  the  statute  creating  the  Hability  of  bank  stockhoklers  pro- 
vides the  remedy,  this  is  exclusive  of  all  others,  and  when  such  remedy  is  in 
equity,  a  common-law  action  is  excluded.'* 

§   49    (Ibb)   Ancillary  Suit  in  Other  Jurisdiction. — Where  the  stat- 
utory remedy  is  exclusive,  an  ancillary  suit  in  another  state  is  barred. '"^ 
Method  of  Enforcing  Left  to  Court. — An  individual  liability  of  bank 


1892,  c.  677,  §  31,  providing  that  the 
repeal  of  a  statute  shall  not  afifect  an 
act  done  orior  thereto.  INlahoney  z\ 
Bernhardt," 27  Misc.  Rep.  339,  58  N.  Y. 
S.  748;  Mahoney  v.  Bernhard,  45  App. 
Div.  499,  63  N.  Y.  S.  642,  affirmed  169 
N.  Y.  589,  62  N.  E.  1097. 

Neither  does  it  apply  to  defendants 
not  served  in  an  action  pending  on  the 
date  of  its  passage,  as  there  is  but  one 
action,  which  is  against  the  entire  body 
of  stockholders,  and  it  is  "taken,"  in 
the  sense  of  the  amendment,  when  the 
summons  is  served  on  one  of  them. 
Mahoney  v.  Bernhard,  169  X.  Y.  589,  63 
N.  E.  1097,  affirming  45  App.  Div.  499, 
63  N.  Y.  S.  642,  which  modified  Ma- 
honey  V.  Bernhardt,  27  Misc.  Rep.  339, 
58  X.  Y.  S.  748. 

4.  When  equity  jurisdiction  exclu- 
sive.—Pollard  V.  Bailey  (U.  S.),  20 
Wall.  520,  22  L.  Ed.  376;  Fourth  Xat. 
Bank  v.  Francklyn,  120  U.  S.  747,  30 
L.  Ed.  825,  7   S.  Ct.  757. 

Where  the  charter  of  a  bank  pro- 
vided for  a  proportionate  liability  on 
the  part  of  the  stockholders  in  case  of 
insolvency,  and  also  for  a  pro  rata  dis- 
tribution of  the  fund  so  provided  for 
among  the  several  creditors,  accord- 
ing to  their  respective  priorities,  and 
plainly  indicated  that  such  liability 
should  be  enforced  by  a  proceeding  in 
a  court  of  chancery,  such  remedy  is 
exclusive.  Pollard  v.  Bailey  (U.  S.), 
20  Wall.  520,  22  L.  Ed.  376;  Fourth 
Xat.  Bank  v.  Francklyn,  120  U.  S.  747, 
30  L.  Ed.  825,  7  S.  Ct.  757. 

In  such  case  creditors  should  pro- 
ceed in  equity,  where  the  "proportion 
can  be  ascertained  upon  an  account 
taken  of  debts  and  stock,  and  a  pro 
rata  distriluition  of  the  delits  among 
the  several  stockholders."  Pollard  z'. 
Bailev  (U.  S.).  20  Wall.  520,  22  L.  Ed. 
376;  terry  v.  Tul)man,  92  U.  S.  156.  23 
L.  Ed.  537;  Hatch  v.  Dana,  101  U.  S. 
205.  213.  25   L.   Ed.   885. 

Especially  is  this  so  when  other  parts 
of  the  charter  indicate  plainly  that  the 
exercise  of  the  powers  of  a  court  nf 
chancery   which    could   bring   before    it 


all  the  necessary  parties,  and  adjust 
all  their  rights,  was,  in  a  case  of  in- 
solvency, contemplated.  Pollard  z'. 
Bailey  (U.  S.),  20  Wall.  520,  22  L.  Ed. 
376. 

As  this  proportion  can  only  be  as- 
certained upon  an  account  of  debts  and 
stock  and  a  pro  rata  distribution  of 
the  indebtedness  among  the  several 
stockholders,  the  provision,  therefore, 
for  a  proportionate  liability  is  equiv- 
alent to  a  provision  for  an  appropri- 
ate form  of  equital)le  action  to  enforce 
it.  Pollard  v.  Bailey  (U.  S.),  20  Wall. 
520,  22  L.  Ed.  376. 

Nebraska. — The  liability  of  a  stock- 
holder in  a  banking  corporation  im- 
posed by  Const..  Xeb.  1875,  art.  lib, 
§  7,  declaring  that  everj^  stockholder 
of  a  banking  corporation  shall  be  in- 
dividually responsible  to  its  creditors 
above  the  amount  of  stock  to  an 
amount  equal  to  his  stock,  is  enforce- 
able only  in  equity.  Hazlett  v.  Wood- 
head,   27    R.    I.   506,   63   .\tl.   952. 

5.  Gen.  St.  Minn.,  §  2501,  declares  that 
a  stockholder  in  a  bank  shall  be  indi- 
vidually liable  in  an  amount  double  the 
amount  of  stock  held  by  him  for  all 
the  debts  of  the  bank,  and  §§  5905-5907, 
5911,  authorize  the  enforcement  of 
such  liability  of  bank  stockholders  l^y 
one  suit  in  equity  in  any  district  court 
of  the  state,  to  which  all  of  the  cred- 
itors and  stockholders  of  the  bank 
over  whom  the  court  can  obtain  juris- 
diction shall  be  made  parties,  etc.  A 
suit  was  brought  in  Minnesota,  and, 
after  the  liabilities  of  all  the  stock- 
holders over  whom  jurisdiction  could 
be  olitained  had  licen  determined,  tliere 
remained  a  balance  of  $80,000  due  the 
creditors,  and  an  ancillary  suit  was 
brought  in  Wisconsin  against  defend- 
ant, who  was  not  a  party  to  tlie  f)rig- 
inal  action,  to  enforce  her  statutory 
liability  as  a  stocklioldcr  in  tlie  bank. 
Held,  that  the  statutory  remedy  was 
exclusive,  and  hence  the  original  ac- 
tion in  Minnesota  was  a  bar  to  the  sub- 
sequent action  in  this  state.  Finney  t'. 
r,iiv.  106  Wis.  256,  82  N.  W.  595,  40 
L.    R.   A.  486. 


216 


BANKS   AND   BANKING. 


49  (lea) 


stockholders  created  by  statute  without  a  remedy  being  prescribed  may  be 
enforced  by  an  appropriate  common-law  action.^  The  stockholders  are 
bound  by  such  proceedings ;  and  it  is  immaterial  that  they  were  absent  oi 
nonresident." 

§  49  (Ic)  Forms  of  Action— §  49  (lea)  Creditor's  Suit  and 
Receivership.— The  ordinary  method  of  enforcing  the  liability  of  the 
shareholders  of  a  bank  for  its  debts,  on  its  insolvency,  is  by  means  of  a 
creditor's  suit  against  the  bank  and  a  receivership  to  which  all  the  stock- 
holders are  made  parties.  The  liability  constitutes  a  trust  fund  which  may 
be  collected  and  administered  by  means  of  a  suit  in  equity  in  the  nature  of 
a  creditor's  bill.*^  In  such  an  action  a  receiver  is  appointed,  the  affairs  of 
the  corporation  administered,  the  amount  of  its  assets  and  liabilities  deter- 
mined, the  deficiency  ascertained,  and  an  assessment  to  meet  this  deficiency 
made  ratable  upon  all  stockholders.^  Such  an  action  must  be  prosecuted  for 
the  benefit  or  on  behalf  of  all  the  creditors  of  the  corporation,  and  against 
all  the  stockholders  within  the  jurisdiction  of  the  court.  It  may  be  brought 
by  one  or  more  of  the  creditors  or  by  the  receiver  when  there  is  a  recovery, 
but  must  be  for  the  benefit  of  all  the  creditors  whether  named  as  party  lo 
the  suit  or  not.^*^     A  suit  by  and  on  behalf  of  one  out  of  many  creditors 


6.  Method  left  to  court. — Pollard  v. 
Bailey  (U.  S.),  20  Wall.  520,  22  L. 
Ed.  376;  Fourth  Xat.  Bank  v.  Franck- 
lyn,  120  U.  S.  747,  30  L.  Ed.  825,  7  S. 
Ct.  757. 

Where  a  statute  imposing  liability 
on  the  stockholders  of  a  banking  cor- 
poration does  not  prescribe  a  method 
of  enforcing  it;  courts,  in  as  much  as 
such  a  right  should  be  enforcible,  will 
look  to  the  statute  to  ascertain  its  ex- 
tent, and  decide  upon  a  manner  of  en- 
forcing it.  Howarth  v.  Lombard,  175 
Mass.  570,  56  N.  E.  888,  49  L.  R.  A.  301. 

7.  Hill's  Ann.  St.  &  Codes  Wash.,  § 
1511,  imposed  a  double  liability  on  the 
stockholders  of  banking  corporations, 
but  left  the  method  of  enforcing  it  to 
the  courts,  who  decided  that  it  could 
only  be  enforced  by  a  duly-appointed 
receiver  after  he  had  applied  all  other 
available  assets.  Held,  that  subscrib- 
ers must  be  assumed  to  have  under- 
stood the  statute  as  construed,  and  to 
have  agreed  that  on  insolvency  of  the 
corporation  a  receiver  might  be  ap- 
pointed, and  the  amount  of  liability 
determined,  and  they  are  bound  by 
such  proceedings;  and  it  is  immaterial 
that  they  were  absent  or  nonresident. 
Howarth  v.  Lombard,  175  Mass.  570, 
56  N.  E.  888,  49  L.  R.  A.  301. 

8.  Mosler  Safe  Co.  v.  Guardian  Trust 
Co.,  138  N.  Y.  Supp.  298.  See,  also, 
cases  cited  in  the  two  following  notes, 
9,  10. 


Stockholders'  liability  for  debts  un- 
der Banking  Law,  §  303,  being  joint 
and  several,  was  enforceable  by  a  cred- 
itor's suit  at  law  or  in  equity  against 
all  or  any  number  of  stockliolders. 
Mosler  Safe  Co.  v.  Guardian  Trust 
Co.,  138  N.  Y.  S.  298. 

Liability  of  stockholders,  under 
Banking  Law,  §  303,  being  secondary, 
it  is  proper  for  a  creditor  to  sue  in  eq- 
uity for  corporate  accounting,  to  de- 
termine the  amount  of  liability.  Mos- 
ler Safe  Co.  V.  Guardian  Trust  Co. 
(App.  Div.),  138  N.  Y.  S.  298. 

9.  Howarth  v.  Lombard,  175  Mass. 
570,   56    N.    E.   888,   49   L.   R.   A.   301. 

10.  Colorado. — The  proper  procedure 
to  enforce  the  liability  of  stockhold- 
ers in  an  insolvent  bank  for  debts  of 
the  corporation  imposed  by  1  Mills' 
Ann.  St.,  §  553,  is  by  suit  in  equity  by 
a  creditor  or  creditors  for  the  benefit 
of  all  the  creditors  and  against  all  the 
stockholders.  Adams  v.  Clark,  36 
Colo.    65,   85    Fac.    642. 

Under  Code,  §  1882,  creating  "double 
liability''  against  bank  stockholders,  an 
assessment  in  a  receivership  proceed- 
ing is  the  proper  method  to  enforce  the 
liability.  Elson  7-.  Wright,  134  Iowa 
634^  112  N.  W.  105. 

Kentucky. — The  double  liability  of 
stockholders  of  a  bank  created  by  Ky. 
St.,  §  547  (Russell's  St.,  §  2131),  con- 
stitutes a  trust  fund  which  may  be  col- 
lected   and    administered    by   means    of 


§  49  (lea) 


STOCKHOLDERS. 


217 


a  suit  in  equity  in  the  nature  of  a  cred- 
itors' bill  brought  for  the  equal  bene- 
fit of  all  creditors.  Conway  v.  Owens- 
boro  Sav.,  etc.,  Trust  Co.,  185  Fed.  950. 

The  double  liability  of  stockholders 
of  an  insolvent  bank  created  by  Ky. 
St.  1903,  §  5-irT,  may  be  enforced  in  a 
suit  in  equity  by  one  creditor  for  the 
benefit  of  all,  or  by  separate  suits 
against  each  stockholder  by  a  receiver. 
Conway  v.  Owensboro  Sav.,  etc..  Trust 
Co.,  165  Fed.  822. 

Since  a  suit  against  stockholders  of 
an  insolvent  bank  to  enforce  the  double 
liability  imposed  by  Ky.  St.,  §  547 
(Russell's  St.,  §  2131),  must  be  prose- 
cuted for  the  equal  benefit  of  all  cred- 
itors entitled  to  share  in  the  trust  fund 
to  be  so  collected,  the  entire  matter 
should  be  determined  in  one  com- 
prehensive suit  to  which  all  creditors 
may  become  complainants  and  in 
which  all  who  owe  or  hold  any  of  such 
trust  fund  may  be  made  defendants 
either  to  the  original  bill  or  to  a  re- 
ceiver's petition.  Conway  v.  Owens- 
boro Sav.,  etc..  Trust  Co.,  185  Fed.  950. 

Under  Ky.  St.,  §  547  (Russell's  St., 
§  2131),  which  makes  stockholders  in 
banks  and  trust  companies  liable  for 
an  amount  equal  to  the  par  value  of 
their  stock  "equally  and  ratably  and 
not  one  for  the  other  for  all  contracts 
and  liabilities  of  such  corporations," 
the  amounts  recovered  on  account  of 
such  double  liability  from  the  stock- 
holders of  an  insolvent  bank  or  trust 
company  constitutes  a  trust  fund  to 
be  ratably  distributed  among  the  cred- 
itors, and  such  liability  is  properly  en- 
forced by  a  suit  in  equity  brought  in 
behalf  of  all  creditors  against  all  stock- 
holders, who  also  have  a  coinmon  in- 
terest in  the  ascertainment  of  the 
amount  of  stock,  assets,  and  indebted- 
ness of  the  corporation,  in  which  suit 
such  questions  can  be  determined  and 
the  fund  collected  and  administered. 
.•\lsop  V.  Conway,  110  C.  C.  A.  3G6,  188 
Fed.   568. 

Massachusetts. — Howarth  v.  Lom- 
bard, 175  Mass.  570,  56  N.  E.  888,  49  L. 
R.  A.  301. 

Nebraska. — Pickering  v.  Hastings,  56 
Neb.  201,  76  N.  W.  587. 

The  double  liability  of  a  stockholder 
of  a  banking  corporation  or  institu- 
tion, as  fixed  by  Const.,  art.  11,  §  7, 
can  be  enforced  by  one  creditor  of  the 
corporation  rir  institution  only  for  the 
benefit  of  all  the  creditors,  or  by  the 
receiver  of  the  corporation  or  institu- 
tion when  there  is  a  receiver.  Farm- 
ers' Loan,  etc.,  Co.  v.  Funk,  49  Neb. 
353.  68  N.  W.  520. 

Neiv  York. — Actions  to  enforce  bank 


stockholders'  personal  liability  under 
the  New  York  Stock  Corporation  Law 
must  be  brought  on  behalf  of  the  par- 
ties named  and  all  other  creditors. 
In  re  Ziegler,  98  App.  Uiv.  117,  90  N. 
Y.   S.  681. 

North  Carolina. — The  usual  and 
better  practice  to  enforce  the  double 
liability  imposed  on  stockholders  in 
banks  by  Pub.  Laws  1897,  p.  473,  c. 
298,  where  a  creditors'  bill  has  been 
previously  brought  and  a  receiver  ap- 
pointed, is  to  seek  such  relief  in  the 
creditors'  bill,  instead  of  instituting  a 
separate  and  subsequent  action  by  the 
receiver;  and  in  such  creditors'  bill 
the  court,  on  the  report  of  the  receiver, 
may  ascertain  the  amount  for  which 
each  stockholder  should  be  held  liable, 
and  assess  him  accordingly,  and  issue 
a  notice  to  each  stockholder  to  show 
cause  why  the  assessment  should  not 
be  enforced.  Smathers  z'.  Western 
Carolina  Bank,  135  N.  C.  410,  47  S.  E. 
893. 

An  action  by  a  creditor  against  a 
stockholder,  to  enforce  the  latter's  in- 
dividual liability,  should  be  brought  in 
behalf  of  plaintiff  and  all  other  credit- 
ors who  will  come  in.  Von  Glahn  z'. 
Harris,   73   N.   C.   323. 

Ohio. — Dickason  v.  Grafton  Sav. 
Bank  Co.,  27  O.  C.  C.  357. 

Pennsylvania.  —  Where  stockholders 
of  a  bank  are  liable  for  its  debts,  then 
liability  can  not  be  enforced  except  by 
a  judicial  decree  first  obtained.  Aleans' 
Appeal,  85  Pa.  (4  Norris)  75.  followed 
in   Craig's  Appeal,  92  Pa.  396. 

Rhode  Island. — Hazlett  v.  Wood- 
head,  27  R.  L  506,  63  Atl.  952. 

Actions  against  stockholders  for  the 
debts  of  a  bank  involve  complex  con- 
tributions among  the  stockholders, 
and  are  the  proper  subject  of  equity 
jurisdiction.  Atwood  v.  Rhode  Island 
Agricultural  Bank,  1   R.  T.  376. 

South  Carolina. — Parker  v.  Carolina 
Sav.  Bank.  53  S.  C.  583,  31  S.  E.  673,  60 
Am.   St.   Rep.  888. 

IViscousin. — Under  the  general  bank- 
ing law  (Rev.  St.  c.  71.  §  18).  fixing 
the  liability  of  liank  stockholders,  the 
remedy  against  them  is  by  suit  in 
equity  in  which  all  the  creditors  should 
join,  or  one  or  more  of  them  should 
sue  for  the  benefit  of  all.  Coleman  v. 
White.   14  Wis.   700,  80  Am.    Dec.   707. 

A  judgment  creditor  of  a  bank 
(whether  he  has  or  has  not  docketed 
his  judgment,  and  issued  execution 
against  the  real  estate  of  tlie  bank) 
may  maintain  an  action  (under  Rev. 
St.  c.  148)  in  behalf  of  himself  and  all 
other  creditors  who  may  choose  to  be- 
come parties  tliereto,  against  tlie  bank 


218 


BANKS  AND  BANKING. 


49  (Icba) 


against  certain  selected  stockholders  will  not  lie,ii  but  a  demurrer  on  this 
ground  to  a  complaint  by  a  judgment  creditor  will  not  be  sustained  when  it 
does  not  appear  that  there  were  any  other  creditors.'-  In  actions  of  this 
character,  each  and  every  creditor,  whether  he  is  named  as  a  party  in  the 
action  or  does  not  come  into  the  suit,  is  entitled  to  the  benefits  of  the  decree 
entered  therein,  and  is  authorized  to  prove  his  claim,  bear  the  burden  and 
share  in  the  distribution.^" 

§  49  (Icb)  Action  at  Law  by  Creditor— §  49  (Icba)  Right  to 
Sue. — Undoubtedly,  under  the  provisions  of  some  charters  and  statutes, 
suits  may  be  maintained  by  one  creditor  against  one  or  more  of  the  stock- 
holders.^^     An  action  at  law  in  form  ex  contractu'^  as  an  action  of  debt,^^ 


jointly  with  the  stockholders,  to  reach 
and  appropriate  its  assets,  and  enforce 
the  liability  of  the  stockholders.  Mer- 
chants'  Bank  r.   Chandler,  19  Wis.  434. 

United  States  courts. — Pollard  :'. 
Bailey  (U.  S.),  20  Wall.  520,  22  L.  Ed. 
376. 

Where  a  bank  charter  provided  that 
on  the  failure  of  the  bank  "each  stock- 
holder shall  be  liable  and  held  bound 
for  any  sum  not  exceeding  twice  the 
amount  of  his  shares,"  a  suit  in  equity 
by  or  for  all  creditors  is  the  appropri- 
ate mode  of  enforcing  the  liabilit}-  in- 
curred on  such  failure.  Terry  z'.  Little, 
101  U.  S.  216,  25  L.  Ed.  864. 

The  proceedings  to  determine  how 
large  the  assessment  of  the  stockhold- 
ers should  be,  should  be  in  equity,  and 
all  of  the  stockholders  should  be  par- 
ties.    Tompkins  v.   Craig,   93   Fed.   883. 

11.  Hastings  v.  Barnd,  55  Neb.  93, 
75  N.  W.  49. 

12.  Where  the  charter  of  a  bank 
makes  each  stockholder  liable  to  twice 
the  amount  of  his  shares  for  its  debts, 
and  a  judgment  creditor  sues  at  law  a 
single  shareholder,  who  owns  nearly  all 
the  shares,  and  the  defendant  files  a 
demurrer  on  the  ground  that  the  stock- 
holder's liability  can  not  be  enforced 
by  a  single  creditor  to  the  injury  of 
others,  and  it  does  not  appear  from 
the  complaint  that  there  are  any  other 
creditors  besides  the  complainant,  the 
demurrer  will  be  overruled.  INIarsh  z\ 
Charleston,  Fed.  Cas.  Xo.  9,113,  1 
Hughes,  288. 

13.  In  re  Ziegler,  98  App.  Div.  117, 
90  N.  Y.  681. 

An  action  against  stockholders  of  a 
bank,  as  authorized  by  stock  corpora- 
tion law,  to  enforce  a  liability  for  the 
payment  of  debts,  is  for  the  benefit  of 
every  creditor,  though  not  named  as 
a  party,  and  though  they  do  not  join 
therein;  and  hence  a  nonparticipatirtg 
creditor    was    entitled    to    the    benefits 


derived  from  such  an  action  where 
she  applied  to  prove  her  claim  before 
final  distribution  of  the  proceeds  there- 
of, on  proving  a  satisfactory  excuse 
for  failure  to  prove  her  claim  before 
the  referee  within  the  prescribed  pe- 
riod. In  re  Ziegler,  98  App.  Div.  117, 
90  N.  Y.  S.  681. 

14.  Action  at  law. — Terrv  v.  Little, 
101  U.   S.  216.  25  L.   Ed.  864." 

Where  stockholders  of  a  bank  are 
made,  by  its  charter,  individually  lia- 
ble to  depositors,  the  remedj-  must  be 
pursued  at  law,  not  in  equity;  and  an 
action  may  be  had  against  a  single 
stockholder.  ]\Ieisser  v.  Thompson,  9 
III.  App.  368. 

In  the  absence  of  a  statute  requir- 
ing creditors  of  a  banking  corporation 
to  bring  their  suit  in  equity  to  enforce 
the  individual  liability  of  shareholders 
on  the  insolvency'  of  the  bank,  a  cred- 
itor of  an  insolvent  South  Dakota 
bank  may  proceed  against  one  or  inore 
of  the  stockholders  to  recover  the 
amount  of  his  indebtedness  in  an  ac- 
tion at  law.  Union  Xat.  Bank  z'.  Hal- 
ley,  19  S.   D.  474,   104  X.  W.  213. 

Suit  on  judgment  against  insolvent 
bank. — Under  Const.,  art.  18,  §  3,  mak- 
ing stockholders  of  banking  corpora- 
tions organized  under  the  laws  of 
South  Dakota  individually  liable  for 
all  contracts,  debts,  and  engagements 
of  the  bank  to  the  extent  of  the  par 
value  of  their  stock,  in  addition  to  the 
amount  invested  in  such  stock,  a  cred- 
itor may  sue  a  stockholder  on  a  judg- 
ment recovered  against  an  insolvent 
banking  association.  Union  Nat.  Bank 
z'.   Halley.  19   S.   D.  474.  104  N.  W.  213. 

15.  Actions  at  law. — Porter  v.  Kepler, 
14  O.  127. 

16.  Action  of  debt. — By  the  law  of 
Georgia,  as  declared  by  its  hicrhest 
tribunal,  an  action-  of  debt  will  lie 
against  a  stockholder  for  debts  of  the 
corporation    where    the    amount    of    a 


§  49  (Icda) 


STOCKHOLDERS. 


219 


or  an  action  on  the  case^'  will  lie;  but  a  provision  that  execution  on  a  judg- 
ment against  a  bank  may  issue  against  the  stockholders'  property  does  not 
authorize  a  personal  action  against  a  stockholder.^'^ 

§  49  (Icbb)  Enjoining  Creditors  from  Prosecuting  Suit.— Where 
creditors  have  the  right  to  enforce  the  liability  of  stockholders  in  a  bank 
for  its  debts,  the  bank  receiver  can  not  enjoin  such  suit,  although  it  is  his 
duty  to  enforce  such  liability.  Where  the  liability  of  stockholders  in  a  bank 
is  individual  and  several  to  the  creditors  of  the  bank,  the  bank  receiver  can 
not  enjoin  suit  at  law  by  individual  creditors  against  individual  stock- 
holders.^'' 

§  49  (Ice)  Action  at  Law  by  Receiver  of  Bank. — An  action  by  a 
receiver  to  enforce  a  statutory  liability  of  all  the  stockholders  of  an  insol- 
vent bank  is  cognizable  in  a  court  of  law.^o 

§  49  (led)  Action  by  Attorney  General  to  Dissolve  Bank — § 
49    (Icda)    Right    to    Enforce   Stockholder's  Liability.— Under  the 


bank's  outstanding  indebtedness  and 
the  number  of  shares  held  by  a  stock- 
holder are  known  and  can  be  stated, 
the  extent  of  his  liability  in  such  cases 
being  fixed,  and  the  amount  with 
which  he  should  be  charged  being  a 
mere  matter  of  computation.  A  sim- 
ilar action  at  law  will  therefore  be  sus- 
tained in  the  circuit  court  of  the 
United  States.  Alills  z'.  Scott,  99  U. 
S.  25,  25   L.   Ed.  294. 

17.  Action  on  the  case. — Since  the 
liability  of  stockholders  arises  from 
their  acceptance  of  the  act  creating  the 
corporation,  and  their  implied  prom- 
ises to  fulfill  its  requirements,  the 
proper  remedy  is  an  action  upon  the 
case.  Carrol  v.  Green,  92  U.  S.  509,  23 
L.   Ed.  738. 

An  action  on  the  case  lies  against 
stockholders,  in  South  Carolina,  to  re- 
cover the  debts  of  the  bank.  Carrol  r. 
Green,  93  U.  S.  509,  23  L.  Ed.  738. 

18.  Charter  of  the  Northwestern 
Hank  of  Georgia,  §  18,  provides  that 
the  individual  property  of  each  stock- 
holder shall  be  liable  for  the  redemp- 
tion of  the  bills  of  the  bank,  and  thut 
any  judgment  obtained  against  the 
bank  by  any  creditor  shall  not  only 
bind  the  property  of  the  bank,  but  sliall 
also  bind  the  individual  property  of 
each  stockholder  to  the  amount  of 
his  stock,  without  any  necessity  of 
bringing  suit  against  the  stockholder, 
and  that  execution  may  issue  on  such 
judgment  against  the  stockholder's 
property.  Held,  that  a  personal  ac- 
tion by  a  creditor  of  the  l^ank  against 
a  stockholder  is  not  authorized.    Lovvry 


:■.  Inman,  46  X.  Y.  119,  affirming  37 
How.  Prac.  153,  6  Al)!).  Prac,  X.  S., 
394;  S.  C,  32  N.  Y.  Super.  Ct.  117. 

19.  Laws  1897,  c.  47,  §  55,  providing 
that  the  receiver  of-  a  defunct  bank 
shall  bring  suit  against  the  stockhold- 
ers to  recover  the  amount  due  on 
their  stockholders"  liability  in  case  the 
assets  are  insufficient  to  pay  tiie  bank 
creditors,  and  that  a  creditor  shall  not 
bring  an  action  to  enforce  such  stock- 
holders' liability  unless  it  appears  to 
the  court  that  the  receiver  has  failed 
to  do  so,  does  not  take  away  from  the 
creditors  the  right  to  enforce  tlie 
stockholders'  liability,  l)ut  merely  im- 
poses a  condition  thereon;  and  there- 
fore a  receiver  could  not  maintain  in- 
jiinction  against  a  creditor  to  prevent 
him  from  prosecuting  a  suit  to  enforce 
such  lial)ility.  Sims  :.  Brown,  10  Kan. 
App.  201,  02  Pac.  713. 

The  charter  of  a  savings  l)ank  de- 
clared that  all  the  stockholders  should 
be  severally  and  individually  lial)le  to 
the  depositors  to  the  amount  of  stock 
held  by  them  respectively.  The  l)ank 
failed,  and  a  receiver  was  appointed. 
Suits  at  law  were  brought  Ijy  individ- 
uaj  depositors  against  individual  stocU- 
holders  to  enforce  tlie  liability  created 
by  tlie  charter.  The  receiver  sought 
in  equity  to  enjoin  these  suits,  and  to 
enforce  as  such  receiver  the  liability 
of  the  stockIio!(UTs  for  the  lienefit  of 
all  c<)ncerne<I.  Held,  that  the  deposit- 
ors could  not  be  dei)rive<l  of  their  rigiit 
to  sue  at  law.  Wiiicock  r'.  Turpin,  90 
111.   135. 

20.  Action  by  receiver. — Moore  v. 
Ripley,  100  Ga.  550.  .32  S.  E.  047. 


220 


BANKS   AND    BANKING. 


§  49  (Icf) 


Code  of  Civil  Procedure  of  New  York,  §  1785,  subd.  4,  where  an  action 
to  dissolve  a  bank  is  brought  by  the  attorney  general  and  a  permanent  re- 
ceiver appointed,  and  the  attorney  general  refuses  after  notice  to  sue  the 
stockholders  to  enforce  their  liability  for  the  bank's  debts,  the  creditor  may 

O  1 

sue.-^ 

§  49  (Icdb)  Intervention  by  Creditors. — Creditors  may  intervene  in 
an  action  by  the  attorney  general  to  forfeit  the  charter  of  a  bank  and  en- 
force the  individual  liability  of  its  stockholders.-- 

§  49    (Ice)   Superintendent  of  Bank  Authorized  to  Enforce. — A 

banking  law,  authorizing  the  superintendent  of  banks  to  sue  to  enforce  the 
liability  of  stockholders  necessary  to  pay  debts  after  taking  possession  of 
the  affairs  of  the  corporation,  does  not  make  the  enforcement  of  such  lia- 
bility mandatory  on  the  superintendent,  nor  does  it  deprive  the  creditor  of 
his  right  to  enforce  such  liability  on  behalf  of  himself  and  other  creditors 
of  the  corporation. -2 

§  49  (Icf)  Nonresident  Stockholder. — While,  in  a  proper  case,  the 
liability  of  a  nonresident  stockholder  of  an  insolvent  bank  would  be  deter- 
mined by  the  construction  placed  on  the  statute  creating  such  liability  by  the 
courts  of  the  domicile  of  the  corporation,  the  remedy  or  method  of  enforc- 
ing such  liability  against  him  must  conform  to  the  procedure  of  the  forum 
whose  aid  is  invoked. ^^ 


21.  Right  of  creditor  to   enforce. — 

The  people,  under  Code  Civ.  Proc, 
§  1785,  subd.  4,  brought  an  action  to 
dissolve  a  banking  corporation,  and 
the  permanent  receiver  appointed  re- 
fused to  sue  stockholders  on  their  stat- 
utory liability  to  make  up  a  deficiency 
of  assets  over  existing  liabilities,  as 
authorized  by  Laws  1892,  c.  689,  §  52,  on 
the  ground  that  the  action  was  barred 
by  limitations.  Held,  that  there 
was  no  authority'-  under  the  Code  for 
an  order,  on  the  petition  of  a  creditor 
of  the  corporation,  to  compel  the  at- 
torney general  to  bring  the  stockhold- 
ers into  the  action  to  dissolve  the  bank 
and  determine  their  liability.  People 
V.  Commercial  Bank,  37  Misc.  Rep.  16, 
74  N.  Y.  S.  806. 

22.  Intervention  in  action  to  forfeit 
charter. — The  attorney  general  sued 
to  forfeit  the  charter  of  a  bank  organ- 
ized under  state  laws,  for  failure  to  re- 
duce an  indebtedness  of  the  president 
of  the  bank  to  the  statutory  limits,  as 
required  by  Gen.  St.  1894,  §§  2525,  2628. 
Thereafter,  before  judgment,  a  cred- 
itor, with  the  consent  of  the  attorney 
general,  and  with  leave  of  court,  inter- 
vened in  the  action,  filed  a  complaint, 
and  brought  in  stockholders  as  defend- 


ants to  enforce  their  double  liability. 
Held,  that  the  action  was  fully  author- 
ized by  Gen.  St.  1894,  §§  5900-5902.  and 
creditors  might,  during  the  pendency 
of  such  action,  enforce  such  liability 
against  the  stockholders  under  §  5905, 
or  proceed  as  in  the  case  at  bar.  State 
V.  Merchants'  Bank,  67  Minn.  506,  70  N. 
W.  803. 

23.  It  was  so  held  under  the  New 
York  Banking  Law,  as  amended  by 
Laws  of  1908,  c.  143,  §  3,  Consol.  Laws 
1909,  c.  2,  §  19.  Cheney  v.  Scharmann, 
145  App.  Div.  456,  129  N.  Y.  993. 

24.  Nonresident  stockholder. — Covell 
V.  Fowler,  144  Fed.  535. 

Laws  Colo.  1885,  p.  264,  §  1,  provides 
that  shareholders  in  banks  shall  be  in- 
dividually responsible  for  its  debts,  in 
double  the  amount  of  the  par  value  of 
stock  owned  by  them  respectively. 
Held,  that  notwithstanding  the  courts 
of  that  state  had  determined  that  the 
obligation  thereby  created  was  second- 
ary, yet  when  suit  was  brought  there- 
on in  California  against  a  resident 
stockholder  of  an  insolvent  Colorado 
bank  the  lex  fori  would  prevail  with 
reference  to  the  form  of  action  essen- 
tial to  enforce  such  liability,  which 
would    be    considered    as    an    original 


§  49  (2b) 


STOCKHOLDERS. 


221 


§  49    (2)   Jurisdiction— §  49    (2a)   Existence  of  Legal  Remedy. 

—Every  creditor  has  an  interest  in  the  liability  of  every  stockholder;  and 
hence  equity  has  jurisdiction  of  a  suit  for  an  accounting  of  the  assets,  and 
to  enforce  the  liability,  in  the  absence  of  a  statute  pointing  out  a  different 
course,  though  a  legal  remedy  also  exists,  since  a  resort  to  the  legal  remedy 
would  entail  a  multiplicity  of  suits. -^ 

§  49    (2b)    Court  in  Which  Receivership  Pending.— In  General.— 

After  a  bank  has  become  insolvent  and  its  property  has  been  placed  in  the 
hands  of  a  receiver  for  liquidation,  the  court  in  which  the  receivership  pro- 
ceedings are  pending  has  power  to  levy  assessments  against  stockholders  to 
enforce  their  subscription  liability.^o 

Stockholders  Residing  in  Other  County  or  Parish.— All  the  stock- 
holders, though  residing  in  different  parishes,  may  be  sued  for  contributions 
before  the  court  liquidating  the  bank.2" 


statutory      liability.       Miller     v.      Lane 
(Cal.),   116   Pac.   58. 

Laws  Colo.  1885,  p.  264,  providing 
no  method  for  enforcing  the  double 
liability  imposed  in  an  action  outside 
the  state,  the  course  of  procedure  must 
be  regulated  by  the  law  of  the  state 
where  it  is  sought  to  make  the  remedy 
available,  under  the  rule  that  remedies 
are  regulated  by  the  lex  fori,  and  no 
law  existing  in  Maine  whereby,  in  ac- 
tions ^t  law,  one  or  more  persons  may 
sue  for  the  benefit  of  themselves  and 
others  interested  in  a  question  of  com- 
mon or  general  interest,  an  action  in 
Maine  by  three  creditors  of  a  Colorado 
bank  to  enforce  double  liability  im- 
posed by  the  Colorado  statute  upon 
stockholders  can  not  be  maintained. 
Miller  v.  Spaulding,  107  Me.  264,  78 
Atl.  358. 

Laws  Colo.  1885,  p.  264,  imposes 
upon  stockholders  in  banking  corpora- 
tions a  lial)ility  to  creditors  in  double 
the  amount  of  the  value  of  the  stock 
held  l)y  them  respectively,  but  no  spe- 
cial remedy  is  provided  for  enforce- 
ment of  the  liability.  Held,  that  Civ. 
Code  Colo.,  §  12,  providing  that  when 
a  question  is  one  of  a  general  interest 
to  many  persons,  or  when  the  parties 
are  numerous  and  it  is  impractical)le 
to  bring  them  all  before  the  court,  one 
or  more  may  sue  the  defendant  for  the 
benefit  of  all,  and  the  court  may  order 
the  action  to  be  so  prosecuted  or  de- 
fended, oljviously  enacted  without  any 
special  reference  to  the  method  of  en- 
forcing the  liability  of  stockholders 
for  the  debts  of  insolvent  corporations, 
making  no  provision  for  appointment 
of  an  assignee  or  receiver  to  be  vested 


with  the  rights  of  creditors,  and  ein- 
powered  as  their  representatives  to  en- 
force the  liability  of  stockholders,  but 
simply  establishing  a  local  method  of 
procedure,  without  force  beyond  the  ju- 
risdiction of  the  state,  and  no  part  of 
the  contract  entered  into  by  the  share- 
holders in  subscribing  for  their  stock, 
furnishes  no  remedy  to  creditors  of  a 
Colorado  bank  to  enforce  the  doulile 
liability  of  a  nonresident  stockholder 
in  Maine.  Miller  r.  Spaulding,  107  Me. 
264.   78   Atl.   358. 

25.  Existence  of  legal  remedy. — It 
was  so  held  under  Act  Dec.  24,  1885 
(19  St.  at  Large,  p.  212),  §  4,  making 
stockholders  of  a  bank  liable  to  the 
amount  of  five  per  cent  of  their  stock 
in  addition  thereto  for  its  debts. 
Parker  7:  Carolina  Sav.  Bank,  53  S.  C. 
583,   31   S.   E.  673,   69  Am.  St.   Rep.  8SS. 

26.  Court  in  which  receivership 
pending.— Covell  :■.  Fowler,  144  Fed. 
535. 

Under  3  How.  Ann.  St.,  §  320Se5, 
making  bank  stockholders  individually 
liable  to  the  amount  of  their  stock  for 
the  benefit  of  depositors,  and  §  320Sf4, 
directing  the  court,  on  lieing  satisfied 
of  the  bank's  insolvency,  to  appoint  a 
receiver,  who  shall  take  possession  of 
the  books  and  enforce  all  liability  of 
the  stockholders,  the  court  has  juris- 
diction to  determine  ex  parte  the  ne- 
cessity for  enforcing  flic  individual  lia- 
i>ilit}-  and  to  ascertain  the  amount  nec- 
essary to  meet  the  deficit.  Foster  v. 
Rroas,  120  Mich.  1,  79  N.  W.  <;'.)6.  77 
Am.  St.  Rep.  '>>'>:>. 

27.  Stockholders  residing  in  other 
county  or  parish. — Stark  ::  I'.urkc.  etc., 
Co.,  5  La.  .Ann.  740. 


222 


BANKS   AND   BANKING. 


§  49   (3) 


§  49    (2c)   Courts  of  Foreign  Jurisdiction. — Action  by  Creditors. 

— By  the  weight  of  authority,  the  individual  liability  of  holders  of  bank  stock 
is  enforceable  by  creditors  of  the  bank  in  the  courts  of  another  state,  where 
it  is  a  primary  liability  and  not  a  penalty,-^  where  it  is  a  substantive  right,-** 
or  where  it  is  a  liability  arising  on  contract  f*^  but  where  such  liability  is  not 
contractual  but  created  solely  by  statute,  the  cause  of  action  is  local  and  not 
enforceable  in  another  state. ^^ 

§  49  (2d)  Loss  or  Divestiture. — Mere  lapse  of  time  between  an  in- 
terlocutory order  in  receivership  proceedings,  in  a  suit  against  a  bank,  de- 
termining who  were  creditors  and  who  were  stockholders,  and  the  amount 
for  which  each  stockholder  was  liable,  and  providing  for  the  enforcement  of 
the  liability,  and  retaining  jurisdiction  for  that  purpose,  and  the  final  judg- 
ment ;    is  no  indication  that  the  court  lost  jurisdiction.^^ 

§  49  (3)  Courts  and  Venue.— Court  of  County  in  Which  Bank 
Located. — Where  a  bank  has  become  insolvent,  and,  under  the  general 
laws,  it  is  sought  to  make  the  stockholders  liable  for  its  debts,  proceedings 
must  be  in  the  court  of  common  pleas  of  the  county  in  which  the  bank  is 
located.  ^2 

Real  Estate  of  Nonresident  Stockholders. — A  court  administering  the 
affairs  of  an  insolvent  bank  and  enforcing  the  statutory  liability  of  its  stock- 
holders has  jurisdiction  over  real  estate,  situate  in  the  state  of  the  forum, 
but  belonging:  to  nonresident  stockholders. •^■^ 


28.  The  liability  of  an  Arkansas 
stockholder  of  an  insolvent  California 
bank  under  Civ.  Code  Cal.,  §  323,  mak- 
ing a  stockholder  in  a  corporation  lia- 
ble to  each  creditor  of  the  corporation 
tor  the  portion  of  the  debt  which  the 
stock  owned  by  such  stockholder  bears 
to  the  whole  subscribed  capital  stock, 
may  be  enforced  in  Arkansas  by  a  suit 
at  law.  Lanigan  v.  North,  69  Ark.  62, 
63  S.  W.  62. 

Civ.  Code  Cal.,  §  322,  making  a  stock- 
holder in  a  corporation  liable  to  each 
creditor  of  the  corporation  lor  the  por- 
tion of  the  debt  which  the  stock  owned 
by  such  stockholder  bears  to  the  whole 
subscribed  capital  stock  of  the  corpo- 
ration, does  not  create  a  penalty,  but 
renders  the  stockholder  primarily  lia- 
ble on  such  debt,  and  authorizes  an  ac- 
tion in  Arkansas  against  an  Arkansas 
stockholder  of  an  insolvent  California 
bank.  Lanigan  v.  North,  69  Ark.  62,  63 
S.  W.  62;  Childs  v.  Blethen,  40  Wash. 
340,  82  Pac.  405. 

29.  Under  Hill's  Ann.  St.  &  Codes 
Wash.,  §  1511,  providing  that  bank 
stockholders  shall  be  liable  to  the 
creditors  to  the  amount  of  the  par 
value   of  the   stock  in   addition   to   the 


amount  invested  in  such  stock,  the  lia- 
bility of  the  stockholders  is  a  substan- 
tive right,  and  is  enforceable  against 
a  resident  of  the  state  who  is  a  stock- 
holder in  such  insolvent  corporation 
in  the  state  of  Washington.  Howarth 
V.  Lombard,  175  Mass.  570,  56  N.  E. 
888,  49  L.  R.  A.  301. 

30.  Under  the  provision  of  the 
charter  of  a  bank  in  Illinois  making 
stockholders  liable  for  the  debts  of 
the  bank  to  the  amount  of  their  stock, 
the  liability  arises  on  contract,  and 
therefore  it  may  be  enforced  in  courts 
of  another  state.  Hodgson  z'.  Cheever, 
8  Mo.  App.  318. 

31.  The  individual  liability  of  a 
stockholder  of  a  Kansas  banking  cor- 
poration, is  not  enforceable  in  the 
courts  of  New  Hampshire.  Crippen 
V.  Laighton,  69  N.  H.  540,  44  Atl.  538, 
46   L.  R.  A.  467,  76  Am.   St.   Rep.  192. 

32.  Loss  or  divestiture. — Childs  v. 
Blethen,   40  Wash.   340,  82   Pac.  405. 

33.  Courts  and  venue. — Appeal  of 
Means  (4  Xorris),  85  Pa.  75. 

34.  Real  estate  of  nonresident  stock- 
holders.— When  receivers  are  ap- 
pointed to  take  possession  of  the  prop- 
erty   of    a    bank,    a  lien    is    created    by 


§  49  (4a) 


STOCKHOLDERS. 


223 


§  49     (4)    Set-Off     and     Counterclaim— §  49    (4a)   Set-Off.— A 

stockholder  who  is  also  a  creditor  of  an  insolvent  bank  can  not  set  off  its 
debt  to  him  against  his  statutory  liability  for  its  debts,^^  since  his  liability 
is  to  the  creditors,  and  for  the  further  reason  that  such  set-off  would  result 
in  a  preference  \^*^  but  in  Maryland^'^  a  stockholder  who  is  also  a  creditor  is 
entitled  to  set  up  as  an  equitable  defense  the  debt  of  the  bank  to  him  against 
his  own  liabiHty. 

A  stockholder  purchasing  claims  against  the  bank  at  a  discount  is 
not  entitled  to  credit  at  the  full  face  value  but  can  only  be  allowed  his  ac- 
tual outlay  and  is  still  liable  for  the  dift'erence  between  the  amount  and  that 
of  his  liabilitv  as  a  stockholder,-^^  but  a  stockholder  who  is  an  assignee  of 


statute  (Rev.  St.  1857,  c.  47,  §  74),  upon 
the  real  estate,  situate  in  this  state,  of 
the  stockholders  liable  for  claims 
which  exist  against  the  bank.  There- 
fore the  court  has  jurisdiction  over 
the  real  estate  of  nonresident  stock- 
holders.    Wiswell  v.  Starr,  50  Me.  381. 

35.  Set-off.— Barnes  v.  Arnold,  169 
X.  Y.  611.  62  N.  E.  1093,  affirming  45 
App.  Div.  314,  61   N.  Y.   S.  85. 

In  proceedings  to  enforce  the  per- 
sonal liability  of  stockholders  of  a 
bank  under  Laws  1849,  c.  226,  relative 
to  closing  up  the  affairs  of  an  insolvent 
bank,  a  stockholder,  who  is  also  a 
creditor,  can  not  offset  his  claim 
against  his  liability  as  a  stockholder. 
In  re  Empire  City  Bank  ( N.  Y.),  6 
Abb.   Prac.  385. 

As  against  the  lial)ility  imposed  by 
Banking  Law,  §  303,  the  stockholders 
are  not  entitled  to  offset  an  indebted- 
ness of  the  corporation  to  them.  Mos- 
ler  Safe  Co.  v.  Guardian  Trust  Co. 
(App.   Div.),  138  X.   Y.   S.  298. 

Deposit. — A  stockholder  of  an  in- 
solvent bank  can  not  set  off  his  de- 
posit in  the  bank  a.uainst  his  unpaid 
stock  subscription.  Williams  v.  Trap- 
hagen,  38  N.  J.  Eq.  57 

36.  Under  Act  Dec.  24,  1885  (19  St. 
at  Large,  p.  212),  §  4,  making  stock- 
holders of  a  bank  liable  to  the  amount 
of  five  per  cent  of  their  stock  in  addi- 
tion thereto  for  the  l)ank's  debts, 
stockholders  can  not  set  off  claims  due 
them  by  the  bank  against  their  statu- 
tory liability,  since  their  liability  is  to 
the  creditors,  and  for  the  further 
reason  that  such  set-off  would  result 
in  a  preference.  Parker  v.  Carolina 
Sav.  Bank,  53  S.  C.  583,  31  S.  E.  673,  69 
Am.  St.  Rep.  888. 

37.  .V/rtry/a«(f.— Cahill  7:  Original  Big 
Gun,  etc.,  .Ass'n,  94  Md.  353,  50  Atl. 
1044. 

Where   defendant    indorsed    the   note 


of  a  bank  in  which  he  was  a  stock- 
holder, and  on  the  insolvency  of  the 
bank  was  required  by  order  of  court  to 
pay  a  sum  greater  than  his  statutory 
liability  as  a  stockholder,  he  thereby 
became  a  creditor  of  the  bank,  and 
as  such  was  entitled  to  plead  such  pay- 
ment as  an  equitable  set-off  to  an 
action  by  a  creditor  of  the  bank  to 
enforce  his  liability  as  a  stockholder. 
Strauss  v.  Denny,  95  Md.  690,  53  Atl. 
571. 

38.  Purchasing  claims  at  a  discount. 
— Where  a  charter  makes  the  stock- 
holders liable  for  the  debts  of  the  bank 
to  an  amount  equal  to  their  stock, 
they  can  not,  by  purchasing  claims 
against  the  bank  at  a  discount,  reduce 
their  liability.  They  can  be  allowed 
no  more  than  their  actual  outlay,  and 
will  still  be  liable  to  other  creditors 
for  the  difference  between  that  and 
the  amount  of  their  stock.  Gauch  z'. 
Harrison,   12    111.  (App.   457. 

Director  purchasing  claims  against 
insolvent  bank. — .\fter  a  chartered 
bank  has  been  adjudicated  a  bankrupt, 
a  member  of  its  last  active  board  of 
directors  (the  board  in  existence  when 
the  failure  occurred  and  the  act  of 
bankruptcy  was  committed)  can  not 
buy  up  claims  against  it  at  a  discount, 
and  entitle  himself  to  credit  therefor 
at  full  face  value  in  settlement  with 
creditors  on  his  personal  liability  as 
a  stockholder.  At  least,  this  can  not 
be  done  so  as  to  defeat  the  suit  of  a 
creditor  who  commenced  his  actions 
before  the  bought-up  claims  were 
actually  applied  in  extinguishment  of 
the  stockholder's  personal  liability,  and 
whilst  the  stockholder  held  them,  as 
transferee,  open  against  the  liank.  he 
not  having  surrendered  or  canceled 
them  until  after  the  action  was 
l)rf)iight.  Holland  r.  Heyman  &  Bro., 
60    Ga.    174. 


224  BANKS  AND   BANKING.  §    49    (5a) 

a  judgment  rendered  in  favor  of  a  note  holder  may  have  his  liabiHty  ex- 
tinguished pro  tanto  by  said  assigned  judgment.s^ 

Share  of  Surplus. — Stockholders  are  not  depositors  to  the  amount  of 
the  surplus  and  may  not  defend  on  the  ground  that  they  are  creditors  to 
the  amount  of  a  proportional  share  of  the  surplus.'*'^ 

Assessment  by  Superintendent  of  Bo-nks. — Stockholders,  having 
paid  an  assessment  levied  by  the  bank  superintendent,  under  the  New  York 
Banking  Law,  §  17,  to  swell  assets  for  liquidation,  held  entitled  to  offset 
the  amount  so  paid  against  their  liability  to  creditors,  under  Banking  Law, 
§  303.4oa 

§  49  (4b)  Counterclaim. — In  an  action  by  the  receiver  of  a  bank 
against  a  stockholder  under  a  statute  imposing  a  liability  upon  stockholders 
for  the  debts  of  the  bank,  the  defendant  can  not  plead  as  a  counterclaim  a 
claim  for  damages  against  the  bank  for  false  representations  made  at  the 
time  he  bought  his  stock,  the  bank  not  being  a  party  to  the  action.^ ^ 

§  49  (5)  Time  to  Sue,  and  Limitations  and  Laches — §  49  (5a) 
Time  to  Sue. — Depositors  of  an  insolvent  bank  in  suits  against  stock- 
holders are  not  bound  to  wait  for  the  settlement  of  given  claims  for  con- 
tribution between  living  stockholders  and  the  estates  or  heirs  of  deceased 
stockholders.  The  adjustment  of  such  controversies  will  be  left  to  suits 
having  that  as  the  main  and  primary  object.^- 

Premature  Suit. — When  the  contingency  of  a  deficiency  exists,  a  suit 
to  determine  the  amount  is  not  prematurely  brought.^-^ 

39.  Assignee  of  judgment  in  favor  of  of  banks.— Hosier  Safe  Co.  v.  Guard- 
note  holder.— Marr  v.  Bank,  72  Tenn.  ia„  Trust  Co.  (Aop.  Div.),  138  N.  Y.  S. 
(4   Lea)    578.  298 

40.  Share   of  surplus. — Under   Comp.  \\    n        ^      i  •          cv.     r         t      • 
Laws,  §§  6102,  6116.  6135,  6141,  authoriz-  %  Counterclaim.-Sheafe  v.  Larimer, 
ing  a  bank  to  declare  a  dividend  after  . 

providing    for    expenses     and     surplus,  ^2.  Time  to  sue.— Wood  v.  Wood,  40 

providing  for  a  reserve,  making  stock-  ^^^-  App.  182. 

holders  liable  to  the  depositors  to  the  43.  Premature  suit. — Where,  in  pro- 
amount  of  the  stock  in  addition  to  the  ceedings  against  the  American  Bank- 
stock,  and  limiting  loans  which  may  ing  &  Trust  Company,  the  final  account 
be  made  by  the  bank,  the  stockholders  of  the  receiver  showing  a  full  adminis- 
of  a  bank  are  not  depositors  to  the  tration  of  the  assets  and  no  balance 
amount  of  the  surplus;  for,  until  a  di-  in  his  hands  is  by  decree  approved 
vision  thereof,  the  surplus  is  owned  and  allowed,  and  the  report  of  the  com- 
by  the  shareholders  collectively,  and  missioners  on  the  claims  against  the 
is  by  them  collectively  embarked  as  the  corporation  previously  accepted  and 
capital  of  the  bank  in  the  banking  allowed  shows  the  amount  of  the  lia- 
business,  and  stockholders  sued  on  bilities  of  the  corporation,  the  fact  and 
their  statutory  liability  may  not  defend  amount  of  the  deficiency  of  assets,  if 
on  the  ground  that  they  are  creditors  any,  have  been  judicially  ascertained, 
of  the  bank  to  the  amount  of  a  pro-  and  a  suit  to  enforce  the  statutory  lia- 
portional  share  of  the  surplus,  for  the  bility  of  the  stockholders  imposed  by 
word  "depositors"  in  the  statute  is  Sp.  Laws  1889,  p.  547,  c.  349,  §  6,  in 
used  in  its  ordinary  meaning  in  the  amendment  of  its  original  charter 
business  of  banking.  Wedemeyer  v.  begun  immediately  thereafter,  is  not 
Hmdelang,  161  Mich.  600,  126  N.  W.  premature,  and  there  is  no  need  of  a 
'^^^-  further  decree  to  declare  the  obvious 
40a.    Assessment    by    superintendent  mathematical   truth.     Flynn   v.   Ameri- 


§  49  (5b) 


STOCKHOLDERS. 


225 


§  49  (5b)  What  Statutes  Applicable.— The  state  statute  of  limita- 
tions applicable  to  an  action  to  recover  on  a  bank  stockholder's  personal 
Hability  depends  upon  the  phraseology  of  the  statute  creating  the  liability 
and  that  of  the  general  statute  of  limitations.'*'* 

In  United  States  Courts.— Suits,  either  at  law  or  in  equity,  in  the 
United  States  circuit  court,  by  creditors  to  enforce  the  stockholders'  liabil- 
ity under  a  state  statute,  are  governed  by  the  state  statute  of  limitations.^^ 


can,    etc..    Trust    Co..    104    Me.    141,    69 
Atl.  771. 

An  action  to  enforce  an  agreement 
binding  stockholders  of  an  insolvent 
bank  to  give  their  notes  to  it.  to  be  col- 
lected in  case  there  was  a  deficiency 
in  assets  to  discharge  liabilities  exist- 
ing at  the  date  of  the  agreement,  was 
not  prematurely  brought  where  it  ap- 
peared from  the  complaint  that  there 
was  such  a  deficiency  when  the  action 
was  commenced,  and  that  an  account- 
ing was  necessary  to  determine  the 
exact  amount  thereof.  Thompson  <:•. 
Gross.  10(5  Wis.  .34,  81   X.  W.  lOfil. 

44.  Limitation  of  actions — statute 
applicable. — The  statute  of  limitations 
(Act  X.  H.  June  16,  1791),  providing 
that  unless  "all  actions  of  debt, 
grounded  upon  any  lending  or  contract 
without  specialty,  and  all  actions  of 
debt  for  arrear'ages  of  rent,  are  com- 
menced within  six  years,"  etc.,  does 
not  apply  as  a  bar  to  an  action  of  debt 
brought  upon  a  statutory  provision 
that  the  stockholders  of  a  bank  whose 
bills  are  dishonored  shall  be  personally 
liable  to  the  holder  for  the  payment 
thereof.  Bullard  7'.  Bell,  Fed.  Cas.  Xo. 
2,121,   1    Mason,  24.3. 

45.  State  law  governs  in  United 
States  Courts. — Fourth  Xat.  Bank  v. 
Francklyn.  120  U,  S.  747,  756,  .30  L.  Ed. 
825,  7  S.  Ct.  757,  citing  Terry  v.  Tub- 
man, 92  U.  S.  156,  23  L.  Ed.  537;  Car- 
rol V.  Green,  92  U.  S.  509,  23  L.  Ed. 
738;  Terry  v.  Anderson,  95  U.  S.  628, 
24  L.   Ed.  365. 

The  Exchange  Bank  of  Columbia.  S. 
C,  failed  in  February.  1865.  In  June, 
1872.  its  creditors  filed  a  bill  in  equity 
to  enforce  their  claims  against  the 
stockholders  under  a  clause  of  the 
charter,  which,  "upon  the  failure  of 
the  bank."  rendered  them  individually 
liable  for  any  sum  not  exceeding 
double  the  value  of  their  respective 
shares.  The  defense  set  up  the  Statute 
of  Limitations  of  1712,  which  requires 
actions  upon  the  case,  and  actions  of 
debt,     grounded     upon      any     contract 

1   B  &  B— 15 


without  specialty,  to  be  brought  within 
four  years.  Held,  that  as  the  liability 
of  the  stockholders  arose  from  their 
acceptance  of  the  act  creating  the  cor- 
poration, and  their  implied  promises 
to  fulfill  its  requirements,  the  proper 
remedy  was  an  action  upon  the  case; 
and  that,  as  the  statute  barred  such 
an  action  at  law,  it  was  also  a  good 
defense  in  equity.  Carrol  f.  Green, 
92    U.    S.    509,   23    L.    Ed.    738. 

The  Statute  of  Georgia  of  1869,  lim- 
iting the  time  for  enforcing  rights  ac- 
crued prior  to  June  1,  1^65,  may  be 
set  up  as  a  valid  bar  to  suits  brought 
after  Jan.  1,  1870,  to  enforce  the  in- 
dividual liability  of  the  stockholders 
of  a  bank  in  that  state  for  the  ultimate 
redemption  of  its  bills  which  it  ceased 
and  failed  to  pay  before  June  1.  1865, 
or  to  recover  the  unpaid  balance  due 
on  stock  subscriptions  at  the  time  of 
such  failure,  as  it  allowed  sufficient 
time,  before  the  bar  attached.  Terry 
f.  Anderson,  95  U.  S.  628,  24  L.  Ed. 
365. 

In  Terry  z:  Tubman,  92  U.  S.  156. 
23  L.  Ed.  537,  it  was  decided  that 
where  the  charter  of  a  bank  contained 
a  provision  binding  the  individual 
property  of  its  stockholders  for  the 
ultimate  redemption  of  its  bills  in  pro- 
portion to  the  number  of  shares  lield 
by  them  respectively,  the  lial)ility  of 
the  stockholder  arose  when  the  l)ank 
refused  or  ceased  to  redeem,  and  was 
notoriously  insolvent;  and  that  when 
such  insolvency  occurred  prior  to 
June  1,  1865,  an  action  against  a  stock- 
holder not  commenced  by  Jan.  1. 
1870.  was  barred  by  the  statute  of  lim- 
itations of  Georgia  of  Marcli  16,  1S69. 
That  act,  as  recited  in  its  preamble, 
was  passed  on  account  of  the  confu- 
sion that  had  "grown  out  of  the  dis- 
tracted condition  of  affairs  during  the 
late  war,"  and  substantially  barred 
suits  upon  all  actions  which  accrued 
before  the  close  of  the  war,  if  not 
commenced  by  tlic  first  day  of  January. 
1870.  Terry  7'.  Anderson.  0,5  U.  S. 
628,    632,    24    L.    Ed.    365. 


226 


BANKS    AND    BANKING. 


49   (5d) 


§  49  (5c)  In  What  Actions  Available. — A  plea  of  the  statute  of 
limitation  is  applicable  both  to  a  creditor's  bill  against  the  stockholders  of 
an  insolvent  bank  and  to  proceedings  under  the  receivership  to  enforce  his 
personal  liability.^*' 

§  49  (5d)  When  Statute  Begins  to  Run. — The  point  of  time  from 
which  the  statute  of  limitations  with  respect  to  actions  on  bank  stockholders' 
personal  liability  begins  to  run  depends  upon  the  language  of  the  statutes 
of  various  states.  Thus  the  statute  may  begin  to  run  at  the  time  when  the 
bank  failed  to  pay  its  depositors  or  its  outstanding  circulating  notes  ;'*^  from 
the  suspension  of  specie  payment  ;^s  from  the  day  the  bank's  doors  are 
closed;"*^  from  the  time  when  the  corporation  was  placed  in  the  hands  of 
an  assignee  in  bankruptcy  or  insolvency,  or  of  a  receiver  to  wind  up  its 


46.  In   what   actions   available. — The 

objection  that  a  creditor's  claim  against 
stockholders  of  an  insolvent  bank, 
under  the  liability  imposed  by  §  52  of 
the  banking  law,  is  barred  by  limita- 
tions, is  just'  as  available  where  he  is 
made  a  party  to  an  action  to  enforce 
such  liability  by  another  creditor  in 
his  own  behalf  and  in  behalf  of  all 
others  as  it  would  be  if  he  came  in 
only  under  the  interlocutory  judgment. 
Hagmayer  v.  Alten,  41  App.  Div.  487, 
58    N.   Y.   S.   684. 

47.  Failure  to  pay  depositors  or  cir- 
culating notes. — Where  the  charter  of 
a  state  bank  made  its  stockholders,  at 
the  time  of  its  failure  or  within  a  year 
prior  thereto,  liable  individually  for  a 
sum  not  over  twice  the  amount  of  their 
holdings,  such  failure  occurred  when 
the  bank  failed  to  pay  its  depositors 
or  the  outstanding  circulating  notes, 
and  the  statute  then  began  to  run 
against  such  liability.  Godfrey  v.  Terry, 
07   U.   S.   171,  24  L.    Ed.   944. 

Where  a  South  Carolina  state  bank 
failed,  within  the  meaning  of  the 
clause  of  its  charter,  in  November, 
1860,  it  follows  that  only  those  who 
were  then  shareholders,  or  who  had 
been  within  twelve  months  before,  are 
liable,  or  could  be  liable,  in  this  suit, 
and  as  to  those  who  were  then  stock- 
holders the  statute  of  limitation  is  a 
perfect  bar,  and  no  action  can  be  main- 
tained against  them.  Godfrey  v.  Terry, 
97  U.  S.  171,  24  L.   Ed.  944. 

Where  a  bank  failed  to  pay  the  de- 
posits then  held,  or  the  circulating 
notes  it  had  then  out,  according  to  its 
legal  obligations  to  do  so,  it  was  not 
able   to    do    so,   and    therefore   was    in- 


solvent. It  did  not  do  so,  and  was 
therefore  bankrupt.  It  refused  to  do 
so,  and  therefore  it  had  failed.  Godfrey 
V.  Terry,  97  U.  S.  171,  179,  24  L.  Ed. 
944. 

"Since  it  never  did  pay  or  offer  to 
pay  these  obligations,  since  it  was 
never  after  this  able  to  pay  these  obli- 
gations, it  was  ever  afterwards  in- 
solvent, and  its  failure  must  bear  date 
of  this  first  and  continued  refusal 
and  inability  to  pay."  Godfrey  v.  Terry, 
97  U.   S.   171,  24  L.   Ed.  944. 

The  suspension  of  specie  payments 
took  place  on  the  twenty-seventh  day 
of  November,  1860,  and  the  statute 
of  limitations  of  four  years  of  the 
state  of  South  Carolina,  applicable  to 
such  cases,  bars  the  right  of  recovery 
by  a  holder  of  its  notes  upon  the 
statutory  individual  liability  of  its 
stockholders.  This  point  was  adjudged 
in  this  court  against  the  present  com- 
plainant in  Godfrey  v.  Terry,  97  U.  S. 
171,  24  L.  Ed.  944;  Terry  v.  McLure, 
103  U.  S.  442.  26  L.  Ed.  403.  See,  also, 
Carrol  v.  Green,  92  U.  S.  509,  23  L. 
Ed.   738. 

48.  Suspension  of  specie  payment. — 

The  statute  runs  against  the  right  to 
enforce,  by  action,  the  personal  lia- 
bility of  stockholders  in  a  bank  from 
the  time  of  the  suspension  of  specie 
payments  by  the  bank.  Long  v.  Bank, 
90  N.  C.  405. 

49.  When  doors  closed. — As  against 
a  stockholder's  statutory  liability  for 
the  bank's  debts,  in  double  the  amount 
of  stock  held  by  him,  limitations  begin 
to  run  from  the  day  the  bank's  doors 
are  closed.  Amer  v.  Armstrong,  6  Pa. 
Co.    Ct.    Rep.   392. 


§  49  (5e) 


STOCKHOLDERS. 


11/ 


affairs;^'-''    or  from  the  date  of  suit  against  the  hank.^"*! 

§  49    (5e)   Period  of  Limitations  and  Suspension  of  Statute. — The 

period  of  Hmitations  varies  with  the  statutes  of  the  various  states  ;^-  in  some 
the  period  is  that  which  bars  an  action  on  a  specialty, ^^  in  others  it  is  that 
appHcable  to  a  simple  contract, ^-^  or  penalty  \^^^  while  in  Illinois  the  stock- 
holders can  not  plead  the  statute  unless  the  action  is  barred  against  the 
bank. 56 


50.  Assignment  for  creditors  or  re- 
ceivership.— Taking  possession  of  a 
bank's  assets  for  liquidation  did  not 
dissolve  the  bank,  as  effecting  limita- 
tions on  suit  to  enforce  the  stockhold- 
ers' personal  liability  under  Banking 
Law  (Consol.  Laws,  c.  2).  §  71.  Assets 
Realization  Co.  v.  Howard,  70  Misc. 
Rep.   651,   127   N.   Y.    S.   798. 

It  is  well  settled  that  the  statutory 
liability  of  stockholders  of  Ohio  cor- 
porations is  complete,  so  as  to  set  the 
statute  of  limitations  running  in  their 
favor,  when  the  corporate  property  has 
been  placed  in  the  hands  of  an  assignee 
in  bankruptcy  or  insolvency,  or  of  a 
receiver  to  wind  up  its  affairs.  The 
exact  amount  of  the  liability  of  each 
stockholder  may  not  then  be  known, 
and  can  only  be  ascertained  in  the 
progress  of  the  action;  yet  the  court 
may  retain  control  of  the  cause  and 
parties  until  the  amount  is  definitely 
fixed,  and  the  ultimate  rights  of  the 
parties  are  adjusted.  Younglove  v. 
Lime  Co.,  49  O.  St.  663,  33  N.  E.  234; 
King  V.  Armstrong,  50  O.  St.  222,  34 
N.  E.  163. 

51.  Date  of  suit. — When  the  charter 
of  a  bank  declares  that  the  stockhold- 
ers of  a  bank  shall  be  individually 
liable,  "at  the  time  of  suits,"  for  the 
ultimate  payment  of  debts  of  the  bank, 
in  a  given  proportion,  no  cause  of 
action  arises  against  the  stockholders 
until  there  has  been  a  suit  by  a  creditor 
against  the  bank,  and  the  statute  of 
limitations  does  not  begin  to  run  in 
favor  of  the  stockholders  until  after 
the  date  of  such  a  suit.  Wheatley  v. 
•"dover,    125    Ga.    710,   54    S.    E.    626. 

52.  Stockholders  in  the  American 
Banking  &  Trust  Company  are  not 
subject  to  suit  by  the  creditors  of  the 
corporation  to  enforce  the  stockhold- 
ers' lial)ility  imposed  by  Sp.  Laws 
1889,  p.  547,  c.  340.  §  6,  in  amendment 
of  its  original  charter,  until  in  pro- 
ceedings against  the  corporation  its 
assets  are  fully  administered,  and  the 
fact  and  amount  of  deficiency  oi  assets 
judicially  ascertained;  and  a  suit  within 
six  years  after  such  judicial  ascertain- 


ment is  in  time  where  an  action  to  en- 
force their  liability  as  transferrers  was 
brought  in  one  year  thereafter.  Flynn 
V.  American,  etc.,  Trust  Co.,  104  Me. 
141,  69  Atl.  771. 

In  New  York  the  suit  must  be 
brought  within  two  years  after  ma- 
turity of  the  debt.  Stock  Corporation 
Laws  (Consol.  Laws,  c.  59),  §  59;  As- 
sets Realization  Co.  v.  Howard,  70 
Misc.    Rep.    651,    127    N.    Y.    S.    798. 

53.  Where  liability  in  nature  or 
specialty. — The  statutory  liability  of  a 
stockholder  in  a  bank  is  in  the  nature 
of  a  specialty,  and  is  not  barred  until 
twenty  years.  Thornton  v.  Lane,  11 
Ga.  459;  Neal  v.  Moultrie,  12  Ga.  104; 
Central    Bank  v.   Williams.   17   Ga.   193. 

54.  Baker  v.  Atlas  Bank  (Mass.),  9 
Mete.  182. 

Massachusetts. — An  action  by  credit- 
ors against  stockholders  of  an  in- 
solvent bank,  to  enforce  a  statutory 
liability  of  the  stockholders,  is  barred 
after  six  years  by  Rev.  St.  c.  120,  §  1, 
which  provides  that  all  actions  of  debt 
founded  on  any  contract  not  under 
seal,  and  all  actions  of  assumpsit  or 
upon  the  case  founded  on  contract,  ex- 
press or  implied,  shall  be  commenced 
within  six  years.  Baker  v.  Atlas  Bank 
(Mass.),  9   Aletc.   182. 

A  suit  in  equity,  under  St.  1860,  c. 
167,  for  the  confirmation  of  an  assess- 
ment, by  the  receivers  of  a  banking 
corporation,  upon  the  stockholders,  of 
an  amount  sufficient  to  redeem  its  bills, 
can  not  be  brought  more  than  si.x  years 
after  the  injunction  upon  the  bank  was 
made  perpetual.  Commonwealth  v. 
Cochituate    Bank    (Mass.),   3    .-Mien    42. 

55.  This  liability  being  in  the  nature 
of  a  penalty  for  issuing  the  notes  in  a 
form,  and  with  a  design  to  be  circu- 
lated as  money,  a  right  of  action 
thereon  would  be  barred  in  four  years. 
Lawler  v.  Burk,  7  O.  St.  340,  overruling 
Lawler  r-.   Walker,   18   O.   151. 

56.  Illinois. — Where,  by  the  charter 
of  a  bank,  the  stockholders  are  Iial)le 
to  the  amount  of  their  stock  for  tlie 
payment  of  the  debts  of  the  bank,  they 
can    not    plead    the    statute    of    limita- 


228  BANKS    AND    BANKING.  §    49    (5g) 

Liabilities  Incurred  Prior  to  Close  of  Civil  War  Period.— Statutes 
limiting  the  time  for  suing  to  enforce  rights  which  accrued  prior  to  or  dur- 
ing the  Civil  War  period  apply  to  actions  to  enforce  a  bank  stockholder's 
personal  liahility/'' 

Order  of  Distribution. — In  a  proceeding  to  secure  distribution  of  fund 
paid  into  court  by  stockholders  of  an  insolvent  bank  in  full  of  their  stock 
liability,  on  the  condition  that,  if  it  should  be  found  there  was  an  overpay- 
ment, the  amount  should  be  repaid,  where  such  payment  was  made  within 
six  years  after  the  appointment  of  the  receiver,  and  six  years  have  not  elapsed 
since  the  fund  was  so  paid,  during  which  time  the  receiver  was  restrained 
from  taking  proceedings  against  stockholders  secondarily  liable,  the  right 
of  the  receiver  to  apply  for  an  order  vacating  the  injunction  and  distrib- 
uting the  fund  is  not  barred. ^^'* 

§  49  (5f)  Operation  and  Stay  of  Proceedings. — A  perpetual  sta> 
of  proceedings  will  be  granted  upon  a  motion  therefor  upon  a  reference  for 
the  apportionment  of  the  debts  of  an  insolvent  bank  among  its  stockholders 
where  the  apportionment  is  not  made  within  the  time  limited  by  the  act  or 
the  utmost  extension  of  time  that  could  be  granted  thereunder. ^^^ 

§  49  (5g)  Laches  and  Lapse  of  Time. — Lapse  of  time  sufficient  to 
justify  the  application  of  the  doctrine  of  stale  demands  precludes  creditors 
of  insolvent  banks  from  enforcing  a  stockholder's  personal  liability  in 
equity,  which  if  freshly  pursued  would  be  available.*^'"* 

Period  in  Equity  in  Analogy  to  Law. — When  the  statute  bars  an  action 
at  law  to  enforce  a  bank  stockholder's  personal  liability,  it  is  also  a  good 
defense  in  equity.*'^ 

tions  in  l)ar  to  an  action  against  them  limiting  the   time   for   suing  to   enforce 

for    such    debt,    unless    the    action     is  rights    which    accrued    prior    to    June 

barred  as  against  the  bank.     Fleischer  1,    1865,   and    declaring   that   such    suits 

V.  Rentchler,  17  111.  App.  402.  must    be    brought    before     January     1, 

57.      Liabilities      incurred     prior     to  1870,  may  be  pleaded  as  a  bar  to  suits 

close   of   civil  war  period.— A    suit    in  brought  after  that  time  to  enforce  the 

equity,  begun  December  2,  1870,  against  individual   liability   of   the   stockholders 

stockholders    of   a    bank,    for    a    failure  of   a   bank   for   the   redemption   of  bills 

occurring    in    November,     1860,     under  which   it   ceased   and   failed   to   pay   be- 

the,  provisions    of   a    statute    of    South  fore    June    1,    1865,    or    to    recover    the 

Carolina    rendering    each    stockholder,  unpaid  balance  due  on  stock  subscrip- 

in    case    of    a    failure    of   the    bank,    in-  tion  at  the  time  of  such  failure.    Terry 

dividually  liable  for  a  sum  not  exceed-  v.    Anderson,    95    U.    S.    628,   24    L.    Ed. 

ing  twice   the   amount   of  his   share   or  365. 
shares,  was  held  barred  by  the  statute  gg.    Order    of    distribution.-Pope    v. 

?T    e"Vlf 'oV't     ^"l^l?'    ''•    ^^'"'■-''-    ^'        Germania   Bank.  106   Minn.  446,  119   N. 
U.   h.  171,  24   L.   Ed.  944.  ^     g-j^ 

The   liability   of   a    stockholder    of    a  cr>    o           r               j-             t           t- 

bank,  whose  insolvency  occurred  prior  .^^^  ^tay  of  proceedings.— In   re  Em- 

to  June  1,  1865,  is  barred  by  the  Geor-  ^'i:^    City   Bank    (N    Y.)    4   Abb.    Prac. 

gia    statutq    of    limitations    of    March  )}^-   s°   holding  under   N.   Y.  Act   1849 

16,  1869,  if  not  commenced  by  January  (Eaws    1849,    c.   226). 

1,    1870,    by    the    direct    provisions    of  60.     Lapse     of    time. — Twelve    years 

such   statute.     Terry  v.  Tubman,  92  U.  "i^y   constitute   the   lapse   of   time.   Gil- 

S.   156,  23  L.   Ed.  537.  more   v.    Bank,   8    O.   62. 

The  Georgia  Act  of  March  16,  1869,  61.    Period   in   equity   in   analogy   to 


§  49  (6aaab)  stockholders.  229 

§  49  (5|)  Process  and  Appearance.— A  judicial  ascertainment  of 
the  liabilities  of  an  insolvent  bank,  such  as  is  necessary  before  an  action 
to  enforce  the  liability  of  stockholders,  can  only  be  had  in  an  action  where 
the  bank,  being  a  party,  has  been  properly  served,  or  where  it  has  volun- 
tarily appeared.*"'- 

§  49  (6)  Parties— §  49  (6a)  Parties  Plaintiff— §  49  (6aa)  Nec- 
essary and  Proper  Parties— §  49  (6aaa)  Suit  to  Enforce  Liability 
for  Debts  of  Bank— §  49  (6aaaa)  In  General.— Since  the  individual 
liability  of  shareholders  of  bank  stock  is  purely  statutory,  there  can  be  no 
general  rule  as  to  who  are  proper  parties  to  enforce  such  liability.  In  every 
instance  the  question  must  be  determined  from  the  statutes  creating  the 
liability  and  prescribing  means  to  enforce  it."-^ 

§  49  (6aaab)  Creditors.— The  statutory  liability  of  stockholders  of 
a  bank  is  enforceable  only  by  the  creditors  in  the  states  of  Georgia,"-' 
Indiana,'55  Kentucky,*^^c  :\laine,C'  Maryland,"^  New  York,"^  and  Utah,''^ 
and  not  by  the  bank  or  corporation,  receiver,  assignee  for  the  benefit  of 
creditors,  or  trustee. 

^^^i^i^r°^    '''■    Green,    92    U.    S.    509,  amendment   of   the   original    charter   of 

23 _U.   Ed.  738.  the   American    Banking   &   Trust   Com- 

iwenty  years  after  the  appointment  pany  on  the   stockholders  in   that  cor- 

of   a   receiver   of   an   insolvent   bank   is  poration    for   all    contracts,    debts,   and 

a    period    of    time    beyond    which    by  engagements  of  the  corporation  to  the 

analogy   no   proceedings   should   be   al-  amount   of   their   stock,   in   addition    to 

lowed  to  enforce  the  liability  of  stock-  the  amount  invested  therein,  is  not  an 

holders.     In  re  Bank  (N.  Y.),-32   Hun  asset   of  the   corporation,   and   can   not 

■**^^-       r,                      ,  be   enforced   by   the   corporation   or   its 

62.  Process  and  appearance.— An-  receiver,  but  only  by  creditors  of  the 
drews  z:  Holcomb,  79  Neb.  660,  113  corporation.  Flynn  v  American,  etc., 
^-    ^^-   -'^'-i-  Trust    Co.,    10-t    Me.    141,    69   Atl.    771. 

63.  Proper  parties  plaintiff. — Runner  68.  Maryland. — The  indebtedness  of 
V.  Dwiggins,  147  Ind.  238,  46  N.  E.  580,  the  stockholders  in  a  Maryland  bank, 
36   L.   R.   A.   645.                                                    liable  under  its  charter  "to  the  amount 

Idaho. — Rev.   Codes,   §   2979,   provides  oi  their   respective   share   or   shares   of 

that       stockholders       of      incorporated  stock    in    their    corporation    for    all    its 

banks  shall  be  liable  to  the  amount  of  debts"   is    to   the    creditors   and    not    to 

their  stock  at  its  par  value,  in  addition  the    corporation    and    enforceable    only 

to    the    stock    held    by    them,    and    that  by    the    former.      Colton    z\    Mayer,    90 

such   liability  may  be  enforced  by  the  Md.  711,  45  Atl.  874,  47   L.   R.   .\.   617, 

bank  in  liquidation,  or  by  any  receiver  '^^  ^^""i-   St.   Rep.  456. 
or  person  succeeding  to  its  legal  rights.  69.    New    Fo;7^— Hirschfeld    v.    Fitz- 

McTamany   v.    Day    (Idaho),    128    Pac.  gerald,  157  N.  Y.  166,  51  N.  E.  997,  46 

■>'''-^-  L.    R.   A.   839,   rehearing  denied   in   157 

64.  Georgia.— Suit  by  billholder.—  N.  Y.  707,  52  N.  E.  1124,  reversing 
Lane  v.  Morris,  S  Ga.  App.  468.  Hishfeld    v.    Bopp,    27    App.    Div.    ISO, 

See  post,   "Liability   of   Stockholders  ^0  N.  Y.  S.  676. 
or  Officers,"  §  211.  70.     Utah.— Under     Acts     18th     Gen. 

65.  /;u//««a.— Runner  v.  Dwiggins  Assem.  Iowa.  c.  208,  fixing  the  liability 
147  Ind.  238,  46  N.  E.  580  36  L  R  A*  ^  stockholders,  in  excess  of  their 
645.                                    "         '  '         •      •      •  stock,   for   debts   of   the   bank,   and    dc- 

ea       k'n„i„^i...      J.-     ^     '        n      1  daring  such  liability  to  be  to  the  cred- 

Scrm    144  Kv  ^ir  vu  T^^^^^  iters,     not     to     the     bank,     an     acti..n 

r    C onwav    no   r    C    A   ^rV    i^^^r"!'  ^^^''"''   stockholders   upon   the  liability 

7._^(.onway,   110   C.   C.  A.   366,   188   Led.  created   by  said   act   should   be  brought 

-  by   the   creditors,  and   not  by  the  bank 

HI.  Manic— The  liability  imposed  by  or  its  receiver.  Steinkc  v.  Loofbourow, 
.^p.    Laws    1889,    p.    547.    c.    349,    §    6,    in        17  Utah  252,  54   Pac.  120. 


230 


BANKS    AND    BANKING. 


§  49  (6aaad) 


§  49  (6aaac)  Corporation  or  Bank. — The  statutory  liability  of 
stockholders  in  a  bank  can  not  be  enforced  by  the  bank  or  corporation  in 
Maine/ ^   New  York,'^  and  UtahJ^ 

§  49  (6aaad)  Receivers. — The  statutory  liability  of  stockholders  in 
a  bank  for  its  debts  is  enforceable  by  its  receivers  and  creditors  are  not 
allowed  to  supersede  them  in  enforcing  the  liability  without  first  showing 
good  cause  and  obtaining  leave  of  court  in  Idaho/-^''  lowa/^  Minnesota/-^ 
New  York/^  and  Washington;''^  but  such  liability  can  not  be  enforced  by  a 
receiver  of  the  bank  in  Georgia/^  Kentucky/'^  Alaryland,*"^  Missouri*'^  and 


71.  Maine. — Flynn  v.  American,  etc., 
Trust  Co.,  104  Me.  141,  69  lAtl.   771. 

72.  New  York. — A  bank's  stockhold- 
er's statutory  liability  for  its  debts  is 
not  an  asset  of,  and  can  not  be  en- 
forced by,  the  bank,  being  for  the  ex- 
clusive benefit  of  creditors  whose 
debts  are  payable  within  two  years, 
and  who  sue  thereon  within  two  years 
after  maturity,  as  provided  by  Stock 
Corporation  Law  (Consol.  Laws,  c. 
59),  §  59.  Assets  Realization  Co.  v. 
Howard,  70  Misc.  Rep.  651,  127  N.  Y. 
S.   798. 

See  ante,  '"Time  to  Sue  and  Limita- 
tions and  Laches,"  §  49   (5). 

73.  Utah. — Steinke  v.  Loofbourow,  17 
Utah   252,   54   Pac.   120. 

73a.  Idaho. — McTamany  z'.  Day 
(Idaho),  128  Pac.  563. 

74.  Iowa. — In  a  suit  by  the  state, 
under  Code,  §  1572,  to  wind  up  an  in- 
solvent bank,  the  liability  of  the  stock- 
holders under  Acts  18th  Gen.  Assem. 
c.  208,  is  not  directly  to  the  creditors, 
but  constitutes  a  fund  for  the  debts 
of  the  bank,  which  the  receiver  is 
authorized  to  collect  and  distribute. 
State  V.  Union  Stock  Yards,  etc.,  Bank, 
103  Iowa  549.  70  N.  W.  752,  72  N.  W. 
1076. 

75.  Minnesota. — Receivers  appointed 
under  Laws  1895,  c.  145,  §  20,  have 
primarily  an  exclusive  right  to  insti- 
tute proceedings  to  enforce  the  stock- 
holders' liability;  and  creditors  are 
not  permitted  by  Gen.  St.  1894,  c.  76, 
to  supersede  them  in  the  exercise  of 
this  right,  without  first  showing  good 
cause  and  obtaining  leave  of  court.  An- 
derson V.  Seymour,  70  Minn.  358,  73 
N.  W.  171. 

76.  Nezv  York. — Under  New  York 
Law  1897,  c.  441,  the  receiver  is  re- 
quired to  bring  the  action  to  enforce 
bank  stockholder's  personal  liability; 
but  that  provision  is  not  retroactive. 
Mahoney  v.  Bernhardt.  27  Misc.  Rep. 
339,  58  N.  Y.  S.  748;  Mahoney  v.  Bern- 
hard,  45  App.  Div.  499.  63  N.  Y.  S. 
642,  affirmed  in  169  N.  E.  589,  62  N.  E. 


1097.      See,    also.    Mahoney   v.    Adams, 
29   App.   Div.   629,   51   N.   Y.   S.   1082. 

77.  IVashington. — A  receiver  of  a 
Washington  state  bank  may  maintain 
an  action  to  enforce  the  individual  lia- 
bility of  stockholders  to  the  extent  of 
their  stock.  Under  the  decision  of  the 
Washington  courts  this  liability  can 
only  be  enforced  by  a  receiver  imder 
the  direction  of  the  court.  Howarth 
V.   Ellwanger,  86  Fed.  54. 

The  contingent  liability  of  stock- 
holders of  a  bank  under  Const., 
art.  12,  §  11,  for  its  debts,  can  be  en- 
forced only  by  its  receiver.  Wat- 
terson  v.  Masterson,  15  Wash.  511,  46 
Pac.  1041. 

78.  Georgia. — Lane  v.  Morris,  8  Ga. 
468. 

79.  Kentucky.— Ky.  St.,  §  616  (Rus- 
sell's St.,  §  2256),  authorizes  the  ap- 
pointment of  a  receiver  for  an  in- 
solvent bank  or  corporation  who  shall, 
under  the  direction  of  the  court,  take 
possession  of  the  "assets  of  every  de- 
scription" of  such  bank  or  corporation 
and  collect  or  dispose  of  the  debts 
due  it  and  sell  all  of  its  property.  Sec- 
tion 547  (§  2131)  provides  that  stock- 
holders in  corporations  "shall  be  liable 
to  creditors"  only  for  the  unpaid  part 
of  their  stock,  "except  stockholders  in 
banks,  trust  companies  *  *  *  shall  be 
liable  equally  and  ratably,  and  not  one 
for  the  other,  for  all  contracts  and  lia- 
bilities of  such  corporations  to  the  ex- 
tent of  the  amount  of  their  stock  at 
par  value,  in  addition  to  the  amount  of 
such  stock."  Held,  under  the  decisions 
of  the  court  of  appeals  of  the  state, 
that  the  double  liability  of  stockhold- 
ers in  a  bank  or  trust  company  is  not 
an  asset  of  the  corporation  and  can  not 
be  enforced  by  a  receiver  appointed 
under  §  616.  Alsop  v.  Conway,  110  C. 
C.  A.  366,  188  Fed.  568. 

80.  Maryland. — Acts  1896,  c.  349,  re- 
quiring all   the   assets   of   an   insolvent 

81.  Missouri. — Millisack  v.  Aloore,  76 
Mo.    App.    528. 


§  49  (6aaai) 


STOCKHOLDERS. 


231 


Utah.^^2 

Action  to  Recover  Loss  to  Depositor.— In  an  action  to  recover  from 
a  stockholder  of  a  banking  corporation  for  loss  sustained  by  a  depositor 
in  the  failure  of  the  bank,  the  receiver  is  not  a  necessary  plaintiff,  since  the 
amount  to  be  recovered  does  not  belong  to  the  receiver,  but  is  additional 
security  for  the  individual  depositor/**^ 

§  49    (6aaae)  Assignees  for  Benefit  of  Creditors.— In  the  absence 

of  statutory  authority,  an  assignee  for  the  beneht  of  creditors  can  not  sue 
to  enforce  the  statutory  liability  of  the  stockholders  for  the  bank's  debts.s-^ 
A  general  assignment  executed  by  a  bank  of  its  effects  to  a  trustee  for  the 
benefit  of  its  creditors  does  not  carry  the  statutory  liability  of  the  stock- 
holders for  debts  outside  of  unpaid  subscription. ^^ 

In  Pennsylvania  where  a  bank  has  become  insolvent,  and,  under  the 
general  laws,  it  is  sought  to  make  the  stockholders  liable  for  its  debts,  pro- 
ceedings must  be  in  the  name  of  the  assignee. ^'^ 

§   49    (6aaaf)   Trustees.— See  ante,  "Creditors,"  §  49  (6aaab). 

§  49  (6aaag)  Superintendent  of  Banks.— See  ante,  "Superintend- 
ent of  Bank  Authorized  to  Enforce,"  §  49  (Ice);  post,  "Necessary  Al- 
legations," §  49  (7aa). 

§  49  (6aaah)  Comptroller  of  Banks.— See  post.  "Suit  on  Stock- 
holder's Bond,"  §  49  (6aac). 

§   49    (6aaai)    Attorney  General.— See  ante,  "Action    by    Attorney 


corporation  to  be  distributed  to  its 
creditors  in  the  same  way  as  the  assets 
of  an  insolvent  debtor,  and  Code,  art. 
23,  §  269,  vesting  in  receivers  of  a  cor- 
poration "all  the  estate  and  assets  of 
every  kind  belonging  to  such  corpora- 
tion," do  not  enable  the  receivers  of  a 
bank  to  sue  its  stockholders  under  its 
charter  (Acts  1888,  c.  294),  making 
them  liable  "to  the  amount  of  their 
respective  share  or  shares  of  stock  in 
this  corporation  for  all  of  its  debts;" 
the  indebtedness  being  to  the  credit- 
ors, and  not  to  the  corporation.  Colton 
r.  Mayer,  90  Md.  711,  4.5  Atl.  874,  47  L. 
R.   A.   617,  78   Am.  St.   Rep.  456. 

82.  Utah. — Steinke  r.  Loofbourow, 
17  Utah   2.52,  54   Pac.   120. 

83.  Action  to  recover  loss  to  de- 
positor.—Millisack  V.  Moore,  76  Mo. 
A  pp.    .528. 

84.  Georiria.—haue  v.  Morris,  8  Ga. 
408. 

Indiana. — Runner  v.  Dwiggins,  147 
Ind.  2;i8,  46   X.   E.   580,  36   L.    R.   A.   645. 


The  double  liability  of  the  stock- 
holders of  a  bank  is  not  a  "right"  or 
"credit"  of  the  bank,  which  Rev.  St. 
1894,  §  2908  (Rev.  St.  1881,  §  2671), 
authorizes  the  assignee  for  the  benefit 
of  creditors  to  collect.  Runner  t'. 
Dwiggins,  147  Ind.  238,  46  N.  E.  580, 
36   L.   R.   A.   645. 

Kentucky. — Ky.  St.,  §  547  (Russell's 
St.,  §  213),  provides  that  stockliolders 
in  banks  shall  l)e  lialile  equally  and 
ratably,  and  not  one  for  the  other,  for 
all  contracts  and  liabilities  of  the  cor- 
poration, to  the  extent  of  the  amount 
of  their  stock  at  par  value,  in  addition 
to  the  amount  of  such  stock.  Held, 
that  such  liability  was  not  an  asset  of 
the  corporation  on  insolvency,  recover- 
able by  the  corporation's  assignee  for 
the  benefit  of  creditors.  Farmers'  Bank 
v.   Scott,   14  1    Ky.   575.   139   S.   W'.  SOI. 

85.  Passage  under  general  assign- 
ment.— Terry  :•.  Abraham.  93  U.  S.  3S, 
40.  ;.';{  L.  Ed.  794. 

86.  Pcnnsvhvnia. — .Appeal  of  ^^(■ans 
(4   Xorris).  85   Pa.   75. 


232 


BANKS    AND    BANKING. 


§  49  (6aca) 


General  to  Dissolve  Bank,"  §  49  (led);  post,  "Forms,  Requisites  and  Va- 
lidity," §  49   (9cb). 

§  49  (6aaaj)  County  Treasurer. — See  post,  "Suit  for  Public 
Moneys,"  §  49  (6aab). 

§  49  (6aab)  Suit  for  Public  Moneys. — The  county  treasurer  is  the 
proper  party  to  sue  stockholders  of  a  bank  to  recover  public  moneys  be- 
longing to  the  county.'^''' 

§  49  (6aac)  Suit  on  Stockholder's  Bond. — See  ante,  "Stock  Mort- 
gages and  Bonds,"  §  39  (6). 

§  49  (Gab)  Interest. — An  objection  to  a  creditor's  suit  to  enforce 
the  liability  of  certain  stockholders  in  a  bank  for  its  debts  to  the  amount 
of  the  plaintiffs'  claims  against  the  bank,  because  of  the  trifling  interest 
of  the  plaintiffs,  can  not  be  sustained  where  they  have  a  real  and  tangible 
claim  against  the  defendants. ■^'^ 

§  49  (6ac)  Joinder  of  Parties  Plaintiff — §  49  (6aca)  Receivers 
and  Creditors. — Where  the  statute  authorizes  the  enforcement  of  the 
statutory  liability  of  stockholders  in  a  bank  by  one  suit  in  equity  a  suit  by 
the  receiver  of  the  bank  and  all  participating  creditors  is  not  bad  for  mis- 
joinder of  parties  plaintiff. ■'^■* 


87.  Suit  for  county  money. — Kirby's 
Dig.,  §  1990,  provides  that  county 
treasurers  may  deposit  public  funds  in 
their  custody  in  incorporated  banks 
for  safekeeping,  and  that  said  officers 
and  their  sureties  and  the  bank  and 
its  stockholders  shall  be  liable  for  all 
such  funds,  if  such  bank,  upon  demand, 
shall  fail  to  pay  the  person  entitled  to 
receive  the  same.  Section  1159  pro- 
vides that  the  county  treasurer  is  the 
proper  person  to  receive  all  moneys 
payable   into   the   county   treasury,   and 

.  §  6002  provides  that  the  trustee  of  an 
express  trust  a  person  in  whose  name 
a  contract  has  been  made  for  the  bene- 
fit of  another,  or  any  officer,  may 
bring  an  action  without  joining  with  liim 
the  person  for  whose  benefit  it  is  prose- 
cuted. Held,  that  the  county  treas- 
urer is  the  proper  party  to  sue  stock- 
holders of  an  insolvent  bank  to  re- 
cover the  public  moneys  belonging  to 
the  county.  Warren  v.  Nix,  97  Ark 
374,    1.3.5    S.    W.    896. 

88.  Interest.— Where  the  claims  of 
plaintiffs  against  an  insolvent  banking 
corporation  amounted  to  only  $2,800 
out  of  a  total  liability  of  $485,000,  the 
contention  that  plaintiffs  could  not 
maintain  an  action  in  equity  to  enforce 
the  individual  liability  of  defendants 
as  the  owners  of  $2,500  worth  of  shares 


in  the  bank  l^ecause  of' the  trifling  in- 
terest of  plaintiffs  can  not  be  sustained, 
since  in  theory  all  creditors  are  plain- 
tiffs to  such  an  action,  and,  if  the 
other  creditors  refused  to  join  in  the 
prosecution  of  the  suit  on  due  notice, 
defendants  were  liable  to  plaintiffs  to 
the  full  amount  of  their  shares.  Reh- 
bein  v.  Rahr,  109  Wis.  136,  85  N.  W. 
315. 

89.  Joinder  of  receivers  and  creditors. 
— While  there  is  no  necessity  for  join- 
ing creditors  of  a  bank  as  parties  plain- 
tiff in  a  suit  brought  by  the  receiver 
to  enforce  the  stockholders'  double  lia- 
bility imposed  by  Pub.  Laws  1897,  p. 
473,  c.  298,  such  joinder  is  not  preju- 
dicial to  defendants.  Smathers  v.  West- 
ern Carolina  Bank,  135  N.  C.  410,  47 
S.  E.  893. 

Under  Gen.  St.  Minn.,  §  2501.  de- 
claring that  a  stockholder  in  a  bank 
shall  be  individually  liable  for  a  sum 
double  the  amount  of  the  stock  held 
by  him  for  all  the  debts  of  the  bank, 
and  §§  5905-5907.  5911,  authorizing  en- 
forcement of  the  double  liability  of 
stockholders  by  one  suit  in  equity,  etc., 
a  suit  by  the  receiver  of  a  bank  and  all 
participating  creditors  was  not  bad  for 
misjoinder  of  parties  plaintiff,  since 
such  liability  is  several  as  to  each 
stockholder    to    all    the    creditors,    but 


§  49  (6bab)  stockholders.  233 

§  49  (6acb)  Creditor  and  Assignee  of  Claim  against  Bank. — The 
assignee  of  a  claim  against  an  insolvent  bank  has  the  same  rights  as  his 
assignor  to  be  made  a  party  to  an  action  by  a  creditor  in  his  own  behalf 
and  in  behalf  of  all  others  to  enforce  the  liability  of  its  stockholders, 
whether  he  became  assignee  before  or  after  the  action  w^as  begun. '•'^ 

§   49    (6 ad)    Bringing   in   Parties   Plaintiff. — Creditors. — Creditors 

of  an  insolvent  bank  may  be  made  parties  to  an  action  by  another  creditor 
in  behalf  of  himself  and  all  other  creditors  to  enforce  the  liability  for  stock- 
holders, after  the  action  is  at  issue  and  before  it  has  been  noticed  for  trial. ^^ 

§  49  (6b)  Parties  Defendant — §  49  (6ba)  Proper  and  Neces- 
sary Parties — §  49  (6baa)  Creditor's  Suit  against  Bank. — Neces- 
sity for  Making  Stockholder's  Party. — Under  Code.  §  1882,  creating 
double  liability  against  certain  bank  stockholders,  and  providing  that  the  re- 
ceiver, etc..  may  maintain  an  action  to  determine  the  stockholders'  liability, 
and  that  "all  persons  interested  shall  be  brought  into  court"  to  make  an 
assessment  binding  upon  a  stockholder,  he  must  be  brought  into  the  litiga- 
tion individually  before  the  assessment. "- 

Nonresident  Stockholders. — Nonresident  stockholders,  who  are  not  in 
reach  of  the  process  of  the  court  and  against  whom  it  can  not  render  a 
personal  judgment,  enforcing  their  statutory  liabiHty  for  the  debts  of  the 
bank,  need  not  be  made  parties  to  a  suit  to  sequester  the  assets  of  the  cor- 
poration, and  ascertain  the  assessment  to  be  made  to  liquidate  the  bank's 
debts  as  they  were  represented  by  the  corporation,  or  its  general  receiver, 
appointed  prior  to  the  institution  of  such  suit.^-^ 

§  49  (6bab)  Actions  against  Stockholders  by  Creditors. — Re- 
ceivers.— Receivers  of  an  insolvent  bank  are  not  necessary  parties  de- 
fendant in  an  action  by  a  creditor  against  the  stockholders  under  New 
York  Laws  1892,  c.  689,  §  52,  commenced  prior  to  the  passage  of  Laws 
1897,  c.  441,  requiring  the  receivers  to  bring  such  actions.'*'' 

joint  in  that  it  requires  one  action  in  714.  See  post,  "Nonresident  Stock- 
equity,  in  whicli  all  the  creditors  partic-  hr)ldcrs."  §  4'.)  ( (ibhabb). 
ipating  must  appear  on  one  side,  and  94.  Receivers. — Mahoney  v.  Bern- 
all  the  stockholders  over  whom  juris-  hardt,  27  Misc.  Rep.  3,39,  58  N.  Y.  S. 
diction  can  be  obtained  on  the  other.  748;  Mahoney  v.  Bernhard,  45  App. 
Finney  v.  Guy,  106  Wis.  256,  82  N.  W.  Div.  499,  63  N.  Y.  S.  642,  affirmed  in 
595,   49    L.    R.    A.    486.  169   N.   Y.   589,  62   N.   E.   1097. 

90.    Creditor    and    assignee    of    claim  I"    ^"    action    brousht    in    1896    by   a 

against  bank.— Hasmayer   v.    .\ltcn,   41  creditor    of    a    l)anking    corporation    to 

\pp    Div    4«7    "JH  X    Y    r)S4  enforce      the      stockholders'      liability, 

9l'.     Bringing    in'  parties     plaintiff-  T^''  ^^^^  l'^/'^.'  ^-  ««»'  §  ^»2,  a  motion 

Creditors.-Hagmayer      -.•.      Alten,      41  "•"    leave    to    bnng    m,    as    parties    de- 

App.   Div.  487,   58   N.   Y.   S.   684.  fondant,     permanent     receivers     suhse- 

.                        .  ciuently  appointed,  was  opposed  on  tlic 

92.  Necessity  for  making  stockhold-  ground  that  Laws  1897,  c.  441.  amend- 
ers  party.— Klsom  r.  W  n.^lit,  134  ing  §  52  so  as  to  require  such  an  action 
Iowa  (;:{4,  112  X.  W.   U).-).  t,,    ije    brought    l)y    the    receivers,    was 

93.  Nonresident  stockholders.  retroactive.  Held,  that  the  question 
— Cliilfls  f.  Cleaves,  '.>:>   Me.  498,  50  Atl.        tlius    raised    should    be    left    to    be    de- 


234  BANKS  AND  BANKING.  §  49  (6bbabb) 

§  49  (6bb)  Joinder  of  Parties— §  49  (6bba)  Joinder  of  Stock- 
holders—§  49  (6bbaa)  Action  at  Law  by  Creditors— §  49  (6bbaaa) 
In  General. — Where  the  liability  of  stockholders  in  a  bank  for  its  debts 
is  several,  the  stockholders  must  be  separately  sued,  even  where  an  action 
at  law  is  maintainable  by  one  creditor.'^^  This  is  the  rule  in  the  courts  of 
the  United  States.^c 

§  49    (6bbaab)    Stockholders    Who    Transferred   Stock.— In   an 

action  by  a  depositor  in  an  insolvent  bank  against  the  stockholders  to 
recover  the  balance  due  him  at  the  time  of  the  suspension  of  the  bank,  it 
is  not  necessary  to  join  as  defendants  persons  who  signed  the  articles  of 
incorporation,  but  have  since  transferred  their  stock,  though  such  transfer 
was  not  made  in  the  manner  provided  by  the  articles  of  incorporation.''" 

§    49    (6bbab)    Creditors     Suits— §    49    (6bbaba)    In  General.— 

The  liabihty  of  stockholders  of  a  bank  for  its  debts  must  be  enforced  in 
a  single  action,  against  all  stockholders  within  the  jurisdiction  of  the  court 
and  not  against  certain  selected  stockholders.  This  is  the  rule  in  the  states 
of  Minnesota,"'^  Nebraska/"'  and  South  Carolina.^ 

§  49  (6bbabb)  Nonresident  Stockholders. — Under  Laws  1892,  c. 
689,  §  52,  making  the  stockliolders  of  an  insolvent  bank  "individually  re- 
sponsible equally  and  ratably,  and  not  one  for  the  other,"  for  the  bank's 
debts,  a  creditor  of  such  a  bank  may  sue  such  stockholders  as  are  residents, 
and  omit  others  who  are  nonresidents ;-  but  it  is  proper  for  the  receiver 
of  an  insolvent  bank  to  include  nonresident  stockholders  in  the  equity  suit 
for  the  purpose  of  determining  their  liability.'^ 

termined  upon  the  trial,  and  that  the  claiming  any  interest  in  the  subject- 
motion  should  be  granted.  Mahoney  matter  shall  be  joined  or  properly  rep- 
V.  Adams,  29  App.  Div.  629,  51  N.  Y.  resented,  and  their  respective  rights 
S.  1082.  and     liabilities     determined.     Allen     v. 

95.  Liability    several. — Terry    v.    Lit-  Walsh,  25  Minn.  543. 

tie,  101  U.  S.  21G,  25  L.   Ed.  864;   Pol-  99.  Nebraska.— Hastings  v.   Barnd,  55 

lard  V.  Bailey  (U.  S.),  20  Wall.  520.  22  Neb.   93,  75   N.  W.  49. 

L.   Ed.  376.  The  liability  of  stockholders  in  bank- 

96.  Where  a  bank  charter  provided  ing  corporations  under  Const.,  art.  11, 
that,  on  failure  of  the  bank,  each  §  7,  must  be  enforced  against  all  stock- 
stockholder  should  be  liable  for  a  sum  holders  liable.  A  suit  by  and  on  behalf  of 
not  exceeding  twice  the  amount  of  one  out  of  many  creditors  against  cer- 
his  shares,  even  were  an  action  at  law  tain  selected  stockholders  will  not  lie. 
maintainable  by  one  creditor,  the  Pickering  v.  Hastings,  56  Neb.  201,  76 
stockholders  must  be  separately  sued.  N.  W.  587;  Hastings  v.  Barnd,  55  Neb. 
Terry  v.  Little,  101  U.  S.  216,  25  L.  Ed.  93,   75    N.   W.    49. 

864.  1.   Soufh    Carolina.— Terry   v.    Martin, 

97.  Shareholders    who    have    trans-       10  S.  C.  263. 

ferred  stock. — Wadsworth  v.   Hocking,  2.     Nonresident     stockholders. — Ma- 

61   111.   App.   156.  honey  v.  Bernhardt,  27  Misc.  Rep.  339. 

_  98.    Minnesota.— Kr\    action    will    not  58  N.  Y.  S.  748;  Mahoney  v.  Bernhard, 

He  in  favor  of  a  creditor  against  indi-  45  App.   Div.  499.  63   N.  Y.   S.  642,  af- 

vidual     stockholders    to    enforce    their  firmed  in  169  N.  Y.  589,  62  N.  E.  1097. 

liability    for    the    debts    of   a    bank   im-  See      ante.      "Creditor's      Suit      against 

posed  by  Gen.  St.  1866,  c.  33,  §  21;  but  Bank,"  §  49  (Ghaa). 

such   liability   must   be    enforced   by    a  3.  It  is  the  duty  of  the  receiver  of  a 

smgle    action,    in     which     all     persons  Nebraska   bank  to  include   nonresident 


§  49  (6bbba) 


STOCKHOLDERS. 


235 


§  49  (6bbac)  Actions  by  Receiver. — In  an  action  by  the  receiver, 
under  order  of  court,  to  enforce  the  statutory  liability  of  the  stockholders 
of  an  insolvent  bank  having  no  assets,  all  of  the  stockholders  may  be  joined 
as  defendants  in  the  one  action,^  but  such  joinder  is  not  necessary.  An 
action  may  be  maintained  against  a  single  stockholder.^ 

Rule  of  Federal  Court  as  to  Iowa  Statute. — The  federal  court  has 
held  that  a  receiver  of  an  insolvent  Iowa  bank  can  not  maintain  a  suit  in 
equity  in  a  federal  court  against  a  number  of  stockholders  to  recover  as- 
sessments levied  under  the  state  statute,  as  the  liability  of  the  defendants 
is  several,  arising  on  their  contracts  of  subscription,  each  of  which  is  a 
separate  obligation,  and  is  a  legal,  and  not  an  equitable,  liability.^  Such  a 
suit  can  not  be  maintained  on  the  ground  that  it  will  prevent  a  multiplicity 
of  suits,  but  is  objectionable  upon  the  ground  of  multifariousness.''' 

§  49  (6bbb)  Joinder  of  Bank,  Its  Trustee  or  Assignee — §  49 
(6bbba)  Actions  by  Creditors. — An  action  by  creditors  to  enforce  the 
liability  of  bank  stockholders  should  be  against  the  bank  and  all  the  stock- 
holders, unless  it  be  impossible  or  impracticable  to  bring  them  all  before 
the  court,  or  unless  some  other  sufficient  cause  for  the  omission  be  shown. 
This  is  the  rule  under  the  laws  of  North  Carolina^  and  Wisconsin,'^  and  the 


stockholders  in  the  equity  suit  in  Ne- 
braska, for  the  purpose  of  determining 
their  liability.  Hazlett  v.  Woodhead, 
27   R.   I.   506,   63   Atl.   952. 

4.  Georgia. — Aloore  v.  Riple3%  106  Ga. 
556,  32   S.   E.   647. 

5.  Where  a  bank  is  forced  into  liq- 
uidation, and  the  stockholders  are  de- 
creed to  contribute  pro  rata  on  their 
debts  for  stock,  a  suit  to  enforce  such 
decree  may  be  sustained  against  one 
of  the  stockholders  to  the  decree.  Bank 
V.  Iglehart,  Fed.  Cas.  No.  860,  6  Mc- 
Lean 568. 

Where  the  court,  on  petition  of  the 
receiver  of  an  insolvent  bank,  pro- 
ceeded to  ascertain  the  amount  of  lia- 
bilities, and  the  value  of  the  assets, 
and  the  amount  required  in  addition 
thereto  to  pay  the  liabilities,  and  de- 
termined the  amount  of  statutory  lia- 
bility of  stockholders,  the  receiver 
might  thereafter  maintain  an  action 
against  a  single  stockholder  to  enforce 
such  statutory  liability;  the  question 
of  allowing  such  action  l)eing  one  of 
policy,  resting  in  the  discretion  of  the 
court.  Shuey  v.  Adair,  24  W'asli.  378, 
64  Pac.  536. 

6.  Rule  of  Federal  court  as  to  Iowa 
statute. — Tompkins  v.  Craig,  93  Fed. 
885. 

7.  Tompkins  7'.   Craig,  93   Fed.  885. 

8.  Action  by  creditors — Nortlt  Cam- 
Una. — Glenn  v.  Farmers'  Bank.  72  N.  C. 
626. 


9.  Wisconsin. — Coleman  v.  White,  14 
Wis.  700,  80  Am.  Dec.  797:  Merchants' 
Bank  v.   Chandler,  19  Wis.  434. 

Rev.  St.  c.  148,  §  25  (2  Taylor's  St. 
p.  1734),  provides,  with  reference  to 
proceedings  against  corporations,  for 
failure  to  pay  debts  or  for  charter  vio- 
lations, that  if  an  application  for  an  in- 
junction and  the  appointment  of  a  re- 
ceiver be  made  by  a  creditor  of  any 
corporation  whose  stockholders  are 
liable  for  the  payment  of  the  debt,  in 
any  event  or  contingency,  they  "or  anj' 
of  them  may  be  made  parties  to  the 
action,  either  at  the  commencement 
thereof,  or  in  any  subsequent  stage  of 
the  proceedings,  whenever  it  shall  be- 
come necessary  to  enforce  such  lia- 
bility." Section  26  provides  that  if 
any  creditor  desires  to  make  stock- 
holders parties  to  the  action,  "after  a 
judgment  therein  against  the  corpora- 
tion," he  may  do  so  by  filing  a  com- 
plaint against  them  founded  on  such 
judgment.  Held,  that  §  26  is  but  an 
extension  of  the  remedy  to  such  cred- 
itors as  may  choose  to  proceed  to 
judgment  before  resorting  to  the 
equitalilc  proceeding,  and  is  not  an 
implied  denial  of  the  action  expressly 
authorized  by  §  25;  and  hence  a  cred- 
itor of  a  bank,  existing  under  the  laws 
of  Wisconsin,  may,  without  having  ob- 
tained a  judgment  at  law  against  it, 
maintain  an  action  against  the  bank 
and    its    stockholders    jointly,    to    re- 


236  BANKS    AND    BANKING.  §    49    (6>4) 

trustees  of  the  bank  may  be  joined. ^'^ 

In  Colorado  neither  the  bank' nor  its  assignee  is  a  necessary  party.^i 

§  49  (6bbbb)  Actions  by  Receiver.— In  an  action  by  the  receiver, 
under  order  of  court,  to  enforce  the  statutory  Hability  of  stockholders  of 
an  insolvent  bank  having  no  assets,  the  bank,  as  a  corporation,  need  not  be 
made  a  party  defendant. ^- 

§  49  (6bc)  Bringing  in  Parties  Defendant.— Omitted  stockholders 
may  be  brought  in  by  the  defendant  stockholders  or  by  other  creditors. ^^ 

§  49  (6bd)  Death  of  Party — Revival. — In  a  suit  by  a  creditor  of 
a  banking  company  to  enforce  the  individual  liability  of  stockholders, 
where  some  of  the  latter  die  pending  the  suit  it  is  not  necessary  to  revive 
it  against  the  personal  representatives.^-* 

§  49  (6be)  Dismissal  and  Striking  Off  Parties. — Parties  Not 
Served. — A  bill  by  a  creditor  of  a  banking  company  to  enforce  the  indi- 
vidual liability  of  the  stockholders  will  be  dismissed  as  to  those  named  in 
the  bill  but  not  served  with  process,  without  regard  to  whether  or  not  they 
could  be  brought  before  the  court. ^'^ 

Parties  as  to  Whom  Bill  Taken  Pro  Confesso. — A  bill  by  a  creditor 
of  a  banking  company  to  enforce  the  individual  liability  of  the  stockholders 
will  be  dismissed  as  to  those  who  were  served  with  process,  but  did  not  an- 
swer, and  to  whom  the  bill  was  taken  pro  confesso  and  set  down  for  hear- 
ing.i^ 

§   49    (6|)    Dismissal  of  Suit. — An  assignee  of  the  claim  on  wdiich  a 

strain  the  further  exercise  of  corpo-  action  by  certain  creditors  of  an  in- 
rate  franchises,  and  to  procure  the  solvent  bank  to  enforce  the  individual 
appointment  of  a  receiver,  the  distri-  liability  of  stockholders,  the  fact  that 
bution  of  assets,  and,  if  necessary,  plaintififs  elected  to  omit  certain  stock- 
enforce  the  stockholders'  individual  holders  because  of  their  insolvency  will 
liability.  Cleveland  v.  Marine  Bank,  not  preclude  the  defendants  or  any 
17   \\  is.  545.  other    creditors    or     the      court      from 

10.  Trustee. — An  action  against  an  bringing  in  the  omitted  stockholders, 
insolvent  bank  and  the  stockholders  since  an  adjudication  in  the  case  will 
therein,  on  account  of  their  individual  bar  all  creditors  from  any  demand  on 
liability,  is  properly  brought  also  the  omitted  stockholders,  and  the  de- 
against  certain  trustees  of  the  bank.  fendants  from  any  right  of  contribu- 
Glenn  v.  Farmers'  Bank,  72  N.  C.  626.  tion    against    them.      Rehbein   v.    Rahr, 

11.  Colorado.— W'htvt  the  object  of  a  109  Wis.   136,  85   N.  W.  315. 

suit  by  creditors  of  an  insolvent  bank-  14.      Death     of     party — Revival. — 

ing    corporation     is     to     ascertain     the  Riggs  v.    Swann,   Fed.   Cas.   No.   11,831, 

liability    of    stockholders    under    Mills'  3  Cranch,  C.  C.   183,  reversed  in  2   Pet. 

Ann.    St.,    §    533,    defining   the    liability  482,   7  L.    Ed.   493. 

of   stockholders   in    banks,    neither   the  15.     Parties     not     served. — Riggs     v. 

bank   nor  its   assignee   is    a    necessary  Swann.  Fed.  Cas.  No.  11,831,  3  Cranch, 

party,  but  the   suit  may  be   maintained  C.   C.   183,   reversed   in  3   Pet.  482,   7   L. 

against   the    stockholders   alone.      Kipp  Ed.   493. 

V.  Miller,  47  Colo.  598,  108  Pac.  164.  jg.  Parties  as  to  whom  bill  taken  pro 

12.  Action  by  receiver.— Moore  v.  confesso.— Riggs  v.  Swann,  Fed.  Cas. 
Ripley,   106   Ga.   556.  32   S.   E.  647.  No.    11,831.    3    Cranch,    C.    C.    183,    re- 

13.  Omitted      stockholder.— In      an       versed  in  2   Pet.  482,  7   L.   Ed.  493. 


§  49  (7aa) 


STOCKHOLDERS. 


237 


creditor  of  a  bank  has  sued  the  stockholder  to  enforce  their  personal  liability 
can  dismiss  such  suit.^" 

§  49  (7)  Pleading. — See  ante,  "Enjoining  Illegal  Acts  and  Practices," 
§  45   (2). 

§  49  (7a)  Complaint,  Declaration  or  Petition — §  49  (7aa)  Nec- 
essary Allegations. — The  complaint  in  an  action  to  enforce  the  liability 
of  a  stockholder  for  the  debts  of  the  bank  should  allege  a  compliance  with 
the  requirements  without  which  no  liability  exists  or  such  a  state  of  facts 
as  render  a  compliance  unnecessary. ^"^ 

As  to  Necessity  for  Enforcement. — The  facts  showing  it  necessary  to 
enforce  the  individual  liability  of  bank  stockholders  must  be  alleged  in  an 
action  brought  by  the  superintendent  of  banks  to  enforce  such  liability.^'-* 

Judicial  Determination  of  Insolvency. — In  an  action  to  enforce  the 
secondary  liability  of  stockholders  of  an  insolvent  bank,  an  averment  of 
such  a  judicial  determination  of  the  insolvency  of  the  corporation  as  ren- 


17.   Dismissal   by   assignee    of   claim. 

— Where  a  creditor  of  an  insolvent 
bank,  under  an  agreement  with  the 
receivers  that  they  would  bear  half  the 
expenses,  sues  the  stockholders,  join- 
ing the  receivers  as  defendants,  and 
the  claim  is  afterwards  assigned  and 
settled,  and  the  assignee  seeks  to  dis- 
miss the  action,  the  receivers  can  not 
carry  it  on,  as,  under  Laws  1892,  c. 
688,  §  55,  providing  that  "no  action 
shall  be  brought  against  a  stockholder 
for  any  debt  of  the  corporation  until 
judgment  therefor  has  been  recovered 
against  the  corporation  and  an  execu- 
tion therein  has  been  returned  unsatis- 
fied," the  receivers  could  not  have 
brought  the  action.  Judgment  Hirsch- 
feld  V.  Bopp,  27  App.  Div.  180,  50  N. 
Y.  S.  676,  reversed.  Hirshfeld  v.  Fitz- 
gerald. 157  N.  Y.  166.  51  N.  E.  997.  46 
L.  R.  A.  839.  rehearing  denied,  157  N. 
Y.    707,    52    N.    R.    1124. 

18.  Allegation  of  compliance  with 
conditions  precedent. — Laws  lh'.)2,  c. 
OSH,  vj  ",")  (Stock  Corporation  Law), 
providing  that  no  action  shall  he 
brought  against  a  stockholder  for  any 
debt  of  the  corpr)ration  until  certain 
requirements  have  been  complied  witli, 
must  be  construed  in  connection  with 
Laws  1892,  c.  689,  §  52  (Banking 
Law),  which  provides  that,  "except  as 
prescribed  in  the  stock  corporation 
law."  stockholders  of  banks  shall  be 
liable  for  corporate  debts  to  a  certain 
extent,  thercliy  renderuig  the  stock- 
holders' liability  secondary;  and  there- 
fore a  complaint  against  a   stockholder 


for  a  debt  of  the  bank  must  allege  a 
compliance  with  the  requirements  of 
§  55,  or  facts  showing  that  such  com- 
pliance was  impossible.  Hirshfeld  z'. 
Kursheedt,  81  Hun  555.  30  N.  Y.  S. 
1023,  63  N.  Y.  St.  Rep.  217.  judgment 
affirmed  in  145  X.  Y.  S4.  :!!)  X.  IC.  SIT. 
19.  Action  by  superintendent  of 
bank. — Const.,  art.  8,  §  7,  provides  that 
the  stockholders  of  every  banking  cor- 
poration shall  be  individually  liable  for 
the  amount  of  their  respective  shares 
of  stock  for  all  its  debts  and  liabilities, 
and  Banking  Law  (Consol.  Laws 
1909.  c.  2)  §  19.  provides  that  the  su- 
perintendent of  banks  may  take  pos- 
session of  the  property  and  business 
of  any  corporation  or  individual 
banker,  under  specified  circumstances, 
and  retain  possession  until  the  corpo- 
ration or  banker  shall  resume  business 
or  its  affairs  be  liquidated,  and  that 
such  superintendent,  if  necessary  to 
pay  the  debts  of  the  corporation,  may 
enforce  the  individual  liability  of 
stockholders.  Held  that,  since  the  su- 
perintendent was  authorized  to  take 
possession  of  the  affairs  of  the  bank 
for  reasons  other  than  its  inability  to 
pay  debts,  it  was  insufficient  in  an 
action  by  the  superintendent  against 
a  stockholder  to  recover  the  amount 
of  his  personal  liability  to  show  that 
the  superintendent  had  considered  it 
necessary  to  enforce  such  liabilit)*;  it 
being  essential  that  the  facts  showing 
such  necessity  be  alleged  and  proved. 
Chcncv  T'.  Scharmann.  14.")  App.  Div. 
456,   129   N.    ^'.   S.   O'.Ci. 


238  BANKS  AND  BANKING.  §  49  (7aa) 

dered  the  liability  of  such   stockholders  enforceable   against  them   is  nee- 

essary.-" 

As  to  Ownership  of  Shares. — In  an  action  to  enforce  the  individual 
liability  imposed  on  bank  stockholders,  the  complaint  should  state  the  time 
when  the  several  defendants  became  stockholders,-^  and  in  an  action  against 
a  single  stockholder  the  numbers  of  shares  held  by  him.22 

As  to  Debts. — In  an  action  to  enforce  the  liability  of  a  stockholder  for 
the  debts  of  the  bank,  the  complaint  should  state  the  amount  of  the  debts  ;23 
and  the  dates  when  they  were  contracted,-^  but  need  not  set  out  the  con- 
sideration.-'"^ 

Suit  on  Bank  Bills. — Where  the  suit  is  upon  the  bank's  bills,  it  should 
set  out  and  describe  them.-^ 

Property  Belonging  to  Defendant. — It  is  not  necessary  in  a  petition 
seeking  to  enforce  bank  stockholders'  personal  liability  to  allege  that  the 
defendants  had  property  or  of  what  that  property  consisted.-'^ 

Ultimate  Exhaustion  of  Liability. — The  complaint  in  an  action  to 
enforce  the  individual  liability  of  bank  stockholders  need  not  allege  the  facts 
which  show  that  the  liability  v^ill  ultimately  have  to  be  exhausted  in  order 
to  pay  the  debts. -^ 

Exhibiting  Petition  under  Which  Receiver  Appointed. — It  is  not 
necessary  that  the  petition  under  which  the  receiver  was  appointed  should 
be  exhibited  with  the  petition  in  a  suit  by  such  receiver  to  enforce  the  liabil- 
ity of  stockholders  for  the  debts  of  the  bank.-^ 

Actions  against  Nonresident  Stockholders. — The  declaration  in  an 
action  against  a  nonresident  stockholder  in  a  bank  to  enforce  his  liability 
for  its  debts  must  show  that  the  appointment  of  the  receiver  was  not  made 

20.  Judicial  determination  of  in-  It  was  so  held  under  N.  C.  Pub. 
solvency. — Dickason  z:  Grafton  Sav.  Laws  1899.  p.  473,  c.  298.  Smathers  v. 
Bank  Co.,  27    O.  C.  C.  3.57.                              Western     Carolina     Bank,     135     N.     C. 

21.  Ownership  of  shares. — It  was  so       410,  47  S.  E.  893. 

held  in  an  action  by  a  receiver,  under  25.    Consideration. — It    was    not    nec- 

N.    C.   Pub.   Laws   1897,  p.   473,   c.  298.  essary    for    the    declaration    seeking    to 

Smathers    v.    Western    Carolina    Bank,  enforce    bank    stockholder's    individual 

135  N.  C.  410,  47  S.   E.  893.  liability  to  set  out  the  consideration  of 

22.     Number     of    shares. — Under     1  the  contract  sued  on.     Porter  v.   Kep- 

Mills'  Ann.  St.,  §  518,  declaring  stock-  ler,    14    O.    127;    Porter    v.    Porter,    14 

holders    of   a   banking    corporation    in-  O.   220. 

dividually  liable  for  all  its   debts   con-  26.  Bank  bills.— Branch  v.  Knapp,  61 

tracted    while    they   were    stockholders  q^    q^^ 

equally    and    ratably    to    the    extent    of  gge  post,   "Liability   of   Stockholders 

their  shares,  the  complaint  in  an  action  q^  Officers  "  §  211 

against     a     single     stockholder     should  ' 
show    the    total    number    of    shares     of 


27.    Property    belonging    to    defend- 


defendants      holding.      Richardson      v.  ^^V^t^'^^^I^^^  ''•   ^^"'■^'■'   ^~^   ^^-    '^°' 

Boot,  18  Colo.  App.  140,  70  Pac.  454.  ^'^   ^-   ^-    -~''- 

23.  Amount  of  debts.— It  was  so  28.  Ultimate  exhaustion  of  liability, 
held  under  1  Mill.  Am.  St.  of  Colorado,  —Booth  v.  Dear,  96  Wis.  516,  71  N.  W. 
§    518.     Richardson    v.    Boot,  18    Colo.  816. 

App.   140,  70  Pac.  454.  29.    Exhibiting   petition   under   which 

24.  Dates    when    contracted. — Rich-  receiver     appointed. — W  h  e  a  1 1  e  y     :•. 
ardson  v.   Boot,   18   Colo.   App.   140,   70  Glover,  125  Ga.  710.  54  S.   E.   626.' 
Pac.  454. 


§  49  (7ab) 


STOCKHOLDERS. 


239 


without  notice  to  the  stockholders/^"  And  a  declaration  in  such  action 
which  fails  to  allege  that  the  stockholders  had  notice  or  were  parties  to  the 
proceedings  establishing  the  liability  of  the  stockholders  to  the  creditors  is 
fatally  defective,  although  it  alleges  that  the  bank  was  a  party .^^ 

§  49  (Tab)  SuflEiciency  of  Allegations. — A  petition  in  an  action  to 
enforce  the  liability  of  a  stockholder  in  a  bank  for  its  debts,  which  sets 
forth  the  substance  of  a  cause  of  action  given  by  the  statute,  is  sufficient. ■'- 

Appointment  of  Receiver. — Allegations  which  fully  describe  the  pro- 
ceedings under  which  the  receiver  was  appointed  are  sufficient  to  show  his 


30.  Notice — Action  against  nonresi- 
dent stockholder. — A  declaration,  in  an 
action  in  Rhode  Island  to  enforce  lia- 
bility of  stockholders  of  a  Nebraska 
bank,  by  the  receiver  appointed  in  Ne- 
braska, which  alleges  that  prior  to  and 
since  the  appointment  of  the  receiver 
the  laws  of  Nebraska  authorized  the 
appointment   of   a   receiver   of  a   bank- 

•ing  corporation  conducting  business  in 
an  unsafe  manner,  etc.,  and  empowered 
the  receiver  to  enforce  the  liability  of 
stockholders,  and  which  annexed  as  an 
exhibit  the  statutes  (Comp.  St.  Neb. 
1905,  c.  8,  §§  34,  35)  which  took  effect 
in  July,  1895,  and  which  shows  that 
the  appointment  was  made  in  March, 
1895,  shows  that  the  receiver  is  not 
governed  by  such  statute,  but  is  gov- 
erned by  Code  Civ.  Proc.  Neb.  §§  266, 
267,  274,  relating  to  the  appointment 
of  receivers,  and  declaring  that  an 
order  appointing  a  receiver  without 
notice  shall  be  void.  Hazlett  v.  Wood- 
head   (R.  I.),  67  Atl.  736. 

31.  A  declaration,  in  an  action  in 
Rhode  Island  to  enforce  the  liability 
of  stockholders  of  a  Nebraska  bank, 
imposed  by  Const.  Neb.  1875,  art.  lib, 
§  7,  making  every  stockholder  in  a 
banking  corporation  liable  to  its  cred- 
itors above  the  amount  of  stock  to  an 
amount  equal  to  the  stock,  which  fails 
to  allege  that  the  stockholders  had 
notice  of  or  were  parties  to  the  pro- 
ceedings in  the  Nebraska  court  estab- 
lishing the  liability  of  the  stockholders 
to  the  creditors,  is  fatally  bad  though 
it  alleges  that  the  bank  was  a  party, 
Since,  in  a  proceeding  touching  the  in- 
dividual liability  of  stockholders,  the 
bank  can  not  represent  them.  Hazlett 
V.  Woodhead.  27  R.  I.   ■506,  63  .Atl.  952. 

.A  declaration,  in  an  action  in  Rhode 
Island  to  enforce  the  liability  of  stock- 
holders of  a  Nebraska  bank,  which  sets 
forth  notice  by  publication  to  all  stock- 
holders to  appear  on  or  before  Feb- 
ruary 24,  1902,  in  a  court  in  Nebraska, 
but  which  shows  that  leave  had  been 
given  on  June  27,  1898,  to  the  receiver 


to  sue  stockholders,  on  the  court  in 
Nebraska,  finding  that  the  assets  of 
the  bank  had  been  exhausted,  and 
which  fails  to  show  that  any  notice 
had  been  given  to  all  stockholders  of 
the  pendency  of  the  proceedings  which 
resulted  in  such  finding,  is  fatally  bad 
for  failing  to  allege  that  the  stock- 
holders had  notice  of  or  were  parties 
to  the  proceedings  in  the  Nebraska 
court  establishing  the  liability  of  the 
stockholders.  Hazlett  f.  Woodhead 
(R.    I.),    67   Atl.    736. 

32.  Substance  of  cause  of  action. — 
Georgia. — In  an  action  by  a  receiver  of 
a  bank  against  the  stockholders,  a  pe- 
tition, alleging  that  defendant  was  a 
subscriber  to  the  capital  stock  for  a 
certain  number  of  shares,  and  the 
stock  held  by  him  represented  his  sul)- 
scription  to  the  capital  stock,  and  that 
there  were  debts  against  the  bank 
which  were  unpaid,  and  that  there 
were  not  assets  sufficient  to  pay  the 
debts  referred  to,  and  praying  a  judg- 
ment against  defendant  for  the  sum 
representing  the  par  value  of  the 
stock,  set  forth  a  cause  of  action.  Reid 
V.  Jones,   127   Ga.   114,   56   S.   E.   128. 

Ohio. — The  declaration  filed  under 
the  act  of  1816,  to  prohibit  the  issuing 
and  circulating  of  unauthorized  bank 
paper  (Swan's  Stat.  136),  was  suffi- 
cient, if  it  contained  the  requisites  pre- 
scribed in  the  thirteenth  section  of 
that  act.  2  Bates'  Anno.  Stat.,  §  3821-4; 
Act  Jan.  27,  1816,  §  14;  Kearny  v.  But- 
tles, 1  O.  St.  362;  Lawler  v.  Walker. 
IS   O.    151. 

Wiscnnsiii. — It    is   sufficient    to    allege 


that    plaintiff    is    a 
debt    due;    that    he 


creditor    having 
sues    on    behalf    of 


himself  and  all  other  creditors;  lliai 
defendants  are  stockholders,  liable  foi 
such  indebtedness,  under  the  Wiscon- 
sin Laws  1852,  c.  479,  §  47;  and,  where 
the  corporation  is  not  a  defendant,  thai 
sufficient  reason  exists  for  the  omis- 
sion, setting  forth  such  reason.  Booth 
V.   Dear,  96  Wis.  516,  71    N.  W.  BIG. 


240 


BANKS   AND   BANKING. 


§  49  (7ab) 


authority  to  bring  a  suit  to  enforce  the  stockholders'  HabiHty  for  debts  of 
the  bank,  without  the  petition  under  which  he  was  appointed  being  ex- 
hibited.-' 

Demurrer. ^A  petition  stating  the  substance  of  a  cause  of  action  in  a 
suit  to  enforce  the  individual  of  bank  stockholder  is  good  against  a  general 
demurrer  although  defective  as  against  a  special  demurrer  directed  to  and 
specifying  the  defects  therein.^-* 

Particular  Allegation. — There  are  many  instances  in  which  particular 
allegations  in  a  complaint  to  enforce  the  liability  of  stockholders  in  a  bank 
for  its  debts  have  been  held  sufficient  for  the  purpose  of  a  demurrer.  The 
following  allegations  which  are  set  out  in  full  in  the  footnotes,  to  wit :  that 
defendants  were  stockholders,-""''  of  the  dissolution  of  the  bank,^'^  of  reason 
for  omitting  certain  stockholders  from  writ  ;2"  of  several  liability .■^'^  and  of 
nonpayment,^'*  were  held  sufficient;    but  an  averment  that  a  judgment  at 


33.  Appointment  of  receivers. — 

Wheatley    r.    Glover,    125    Ga.    710,    54 
S.   E.  626. 

34.  Demurrer. — A  petition  against 
stockholders  of  a  bank  alleged  the  in- 
solvency of  the  bank;  stated  approxi- 
mately the  amount  due  depositors,  and 
that,  in  order  to  pay  them,  it  would  be 
necessary  for  each  stockholder  to  be 
assessed  the  full  amount  of  his  statu- 
tory liability,  which  under  the  charter, 
was  a  sum  equal  to  the  amount  of 
stock  held  by  each  stockholder;  made 
the  persons  named  as  stockholders 
parties  defendant;  and  prayed  judg- 
ment against  each  of  them  for  the 
amount  of  their  statutory  liability.  Held 
not  subject  to  a  general  demurrer. 
Moore  v.  Ripley,  106  Ga.  556,  32  S. 
E.  647. 

35.  Allegation  that  defendants  stock- 
holders.—In  a  complaint  to  enforce 
the  liability  of  stockholders  of  an  in- 
solvent bank,  an  allegation  that  de- 
fendants were  stockholders  within  two 
years  before  the  commencement  of  the 
action,  there  being  no  allegation  that 
they  transferred  their  stock,  suffi- 
ciently shows  them  to  be  stockhold- 
ers, where  the  objection  is  by  demur- 
rer; since,  for  the  purpose  of  the  de- 
murrer, it  will  be  presumed  that  they 
remained  stockholders  until  the  disso- 
lution. Persons  v.  Gardner,  26  Misc. 
Rep.  663,  56  N.  Y.  S.  822,  42  App.  Div. 
490,  affirmed  in  59  N.  Y.  S.  463,  42 
App.   Div.  490. 

It  was  sufficient  in  such  declaration 
to  aver  that  the  defendant  was  a  stock- 
holder at  the  dates  of  the  notes,  or  sub- 
sequently, without  showing  him  such 
at  the  commencement  of  the  suits. 
Kearny  v.  Buttles,  1   O.  St.  362. 


36.  Dissolution  of  bank. — iAn  allega- 
tion that  a  bank  has  suspended  busi- 
ness for  more  than  a  year  is  a  sufficient 
averment  of  the  dissolution  of  the  cor- 
poration, under  Gen.  St.  1889,  par.  1200, 
to  authorize  a  suit  by  a  creditor 
against  a  stockholder.  Sterne  z'.  Ather- 
ton,  7  Kan.  App.  20,  51   Pac.  791. 

37.  Reason  for  omitting  stockholder. 
— In  an  action  to  fix  the  liability  of 
stockholders  of  an  insolvent  bank,  an 
allegation  that  some  of  the  stockhold- 
ers are  dead  and  their  estates  are  un- 
represented, that  others  are  corpora- 
tions which  are  "defunct,"  and  that 
others  are  beyond  the  jurisdiction  of 
the  court,  sets  forth  a  sufficient  reason 
for  omitting  them  from  the  suit  as 
parties  defendant.  Wheatley  7'.  Glover, 
125    Ga.    710,    54    S.    E.    626. 

38.  Allegation  of  several  liability. — 
A  bill  was  filed  by  the  assignee  of  a 
bank  against  a  number  of  the  stock- 
holders of  another  insolvent  bank  to 
compel  such  stockholders  to  ratably 
contribute  under  a  clause  in  the  char- 
ter which  makes  them  personally  liable 
for  the  bills  in  circulation,  and  also 
to  appropriate  the  amount  of  stock 
subscribed  by  them  and  unpaid  to  the 
payment  of  debts  due  by  the  latter  in- 
stitution to  the  former  as  a  trust  fund 
in  their  hands.  Held,  that  a  demurrer 
on  the  ground  that  the  liability  of  the 
stockholders  is  several,  and  not  joint, 
was  not  warranted  by  the  bill,  it  seek- 
ing to  charge  them  severally,  and  not 
jointly.     Robison  z'.  Carey,  8  Ga.  527. 

39.  Nonpayment. — The  allegation  of 
the  complaint,  in  an  action  against 
shareholders  in  a  bank,  that  "defend- 
ant, though  demanded,  has  failed  and 
refused  to  pay  said  assessment,  or  any 


§  49  (7ae) 


STOCKHOLDERS. 


241 


law  against  the  bank  could  not  have  been  obtained,  was  held  insufficient.**^ 

§  49  (7ac)  Prayer  for  Recovery.— The  complaint  must  contain  a 
sufficient  prayer  for  recovery. ^i 

§  49  (Tad)  Amendments  and  Aider  by  Verdict.— The  general  rules 
as  to  amendments  and  aider  by  verdict  apply  to  petitions  in  actions  to  en- 
force the  individual  liability  of  bank  stockholders. ^- 

§  49  (7ae)  Affidavit  of  Amount  of  Indebtedness.— The  statute 
may  require  the  plaintiff  in  an  action  to  enforce  a  bank  stockholder's  lia- 
bility to  file  with  his  declaration  an  affidavit  stating  amount  the  defendant 
is  indebted  to  him,  etc*^ 


part  thereof,"  is  a  sufficient  averment, 
as  against  a  general  demurrer,  of  non- 
payment at  the  time  action  was  com- 
menced. O'Connor  v.  Witherby,  111 
Cal.   52.3,   44   Pac.   227. 

40.  Inability  to  obtain  judgment 
against  bank. — It  is  not  a  sufficient  al- 
legation that  no  judgment  at  law 
could  have  been  obtained  against  the 
bank  to  aver,  that  the  stockholders 
have  failed  and  refused  to  elect  di- 
rectors and  officers,  an  act  of  the  legis- 
lature expressly  authorizing  process 
to  be  served  on  the  late  president, 
cashier  or  any  director.  Blake  v. 
Hinkle,   18   Tenn.    (10   Yerg.)    218. 

41.  Prayer  for  recovery. — While  the 
petition  as  amended  did  not  pray  for 
the  recovery  of  a  specific  sum  of 
money  against  each  of  the  defendants, 
there  was  a  prayer  that  recovery  be 
had  against  each  defendant  for  the  par 
value  of  his  stock,  with  interest  from 
date  the  suit  was  filed;  and  the  aver- 
ments of  the  petition  was  sufficient  to 
show  the  exact  sum  for  which  each 
defendant  would  be  rendered  liable 
under  this  prayer.  Wheatley  v.  Glover, 
12.^5    Ga.    710,    -.4    S.    E.    020. 

42.  Amendments — Aided   by    verdict. 

— Where  subscribing  shareholders  of 
a  bank  were  liable  under  charter  pro- 
visions for  an  amount  equal  to  tiieir 
stock  upon  insolvency  of  the  bank, 
and  the  declaration  contained  allega- 
tions that  he  was  a  shareholder  when 
the  debt  was  created  and  the  bank 
failed,  but  there  was  no  allegation  in 
express  terms  that  he  was  a  subscrib- 
ing shareholder,  it  was  held  that  this 
was  amcndal)le  and  cured  by  verdict; 
and  after  verdict  and  judgment  a  mo- 
tion to  set  aside  such  judgment  on 
that  ground  should  not  be  sustained. 
Reid  V.  Hearn,  127  Ga.  117,  56  S.  E. 
120. 

1    P.   &  P— 10 


New  cause  of  action. — Where  the 
subscribing  stockholders  of  a  bank 
upon  insolvency  were  liable  under 
charter  provisions  for  an  amount 
equal  to  their  subscription  to  its  stock 
and  the  petition  of  the  receiver  of  the 
insolvent  bank  failed  to  make  the  al- 
legation that  defendant  was  a  sub- 
scribing shareholder,  but  contained 
allegations  that  defendant  was  a 
stockholder  at  the  time  the  debts  were 
contracted,  which  were  unpaid  as  well 
as  at  the  time  of  the  failure  of  the 
bank  and  there  were  not  sufficient  as- 
sets to  pay  the  above  debts,  it  was 
held  that  the  petition  above  set  forth 
a  cause  of  action  and  should  not  have 
been  dismissed  and  that  the  amend- 
ment as  to  subscril)ing  stockholders 
did  not  set  forth  a  new  cause  of  ac- 
tion and  should  have  been  allowed. 
Reid  V.  Jones,  127  Ga.  114,  56  S.  E. 
12S. 

43.  Affidavit  of  amount  of  indebted- 
ness.—Act  1886,  p,  308,  C.  184,  §  171, 
requires  plaintiflf  to  file  with  his  dec- 
laration an  affidavit  "stating  the  true 
amount  defendant  is  indebted  to  him 
over  and  above  all  discounts,  and  shall 
file  the  bond,  bill  of  exchange,  note, 
or  other  writing  or  account  by  which 
defendant  is  so  indebted;  or,  if  the  ac- 
tion be  founded  on  a  verbal  or  im- 
plied contract,  shall  file  a  statement 
of  the  particulars  of  defendant's  in- 
debtedness thereunder."  Held,  in  an 
action  to  enforce  the  liability  of  a 
stockholder  in  a  banking  corporation 
under  Acts  1802,  p.  156,  c.  100,  §  8.-)l, 
that  the  affidavit,  which  was  accom- 
panied by  an  account  for  money  due 
I)laintifT  as  depositor  with  the  corpo- 
ration of  which  defendant  was  stock- 
holder, setting  forth  the  dates  and 
amounts  of  ;ill  deposits  made  and  the 
aggregate  thereof,  with  credits  for 
money  withdrawn,   was  sulTicient    with- 


242  BANKS   AND   BANKING.  §    49    (8a) 

§  49  (7b)  Cross  Bill. — Where  a  bill  was  filed  against  parties  charged 
as  being  directors  and  stockholders  of  a  bank  organized  under  the  general 
banking  law,  or,  in  the  alternative,  as  being  fraudulent  partners,  the  object 
of  the  bill  being  to  enforce  payment  of  notes  of  the  bank,  the  defendants 
were  not  entitled  to  file  a  cross  bill  to  compel  complainant  to  disclose  when  he 
became  owner  of  the  notes  or  how  much  he  paid  for  them,  as  such  dis- 
covery would  be  immaterial  to  the  defense.^'* 

§   49    (8)   Evidence.— See  ante,  "In  General,"  §  47  (1). 

§  49    (8a)   Presumptions  and  Burden  and  Degree  of  Proof. — The 

facts  without  the  existence  of  which  the  statute  does  not  enforce  liability 
on  the  stockholder  in  a  bank  for  its  debts  must  be  affirmatively  shown. 
Thus  where  the  power  to  enforce  the  liability  can  be  exercised  only  in  the 
case  of  a  bank  issuing  bills  for  circulation  that  fact  must  be  affirmatively 
shown. ^^  In  an  action  by  the  superintendent  of  bahks  to  enforce  the  lia- 
bility of  a  stockholder  in  a  bank  for  its  debts,  it  is  essential  for  him  to 
allege  and  prove  the  facts  showing  necessity  for  such  action  in  order  to  pay 
the  debts  of  the  bank.^<^ 

Insolvency. — To  entitle  creditors  of  a  bank  to  subject  the  capital  stock 
in  the  hands  of  stockholders  to  payment  of  their  claims,  they  must  show 
that  the  bank  is  insolvent,  or  has  no  property  from  which  the  claims  may 
be  satisfied.'*" 

That  Defendant  a  Stockholder. — Proof  must  be  made  of  the  fact  that 
the  person  sought  to  be  charged  is  a  stockholder  in  order  to  sustain  a  judg- 
ment.^^ 

As  to  Issuance  and  Signature  of  Stock  Certificate. — In  a  suit  against 
a  stockholder  for  assessments  levied  by  the  comptroller  of  the  currency,  it 
will  be  presumed  that  the  stock  certificate  bearing  the  corporate  seal  of  the 
bank  v^as  issued  and  signed  by  the  officer  having  authority  so  to  do.^^  In  a 
suit  to  charge  defendant  as  a  stockholder  in  an  insolvent  banking  corpora- 
out  filing  plaintiff's  bankbook  or  de-  5,  1849.  Held,  that  the  power  to  en- 
lendant's  certificates  of  stock.  Coul-  force  the  liability  can  be  exercised 
bourn  Bros.  v.  Boulton,  100  Md.  350,  only  in  the  case  of  a  bank  issuing 
^^  r'^^''^'       .  bills    for    circulation,    which    fact    must 

44.  Cross  bill.— It   was   so   held   un-       be  affirmatively  shown.     In  re   Empire 
der  the  general  banking  law  of  Michi-       City  Bank  (X.  Y.),  6  Abb.  Prac.  385. 
gan  enacted  in  1837.     Cook  v.  Wheeler  aq     Chenev  -    ^rharmpnti    ^4^    Ann 
(Mich.),    Har.   443.                                              Div    4-r    io7v"  v    cfToo     '  ^^■ 

45.  Bank's     issuing     bills.-Const.,  '^      t  '     f  ^^  ^ '  w  '?•       ^^ 

art.   8,   §   7,    declares   that   stockholders       ^  *J'    Insolvency.— Wood    r.    Dummer. 
in  every  corporation  and  general  stock       ^^^-    ^^^-    ^°-    l''--'-^-^-    3    Alason.   308. 
association   for   banking  purposes,   "is-  *8-    That  defendant  a  stockholder. — 

suing  bank  notes  or  any  kind  of  paper  So  held  in  proceedings  under  Laws 
credits  to  circulate  as  money,"  shall  1849,  c.  220,  providing  for  the  enforce- 
be  individually  responsible,  to  the  rnent  of  the  liability  of  stockholders, 
amount  of  their  respective  shares,  for  ss  such,  of  banks  of  issue.  Diven  v. 
all  debts  and  liabilities  of  the  corpo-  Lee,  36  N.  Y.  302,  34  How.  Prac.  197. 
ration      or      association.      Special     and  49.    As   to   issuance   and  signature.— 

summary  proceedings  to  enforce  this  Davis  r.  Watkins,  56  Neb.  288.  76  N. 
liability  are  provided  for  by  Act  April       W. 


"^■•;. 


O  i  o. 


§  49  (8c) 


STOCKHOLDERS. 


245 


tion  with  double  liability  under  the  statute,  where  it  was  shown  that  certifi- 
cates of  stock,  issued  in  his  name,  were  in  his  safety  deposit  box  at  the 
time  of  the  failure,  and  that  he  had  been  credited  on  his  bank  book  with 
two  dividends  thereon,  the  presumption  is  that  he  was  the  owner  of  such 
stock,  and  the  burden  rested  on  him  to  prove  the  contrary.^" 

§  49  (8b)  Admissibility.— Evidence  Respecting  Transfer  of 
Stock. — Evidence  of  the  bona  fides  of  the  transfer  of  the  stock^i  and  that 
the  transfer  was  made  pursuant  to  an  agreement  with  the  associates  that 
the  transferrer  was  to  be  released  on  substituting  responsible  transferees, ^- 
is  admissible. 

The  bank's  stock  ledger,  identified  and  supported  by  the  evidence  of 
the  ex-cashier  of  the  bank,  is  admissible  to  prove  that  defendants,  in  an 
action  against  alleged  stockholders  of  an  insolvent  bank  to  enforce  their 
statutory  liability  for  its  debts,  appearing  by  the  book  to  be  stockholders, 
were  such  in  fact.^^ 

Pass  Book  as  Proof  of  Character  of  Deposit.— \Mien  the  charter  of 
a  banking  corporation  provides  that  its  ofticers,-  when  required  by  any  per- 
son making  a  deposit  in  its  savings  department,  shall  issue  certificates  for 
the  same,  and  makes  the  stockholders  personally  liable  to  depositors,  it  is 
not  essential  to  the  liability  of  the  stockholders  that  a  certificate  be  given, 
as  the  character  of  the  deposit  may  be  shown  by  a  pass  book  given  to  the 
depositor.-^-* 

§  49  (8c)  Weight  and  Sufficiency.— The  fact  that  the  defendant 
in  an  action  to  enforce    the    liability    of    a    stockholder  in  a  bank  for  its 


50.  As  to  ownership. — AIsop  v. 
Conway,  110  C.  C.  A.  366,  188  Fed. 
568. 

51.  Bona  fides  of  transfer. — In  a 
suit  against  the  former  owner  of  all 
the  stock  of  a  bank,  who  transferred 
it  to  third  persons  witliout  considera- 
tion, and  at  the  same  time  received  a 
transfer  of  all  the  property  and  assets 
of  the  bank,  evidence  is  admissil)le  to 
show  the  bona  fides  of  the  transaction, 
and  that  no  fraud  was  intended,  but 
only  a  transfer  ol  the  charter  without 
rendering  the  former  owner  of  the 
stock  liable  for  the  subsequent  debts. 
Morgan   v.    Brower,    77    Ga.    627. 

52.  In  an  action  by  the  receiver  of 
a  bank  to  enforce  the  liability  of  an 
original  stockholder  who  had  trans- 
ferred his  stock  before  anything  was 
paid  therefor,  to  which  transfer  the 
Ijank  consented,  evidence  that  the 
transfer  was  made  pursuant  to  an 
agreement  with  the  associates  that  he 
was  to  be  released,  on  sul)stiluting  re- 
sponsible transferees,  is  admissible  to 
show  that  tlic  l)aiik  intended  to  re- 
lieve him   from  lial)ilitv,  tlicugh   not  as 


a   complete   bar.     Cowles   v.   Cromwell 
(X.    Y.).    2.5    Barl).    413. 

53.  Stock  ledger.— Adams  v.  Clark, 
30    Colo.    6.5,    S.5    Pac.    642. 

Transfer  book. — In  a  suit  against 
one  as  a  stockholder  in  a  bank,  a 
transfer  of  slock  l)y  him  on  the  trans- 
fer book  of  the  bank,  is  evidence 
against  him  that  he  once  owned  stock 
to  the  amount  of  the  stock  so  trans- 
ferred.    Robinson  v.  Bealle,  20  Ga.  275. 

In  an  action  by  a  bill  holder  against 
a  stockholder  of  a  l)ank,  a  transfer  of 
slock  made  on  the  books  of  the  liank 
by  its  casiiier  to  which  the  defendant 
stockholder  had  free  access  under  the 
law,  is  prima  facie  evidence  of  his 
ownership  of  the  shares.  Thornton  f. 
Lane,    11    Ga.    450. 

The  ledger  of  a  bank,  although  not 
a  book  of  original  entry,  is  competent 
evidence  against  a  stockholder  of  the 
bank  in  an  action  again.';!  him  by  a 
depositor  to  estal)lish  his  personal  lia- 
l)ilUv  under  the  terms  of  (lie  ch;iner 
of  the  bank.     Dows  :•.   Xapcr.  91    111.    \\. 

54.  Pass  book  as  proof  of  character 
of  deposit. — Dows  f.    ;\apcr,  !il    III.    It. 


244 


BANKS   AND   BANKING. 


§  49  (9a) 


debts  was  a  stockholder  may  be  sufficiently  proved  by  the  bank's  stock 
ledger  ;^^  or  by  proof  of  a  colorable  transfer  of  stock  which  in  fact 
belonged  to  the  defendant  and  on  which  he  was  liable  or  the  issuance  of 
the  stock  certificate  in  another  name.^*^ 

An  answer  alleging  that  defendant  transferred  his  stock  in  good  faith 
for  value  is  not  an  admission  that  he  did  not  transfer  to  the  person  in 
whose  name  it  appears  on  the  books  and  inconsistent  with  evidence  that 
the  sale  was  in  good  faith  for  value. ^''' 

Judgment  Ascertaining  Bank's  Insolvency. — The  allegations  in  a  bill 
by  receivers  of  a  bank  against  the  stockholders,  that  the  court  has  decided 
that  the  assets  of  the  bank  are  insufficient  to  pay  the  claims  against  it,  can 
be  proved  only  by  the  record  of  a  judgment  to  which  the  bank  was  a 
party.^^ 

Production  of  Certificate  of  Deposit. — The  creditor  must  prove  own- 
ership of  the  certificate  of  deposit  sued  on  by  production  thereof. ^^ 

Pass  Book  as  Proof  of  Character  of  Deposit. — See  ante,  "Admissi- 
bility," §  49  (8b). 

§  49  (9)  Trial  and  Judgment— §  49  (9a)  Reference  and  Re- 
ceiver's Report. — Time  of  Apportionment. — A  provision  in  the  law, 
relative  to  closing  up  the  affairs  of  an  insolvent  bank,  prescribing  the  time 
within  which  the  referee  is  to  make  the  apportionment  of  liabilities  among 
the  stockholders,  is  directory  only,  and  such  apportionment  made  after  the 


55.  Stock  ledger  as  proof  of  owner- 
ship.— Adams  v.  Clark,  36  Colo.  65, 
85  Pac.   642. 

56.  Proof    of     colorable     transfer. — 

In  an  action  to  enforce  the  liability  of 
a  stockholder  in  an  insolvent  bank, 
evidence  held  to  jhow  that  a  certifi- 
cate issued  to  defendant's  v/ife  was  in 
fact  stock  belonging  to  defendant  and 
on  which  he  was  liable.  Hunt  v. 
Reardon,  9o  Minn.  375.  101  N.  W.  606. 
Evidence  in  action  to  enforce 
stockliolder's  liability,  held  to  snow 
that  defendant  was  a  stockholder. 
Voorhees  v.   Bank,   19   O.  463. 

57.  Answer  as  evidence. — In  an  ac- 
tion by  the  receiver  of  an  insolvent 
bank  to  recover  an  assessment  against 
a  stockholder,  the  complaint  alleged 
that  defendant  caused  a  pretended 
transfer  of  his  stock  to  be  entered  on 
the  books  of  the  bank  to  a  certain 
company  to  evade  his  stock  liabilitv, 
and  that  he  never  specifically  made  any 
transfer,  and  the  answer  denied  all  al- 
legations of  fraud,  and  alleged  that  de- 
fendant had  for  value  sold  and  trans- 
ferred the  certificate  to  a  party  other 
than  the  one  to  whom  the  transfer 
was  entered  on  the  books  of  the  bank, 
and  that  such  person  was  then  solvent, 


and  that  such  purchaser  transferred 
the  stock  from  the  name  of  defendant, 
the  answer  is  not  an  admission  that 
defendant  did  not  transfer  his  stock 
to  the  person  in  whose  name  it  ap- 
pears on  the  books;  the  claim  being 
and  the  court  finding  that  the  stock 
was  sold  in  good  faith  and  was  finally 
transferred  on  the  books  of  the  bank, 
and  defendant  not  being  allowed  to 
state  to  whom  and  for  what  consid- 
eration the  transfer  was  made,  so  that 
a  finding  that  it  was  made  in  good 
faith  was  sustained  by  the  evidence 
and  was  not  inconsistent  with  the  al- 
legations of  the  answer.  Hunt  v. 
Doran,  92   Alinn.   423,   100  N.  W.  222. 

58.  Judgment  ascertaining  bank's  in- 
solvency.— Hewett  r.  Adams,  54  Me. 
206. 

59.  Production  of  certificate  of  de- 
posit.— Allowance  by  the  court  of  a 
verified  claim,  based  on  a  certificate  of 
deposit  presented  to  the  assignee  of 
a  bank,  is  not  a  iudgment  in  per- 
sonam, even  against  the  bank,  and 
does  not,  in  an  action  against  the 
stockholders,  avoid  the  necessity  of 
proof  of  ownership  of  the  certificate 
by  production  thereof.  Zang  v. 
Wyant,  25  Colo.  551,  56  Pac.  565.  71 
Am.  St.  Rep.  145. 


§   49    (9a)  STOCKHOLDERS.  245 

time  prescribed,  in  pursuance  of  extensions  of  the  time  ordered  by  the 
court,  is  not  invalid. ^"^ 

Claims  Which  May  Be  Counted  as  Debts. — The  referee  appointed  to 
apportion  among  the  stockholders  of  a  bank  its  liabilities  is  not  authorized, 
without  proof,  to  apportion  liabilities  not  admitted  by  the  receiver  nor  es- 
tablished by  the  determination  of  a  competent  tribunal.  The  report  of  the 
referee  should  not  count  as  debts  certain  claims  which  the  receiver  is  resist- 
ing by  litigation.*^  ^ 

Right  of  Auditor  to  Disallow  Claim  of  Stockholders. — See  ante,  "In 
General,"  §  47  (  12a). 

Persons  Who  May  Object. — In  proceedings  to  enforce  the  personal 
liability  of  stockholders,  under  laws  relative  to  closing  up  the  afifairs  of 
insolvent  banks,  only  those  who  are  directly  affected  thereby  are  entitled 
to  object  to  defects  in  the  account  presented  by  the  receiver,  and  referred 
to  the  referee. ^- 

Jurisdiction  of  Court  over  Proceeding  on  Report. — A  want  of  par- 
ticularity, in  respect  to  certain  debts  of  the  bank,  in  the  account  presented 
by  the  receiver  and  referred  to  the  referee,  or  the  omission  of  the  place  of 
residence  of  some  of  the  stockholders,  in  the  list  of  the  stockholders,  does 
not  affect  the  jurisdiction  of  the  court  over  the  proceedings  on  the  referee's 
report,  based  on  that  account.^  ^ 

Questioning  Receiver's  Account  and  Allowance  of  Attorneys'  Fees. 
— The  stockholders  of  an  insolvent  bank,  not  having  been  parties  to  the 
suit  in  behalf  of  its  creditors,  in  which  its  assets  were  collected  and  distrib- 
uted through  a  receiver,  may,  in  an  action  against  them  on  their  stockhold- 
ers' liability,  be  heard  on  the  accounts  of  the  receiver,  and  may  attack  any 
items  as  improper  or  excessive.®^ 

Allowance  of  Attorney's  Fees. — The  decree,  in  a  suit  against  an  in- 
solvent bank  on  behalf  of  its  creditors,  having  merely  contemj)lated  that 
the  fees  of  plaintiff's  counsel  should  be  paid  from  the  fund  going  to  cred- 
itors, and  not  adjudged  them  debts  of  the  bank,  or  a  liability  of  its  stock- 
holders, such  stockholders,  though  appearing  in  such  suit  in  opposition  to 
the  allowance  of  the  fees,  are  not  estopped  to  assert,  in  an  action  against 

60.  Time  of  apportionment.— It  was  ^as  so  lickl  iiiukr  N.  Y.  Laws  of 
so  held  under  the  Laws  of  New  York,  i894_  c.  226.  In  re  Empire  City  Hank 
1849,   c.  226.     In   re   Empire   City   Bank       (n.  y.),   6  Abb.   Prac.  .-JSS. 

i^-^-W^]i^-o^\^'';   '^o'  ^'"^''"o"^   '"  63.     Jurisdiction    of    court   over   pro- 

^  ^-  \-  1?^'  8  ''^'''^-  P'-^^-  ^'-^2,  re-  ^^^^ing  on  report.-It  was  so  lu-ld  in 
'^^r"^r^,t=:^*^J:T-J.l:    u ..       proceedings    to    enforce    the    personal 


61.     Claims    which    may    be    counted 


liability    of    stockholders,    under    Laws 


as  debts.-  t   was   so  held   ,n   proceed-  ,,f   ^^_^,^    ^    22^     relative   to   closiuR  up 

ings    to    enforce    the    personal    liability  ^^^^    .^f^.^-^^    ^^   ^„    insolvent    bank.      In 

V.l   S^r?         oV""'^7>^^'    °^,  ^■'''^'  re   Empire   City   Bank   (N.  Y.),  6   Abl). 

York    1840,    c.    226,    relative    to    closing  p^.^^,    -jj^r^ 

lip    the    affairs    of   insolvent   banks.     In  '   '  '    "      .      .                  .       , 

re  Empire  City  Bank,   18  X.   Y.   100,  8  ^}-     Questiomng     receivers^    account 

Abl).  Prac.  192,  reversing  6  Abb.   Prac.  f"<l    al^o^.^""    of     ^"c''"r^^^^^    ro^T 

:;K5  I'.uist    7\    Williams,    81    S.    C.    495,   62    b. 

62.     Persons    who     may      object. — It  ^-  ^"'^- 


246 


BANKS    AND   BANKING. 


§  49  (9ca) 


them  on  their  stockholders'  Hability,  that  their  habihty  is  not  increased  by 
allowance  of  the  fees/'^ 

§  49  (9b)  Findings  of  Fact  and  Conclusions  of  Law. — The  find- 
ings of  fact  in  a  suit  to  enforce  the  individual  liability  of  bank  stockholders 
must  not  be  contrary  to  the  evidence  ;''^<^  and  the  conclusions  of  law  must 
not  conflict  with  the  findings  of  fact.^" 

§  49  (9c)  Judgment  or  Decree— §  49  (9ca)  Form,  Requisites 
and  Validity.— See  post,  "Execution."  §  49   (9cga). 

Jurisdiction  and  Service  of  Process.— Xo  judgment  enforcing  a  bank 
stockholder's  personal  liability  can  be  rendered  against  a  man  who  is  not 
brought  within  the  jurisdiction  of  the  court,  because  somebody  else  is  on  a 
similar  liability.'"^ 

Proper  Pleadings  and  Issue. — Where  the  liability  of  bank  stockhold- 
ers is  not  put  in  issue  by  any  pleading,  notice  or  paper  in  an  action  by  cred- 
itors against  an  insolvent  bank,  no  part  of  the  decree  should  relate  to  the 
liability  of  the  stockholder/^-' 

Default  Judgments. — A  default  judgment  may  be  entered  against  a 
stockholder  in  a  bank  in  an  action  to  enforce  his  individual  liability,  but  in 
an  action  against  all   the  stockholders   for  the  entire  debt  of  the  bank  a 


65.  Allowance   of   attorney's   fees. — 

Buist   z:    Williams,    SI    S.    C.    495,    62    S. 
E.   859. 

66.  Findings  of  fact  and  conclusions 
of  law. — In  a  suit  on  certificates  of 
deposit  against  an  alleged  stockholder 
in  the  issuing  bank,  it  appeared  from 
the  stock  book  that  a  certain  number 
of  shares  had  been  issued  to  defendant, 
and  that  the  same  stood  in  her  name 
imtil  the  certificate  was  surrendered 
and  canceled.  Two  days  after  the  cer- 
tificate was  issued,  defendant  assigned 
the  same  to  her  husband,  but  con- 
tinued to  appear  on  the  books  as  the 
holder.  The  husband  testified  that,  on 
notifying  defendant  of  the  issue  of  the 
stock,  she  refused  to  accept  it,  and 
that  he  told  her  that,  if  she  would  not 
receive  it,  she  must  assign  it  to  him, 
but  there  was  no  finding  as  to  such 
facts.  Held,  that  under  Civ.  Code, 
§  322,  providing  that  the  term  "stock- 
holder" includes  not  only  persons  ap- 
pearing on  the  books  to  be  such,  but 
idso  every  equitable  owner  of  stock, 
a  finding  that  defendant  was  never  the 
owner  of  any  stock  was  contrary  to 
the  evidence.  Abbott  v.  Jack,  136  Cal. 
510,    69    Pac.    257. 

67.  Conclusions  of  law. — Where,  in 
an  action  to  hold  defendant  as  a  stock- 
holder in  an  insolvent  bank,  the  find- 
ings of  fact  show  that  he.  as  a  former 
stockholder,   in   good   faith    ordered  the 


officers  of  the  bank  to  enter  the  trans- 
fer, which  he  had  in  good  faith  made 
of  his  stock,  but  that  such  officers 
neglected  to  enter  on  the  stock  books 
at  the  time,  such  findings  are  in  con- 
flict with  the  conclusion  of  law  that 
defendant  was  liable  on  a  statutory 
assessment  against  the  stockholders. 
Hunt  V.  Seeger,  91  Minn.  264,  98  N. 
W.  91. 

68.  Jurisdiction  and  service  of  proc- 
ess.—Godfrey  f.  Terry,  97  U.  S.  171, 
24  L.  Ed.  944,  citing  Pollard  z\  Bailey 
(U.  S.),  20  Wall.  520,  22  L.  Ed.  370 ; 
Hornor  v.  Henning,  93  U.  S.  228.  23 
L.   Ed.   879. 

69.  Proper  pleadings  and  issues. — 
The  holder  of  the  notes  of  an  insolvent 
bank,  the  stockholders  whereof  are 
liable  for  so  mucli  of  the  just  claims 
of  creditors  as  remain  unpaid  after 
the  assets  of  the  bank  shall  be  ex- 
hausted, filed  a  bill  in  equity  to  wind 
up  the  affairs  of  the  institution  under 
the  provisions  of  its  charter.  The 
stockholders  were  not  made  parties, 
nor  served  with  process;  nor  was  any 
motion,  petition,  or  prayer  filed  to 
subject  them  to  liability.  Held,  that 
so  much  of  the  final  decree  as  dis- 
charged tliem  from  all  liabilit)^  for  and 
on  account  of  anj^  debt  or  demand 
against  them  or  the  bank  was  erro- 
neous. Terrv  z'.  Commercial  Bank,  92 
U.   S.  454.  23"  L.   Ed.  620. 


§  49  (9ca) 


STOCKHOLDERS. 


247 


judgment  by  default  against  one  for  the  whole  amount  can  not  be  taken."*' 
Form — Joint  or  Several. — Where  a  statute  provides  that,  in  case  of 
the  failure  of  a  bank,  each  stockholder  shall  be  individually  liable  for  a  sum 
in  addition  to  the  amount  of  his  share  or  shares,  it  is  the  duty  of  a  court 
of  equity,  in  granting  relief  against  the  stockholders  under  such  statute,  to 
do  justice  to  all  the  stockholders,  as  far  as  may  be,  by  equalizing  and  prop- 
erly distributing  among  them  the  relief  and  burden.  The  judgment,  there- 
fore, should  not  be  joint  but  against  each  party  served,  severallv.'^  In 
receivership  proceedings  in  a  suit  against  an  insolvent  bank,  the  court  ren- 
dered judgment  which  determined  the  amount  due  each  creditor  and  which 
fixed  the  statutory  liability  of  each  stockholder  to  the  creditors,  the  judg- 
ment was  a  several  judgment  against  the  several  stockholders,  authorizing 
the  creditors  to  sue  any  stockholder  on  the  judgment." - 

Form  under  New  York  Code  of  Civil  Procedure.— Code  Civ.  Proc, 
§  1786.  after  declaring  that  an  action  by  the  peojDle  to  dissolve  a  bank  as 
provided  by  §  1785  shall  be  brought  by  the  attorney  general,  provides  for 
an  action  by  a  creditor,  where  the  attorney  general,  after  notice,  omits  to 
sue  the  stockholders ;  and  it  is  only  to  such  an  action,  and  not  to  an  action 
by  the  attorney  general,  that  Code  Civ.  Proc,  §§  1790,  1795,  authorizing 
the  making  of  stockholders  parties  in  order  to  determine  their  individual 
liability,  and  directing  the  form  of  the  several  judgments  against  such 
stockholders,  apply." ^ 

Verdict  against  Part  of  Defendants.— In  an  action  against  persons, 
charging  them  as  stockholders  of  an  unauthorized  banking  association,  if 
the  jury  find  a  verdict  against  a  part  of  the  defendants  and  in  favor  of 
others,  judgment  can  be  rendered  against  those  found  to  be  liable  by  the 
jury.''* 


70.  Default  judgment.— Under  Gen. 
Laws  1883,  c.  19,  §  43,  providing  that 
"the  officers  and  stockholders  of  every 
banking  corporation  or  association 
formed  under  the  provisions  of  this 
act  shall  1)e  individually  liable  for  all 
debts  contracted  during  the  term  of 
their  Ijeing  officers  or  stockholders  cf 
such  corporation  equally  and  ratably 
to  the  extent  of  their  respective  shares 
of  stock.  *  *  *■'  in  an  action  against  all 
the  stockholders  for  the  entire  del)t 
of  the  corporation  a  judgment  by  de- 
fault against  one  for  the  whole  amount 
will  be  reversed.  P.uenz  r.  Cook,  15 
Colo.    38.    24    Pac.    679. 

71.  Joint  or  several  judgment. — 
Godfrey  v.  Terry,  97  U.  S.  171,  24  L. 
Ed.    944. 

A  decree  which  leaves  the  marshal 
of  the  court  to  collect  the  whole  of 
each  execution  out  of  one  man.  or  any 
number,  as  he  pleases,  is  erroneous. 
ft  was  no  troii'ole  to  take  the  sum  due 
to    each     creditor    and     the    sums    due 


from  each  holder,  give  a  decree  nisi 
with  time  for  each  man  to  pay  the 
sum  assessed.  Against  such  as  did  not 
pay  let  execution  issue;  and  if  nulla 
bona  was  returned,  there  must  be  a 
new  assessment  against  the  others 
until  all  should  be  paid  or  the  sum  of 
the  several  lialiilities  exhausted.  On 
the  other  hand,  the  whole  benefit  of 
the  chancery  remedy,  namely,  the 
power  to  do  justice  to  all  by  cqualiz- 
imr  and  properly  distributing  the  relief 
and  the  burden  was  not  exercised  by 
this  decree.  Godfrey  i-.  Terry.  97  U. 
S.  171,  24  L.  Ed.  944,  citing  Pollard  7'. 
Bailey  (U.  S.),  20  Wall.  520,  22  L.  Ed. 
37r);  Hornor  f.  Kenning,  93  U.  S.  228, 
2;;    I,.    Kd.   879. 

72.  Childs  z:  P.letlien,  40  Wash.  340, 
S2    Pac.    -10.-). 

73.  Form  under  New  York  Code  of 
Civil  Procedure.— People  f.  Com- 
mercial Hank,  37  Misc.  Rep.  Kl,  74  N. 
V.   S.  800. 

74.  Verdict   against   part   of   defend- 


248  BANKS  AND  BANKING.  §  49  (9cdaaa) 

§  49  (9cb)  Amount  for  Which  Rendered.— A  judgment  against 
stockholders  of  a  bank  on  their  stockholders'  liability  should  be  for  the  full 
amount  thereof,  such  assessments  to  be  made  from  time  to  time  as  are 
found  necessary,  and  the  stockholders  are  not  entitled  to  have  the  amount 
necessary  to  pay  creditors  estimated  and  prorated  among  the  stockholders 
and  judgment  entered  accordingly.'-^  The  creditors  are  entitled  to  judgment 
against  each  stockholder  for  the  full  amount  of  his  statutory  liability,  though 
this  exceeds  the  aggregate  of  all  the  indebtedness  and  the  costs  and  ex- 
penses of  the  action."^*^ 

Amount  Greater  than  Demand  in  Complaint. — No  greater  judgment 
can  be  taken  against  stockholders  of  an  insolvent  bank  in  an  action  by  a 
creditor  in  his  own  behalf  and  in  behalf  of  all  others  to  enforce  their  lia- 
bility, under  the  banking  law,  than  is  demanded  in  the  original  complaint, 
though  other  creditors  are  afterwards  allowed  to  be  made  parties  thereto.'''^ 

Suit  by  Part  of  Creditor  against  Part  of  Stockholder. — In  a  suit  by 
part  of  the  creditors  of  a  bank  against  part  of  the  stockholders  to  subject 
the  dividends  of  capital  stock  received  by  defendants  to  payment  of  plain- 
tiffs' claims,  the  decree  will  be  that  defendants  pay  so  much  of  the  claims 
of  plaintiffs  as  the  number  of  shares  held  by  defendants  bears  to  the  whole 
number  of  shares  issued.'- 

§  49  (9cc)  Second  Assessment. — When  one  assessment  has  been 
made  and  confirmed,  no  second  assessment  to  make  good  deficiencies  in  the 
collection  of  the  first  is  authorized,  while  the  first  apportionment  remains 
in  force,  neither  reversed  or  modified."^ 

§  49  (9cd)  Persons  Bound  and  Matters  Concluded— §  49  (9cda) 
Judgment  in  Creditor's  Suit  against  Bank— §  49  (9cdaa)  Persons 
Bound — §  49  (9cdaaa)  Stockholders. — Where  the  statute  or  the  char- 
ter of  a  bank  makes  the  private  or  individual  property  of  each  stockholder 
subject  to  execution  and  sale  if  the  proceeds  of  the  property  of  the  bank 
be  insufficient  to  pay  off  the  execution,  a  judgment  against  the  bank  is  also 
a  judgment  against  each  stockholder  to  the  extent  of  his  stock.^*^  The  as- 
certainment of  the  deficiency  of  the  assets  of  an  insolvent  bank  and  order 
of  assessment  to  meet  their  deficiency  is  like  the  common  case  of  a  judg- 

ants.— The      common-law      rule      upon  of    X.    Y.    banking   law.      Hagmayer   v. 

this    subject    was    changed,    by   the    act  Ahen,    41    App.    Div.    487,    58    X.    Y.    S. 

of  the   Ohio  legislature   of  January  27,  (554 

1816      2   Bates'   Anno_^  Stat.,    §   3821-5;  ^g     guit  by  part  of  creditors  against 

Per  er  v.  Kepler,  1-^  0^12.      See    also,  ^f   stockholders.-Wood   r.   Dum- 

Porter   v.    Porter,    14    O.    220;    Johnson  ^  -r    1     r-         x-       -i-ni.      o     at<,o^., 

T3      .1         1^    r\     n-     T  D    .  mer.    Fed.    Cas.    Xo.    l.,944,     .3     Vlason 

V.    Bentley,   16   O.   9^;    Kearny  z'.    But-  ^p,Q 

ties    1   O    St    362 

75.  Amount.— Man  v.  Boykin,  79  S.  '^^-  Second  assessment.— In  re  Hol- 
C.  1.  60  S.  E.  17,  128  Am.  St.  Rep.  830.  I'ster  Bank,  27  X.  \  .  393,  84  Am.   Dec. 

76.  Harper  v.  Carroll,  66  Minn.  487,  292;  Hollister  v.  Hollister  Bank.  41  X. 
69  X.  W.  610,  1069.  ^-    (2   Keyes)   245,  2   Abb.   Dec.  367. 

77.  Amount  greater  than  demand  in  80.  Stockholders  bond. — Lowry  v. 
complaint. — It  was  so  held  under  §  52  Parsons,  52  Ga.  356. 


§  49  (9cdab) 


STOCKHOLDER; 


249 


ment  against  a  corporation  which  is  binding  on  stockholders.  Such  deci- 
sions and  orders  are  binding  on  stockholders  who  are  not  before  the  court 
otherwise  than  by  virtue  of  their  membership  in  the  corporation. ^''i 

§  49    (9cdaab)    Stockholders  Not  Served. — See  post,  "Nonresident 

Stockholders."  §  49  (9cdaac)  ;    ••:vlatters  Concluded,"  §  49  (9cdab). 

§  49  (9cdaac)  Nonresident  Stockholders. — The  judgment,  fixing 
the  liability  of  each  stockholder,  in  receivership  proceedings  in  a  suit  against 
an  insolvent  bank,  is  binding  on  nonresident  defendants  upon  whom  notice 
was  had  by  personal  service  by  a  court  of  general  jurisdiction,  having  au- 
thority under  the  laws  of  the  state  to  render  such  judgment  ;^2  but  such 
judgment  is  not  binding  on  a  nonresident  never  brought  within  the  juris- 
diction of  the  court  administering  the  affairs  of  the  bank.*^ 

§  49  (9cdab)  Matters  Concluded. — In  an  action  under  an  order 
of  court  by  a  receiver  against  a  stockholder  of  an  insolvent  bank  for  an 
assessment  to  discharge  his  individual  liability  over  and  above  the  amount 
of  his  stock,  such  stockholder  can  not  contest  any  matter  that  was  consid- 
ered and  determined  in  making  said  order  of  assessment. s-*  The  assess- 
ment forms  a  basis  for  recovery  and  is  binding  in  so  far  as  it  determines 
the  amount  as  a  whole  of  the  superadded  liability.**^ 


81.  Howarth  v.  Lombard,  175  Mass. 
570,   56   N.    E.   888,   49   L.   R.    A.   301. 

82.  Nonresident  stockholders. — 
Chilcls  V.  Blethen,  40  Wash.  340,  82 
Pac.    405. 

83.  A  judgment  of  a  Colorado  court 
administering  the  affairs  of  an  insol- 
vent l)ank,  imposing  a  double  liability 
on  stockholders  under  a  Colorado 
statute,  was  not  binding  on  a  resident 
of  California  never  brought  within  the 
jurisdiction  of  the  Colorado  court. 
Miller  v.   Lane    (Cal.),   116   Pac.   58. 

In  an  action  in  one  state  to  enforce 
the  statutory  liability  against  bank 
stockholders,  the  fact  that  the  cor- 
poration was  made  a  party  to  the  suit 
is  not  sufficient  to  bind  nonresident 
stockholders,  in  respect  to  the  deter- 
minations in  such  suit,  in  an  ancillary 
proceeding  against  such  nonresident 
stockholders  in  their  own  state  to  en- 
force their  statutory  liability,  since 
the  corporation  in  no  way  stood  for  or 
represented  such  absent  stockholders 
in  the  original  action.  Finney  v.  Guy, 
106  Wis.  256,  82  X.  W.  595,  49  L.  R.  .A.. 
486.  See  post,  "Matters  Concluded," 
§  49   C9cdal)). 

84.  Matters  concluded. — State  v. 
Union  Stock  Yards,  etc.,  P>ank,  103 
Iowa  549,  70  N.  W.  752,  72  N.  W.  1076. 
So  held  under  act  18th  Gen.  .-\ssem., 
c.  208,  §  1. 


Under  Code,  §  1629,  providing  a  cor- 
poration whose  charter  has  expired 
may  continue  to  act  to  wind  up  its 
affairs,  on  an  appeal  from  a  judgment 
allowing  recovery  under  the  stock- 
holders' double  liability  law,  it  must 
be  presumed  the  lower  court  in  the 
receiversliip  proceeding  determined  the 
necessity  of  an  assessment  upon  the 
stockholders  and  the  amount  thereof 
on  the  basis  of  the  bank's  liability  as 
a  corporation,  and  the  stockholder  can 
not  insist  that  the  indebtedness  for 
which  he  is  sought  to  be  held  liable 
was  indebtedness  for  which  he  was 
not  liable  to  assessment  as  a  stock- 
holder, though  the  liank's  charter  had 
expired  when  the  receivership  proceed- 
ing was  brought.  Elson  v.  Wright, 
134    Iowa   634,    112    N.   W.    105. 

86.  Where  the  court,  on  petition  of 
tlie  receiver  of  an  insolvent  bank,  pro- 
ceeded to  ascertain  the  amount  of 
liabilities  and  value  of  the  assets,  and 
the  amount  required  in  addition  tliereto 
to  pay  the  lial)ilities,  and  to  assess  the 
stockholders  on  their  statutory  lia- 
bility, and  on  this  assessment  the  re- 
ceiver brought  suit  against  a  stock- 
lioldcr.  in  which  it  appeared  that  the 
defen(hint  liad  been  assessed  for  a 
pro])ortionate  share  of  the  indebted- 
ness regardless  of  the  amount  of  the 
debt    that    accrued    before    he     was      a 


250  BANKS  AND  BANKING.  §    49    (9cdb) 

Personal  Liability  as  Stockholders. — Stockholders  of  an  insolvent 
bank  are  bound  by  a  judgment  entered  against  the  bank,  in  proceedings  to 
which  they  are  not  parties,  only  so  far  as  it  concerns  the  affairs  of  the  bank 
itself;  and  such  judgment  does  not  conclude  them  on  questions  respecting 
their  personal  liability  as  stockholders.^'  Where  a  creditor  of  a  bank  ob- 
tained a  judgment  against  it  for  services  rendered  after  the  bank  was  placed 
in  the  hands  of  a  receiver,  such  judgment,  though  prima  facie  conclusive 
on  the  question  of  the  indebtedness  of  the  corporation  did  not  deprive  a 
court  of  equity  sitting  in  another  state  of  the  right  to  determine  whether 
the  claimant's  right  of  action  was  such  as  to  bind  the  stockholders,  in  a  pro- 
ceeding to  enforce  a  stockholder's  subscription  and  statutory  liability.^^ 

Amount  of  Debt. — In  a  suit  to  charge  a  bank's  stockholders  with  its 
debts,  a  former  judgment  against  the  bank  on  the  debts  is  not  conclusive  as 
to  the  amount  thereof.^'' 

Nonresident  Stockholders. — In  a  proceeding  to  sequester  assets  of  a 
banking  corporation,  nonresident  stockholders,  who  are  not  parties,  are  not 
concluded  by  the  finding  on  the  ultimate  question  of  their  individual  liabil- 
ity, nor  as  to  the  measure  of  such  liability,  which  is  not  an  asset  of  the  cor- 
poration, and  in  which  neither  the  corporation  nor  its  receiver  has  any  legal 
interest  to  render  them  representatives  of  the  stockholders,  but  in  an  action 
by  the  receiver  to  enforce  the  individual  liability  of  a  nonresident  stock- 
holder, such  defendant  is  bound  by  the  decree  of  the  court,  in  which  the 
parent  suit  was  instituted  and  whereby,  the  assets  of  the  corporation  hav- 
ing been  sequestered,  the  plaintiff  was  appointed  receiver  for  creditors.''^ 

A  default  judgment  against  a  bank  on  a  liquidation  agreement  does  not 
preclude  any  defenses  otherwise  open  to  stockholders  subsequently  sued  on 
their  statutory  liability,  where  the  judgment  was  conclusive.^ ^ 

§  49  (9cdb)  Judgment  against  a  Bank  as  Stockholder. — Under 
the  law  of  Kansas,  as  settled  by  the  decisions  of  its  supreme  court,  a  judg- 
ment against  a  bank,  adjudging  it  liable  for  an  assessment  as  a  stockholder 
in   another  bank,   is  conclusive  upon   its  stockholders   as   to  such  liability, 

stockholder,   the   proceedings   in   which  ment   against   the   stockholders,   to   dis- 

the    assessment    was    made    were    not  charge   their  liability,   under  Acts   ISth 

invalid,   so  as  not  to  form  a  basis  for  Gen.  Assem.,  c.  20S,' §  1,  subject  to  the 

recovery,    but    they   were     binding      on  right    of    each    stockholder    to    contest 

stockholders  in  so  far  as  it  determined  such    liability   when   sued    for   payment 

the    amount,    as    a   whole,    of  their   su-  of      the     assessment.      State    r.    Union 

peradded  liability.     Shuey  z:  Adair.  24  Stock  Yards,  etc..  Bank.  103  Iowa  549. 

Wash.    378,    64    Pac.    .530.  TO    X.   ^^■.    752.    72    N.   W.    3  076. 

87.    Personal  liability  as  stockholder.  88.    Covell  :'.  Fowler.  144  Fed.  535. 

—In  re  Receivership.  91   [Nlinn.  494.  9^  89.    Amount   of   debt.— Assets    Reali- 

N.   W.   341,   rehearing   denied   in   98   N.  zation    Co.    r.    Howard.    70    :\Iisc.    Rep. 

W.    867;    Tompkins    v.    Craig,    93    Fed.  651.   127   N.   V.   798- 

885.  See,  also,  Flash  v.  Conn,  109  U.  90.  Childs  v.  Cleaves,  95  Me.  498,  50 
S.  371,  27  L.  Ed.  966,  3  S.  Ct.  203.  Atl.  714.  See  ante.  "Xonresident  Stock- 
In  a  proceeding  under  Code,  §  1572,  holders,"  §  49  (9cdaacV 
to  wind  up  an  insolvent  bank,  the  court  91.  Default  judgment. — Assets  Re- 
may,  on  the  application  of  the  receiver,  alization  Co.  r.  Howard.  70  IMisc.  Rep. 
make  an  ex  parte   order  for  an  assess-  051,   127   X.   Y.   798. 


§   49    (9cgb)  STOCKHOLDERS.  251 

and  a  stockholder  sued  on  such  judgment  in  another  jurisdiction  to  enforce 
his  statutory  habihty  can  not  set  up  tlie  want  of  power  of  the  bank  to  be- 
come a  subscriber  to  the  stock  of  another  cor])oration.^- 

§  49  (9ce)  Lien  and  Priority.— \\hen  a  charter  of  a  bank  or  a 
statute  provides  that  "the  individual  property  of  the  stockholders"  shall 
be  liable  for  the  ultimate  payment  of  debts,  etc.,  a  liability  is  imposed  upon 
a  stockholder  which  may  result  in  a  personal  judgment  against  him.  bind- 
ing all  of  his  property  at  the  date  of  the  judgment  and  any  that  may  be 
thereafter  acquired.''-" 

Priorities.— Where  the  statute  or  the  charter  of  a  bank  makes  the 
private  or  individual  property  of  each  .stockholder  subject  to  execution 
and  sale  if  the  proceeds  of  the  property  of  the  bank  be  insufficient  to  pay 
oft'  the  execution,  as  between  judgments  against  the  bank,  which  are  also 
judgments  against  each  stockholder  to  the  extent  of  his  stock,  the  oldest 
has  the  right  to  be  first  paid  out  of  any  money  raised  by  the  sheriff  out 
of  the  property  of  any  stockholder.''-* 

§   49    (9cf)    Payment  and  Discharge.— See  ante,  'Trior  Recovery  or 
Payment  of  Judgment."  §  4"  (lleb). 
Interest.— See  ante,  "Interest."  §  47  (12e). 

§  49  (9cg)  Enforcement— §  49  (9cga)  Execution.— Motion  for 
Execution. — It  is  a  good  defense  to  a  motion  for  execution  against  a 
stockholder  of  a  bank  either  that  the  judgment  against  the  bank  was  ren- 
dered without  jurisdiction  or  that  it  was  obtained  by  fraud."^ 

§  49  (9cgb)  Action  on  Judgment  or  Assessment.— After  the  rate 
of  assessment  to  meet  a  deficiency  in  the  assets  of  a  bank  has  been  fixed, 
and  the  individual  liability  of  each  stockholder  thus  ascertained,  enforce- 
ment of  such  liability  is  the  proper  subject  of  a  suit  at  law.  in  which  the 
separate  rights  of  the  individual  stockholders  are  distinctively  to  be  con- 
sidered."'^ 

Enforcement  of  Foreign  Judgment— Against  Shareholder  Not  a 
Party. — A  receiver  of  an  insolvent  ])ank  whose  assets  are  insufficient  to 
pay  its  debts  can  not  maintain  an  action  in  a  foreign  jurisdiction  against 
a  shareholder  in  such  bank  for  the  amount  of  an  assessment  directed  to 
be  made  by  the  court  in  tlic  parent  suit  to  which  tlic  sharchnlder  was  not 
a  party  and  to  which  he  did  not  appeal  and  could  not  have  been  required 
to  appeal  because  of  his  1)eing  lieyond  the  jurisdiction  of  the  court."' 

92.  Judgment  against  bank  as  stock-  96.  Action  on  assessment.— 'l\)ini)- 
holder.— Martin  7'.  Wilson,  58  C.  C.  A.  kins  7'.  Craii^,  !);j  I<>cl.  885;  l-*lasli  v. 
181,   120   Fed.  20;^  Conn,    10-.)   U.   S.   :^71,   27   L.    Kfl.   '.tec,    1 

93.  Lien  and  priorities.— Wheatley  S.  Ct.  2(y.i.  See  ante,  "Matters  Con- 
T.   Glover,   125   Ga.   710,  :,\   .S.   E.  020.  eluded,"  §  49   ("Ocdah). 

^  94.     Priorities.— T.ovvry     7-.     Parsons,  97.     Foreign    judgment— Shareholder 

•'"''-   *""'i-  '■'•'>'''■  not   a   party. — Wiytoii    7'.     I'hisKt,      102 

95.     Motion     for     execution. — Choate  I'cd.    70. 

r.   liwyd.   .V.t    Kan.   r,82,   54    Pac.    1042.  'I'lic   indivi.lnal   liahililv  "i  tlir   share- 


252 


BANKS    AND    BANKING. 


49    (10) 


Foreign  Judgment— Defendant  Personally  Served.— Where  the 
judgment  was  rendered  against  the  defendants  upon  notice  by  personal 
service  by  a  court  of  general  jurisdiction  having  authority  under  the  laws 
of  the  state  to  render  such  a  judgment,  the  creditors,  together  with  the 
receiver,  directed  to  collect  the  judgment,  are  authorized  to  sue  on  the 
judgment  in  court  of  the  state  of  residence  of  the  stockholder.^^ 

§  49  (10)  Liability  for  Expenses. — Where  a  creditor  of  a  bank  ap- 
plied to  share  in  the  proceeds  of  an  action  to  enforce  a  stockholders'  stat- 
utory liability,  he  was  chargeable  with  a  proportionate  amount  of  the  ex- 
penses of  such  litigation.9^ 


holders  of  a  bank  to  the  creditors  of 
the  corporation,  being  conditioned  by 
the  statute  of  Iowa  upon  the  bank 
having  become  insolvent,  and  upon  the 
insufficiency  of  its  assets  to  pay  its 
debts,  and  being  limited  to  the  stock- 
holder's share  of  the  deficiency  only, 
the  receiver  of  a  bank,  appointed  un- 
der the  general  powers  of  a  court  in 
Iowa,  can  not  maintain  an  action  in 
a  foreign  jurisdiction  against  a  share- 
holder, for  the  amount  of  an  assess- 
ment upon  stock  directed  to  be  made 
by  the  court  in  Iowa,  in  a  proceedmg 
to  which  the  shareholder  was  not  a 
party,  and  to  which  he  did  not  appear, 
and  to  which  he  could  not  have  been 
required  to  appear,  because  of  his  be- 
ing beyond  the  jurisdiction  of  the 
court.  Wigton  v.  Bosler,  102  Fed.  70. 
Gen.  St.  Minn.  1878,  c.  33,  §  21,  im- 
poses on  stockholders  of  state  banks 
a  double  liability  for  debts  of  the  bank. 
Laws  Minn.  1899,  p.  315,  c.  272,  pro- 
vides that  in  a  receivership  proceed- 
ing the  court  shall  set  a  time  for  hear- 
ing, and  that  direct  notice  be  given  by 
publication  or  otherwise,  and  if  at  the 
hearing  it  appears  that  the  corporation 
assets  are  insufficient  to  pay  its  debts, 
and  that  it  is  necessary  to  enforce  the 
stockholders'  liability,  the  court  shall 
levy  an  assessment  on  all  the  stock- 
holders, and  direct  the  payment  of  the 
amount  so  assessed  within  a  specified 
time,    and    authorizes    the    receiver,    if 


necessary,  to  prosecute  actions  against 
every  party  failing  to  pay  the  assess- 
ment, wherever  such  party  may  be 
found,  within  or  without  the  state. 
Held,  that  an  order  of  a  ^linnesota 
court  directing  the  payment  of  an  as- 
sessment is  not  enforceable  as  a  judg- 
ment in  the  courts  of  Wisconsin 
against  a  resident  of  Wisconsin.  Hunt 
V.  Whewell,  122  Wis.  33.  99  X.  W.  599. 

98.  Foreign  judgment — Defendant 
personally  served. — Pending  receiver- 
ship proceedings  in  a  suit  in  a  sister 
state  against  an  insolvent  bank,  a 
creditor  intervened  on  behalf  of  the 
creditors  and  impleaded  the  stock- 
holders as  parties  defendant  for  the 
purpose  of  enforcing  their  statutory 
liability  in  accordance  with  law  of  the 
foreign  jurisdiction.  The  stockholders 
were  within  the  jurisdiction  of  the 
court  and  were  summoned.  The  court 
determined  the  amount  due  to  each 
creditor,  and  fixed  the  liability  of  each 
stockholder,  and  rendered  judgment  in 
favor  of  the  creditors.  Held,  that  the 
creditors,  together  with  the  receiver 
directed  to  collect  the  judgment,  were 
authorized  to  sue  on  the  judgment  in 
the  courts  of  Washington.  Childs  v. 
Blethen,  40  Wash.  340.  82  Pac.  405. 

99,  Liability  for  expenses. — In  re 
Ziegler,  98  App.  Div.  117,  90  N.  Y.  S. 
G81.  See  ante,  "Reference  and  Receiv- 
er's Report."  §  49   (9a). 


CHAPTER  V. 
D.   Officers  axd  Agexts. 

§  50.  Constitutional  and  Statutory  Provisions. 
§  50a.  Definitions  and  General  Considerations. 
§  51.  Election  or  Appointment,   Qualification  and  Tenure. 

§  51  (1)  Authority  to   Employ  Officers  and  Agents — How  Appointed. 

§  51  (2)   Eligibility — Statutory  and  Charter  Provisions. 

§  51   (3)   Election. 

§  51   (4)   Qualification. 

§  51   (4a)   Oath. 

§  51  (4b)   Bond. 
§  51   (5)   Beginning  and  Duration  of  Term. 
§  51   (6)   Removal    or    Discharge. 
§  51  (7)  Trial  of  Right  or  Title  to  Office. 
§  52.  Meetings  of  Directors. 
§  53.  Rights  and  Liabilities  as  to  Bank  and  Stockholders. 

§  54.  Nature   and   Extent. 

§  54  (1)   In   General. 

§  54  (la)   Powers.  Duties  and  Liabilities  of  Directors. 

§  54  (lb)   President's   Powers,   Duties  and   Liabilities. 

§  54  (Ic)   Cashier's   Powers,  Duties  and  Liabilities. 

§  54   (Id)   Wrongful  Acts  from  Which   No   Loss  or  Injury  Results. 

§  54  (le)   Liability  for  Acts  Done  during  Absence,  Sickness,  etc. 

§  54  (if)   Duty  with   Respect  to   Statements   of  Bank's   Condition. 

§  54  (ig)   Duty    with    Respect    to    Handling    and    Safe-Keeping  of 
Funds,  Securities,  etc. 
§  54  (2)   Misappropriation   of   Funds. 

§  54  (3)   Duties   and   Liabilities  with   Respect  to   Loans,   Discounts,   Over- 
drafts,  etc. 
§  54  (4)   Liability  of  One   Officer  for  Acts  of  Another. 
§  54  (5)   Right   of   Stockholders   to    Enforce   Liability. 
§  54  (6)   Individual   Interest   in  Transaction. 
§  54  (7)   Compensation  of  Officers. 

§  54  (8)   Power    to    Close    Bank    or    Decline    Deposits. 
§  54   (9)   Liability    on    Bond. 

§  54  (9a)   Duration    of    Lial)ility. 

§  54  (9b)   Risks  and  Delinquencies  Covered  by  Bond. 

§  54  (9c)   False    Representations    in    Procuring   Bond. 

§  54  (9d)   Supervision   and   Notice  of  Default  or   Loss. 

§  54  (9e)   Filing  Claim  for   Loss. 

§  54   (9f)  Actions   on    Bonds. 
§  55.  Actions   and    Proceedings  to    Enforce   Liability. 
§  55  (1)   Nature  and   Form;   Jurisdiction. 
§  55  (2)   Limitations  and  Laches. 
§  55   (3)    Parties. 
§  55   (4)   Pleadings. 
§  55  (5)   Evidence,  Issues,  etc. 
§  55   (6)   Trial. 


254  BANKS    AND    BANKING. 

§  56.  Liability  of  Directors  and  Officers  to  Third  Persons. 

§  57.  Nature   and    Extent. 

§  57   (1)   In  General. 

§  57   (la)  Affirmative   View. 

§  57   (lb)   Negative  View. 

§  57   (Ic)   Constitutional   and   Statutory   Provisions 
§  57   (2)   Individual   Liability   upon    Obligations   of   Bank. 
§  57   (3)   Liability   for  Ultra  Vires  Acts. 
§  57   (4)   For   Incurring   Excessive   Indebtedness. 

§  57   (5)   Liability  with   Respect   to   Reports,    Statements,   and   Representa- 
tions. 
§  57   (6)   Receiving   Deposits   after    Insolvency. 
§  57   (7)   Sale  of  Drafts  of  Insolvent  Bank. 
§  57   (S)   Liability  with  Respect  to   Special   Deposits. 

§  57   (9)   Personal  Liability  with  Respect  to  Loans,  Discounts,  and  Invest- 
ments. 

§  57   (9a)   At    Common    Law. 

§  57  (9b)   Loans    and    Investments    in    Violation    of    Statute. 

§  57   (9c)   Liability   for   Acts    of   Associates   and    Subordinates. 
§  57   (10)   Individual  Liability  with   Respect  to   Collections  and   Payments. 
§  57   (11)   Individual    Liability    with    Respect    to    Sale.    Transfer    or    Pur- 
chase of  Stock. 
§   57   (12)   Wrongfully     Declaring    Dividends. 
§  57   (13)   Officers   of    Fraudulent   and    Illegal    Banks. 
§  57   (14)   Nominal    Directors    and    Persons    Held    Out  as  Directors. 

§  58.  Actions  and  Proceedings  to  Enforce. 

§  58  (1)  Time  to  Su-e  and   Limitations. 

§  58  (1^4)    Nature    and    Form    of    Proceeding. 
§  58  (2)   Set-Ofif. 
§  58   (3)   Parties. 

§  58   (3a)   In    General. 

§  58   (3b)   Joinder   of    Parties    and    Causes. 
§  58   (4)    Pleading. 

§  58   (4a)   General  Rules  and  Observations. 

§  58   (4b)   Where    Cause   of  Action    Based   upon    Negligence,    Fraud, 
or    Deceit. 

§  58   (4c)   Matters  of  Defense. 
§  58   (5)    Evidence. 

§  58   (5a)    Presumption    and    Burden    of    Proof. 

§  58   (5b)   Competency  and  Admissibility  of  Evidence. 

§  58   (5c)   Weight    and     Sufficiency    of    Evidence. 
§   58    (6)    Trial. 
§  GO.   Criminal    Responsibility. 

§  60   (1)   Constitutional    and    Statutory    Provisions. 

§  60  (2)  Accessories,   Aiders,   and    Abettors. 

§  60  (3)   Officers   of   De   Facto   Banking  Corporations. 

§  61.  Offenses. 

§  61    (1)   Illegal  and  Unauthorized   Banking. 

§  61    (2)   Criminal   Liability  for  Fraud,   Negligence,   Fraudulent   Insolvency, 

etc. 
§  61   (3)   Doing  Business  While  Insolvent:   Receiving  Deposits,  etc. 

§  61   (3a)   In   General. 

§  61   (3b)   Receiving   Deposits   after    Knowledge   of   Insolvency. 


§    50  OFFICERS    AND    AGENTS.  255 

§  61   (4)   Embezzlement.    Misappropriation,    False    Entries,    etc. 

§  61   (.5)   False  Reports.  Statements,  and  Returns,  Exhibiting  False  Books. 

etc. 
§  61   (6)   With    Respect   to   Loans,   Discounts,  and   Overdrafts. 
§  61   (7)   Purchase.    Sale    or    Transfer   of    Stock. 
§  61   (8)   Illegal    Dividends. 

§  02.  Prosecution    and    Punishment. 

§  62   (1)   Indictment  or  Information. 

§  62   (la)   Following   Words   of    Statute. 

§  62   (lb)    Existence    and    Operation    of    Bank:    Defendant's    Official 

Relation. 
§  62   (Ic)    Intent;    Willful    or   Intentional. 
§  62   (Id)   Joinder    of    Parties    and    Offenses. 
§  62   (le)   Indictments  for  Particular  Offenses  Considered. 
§  62   (lea)   Illegal    and    Unauthorized    Banking. 
§  62   (leb)   False   Entries. 
§  62   (lee)   False  Reports  and  Statements. 
§  62   (led)   Conversion   and   Misappropriation   of  Funds. 
§  62   (lee)   Indictment   for  Aiding  and   Abetting. 
§  62   (lef)   Overdrawing  Account. 
§  62   (leg)   Fraudulent    Insolvency. 

§  62   (leh)   Receiving  Deposits  after  Kjiowledge  of  Insolvency. 
§  62   (2)    Evidence. 

§  62   (2a)    Presumption   and   Burden   of   Proof. 
§  62   (2b)   Admissibility   of   Evidence. 
§  62   (2c)  Weight    and    Sufficiency;    Variance. 
§  62   (3)   Instructions. 
§  62   (4)   Verdict. 
§  62   (5)    Sentence   and    Punishment. 

D.   OFFICERS  AND  AGENTS,  i 

§  50.  Constitutional  and  Statutory  Provisions.— As  to  statutory 
provisions  with  respect  to  the  cumulative  voting  of  stock  upon  the  election 
of  officers,  see  post,  "Election  or  Appointment,  Qualification  and  Tenure," 
§  51.  As  to  the  ipso  facto  operation  of  statutes  removing  those  officers 
violating  provisions  with  respect  to  loans  to  officers,  see  post,  "Election  or 

1.     Of    loan,     trust     and     investment  §    77    (1). 

companies,  ^  see     post,     "Officers     and  Criminal    responsibility   of  officers  of 

r^?^^'    ■    '^^^'  national    hanks,    see     post,      "Criminal 

Ot    national   banks,    see    post.    "Elec-  Responsil)ility    of    Officers    or    of    Per- 

tion     or     .^ppomtment      of      Officers,"  sons      Aiding      or      .\betting      Them." 

??    2ol;    "Xature    and    Extent."    §    2.53;  §   255;    "Officers,"   §   256;    "Prosecution 

"*ni'°"^  Jo   Enforce   Liability."  §   254;  and    Punishment,"    §    257. 

Officers.'    §    256;    "Prosecutions    and  Authority      during       liquidation       of 

I  iimshment."    §    ,?57.  bank    to    assign    pledged    securities    to 

'Jf  savings  banks,  see  post,  "Officers  pledgee,  see  post,  "Insolvency  and  Its 

and  Agents,"  §  294.     Representation  of  Effect    in    General."    §    73. 

bank  by  officers   and  agents,   see  post,  Effect  of  dissolution  on  right  to  ccm- 

Kcpresentation    of    Bank    by    Officers  pensation.    see   post,   "Effect   of   Disso- 

and    Agents,"    §§    102-118.  Intion."  §  72. 

,   . '^'!lj,  *o  sue   directors   depending  on  Enforcement    of   lien    on     Stock,     sec 

plaintiff's  title  to  character  of  receiv.er.  ante.  "Lien  of  Bank  on  Stock  and  Divi- 

see  post,  ".Appointment  and  Removal,"  dends,"'   §   42. 


256 


BANKS    AND    BANKING. 


'1     (1) 


Appointment,  Qualification  and  Tenure,"  §  51.  As  to  constitutional  and 
statutory  provisions  relating  to  the  civil  and  criminal  responsibility  of  of- 
ficers receiving  deposits  knowing  the  bank  to  be  insolvent,  see  post,  "Elec- 
tion or  Appointment,  Qualification  and  Tenure,"  §  51;  "Ofifenses,"  §  61. 
License  or  Occupation  Tax. — See  footnote  2. 

§  50a.  Definitions    and    General    Considerations. — See,    generally, 
post,  "In  General,"  §  54  (1). 

§  51.    Election  or  Appointment,  Qualification  and  Tenure — §  51 
(1)  Authority  to  Employ  Officers  and  Agents — How  Appointed. — A 

bank  may  appoint  an  agent  to  transact  any  business  which  it  may  lawfully 
do,  and  such  appointment  may  be  made  by  a  mere  corporate  vote.^ 
Necessity  for  Actual  Employment  or  Consent  on  Part  of  Bank. — 

Before  one  can  be  deemed  the  agent  of  a  bank,  however,  so  as  to  hold  the 
bank  liable  for  his  acts  or  omissions,  there  must  have  been  either  such 
actual  employment  or  consent  on  the  part  of  the  bank,  or  such  conduct  as 
amounts  to  a  ratification  or  estoppel.-* 


2.  License  or  occupation  tax. — Un- 
der §  2,  par.  2,  of  the  acts  of  general 
assembly  approved  Dec.  16,  1902  (Acts 
1909,  p.  19)  one  who  acts  as  president 
of  two  or  more  banks,  must  pay  the 
lax  of  $10  for  each  bank  of  which  he 
is  president.  Witham  v.  Stewart,  129 
Ga.  48,  58  S.   E.  463. 

3.  Authority  to  employ  agent. — 
Bates  V.   Bank,   2   Ala.   451. 

Act  Feb.  1839,  providing  that  the 
several  attorneys  of  the  Bank  of  the 
State  of  Alabama,  and  its  branches, 
shall  hereafter  receive  an  annual  sal- 
ary of  $1,000,  and  no  more,  does  not 
prohibit  the  banks  from  employing 
such  other  legal  assistance  as  their 
interests  may  require.  Bank  of  Ala- 
bama  V.    Martin,   4   Ala.   615. 

Agent  or  attorney  to  convey  real 
estate. — An  agent  or  attorney  may  be 
duly  appointed  to  convey  the  real  es- 
tate of  an  incorporated  bank  by  a 
vote  of  the  directors,  without  a  power, 
under  the  corporate  seal.  Savings 
Bank    v.    Davis,    8    Conn.    191. 

Filling  vacancies — Statutory  pro- 
visions.— The  appointment  of  a  bank 
cashier  by  the  finance  committee  to 
fill  a  vacancy,  subject  to  the  approval 
of  the  board  at  its  semi-annual  meet- 
ing, constituted  under  the  rules  and 
by-laws  of  the  bank  concerned  in  this 
action  a  valid  and  legal  appointment, 
where  the  appointee  proceeded  to  act 
under  the  appointment,  and  gave  bond 
pursuant  thereto,  and  particularly 
where  the  bond  recites  that  the  prin- 
cipal therein  "'has  been  chosen  and  ap- 


pointed cashier."  Fancher  v.  Kaneen 
(O.),   5   N.   P.,   X.   S.,   614. 

If  a  person  appointed  a  director  of 
a  bank  by  the  executive,  under  Act 
March  22,  1837  (Sess.  Acts,  p.  57),  de- 
clines to  accept  the  office,  or  resigns, 
the  executive  is  not  authorized  to  make 
another  appointment,  but  his  place  is 
to  be  supplied  by  the  appointment  of 
the  directors  of  the  bank.  Bank  v. 
Robinson,   46   Va.    (5    Gratt.)    174. 

4.  Necessity  for  actual  employment 
or  recognition. — Holman  r.  Bank,  12 
Ala.  369;  National  Bank  v.  Allen,  33 
C.   C.  A.    169,   90    Fed.   545. 

Neither  a  remittance  of  money  to 
one  as  the  agent  of  a  bank  by  an- 
other party,  and  his  consent  to  re- 
ceive it  as  such,  nor  his  admissions, 
or  tlie  fact  that  he  is  a  director  of  the 
bank,  have  any  tendency  to  prove  that 
he  is  the  agent  of  the  bank.  The  con- 
sent of  the  bank  that  he  should  so  act 
is  necessary.  Holman  v.  Bank,  12 
Ala.    369. 

Neither  the  fact  that  a  bank  held  as 
collateral  security  a  majority  of  the 
stock  of  a  mercantile  corporation,  nor 
that  one  of  its  officers  was  for  a  time 
a  director  of  the  mercantile  company, 
renders  the  latter  the  agent  of  the 
bank,  so  as  to  make  the  bank  liable  to 
creditors  of  the  company  for  mis- 
representations as  to  its  financml  con- 
dition made  by  its  officers.  National 
Bank  v.  Allen,  33  C.  C.  A.  169,  90  Fed. 
545. 

Servant  quoad  hoc. — If  a  bank  de- 
liv'ers    to    A    certain    notes,    with    a   re- 


§  51   (2) 


OFFICERS   AND   AGEXTS. 


257 


Presumption  as  to  Approval  or  Consent. — W  here  one  is  employed 
by  less  than  all  of  the  directors  of  the  bank  and  proceeds  to  perform  the 
duties  of  the  position  with  full  knowledge  and  without  objection  on  the 
part  of  the  others,  it  will  be  presumed  that  they  approved  of  his  employ- 
ment.^ 

§  51    (2)    Eligibility — Statutory    and   Charter   Provisions. — It   is 

not  necessary  that  a  director  should  be  a  stockholder  unless  expressly  re- 
quired by  the  charter    or    by    statute.'^'     Where    the    charter  provides  that 


quest  that  he  would  pass  them  away 
for  the  benefit  of  the  bank,  or,  if  he 
could  not  do  that,  to  return  them, 
which  he  agrees  to  do,  A,  quoad  hoc, 
is  the  servant  of  the  bank.  Towson 
v.  Havre-de-Grace  Bank  (Md.),  6 
Har.  &  T.  47,  14  Am.  Dec.  254. 

5.  Presumption  as  to  approval  of 
consent. — Bradstreet  v.  Bank,  42  Vt. 
128. 

A  contract  employing  plaintiff  was 
originally  made  by  two  directors  of  a 
bank,  and  afterwards  approved  by  a 
third.  The  contract  was  not  in  terms 
limited  to  time,  and  the  same  three  di- 
rectors, by  re-election,  continued  in 
office  during  the  entire  service  of  five 
years.  Held,  that  it  would  be  pre- 
sumed that  the  contract  was  approved 
by  the  three  directors  during  the 
whole  time,  although  it  did  not  af- 
firmatively appear  that  more  than  two 
of  them  assented  to  the  employment 
after  the  first  year.  Bradstreet  z\ 
Bank,  42  Vt.  128. 

6.  Eligibility — Statutory  and  char- 
ter provisions. — Hume  z'.  Commercial 
Bank.    77    Tenn.    (9    Lea)    728. 

In  tlie  case  just  cited,  it  was  held, 
construing  the  charter  and  the  general 
law  together,  that  not  more  than'  two- 
thirds  of  the  directory  need  be  stock- 
holders in  the  bank  for  which  they 
acted  as  directors.  Hume  v.  Com- 
mercial  Bank,   77  Tenn.   (9  Lea)   728. 

Statutes  limiting  terms  and  forbid- 
ding directors  to  succeed  themselves. 
—Charter  of  the  State  Bank  (§  3) 
provides  that  the  board  of  directors 
shall  consist  of  eighteen  members,  six 
to  be  appointed  by  the  governor,  and 
twelve  to  be  elected  by  the  stockhold- 
ers; provided,  however,  that  no  more 
than  two-thirds  of  the  directors  elected 
by  the  stockholders,  and  no  more  than 
two-thirds  of  the  directors  appointed 
by  the  governor,  who  shall  be  in  of- 
fice at  the  time  of  an  annual  election, 
shall  be  elected  or  appointed  for  the 
next  succeeding  year,   and  no  director 

1   B  &  B— 17 


shall  hold  his  office  more  than  three 
years  out  of  four.  Held,  that  directors 
under  appointment  of  the  governor  for 
the  previous  year,  and  left  out  in  the 
reappointments,  could  not  be  consid- 
ered new  members,  if  then  elected  by 
the  stockholders.  Jordy  T'.  Hcbrard, 
18   La.   455. 

Director  removed  by  operation  of 
law,  not  again  eligible. — Where  the  of- 
fice of  a  cashier  and  director  has  be- 
come vacant  by  operation  of  law,  by 
reason  of  his  indebtedness  to  the  bank, 
it  is  beyond  the  power  of  the  corpora- 
tion, either  by  direct  or  indirect 
means,  to  make  of  him  a  de  jtire  or  a 
de  facto  officer,  so  long  as  the  dis- 
ability continues.  Cupit  :■.  Park  City 
Bank,  20  Utah  292,   58   Pac.   839. 

Requiring  directors  of  Mechanics' 
Bank  to  be  practical  mechanics. — Un- 
der the  charter  of  the  Moclianics'  Bank 
of  Alexandria,  which  provided  that 
"there  shall  be  fifteen  directors,  eight 
of  which  at  least  shall  be  practical  me- 
chanics," it  was  not  necessary  that  such 
eight  directors  should  l)e  ih  actual 
practice  at  the  time  of  electitjn.  Graj'^ 
T'.  Mechanics'  Bank.  Fed.  Cas.  Xo. 
5,723,    2    Cranch,    C.    C.    r,l. 

Requirements  of  federal  statutes. — 
Section  5146,  U.  §.  Rev.  Stat.,  pre- 
scribes the  qualifications  of  directors: 
(1)  Every  director  must,  during  his 
whole  term  of  service,  be  a  citizen  of 
the  United  States,  and  at  least  three- 
fourths  of  the  directors  must  have  re- 
sided in  the  state,  territory  or  district 
in  which  the  association  is  located, 
for  at  least  one  year  immediately  pre- 
ceding their  election,  and  must  be 
residents  therein  during  their  continu- 
ance in  office.  (2)  Every  director 
must  own,  in  his  own  right,  at  least 
ten  shares  of  the  capital  stock  of  the 
association.  A  director  who  ceases  to 
be  the  owner  of  ten  sliares  or  other- 
wise becomes  disqualified  shall  tluTcliy 
vacate  his  place.  Mason  i'.  Mooro,  73 
O.  St  275,  70  N.  K.  932,  4  L.  R.  A., 
X.  S.    597. 


258  BANKS    AND    BANKING.  §    51     (3) 

stockholders  only  shall  be  elected  directors,  persons  having  no  interest  in 
the  stock,  but  fraudulently  and  collusively  receiving  the  transfer  of  a 
share  to  qualify  them,  are  not  eligible ;  and  the  stockholders  combining  in 
such  fraud  have  no  power  to  confer  upon  them  authority  to  do  corporate 
acts." 

Same  Person  Serving  as  Director  in  More  than  One  Bank. — A 
bank  charter  forbidding  the  appointment  of  a  director  of  any  other  bank, 
or  the  co-partner  of  a  director,  applies  to  directors  of  banks  in  other 
states.'" 

§  51  (3)  Election. — Original  Incorporators  Not  Ipso  Facto  Di- 
rectors.— The  original  persons  who  associate  themselves  together  for  the 
purpose  of  organizing  the  corporation  and  bringing  it  into  being,  do  not, 
even  when  limited  to  a  small  number,  as  five  or  seven,  become  its  directors 
ipso  facto  upon  the  completion  of  the  organization,  unless  the  statute  so 
provides.  Ordinarily  they  are  merely  stockholders,  and  should  proceed 
to  the  election  of  directors  in  the  manner  prescribed  by  statute.**  Under 
the  act  of  congress  with  reference  to  national  banks,  the  directors  are 
elected  annually  by  the  stockholders.^'' 

Time  and  Place  of  Election. — An  election  of  directors  must  be  held 
at  the  time  and  place  fixed  by  law,  or  designated  according  to  law.^^ 

Quorum. — What  shall  constitute  a  quorum  of  the  directorate  for  the 
purpose  of  holding  an  election  or  transacting  other  business  is  a  matter  of 
statutory  regulation.  Where,  in  the  election  of  a  president,  a  majority 
of  the  directors  constitute  a  board  to  do  business,  and  a  majority  vote,  the 

7.  Directors  having  no  bona  fide  the  act,  which  certificate  also  stated 
ownership  of  stock. —  Bartholomew  z'.  that  the  associates  had  elected  one  of 
Bentley,  1  O.  St.  37.  their  number  to  be  president  of  the  as- 

8.  Directors  serving  in  more  than  sociation,  and  the  association  went  into 
one  bank. — State  f.  Buchanan  (O.),  operation  without  further  organiza- 
Wright  233.  tion.   except   the   selection  of  a  cashier, 

In  view  of  the  failures  of  banks  held,  that  the  persons  signing  said  cei 
caused  by  overtrading,  the  legislature  tificate  were  only  associates  and  cor- 
iiitended  to  cut  ofT  facilities  to  com-  porators  or  stockholders,  and  not 
bined  overissue  of  bank  notes  by  the  managers  or  directors  of  said  corpora- 
restriction  requiring  them  to  have  no  tion;  the  eighteenth  section  giving  to 
officer  in  common  with  any  other  them  only  power  to  "choose  a  board  of 
bank.  State  v.  Buchanan  (O.),  Wright  directors,"  under  whose  "direction" 
233.  ihe  business  of  banking  might  be  con- 

9.  Incorporators   not   ipso   facto   di-  ducted.       Kinsela      7'.      Cataract      City 
rectors.— Kinsela      z'.      Cataract       City  Bank,   IS   N.   J.   Kq.    (3   Green)    158. 
Bank,    18   N.  J.    Eq.    (3   Green")    158.  10.    Under    National    Banking    Act.— 

Where   "seven    (or  more)   citizens   of  Brown    v.    Farmers",    etc.,    Xat.    Bank, 

this    state"    associated    to    establish    an  88  Tex.  265,  31    S.  W.  285,  33   L.   R.   A. 

office    of   discount,    deposit,    and    circu-  359. 

lation.   under   the   act  to  authorize   the  11.    Time   and    place    of    election. — 

business   of    banking,     approved      Feb-  State  7'.   .Ashley,  1    Ark.  513. 

ruary  27,  1850,   and  executed,   acknowt-  The   election   for  all   the   directors   of 

edged,  and  had  recorded,  in  the  offices  the    Real-Estate   Bank   must   be   held  at 

of  the  secretary  of  state  and  the  clerk  one  and  the  same  time,  and  at  one  and 

of    the    county    where    said    office    was  the  same  place,  to  be  appointed  by  the 

proposed  to  be  located,   the  certificate  central    board.      State    v.     Ashley,      1 

required    by    the    sixteenth    section    of  Ark.   513. 


§  51    (4a) 


OFFICERS    AND    AGENTS. 


259 


person  receiving  a  majority  of  the  votes  cast  is  duly  elected. i- 

De  Facto  Oflficer  Elected  by  Less  than  Quorum.— As  regards  out- 
side parties,  one  may  be  a  de  facto  officer  though  elected  at  a  meeting  at- 
tended by  a  less  number  than  required  by  the  charter  to  constitute  a 
quorum.  ^2 

Manner  of  Voting. — A  stockholder  can  not  be  deprived  of  his  charter 
right  to  vote  for  the  entire  directory  of  the  institution  i^-^  though  where  the 
statute  so  provides,  he  may  multiply  his  shares  by  the  number  of  directors 
to  be  elected  and  vote  them  all  for  one  director. i^' 

Election  or  Appointment  of  Director  to  Fill  Vacancy.— On  ap- 
plication, in  proceedings  to  liquidate  a  bank,  for  the  appointment  of  a 
director  to  take  the  place  of  one  who  has  resigned,  the  burden  is  on  one 
claiming  to  have  been  elected  to  the  office  to  show  such  election,  and  where 
there  is  no  evidence  of,  but  merely  an  answer  to  the  petition  alleging 
such  appointment,  the  court  is  authorized  to  appoint  another.^<5 

§  51  (4)  Qualification— §  51  (4a)  Oath.— Where  the  statute  or 
charter  requires  it,  officers  and  directors  must  qualify  by  taking  an  oath 


12.  Quorum. — Booker  v.  Young,  5,3 
Va.    (12   Gratt.)   303. 

Under  Code,  c.  58,  §  4,  a  majority 
of  the  board  of  directors  of  a  bank  are 
a  quorum  to  elect  a  president  and,  a 
quorum  voting,  a  majority  of  them 
will  elect  him.  Booker  v.  Young.  53 
Va.    (12    Gratt.)    303. 

13.  De  facto  officers  elected  by  less 
than  quorum.— Baird  z:  Bank  (Pa.)  11 
Serg.   &   R.   411. 

One  elected  to  the  office  of  bank  di- 
rector at  a  meeting  of  five  directors, 
and  subsequently  acting  as  such,  is  a 
de  facto  director,  so  that  his  acts  are 
l.'inding  so  far  as  they  are  relied  on 
\>y  outside  parties,  though  under  the 
bank's  charter  a  meeting  of  a  ma- 
jority of  thirteen  directors  was  re- 
quired to  make  a  valid  election  of  an- 
other director.  Baird  f.  Bank  (Pa.). 
11   Serg.  &  R.  411. 

14.  Manner  of  voting. — State  z'.  .Ash- 
ley. 1   Ark.  .-,i:;. 

15.  Right  to  cumulate  shares. — ^At- 
torncv  General  7'.  I^)ridi,Mnan,  l.'M  Midi. 
371).   90    X.   W.   438. 

Same — Repeal  of  statute.— Comp. 
T-aws.  §  8553,  provides  that  a  stock- 
hr.lder  may  multiply  his  shares  of 
stock  by  the  numl)er  of  directors  to 
be  elected,  and  cast  that  numl)cr  of 
votes  for  one  director.  Held  that,  if 
such  act  ever  applied  to  banks  or- 
canized  under  the  l)anking  law  of  1887. 
It  was  repealed  by  Comp.  Laws. 
§§  0101,  0153.  subsequently  enacted, 
providing   that    I.ank    directors    shall  I)e 


elected  at  a  meeting  of  stockholders, 
each  shareholder  being  entitled  to  one 
vote  for  each  share  for  each  director, 
and  repealing  all  acts  inconsistent 
therewith.  Attorney  General  z:  Bridg- 
man.   134   Mich.   379,   96   X.   W.   43S. 

Election  of  different  classes  by  dif- 
ferent interests. — Where  the  charter 
requires  the  board  to  consist  of  thir- 
teen members,  eleven  to  be  chosen 
by  the  ordinary  stockholders  and  two 
by  the  city  council,  the  city  being  a 
stockholder,  there  is  no  distinction 
among  the  directors;  they  all  have  the 
right  of  voting  to  fill  vacancies  in 
either  class  of  directors.  Prieur  z\ 
Commercial    Bank.    7    La.    509. 

A  bank,  being  so  authorized  liy  its 
charter,  established  a  branch  and  fur- 
nished to  it  a  capital  of  $02,500.  .An 
equal  amount  of  stock  was  subscrilied 
at  the  branch.  Imt  only  $33,660  were 
paid  in.  The  charter  provided  that 
the  parent  bank  and  the  1)ranch  bank 
should  choose  nine  directors,  the 
ff)rmer  four  and  the  latter  five,  if  each 
furnished  an  equal  amount  of  capital. 
.•\s  the  branch  furnislied  a  less  aiuount 
of  capital  llian  the  parent,  tlie  latter 
claimed  the  right  to  choose  six,  and 
chose  six,  leaving  three  to  be  chosen 
l)y  the  branch.  Held,  that  as  capital 
mp;int  not  stock  sul)scribe(l.  I)tit  cash 
paid  in.  the  division  was  equitable  and 
nrnper.  State  z\  Thompson.  27  Mo. 
.';05. 

16.  Filling  vacancy— .Presumption. — 
P.raslan  t'.  Superior  Conrt.  124  Cal. 
123.  50  Par.   792, 


260 


BANKS   AND   BANKING. 


§  51   (4b) 


before  entering  upon  the  duties  of  the  ofifice.^"  Under  the  act  of  con- 
gress with  reference  to  national  banks,  each  director,  before  entering  upon 
the  discharge  of  the  duties  of  such  office,  is  required  to  make  oath  that 
he  will,  so  far  as  the  duty  devolves  on  him,  diligently  and  honestly  admin- 
ister the  affairs  of  the  association. ^^ 

§  51  (4b)  Bond. — Form  and  Validity. — The  surety  bond  required 
of  a  bank  official  should  be  made  payable  to  the  person  designated  by 
statute.^'-*  Such  bond  is  not  void  because  executed  after  the  officer  has 
entered  upon  his  duties.-*'  Nor  is  the  validity  of  a  bond  given  at  a  time 
when  the  statute  did  not  require  it  affected  by  the  subsequent  enactment 
of  a  statute  requiring  a  bond.-^ 

Formal  Defects. — Generally  speaking,  the  validity  of  the  bond  is  not 
affected  by  mere  clerical  errors  and  formal  defects.--  The  failure  to  join 
the  official,  the  faithful  discharge  of  whose  duties  it  is  given  to  secure,  will 
not  release  the  sureties  where  such  bond  has  been  accepted  by  the  di- 
rectors.-^ And  even  the  failure  to  express  any  consideration  will  not 
vitiate  it,  though  the  appointment  was  made  before  its  execution,  where 
it  appears  that  the  execution  of  the  bond  was  necessary  to  render  the 
appointment  effectual.-'^     Naming  a  greater  penalty  than  that  prescribed 


17.  Qualification — Oath. — State  Bank 
V.  Chetwood,  8  X.  J.  L.  (3  Halst.)  1; 
Mason  v.  Moore,  73  O.  St.  275,  76  N. 
E.  932,  4  L.  R.  A.,  N.  S.,  597. 

"By  §  5147,  each  director,  when  ap- 
pointed or  elected,  shall  take  an  oath 
that  he  will,  so  far  as  the  duty  de- 
volves on  him,  diligently  and  honestly 
administer  the  affairs  of  the  associa- 
tion, and  will  not  knowingly  violate  or 
willingly  permit  to  be  violated,  any  of 
the  provisions  of  this  title,  and  that 
he  is  the  owner  in  good  faith  and  in 
his  own  right  of  the  number  of  shares 
of  stock  required,  etc."  Mason  v. 
Moore,  73  O.  St.  275,  76  X.  E.  932, 
4  L.  R.  A.,  N.  S.,  597. 

It  is  the  duty  of  the  cashier  of  a 
bank  to  be  sworn  before  he  enters 
upon  the  duties  of  his  office.  State 
Bank  v.  Chetwood,  8  X.  J.  L.  (3 
Halst.)  1. 

18.  Under  National  Banking  Act. — 
Brown  v.  Farincrs',  etc..  Xat.  Bank,  SS 
Tex.  265,  275,  31  S.  W.  285,  33  L.  R. 
A.   359. 

19.  Bond — Form  and  validity. — An- 
derson V.    State.   2    Ga.   370. 

In  1841  a  bank  charter  was  re- 
pealed, and  the  assets  transferred  to 
another  bank,  which  appointed  an 
agent  to  collect  them,  who  gave  bond 
to  the  governor  of  the  state.  The  char- 
ter of  such  other  bank  required  its 
officers  to  give  bonds,   payable  to   th€ 


governor.  Held,  that  the  bond  of  the 
agent  was  rightly  made  payable  to  the 
governor.  Anderson  v.  State,  2  Ga. 
3-70. 

20.  Execution  after  principal  has  as- 
sumed duties. — Bank  v.  Brent,  Fed. 
Cas.    Xo.   910,   2    Cranch,    C.   C.   696. 

21.  Effect  of  subsequent  enactment 
on  bond  already  given. — Lionberger  v. 
Krieger,   88   Mo.   160. 

22.  Formal  defects. — Pendleton  v. 
Bank  (Ky.),  1  T.  B.  Mon.  171;  Fancher 
V.  Kaneen  (O.),  5  X.  P.,  X.  S.,  614. 

A  misnomer  of  the  corporation,  in 
the  official  bond  of  a  cashier,  by  the 
omission  of  the  words  "and  company," 
does  not  vitiate  the  bond.  Pendleton 
V.    Bank    (Ky.),    1   T.    B.    Mon.    171. 

Under  the  terms  of  a  bond  given  to 
the  directors  of  a  bank  as  directors 
and  not  as  individuals,  with  the  rela- 
tions and  understanding  of  the  parties 
as  in  this  case,  the  bank  becomes  the 
real  and  sole  party  in  interest  with  the 
right  to  sue  thereon,  and  the  assignee 
of  the  bank  succeeds  to  the  same 
right.  Fancher  v.  Kaneen  (O.).  5  N. 
P..  X.  S.,  614. 

23.  Failure  to  join  principal  in  bond. 
— Bank  v.  Cresson  (Pa.),  12  Serg.  & 
R.    306. 

24.  Failure  to  express  consideration. 

— Fourth  Nat.  Bank  v.  Spinnev,  14  N. 
Y.  St.  Rep.  216.  47  Hun  293. 


§  51   (4b) 


OFFICERS    AND    AGENTS. 


261 


by  the  charter  or  by-laws  of  the  bank  will  not  prevent  the  bond  being  a 
good  and  binding  obligation  upon  the  sureties. ^^  In  such  a  case,  the 
charter  provision  may  be  construed  as  directory  and  not  mandatory  or  im- 
perative.2^ 

Sureties. — Where  the  statute  provides  that  such  a  bond  shall  not  be 
signed  by  a  director,  it  will  be  valid,  though  signed  by  a  director,  where 
he  ceases  to  be  one  before  it  is  accepted.-" 

Conditions. — A  bond  voluntarily  executed  and  containing  nothing  con- 
trary to  law  is  not  invalid  because  the  condition  varies  from  the  form 
required  by  statute,-^  since  it  is  a  general  principle,  as  to  statutory  bonds, 
that  superadded  and  distinct  conditions  not  imposed  by  the  statute  may 
be  rejected  as  illegal,  and  the  conditions  required  by  the  statute  enforced 
as  valid. -^ 

Acceptance  of  Bond. — The  acceptance  of  a  bond  need  not  be  by  an 
express  act,  nor  in  the  manner  prescribed  by  the  charter  in  order  to  rendei 
the  sureties  liable  for  a  breach  of  its  conditions.  Its  retention  by  the  di- 
rectors or  their  permitting  the  officer  to  enter  upon  and  continue  in  the 
discharge  of  the  duties  of  the  position  without  raising  objections  to  the 
bond,   will   be   deemed   an   acceptance   thereof.-'^     Record   evidence   of   ap- 


25.  Naming   greater  than  prescribed 

penalty.— Durkin  z:  Exchange  Bank 
(Va.;,  2  Pat.  &  H.  27?  (citing  Carter 
V.  Bank  of  Va.  special  court  of  ap- 
peals,   ISol,    unreported). 

26.  Same — Charter  provisions  held 
to  be  directory. — Durkin  z'.  Exchange 
Bank    (Va.).   2   Pat.   &   H.   277. 

27.  Director  as  surety.— Franklin 
Bank  z:  Cooper.  36  Ale.  179. 

28.  Conditions. — Grocers'  Bank  z: 
Kingman    (Mass.),    16    Gray    473. 

A  condition  in  a  cashier's  bond  "to 
account  for,  settle,  and  pay  over  all 
moneys,"  etc.,  is  tantamount  to  the 
condition  prescribed  by  statute,  which 
is  "for  his  good  behavior."  And.  if  it 
were  not,  yet  the  condition  prescribed 
by  the  statute  does  not  preclude  the 
insertion  of  the  former.  State  Bank 
V.  Locke,  15  N.  C.  529. 

A  bank  authorized  to  make  by-laws, 
and  to  take  l)ond  from  the  casliier  for 
the  "faithful  discharge  of  the  duties 
of  his  office,"  may  take  a  bond  with 
condition  that  he  shall  perform  the 
duties  of  his  office  according  to  law 
and  the  i)y-laws  of  the  institution,  and 
that  he  shall  not  make  known  any 
secrets,  or  the  state  of  tlie  funds,  etc., 
to  any  person  except  the  directors,  etc. 
As  these  things  may  be  required  of 
the  cashier  by  the  by-laws,  they  may 
he  required  in  the  bond.  Bank  v. 
Hopkins  (Ky.),  1  T.  B.  Mon.  245,  15 
Am.   Dec.   113. 


29.  Same — Superadded      conditions. 

— Banks  z:  McDowel,  41  Tenn.  (l 
Coldw.)  85,  87;  Sharp  v.  Pickens,  44 
Tenn.  (4  Coldw.)  268;  McLean  z: 
State,  55  Tenn.  (8  Heisk.)  22;  Ranning 
v.  Reeves,  2  Tenn.  Ch.  263,  all  citing 
this  case.  And  see  Davis  z:  Bratton,  29 
Tenn.  (10  Humph.)  179,  where  this  case 
is  cited  to  distinguish  the  point  de- 
cided. Polk  z:  PUmimer,  21  Tenn.  (2 
Humph.)    500,   37   Am.   Dec.   566. 

30.  Acceptance  of  bond. — Bank  v. 
Dandridge  ( U.  S.),  12  Wheat.  64,  6  L. 
Ed.  552.  See,  also,  Jacksonville,  etc., 
Xav.  Co.  V.  Hooper,  160  U.  S.  514,  522, 
40   L.   Ed.  515. 

Where  a  board  of  directors,  liy  a 
vote,  approved  of  two  persons  as  sure- 
ties in  a  bond  to  be  given  by  the 
cashier,  and  a  bond,  duly  executed  by 
llieni  and  the  casliier,  was  afterwards 
found  in  the  possession  of  the  presi- 
dent, it  was  held  that  there  was  a  suffi- 
cient acceptance  thereof  by  the  cor- 
poration. Union  Bank  v.  Ridgely 
(Md.),  1  Har.  &  G.  324;  Dedham  Bank 
:•.    Chickering   (Mass.),   3   Pick.  335. 

The  facts  that  the  bond  of  a  cashier 
was  dehvered  to,  and  considered  and 
retained  by,  tlie  directors  of  a  bank, 
and  that  the  cashier  was  phiced  in 
office,  are  sufticicnt  to  estahb'sli  the 
acceptance  of  the  bond,  tliough  no  ac- 
ceptance is  shown  bj'  the  minutes  of 
the  board.  Pryse  z'.  Farmers'  Bank, 
17    Ky.    L.    Rep.    1056,    33    S.    W.    532. 


262  BANKS   AND   BANKING.  §    51     (5) 

proval  by  the  directors  is  not  necessary;  presumptive  evidence  with  proof 
of  its  execution  is  sufficient/^ ^ 

Failure  to  Require  Bond — Liability  for  Negligence.— If  the  direct- 
ors fail  to  exact  a  bond  of  the  cashier  as  required  by  law,  they  are  liable 
to  the  stockholders  for  any  loss  resulting  from  their  negligence  in  that 
behalf.^-  But  where,  in  such  a  case,  the  directors,  supposing  that  a  bond 
has  been  taken,  settle  with  the  cashier  for  his  delinquencies  and  order 
^Jiis  bond  cancelled,  they  can  not  be  held  liable  for  their  failure  to  take  a 
bond,  since  even  if  one  had  been  taken  all  liability  of  the  cashier  and  his 
sureties  thereon  would  have  been  extinguished  by  the  settlement.  In  other 
words,  there  can  be  no  recovery  for  their  negligence  where  no  injury  re- 
sulted therefrom."^^ 

§  51  (5)  Beginning  and  Duration  of  Term. — The  title  of  a  person 
to  the  presidency  of  a  bank  is  complete  at  the  moment  that  the  vote  of  a 
majority  of  the  directors  declaring  him  to  be  elected  to  such  office  is  de- 
clared.-'^'* 

Tenure.— Where,  by  the  charter  of  a  bank,  the  directors  are  to  be 
chosen  annually,  and  they,  "for  the  time  being,  have  power  to  appoint  a 
cashier,  and  such  other  officers  under  them,  as  may  be  necessary  for  exe- 
cuting the  business  of  said  corporation,"  a  cashier  so  appointed  is  an  officer 
of  the  corporation,  the  duration  of  whose  office,  in  the  absence  of  an  ex- 
press limitation,  is  limited  only  by  the  duration  of  the  charter;  but  he  is 
liable  to  be  removed  by  the  directors  as  occasion  may  require,  and  is  not 
necessarily  an  annual  officer. ••^ 

Holding  Over. — The  tendency  of  the  cases  is,  in  the  absence  of  terms 
in  a  charter  restricting  or  enlarging  the  powers  of  the  corporation  upon 
the  point,  to  maintain  the  authority  of  the  officers,  who  hold  over  without 
an  election,  to  exercise  the  corporate  authority.^"     xA.nd  it  is  held  that  any 

31.    Evidence    of    approval. — Bank    v.  poration,    or    as    the    agents    of    a    cor- 

Dandridge   (U.   S.),   12  Wheat.  64,  6  L.  poration.      Bank  v.   Dandridge    (U.   S.), 

Ed.  552.  12    Wheat.    64,    6    L.    Ed.    552. 

Proof  of  execution  and  approval  of  32.  Failure  to  require  bond — Lia- 
hond. — In  a  suit  brought  l)y  the  presi-  bility  for  negligence. — Jones  v.  John- 
dent,  directors  and  company  of  the  son,  86  Ky.  5.30,  9  Ky.  L.  Rep.  789,  6 
Bank    of   the    United    States,     upon      a  S.   W.   582. 

bond   given   to   the   bank   to   secure   the  33.    jo^eg   .,    Johnson,   86   Ky.   530,   9 

faithful    performance     of      the      official  j.;,.     ^     Rep     789     6    S     W     582 

duties    of    one    of    its    cashiers,    it    was  „,      t,      •      •        '     j   j        /•        ~  r  ... 

held  that  evidence  of  the  execution  ot  ?,*•    Beginning  and  duration  of  term. 

the    bond,    and   of   its   approval   by   the  ~S           '  '''        '""'''•  '                                  ' 
board    of    directors    (according    to    the 


03. 


rules  and  regulations  contained  in  the  ^^-    Tenure.— Union  Bank  v.  Ridgely 

charter    of   the    bank),    was    admissible  (Md.),  1  Har.  &  G.  324;  Dedham  Bank 

notwithstanding    there    was    no    record  "'-'■    Chickering    (Mass.),    3    Pick.    335. 
of   such   approval;   and   that   the   plain-  36.     Holding    over. — Nashville     Bank 

tifif   might    prove   the    fact   of   such    ap-  r.    Petway,    22   Tenn.    (3    Humph.)    522. 
proval    by    the    board,    by   presumptive  The    power    of    election    was    vested 

evidence,   in  the   same   manner  as   such  in   a  board   of  directors,  who  were   ac- 

fact    might    be    proved    in    the    case    of  customed     to    elect    their    cashier    an- 

private    persons,    not    acting   as    a    cor-  nually,  according  to  a  resolution  to  that 


§  51   (6) 


OFFICERS   AXD  AGENTS. 


263 


provision  of  the  charter  looking  to  a  continuance  of  the  power  of  the  board 
of  directors  in  case  of  a  failure  to  elect  at  the  proper  time,  ought  to  receive 
a  favorable  consideration.-'^' 
Effect  of  Insolvency,   Suspension,  Abandonment  of  Office,  etc. — • 

The  insolvency  of  a  bank  and  the  suspension  of  all  its  corporate  functions 
during  a  long  period  of  years  may  operate  also  as  a  suspension  of  its  di- 
rectory and  all   its  corporate  ofificers.-'^^ 

§  51    (6)   Removal  or  Discharge. — Ipso  Facto  Removal  by  Opera- 
tion of  Statute. — A  statute  which  provides  that  the  office  of  any  director 


eflfect,  but  the  charter  provided  that, 
before  he  entered  upon  the  duties  of 
his  oftice,  he  should  give  bond.  Held, 
that  the  term  of  office  did  not  expire 
at  the  end  of  the  year,  but  that  the 
old  cashier  continued  in  office  until  a 
new  one  was  qualified  by  giving  a 
bond.  Sparks  v.  Farmers'  Bank,  3 
Del.   Ch.   274. 

37.  Same — Charter — Construction. — 
Nashville  Bank  v.  Petway,  22  Tenn. 
(3    Humph.)    522. 

Therefore,  a  provision  which,  after 
fixing  the  time  for  the  annual  election 
of  directors  and  the  day  when  the  new 
board  shall  go  in,  stipulates  that,  until 
the  new  directors  take  their  seats,  the 
former  board  shall  continue  to  man- 
age the  afifairs  of  the  company,  is 
sufficient  to  keep  alive  the  powers  of 
the  old  board,  and  the  addition  of  a 
specific  reference  to  the  date  of  the 
first  election  is  not  restrictive,  but 
amplifying  in  its  meaning.  Nashville 
Bank  v.  Petway,  22  Tenn.  f3  Humph.) 
522. 

Under  a  bank  charter  providing  for 
the  election  of  directors  by  the  stock- 
holders, and  then  providing  that  "the 
officers"  shall  hold  their  offices  for  one 
year,  but  may  be  removed  by  a  ma- 
jority at  a  meeting  of  the  stockhold- 
ers, and  that  the  directors  m;<v  ;■• 
point  certain  officers,  the  limitation  of 
the  term  to  one  year  applies  only  to 
the  directors,  and  not  to  the  officers 
appointed  by  them.  Deposit  Bank  7-. 
Hearne,  104  Ky.  819,  20  Ky.  Law  Rep. 
1019.   48   S.   W.   ]f)0. 

The  charter  of  a  liank  provided  that 
the  directors  should  serve  until  the 
end  of  the  first  Monday  in  January 
next  ensuing  the  time  of  their  elec- 
tion, and  no  longer;  that  the  directors. 
at  the  first  meeting  after  their  election, 
should  choose  one  of  their  number 
president;  that,  if  it  should  happen 
that  an  election  of  directors  should 
not  take  place  uoon  the  proper  day. 
the  corporation  should  not  be  deemed 
dissolved,    but    the    election    should    be 


had  on  some  other  day.  .\t  a  meeting 
of  the  stockholders,  held  on  Decem- 
ber 20,  1865,  the  directors  were  au- 
thorized to  cause  the  then  president 
and  cashier  to  execute  a  deed  of  as- 
signment. The  instrument  was  made 
and  delivered  on  January  4,  1866,  by 
the  .president  and  cashier  in  office  at 
the  time  of  the  aforesaid  meeting  of 
the  stockholders.  The  first  Monday 
in  January.  1866.  was  then  passed,  and 
no  new  board  of  directors  or  new  of- 
ficers had  been  elected.  Held,  that  the 
president  and  cashier  before  referred 
to  were  the  proper  officers  to  execute 
such  assignment.  They  were  officers 
de  facto,  if  not  de  jure.  Milliken  v. 
Steiner,   56   Ga.   251. 

38.  Eflfect  of  insolvency,  suspension, 
etc. — Bartholomew  v.  Bcntlev,  1  O. 
St.    37. 

Directors  of  a  liank  electcfl  in  1822, 
the  bank  being  entirely  insolvent  and 
performing  no  corporate  acts  from 
that  time  until  1838.  will  not  be  held 
to  have  continued  in  office  until  tlie 
latter  period,  although  the  charter 
provided  that  they  should  continue  in 
office  until  their  successors  were 
elected.  Bartholomew  v.  Bentlev,  1 
O.   St.  37. 

The  act  of  such  persons  in  appoint- 
ing directors  to  fill  vacancies  in  the 
board  was  entirely  void,  although  the 
charter  provided  that  a  part  of  the  di- 
rectors of  the  bank  might  fill  such 
vacancies.  Bartliolomcw  v.  Bentlev,  1 
O.   St.  37. 

Where  the  stockholders  of  a  bank, 
in  an  instrument  authorizing  its  con- 
version from  a  state  to  a  national 
bank,  named  all  the  directors  who  had 
been  elected  at  the  last  annual  eloo- 
lion  as  those  "who  are  now  the  di- 
rectors of  said  bank."  the  court  can 
not  hold  that  two  of  those  so  named 
were  not  directors  merely  l)ccausc  they 
had  never  acted  in  tliat  capacity  since 
their  election,  five  months  previously. 
T^orkwood  t*.  Mechanics'  Nat.  Bank.  0 
R.    T.   308.   11    Am.   Rep.  253. 


264  BANKS   AND   BANKING.  §    51     (7) 

or  Other  official  shall  become  vacant  by  reason  of  his  violation  of  the  pro- 
hibitions contained  therein  is  self-executing,  and  operates  to  ipso  facto 
vacate  his  office  upon  proof  of  violation  of  its  terms.^^ 

Time   of  Taking  Effect. — See   footnote.^'' 

Proceedings  to  Remove. — In  an  action  to  remove  the  directors  of  a 
bank,  acting  as  trustees  under  the  statute  in  closing  up  its  affairs,  a  pe- 
tition which  does  not  allege  that  the  trustees  have  been  in  any  way  ex- 
travagant or  negligent  or  dilatory  in  the  performance  of  their  duties,  or 
that  they  have  violated  any  law  or  contract,  or  done  any  wrong  or  with- 
held any  right  or  threatened  to  do  any  such  thing,  is  insufficient  to  state  a 
cause  of  action.'*^ 

Dishonesty — Proof  of. — Proof  of  dishonesty  is  a  question  for  the  jury 
upon  all  the  evidence  in  the  case.^- 

§  51  (7)  Trial  of  Right  or  Title  to  Office.— Quo  warranto  is  the 
proper  remedy  to  inquire  by  what  authority  a  person  holds  the  office  of 
bank  director.  It  is  the  proper  writ  to  try  the  right  to  office,  and  to  arrest 
the  usurper.^3  Such  writ  will  be  made  returnable  forthwith,  or  at  short 
day,  so  that  a  trial  may  be  had  before  the  term  of  office  expires,  that 
course  being  necessary  to  the  due  administration  of  justice.'*^  On  return 
of  such  writ,  short  rules  will  be  granted  for  pleading  to  issue,  and  the 
defendant  has  no  right  to  send  the  cause  to  the  common  rules  for  plead- 
ing, as  that  would  work  a  continuance,  and  defeat  the  object  of  the  writ.'*'^ 

39.  Ipso  facto  removal. — Cupit  i\  feet  until  three  days  after  its  passage. 
Park  City  Bank,  20  Utah  202,  58  Pac.  Held,  that  the  suspension  did  not 
839.  take   efifect   until   it   was   known   to   the 

Comp.    Laws    1888,    §    2515,    provides  cashier.     Bank  z:  Magill,  Fed.  Cas.  No. 

that   no  officer  of  any  bank  organized  929,  1  Paine  661.  affirmed  in  12  Wheat, 

under    this    law    shall    borrow    money  511,  6  L.  Ed.  711. 

from   it    unless   he    furnish    security   in  41^     Proceedings    to    remove.— Sands 

at  least  double  the  amount  of  the  loan  j,    Qund,   4    Xeb.   316,   93    N.    W.    990. 

made,  and  no  loan  by  any  officer  =hail  /.«    -r.        r     r  j-  u    '      j.         tv  r       1       ^  > 

be  made  for  a  period  to  exceed  three  .t  ?"  i?T    °f.^-?^°T  ^^Tr ''^-n^   /1 

months,   nor   shall   any   officer   become  ^^^^  B.^."'\f  2      '^f^T'      iPo^'         ' 

an    indorser    or    security    for    loans    to  ^-J^-  ^•^'  ^'1  *^"^-  ^*-  /^^P;    ,\    ,      ,. 

^i^u^^<,    Tt  ^io^  ^.-^,„vi^o   «-v,^«-  *-u^   ^g;^  the  purchase  or  sale  of  stock  by  the 

otners.   It  also  provides  that  the  ofnce  1  •          r        1       1            ij        ,      r   -^     ir 

of  any  director  or  officer  who  acts   i^  ^ashier   of  a   bank  would   not   of  itself 

contravention   to   the   provision    imme-  1^^  P'"°°^  of  dishonesty,  while  the  buy- 

diately  thereon  becomes  vacant.   Held,  ^"?,  ^"^    ^^"'"§^    ?\  ^^P^l^  ^fy*^"^    ^''^ 

that    the    statute    is    self-executing,    so  f.^''^^"*   ^"^^"^   "^'^ht   be.    This    is   en- 

that  from   the   time   a  loan  bv  way  of  ^If^^^  ^  ^f^ter  for  the  jury.     It  is  for 

overdraft,  unsecured,  was  made  ioy  the  them    to    deterniine    whether     or      not 

bank  to  a  firm  of  which  a  cashier  who  speculation   on   his  part  is   such   a  cir- 

was  also  a  director  was  a  member,  his  cumstance    as   would   render   him   unfit 

office    became    vacant,    and    from    that  ^o   hold   his   position   as   cashier.  _  Mer- 

time  on  he  had  no  authority  to  act  for  S^^^ts     Nat     Bank    r.    Guilmartin     93 

the    corporation.      Cupit    v.    Park    City  ^^-   5^^'   ^1    S.    E.   55,   44   Am.    St.   Rep. 

Bank,   20   Utah   292,   58    Pac.    839.  ^^^l     t.  •   ,      r     •  ,              re          ^ 

40.  Time  of  taking  effect.-A  bank,  ^^  Trial  of  title  to  office-Quo  war- 
on  being  informed  that  its  cashier  had  »anto.— State  z'.  Buchanan  (O.),  Wright 
been    guilty    of    a    breach    of    trust,    by  '^' 

resolution,    suspended   him    from   office  ^4.     Same— Return    of   writ. — State  v. 

until  the  further  pleasure  of  the  board,  Buchanan    (O.).    \\'right    233. 

but    which    resolution    was     not      com-  45.    Same — Pleading — Imparlances. — 

municated  to  him  nor  carried  into  ef-  State    f.    Buchanan    (O.),    Wright    233. 


^-> 


OFFICERS  AND  AGENTS. 


265 


Evidence  of  Authority.— The  records  of  a  corporation  are  the  best 
evidence  of  its  officers,  but  it  is  competent  to  prove  that  such  officers  exist 
by  the  admissions  of  the  defendant.^^  Newspaper  statements  and  the  un- 
derstanding of  a  witness  from  such  sources  is  no  evidence  who  are  direct- 
ors of  a  bank.-*" 

Presumption  and  Burden  of  Proof. — See  footnote.^^ 

§  52.  Meetings  of  Directors.— Notice  of  Meeting.— It  is  the  gen- 
eral rule  that,  where  no  provision  is  made  in  the  statute  or  in  the  by-laws 
of  a  bank  or  corporation  for  the  notice  required  for  regular  meetings  of 
the  directors,  or  the  mode  of  calling  special  meetings,  all  meetings  must 
be  called  by  special  notice,  to  be  given  to  each  director.-*^ 

But,  where,  by  the  charter  of  a  bank,  a  certain  number  of  its  directors 
are  made  a  quorum,  the  bank  is  bound  by  the  unanimous  concurrence  of 
that  number  at  a  casual  meeting,  and  without  notice  to  the  others,  if 
notice  is  not  prescribed  by  the  charter  or  by-laws.^'^  And  if  the  directors 
of  a  bank  have  long  pursued  an  established  custom  of  holding  meetings  and 
transacting  business  at  the  bank  during  business  hours  whenever  a  sufficient 
number  were  present,  the  custom  would  carry  with  it  a  standing  notice 
to  each  director,  and  enable  those  present  to  proceed,  in  the  absence  of  a 
controlling  by-law   or   statute. ■"'^ 

Object  of  Meeting— Specifying.— Failure  of  the  notice  to  specify  the 
object  of  the  meeting  will  not  prevent  its  being  a  legal  meeting  for  the 
transaction  of  ordinary  business. '5- 


46.  Evidence. — State  v.  Buchanan 
(O.),   Wri-ht  23:;. 

47.  Same. — State  v.  Buchanan  (O.), 
Wright  233. 

48.  Presumption  and  burden  of 
proot. — Pi-fsunipiion  that  llie  huv  re- 
quiring a  bank  cashier  to  be  director 
has  be»n  complied  with.  See  Hibernia 
Sav.  Bank  z.  McGinnis,  9  Mo.  App. 
578. 

Burden  of  proving  that  bank  cashier 
was  not  a  director  as  required  by  the 
law.  See  Hibernia  Sav.  Bank  r.  Mc- 
Ginnis, 9  ^lo.  App.  :>7H. 

49.  Meeting  of  directors — Notice. — 
Paola,  etc.,  R.  Co.  v.  Anderson,  16 
Kan.  .302;  Scott  z'.  Paulen,  1.5  Kan. 
162;  .Aikenan  7:  School  Dist.,  27  Kan. 
129;  National  Bank  v.  Drake,  3.5  Kan. 
564,  n  Pac.  44.5;  National  Bank  z\ 
Shumway,   49   Kan.   224,   30   Pac.   411. 

50.  Same — Unanimous  concurrence 
of  quorum  without  notice.— Ivlgerly 
r.  I'",nuTson,  23  X.  11.  -.5.5.  .5.5  .\ni.  Dec. 
207. 

Three  of  the  seven  directors  of  an 
insolvent  bank  were  nonresidents,  and 
could  not  be  notified  of  a  meeting  of 
the  directors  in  time  to  attend  the 
same.      The    four    remaining    directors, 


being  a  quorum,  called  a  meeting,  and 
passed  a  resolution  authorizing  the 
president  and  secretary  to  assign  all 
of  the  bank's  property  for  the  benefit 
of  its  creditors,  after  which  a  deed  of 
assignment  was  executed  in  due  form 
and  properly  filed.  Subsequently, 
two  of  tlie  a))sent  directors  recognized 
the  assignment  by  attending  and  par- 
ticipating in  the  election  of  an  as- 
signee, as  provided  by  law.  Neither 
the  bank  as  a  corporation,  nor  any  di- 
rector, objected  to  the  assignment. 
Held,  that  the  assignment  was  valid, 
notwithstanding  the  absence  of  tlie 
three  directors  from  the  meeting  of 
the  board.  National  Bank  v.  Sluun- 
way,  49   Kan.   224.  30   Pac.   411. 

51.  Same  —  Custom.  —  .\merican 
E.xch.  Nat.  Bank  :•.  i-'irst  .\'at.  Bank, 
27  C.  C.  .\.  274,  S2   Fed.  96]. 

52.  Specifying  object  of  meeting.— 
Savings    I'ank  t'.   Davis,  8  Conn.   191. 

Where  a  meeting  of  a  l)oard  of  di- 
rectors of  a  l)ank  in  New  Haven  was 
called  by  the  casliier,  in  pursuance  of 
instructions  from  the  president,  then 
in  New  York,  by  personal  notice  to 
the  directors  in  New  Haven,  without 
specifying,    in    such    notice,    the    object 


266 


BANKS  AND  BANKING. 


§  52 


Quorum. — The  provisions  in  the  charter  of  a  bank  as  to  what  shall  con- 
stitute a  quorum  of  the  directors  to  do  business  are  directory,  and  for 
the  security  of  the  stockholders  and  bill  holders ;  but  the  bank  may  endanger 
its  franchises  by  disregarding  them.ss  As  a  rule,  a  majority  of  the  direct- 
ors constitute  a  quorum,  and  a  majority  of  the  quorum  may  act.^-^  Where 
the  charter  requires  the  presence  of  a  specified  number  to  constitute  a 
board,  and  declares  the  president  to  be  entitled  to  all  the  powers  and  privi- 
leges of  a  director,  the  president  and  one  less  than  the  number  specified 
by  the  charter  constitute  a  sufficient  board  to  satisfy  the  requirements  of 
the  charter.^^ 

Bias  or  Interest  Disqualifying  Director. — Although,  as  between  the 
corporation  and  the  individual,  a  bank  director  has  no  right  to  vote  in  a 
matter  in  which  his  interest  is  concerned,  yet,  as  respects  the  bona  fide  con- 
tracts of  third  persons,  such  vote  will  be  valid. ^'^ 

Minutes  of  Meeting. — It  is  unnecessary  that  the  votes  or  decisions 
of  the  directors  or  agents  of  a  banking  corporation  should  be  recorded  un- 
less recording  is  required  by  the  charter  or  by-laws. 5" 


of  the  meeting,  it  was  held  that  this 
was  a  legal  meeting  for  ordinary  trans- 
actions, and  that  the  giving  of  security 
for  a  debt  of  the  bank,  by  a  mortgage 
of  its  real  estate,  was  of  this  descrip- 
tion. Savings  Bank  c\  Davis,  8  Conn. 
191. 

53.  Quorum. — Smith  v.  Bank,  18  Ind. 
327. 

54.  Same — Number  required  to  bind 
bank. — Leary  f.  Interstate  Nat.  Bank 
(Tex.  Civ.  ..A.pp.),  63  S.  W.  149; 
Edgerly  v.  Emerson,  23  N.  H.  555,  55 
Am.  Dec.  207;  Dickason  v.  Grafton 
Sav.   Bank  Co.,  27  O.  C.  C.  357. 

The  directors  of  a  bank  may  bind 
the  corporation  by  a  major  vote  of 
those  present  at  a  regular  stated  meet- 
ing, or  at  a  special  meeting  of  which 
all  have  been  notified,  if  a  quorum  is 
present.  Edgerly  v.  Emerson,  23  N.  H. 
55.1   55   Am.    Dec.   207. 

Under  Rev.  St.,  §  3247,  providing 
that  a  majority  of  the  trustees  or  di- 
rectors shall  form  a  board,  three  of 
the  five  directors  of  a  bank  have 
authority  to  transact  the  business  of 
the  bank.  Dickason  v.  Grafton  Sav. 
Bank  Co.,  27   O.   C.   C.   357. 

Where  only  half  of  the  directors  of 
a  bank  who  were  qualified  to  act  for 
it  in  selling  certain  property  were 
present  at  the  board  meeting,  there 
is  no  quorum,  and  their  act  in  mak- 
ing the  sale  is  not  binding  on  the 
bank.  Leary  c\  Interstate  Nat.  Bank, 
(Tex.    Civ.    App.),   63_S.   W.    149. 

Same — Custom — Discounting  paper, 
■ — ^Evidence  that  a  note,  which  was  left 
with  a  bank  director  to  be  discounted, 


was  discounted  the  next  day;  that  the 
rules  of  the  bank  required  the  pres- 
ence of  a  majority  of  the  directors  or 
of  the  finance  committee  to  authorize 
a  discount;  but  that  it  was  the  custom 
in  some  cases  for  the  cashier  and  one 
director  to  discount  a  note;  and  that, 
on  the  day  the  note  in  question  was 
discounted,  there  was  no  meeting  of 
the  directors  or  of  the  finance  com- 
mittee— warranted  a  finding  that  the 
cashier,  and  the  director  with  whom 
the  note  was  left,  acted  for  the  bank 
in  discounting  it.  National  Security 
Bank  v.   Cushman,   121   Mass.   490. 

55.  Quorum  composed  of  president 
and  one  less  than  required  number  of 
directors.— Bank  r.  Ruff  (Md.),  7  Gill 
&  J.  448. 

Thus,  where  the  charter  required 
seven  directors  to  make  a  board,  and 
declared  the  president  to  be  entitled 
to  all  the  powers  and  privileges  of  a 
director,  the  president  and  six  di- 
rectors constituted  a  sufficient  board 
to  satisfy  the  requisitions  of  the  char- 
ter. Bank  V.  Rufif  (Md.\  7  Gill  &  J. 
448. 

56.  Disqualification  of  director  by 
bias  or  interest. — Baird  v.  Bank  (Pa.), 
11    Serg.    &    R.    411. 

57.  Minutes  of  meeting. — Edgerly  v. 
Emerson,  23  N.  H.  555,  55  Am.  Dec. 
207. 

The  direction  of  the  directors  to  the 
president  as  to  the  application  of 
moneys  received  need  not  be  recorded. 
Stamford  Bank  r.  Benedict,  15  Conn. 
437. 


§    54    (la)  OFFICERS    AND    AGEXTS.  267 

§   53.  Rights    and    Liabilities    as    to    Bank    and    Stockholders — 

§   54. Nature  and  Extent— §   54    (1)   In  General— §   54    (la) 

Powers,  Duties  and  Liabilities  of  Directors. — Care  and  Diligence 
Required.- — The  directors  and  officers  of  a  bank  arc,  in  a  sense, 
trustees  for  the  depositors  and  stockholders,  and  they  can  be  called 
upon  in  a  court  of  equity  to  account  for  misfeasance  in  the  manage- 
ment of  the  business  of  the  bank.^^  They  are  the  agents  of  the  cor- 
poration, and  are  liable  for  an  abuse  of  their  trust  wherever  the  agents 
of  an  individual  would  be.-'''^  The  standard  of  diligence  and  prudence 
by  which  they  should  be  tried  is  that  which  business  nien  have  erected 
for  themselves.  Reasonable  conformity  to  the  customs  and  methods  in 
vogue  among  prudent  bankers  is  the  degree  of  diligence  required  of' 
such  officers."*^  As  regards  directors,  the  law  requires  of  them  the 
exercise  of  good  faith  and  ordinary  diligence  and  care,  including  the 
duty  of  reasonable  oversight  and  supervision  of  the  bank's  affairs,  and 
they  are  liable  for  losses  resulting  from  their  negligence  or  misman- 
agement of  the  bank's  affairs.'''^  The  degree  of  care  to  which  they  are 
bound  is  that  which  ordinarily  prudent  and  diligent  men  would  exercise 
under  similar  circumstances,  and  in  determining  that,  the  restrictions  of 
statute  and  the  usages  of  business  should  be  taken  into  account.  What 
may  be  negligence  in  one  case  may  not  be  want  of  ordinary  care  in  another, 
and  the  question  of  negligence  is,  therefore,  ultimately  a  question  of  fact, 
to  be   determined  under  all   the  circumstances.*'-     Other  cases  have  held 

58.  Nature  of  relation  to  bank. —  62.  Same. — Briggs  v.  Spanieling,  1-il 
Hersey  v.  Veazie,  24  Me.  9.  41  Am.  U.  S.  132,  35  L.  Ed.  6G2,  11  S.  Ct.  924; 
Dec.  364;  Smith  v.  Poor,  40  Me.  41.5,  Trnstees  v.  Bosseinx,  3  Fed.  817;  Dunn 
63  Am.  Dec.  672;  Robinson  v.  Smith  v.  Kyle,  77  Ky.  (14  Bush)  134;  Com- 
(N.  Y.),  3  Paige,  222,  24  Am.  Dec.  212;  mercial  Bank  v.  Chatfield,  121  Mich. 
Cunningham  v.  Pitts  (N.  Y.).  5  Paige  641,  80  N.  W.  712;  Stone  v.  Rottman, 
607:  Meisse  t'.  Loren,  4  N.  P.  100,  6  183  Mo.  552,  82  S.  W.  76;  Wallace  v. 
O.  D.  258.  Lincoln    Sav.    Bank,    89    Tenn.    630,    15 

59.  Same.— Austin  t-.  Daniels  (N.  S.  W.  448,  24  Am.  St.  Rep.  625;  Min- 
Y.),  4  Denio  299.  ton  t.  Stahlman,  96  Tenn.  98,  34  S.  W. 

60.  Standard  of  diligence. — Wallace  222;  Marshall  v.  Farmers',  etc.,  Sav. 
V.  Lincoln  Sav.  Bank,  89  Tenn.  630,  15  Bank,  85  Va.  676,  8  S.  E.  586.  2  L.  R.  A. 
S.   W.   448.  24   Am.   St.    Rep.   625.  534,  17  Am.  St.   Rep.  84. 

61.  Duties  and  liabilities — Diligence  A  director  and  officer  of  a  bank  is 
required. — Briggs  z'.  Spaulding,  141  U.  bound  to  exercise  that  degree  of  care 
S.  i:{2,  152,  35  L.  Ed.  662,  11  S.  Ct.  in  the  business  affairs  of  the  _  bank 
924;  Trustees  v.  Bosseiux,  3  Fed.  817;  that  a  careful  man  would  exercise  in 
Lowndes  v.  City  Nat.  Bank,  82  Conn.  his  own  affairs  of  like  importance; 
8,  72  Atl.  150;  Dunn  7'.  Kyle,  77  Ky.  and  if,  by  reason  of  his  neglect  to  excr- 
(14  Bush.)  134;  Commercial  Bank  7'.  cisc  such  care,  the  bank  loses  money, 
Chatfield,  121  Mich.  641,  80  N.  W.  712;  he  is  liable  therefor.  Commercial 
Stone  7'.  Rottman,  183  Mo.  552,  82  S.  Bank  7'.  Chatfield,  121  Mich.  641,  80  N. 
W.  76;  Wallace  7'.  Tvincoln  Sav.  Bank,  W.  712;  Wallace  7'.  Lincoln  Sav. 
89  Tenn.  630,  15  S.  W.  448,  24  Am.  Bank,  89  Tenn.  630,  15  S.  W.  448,  24 
St.  Rep.  625;  Minton  7'.  Stalilman,  96  Am.  St.  Rep.  625;  Minton  7'.  Stahlman, 
Tenn.  98,  34  S.  W.  222;  Marshall  7'.  96  Tenn.  98,  34  S.  W.  222;  Marshal  t. 
Farmers',  etc.,  Sav.  Bank,  85  Va.  676,  Farmers',  etc.,  Sav.  Bank.  85  Va.  676, 
8  S.  E.  586,  2  L.  R.  A.  534,  17  Am.  8  S.  E.  586,  2  L.  R.  A.  5.!  I,  17  Am.  St. 
St.  Rep.   84;   Elliott  7'.   Farmer's   Bank,  Rep.  84. 

61   W.  Va.  641,  57   S.   E.  242.  Tlie    director   of   a    bank   is   only   re- 


268 


BANKS  AND  BANKING. 


§  54  (la) 


that  directors  will  not  be  personally  liable  for  losses,  except  in  cases  of 
gross  negligence,  amounting  to  active  or  passive  fraud.^=^ 

Delegation  of  Duties— Supervision,  Inspection,  Knowledge  of 
Bank's  Affairs. — Directors  are  not  required  to  devote  themselves  to  the 
details  of  the  business,  which  may  be  left  to  the  clerks  and  bookkeepers 
under  the  supervision  of  the  cashier.*^-*  They  are  bound,  however,  in  the 
exercise  of  the  ordinary  diligence  required  of  them  by  law,  to  maintain 
a  reasonable  oversight  and  supervision  of  the  bank's  affairs,  and  it  is  gross 
negligence  for  them  to  commit  the  entire  business  of  the  bank  to  the 
cashier  and  his  subordinates  without  supervision  or  control  on  their  part, 
even  though  he  be  an  entirely  competent  man.''-'-     While  they  are  not  in- 


quired to  act  in  good  faith  and  to 
exercise  such  a  degree  of  care  as  a 
reasonably  prudent  man  would  exer- 
cise under  the  same  circumstances; 
not  that  which  a  prudent  man  would 
exercise  in  his  own  business.  Stone  v. 
Rottman,   183   Mo.   552,  82   S.   W.   76. 

If  by  their  gross  mismanagement 
and  neglect  loss  is  incurred,  they  will 
be  rendered  liable  therefor  to  credit- 
ors and  stockholders.  Elliott  v.  Farm- 
ers' Bank,  Gl  W.  Va.  641,  57  S.   E.  2-12. 

63.  Robinson  v.  Hall,  59  Fed.  648; 
Mutual,  etc.,  Sav.  Bank  v.  Bosseiux,  3 
Fed.    817,    4    Hughes    387. 

Illness  may  be  sufficient  excuse  for 
passive  negligence. — A  director  chosen 
to  fill  a  vacancy  created  by  death 
was  at  the  time  an  invalid,  and  by 
reason  of  his  infirmity  in  health  unable 
to  transact  business,  at  least  with 
facility.  His  codirectors  at  the  time  of 
his  election  were  supposedly  con- 
versant with  and  capable  of  managing 
the  banks  affairs.  Held,  that  while  it 
might  be  said  that  he  should  not  have 
accepted  the  position  of  director,  and 
should  not  have  allowed  himself  to  be 
re-elected,  yet  upon  this  question  of 
passive  negligence  the  rule  should  not 
be  so  rigorously  applied  as  to  make  no 
allowance  for  the  person  charged 
under  such  circumstances,  and  that  he 
should  not  be  held  liable  therefor. 
Briggs  V.  Spaulding,  141  U.  S.  132,  35 
L.  Ed.  662,   11   S.  Ct.  924. 

64.  Delegation  of  duties — Supervision 
and  inspection. — Briggs  v.  Spaulding, 
141  U.  S.  132,  35  L.  Ed.  662,  11  S.  Ct. 
924;  Mason  v.  Moore,  73  O.  St.  275, 
7  6  X.  E.  932,  4  L.  R.  A.,  N.  S.,  597; 
Wallace  v.  Lincoln  Sav.  Bank,  89  Tenn. 
630,  15  S.  W.  448,  24  Am.   St.  Rep.  625. 

65.  Same. — Briggs  v.  Spaulding,  141 
U.  S.  132,  35  L.  Ed.  662,  11  S.  Ct.  924; 
Lowndes  v.  City  Nat.  Bank,  82  Conn. 
8,  72  Atl.  150;  Bailey  v.  O'Neal,  92  Ark. 
327,   122    S.   W.   503;    Mason   v.   Moore, 


73  O.  St.  275,  76  N.  E.  932,  4  L.  R.  A., 
N.  S.,  597;  Wallace  v.  Lincoln  Sav. 
Bank,  89  Tenn.  630,  15  S.  W.  448,  24 
Am.  St.  Rep.  625;  Minton  v.  Stahl- 
man,  96  Tenn.  98,  34  S.  W.  222;  Lane 
&  Co.  V.  Bank,  56  Tenn.  (9  Heisk.) 
419;  Scale  v.  Baker,  70  Tex.' 283,  7  S. 
W.  742,  8  Am.  St.  Rep.  592;  Warren  v. 
Robison,  19  Utah  289.  57  Pac.  2S7,  75 
Am.  St.  Rep.  734;  Marshall  v.  Farm- 
ers', etc.,  Sav.  Bank,  85  Va.  676,  8  S.  E. 
586,  2  L.  R.  A.  534,  17  Am.  St.  Rep. 
84;  Wolfe  v.  Second  Nat.  Bank,  54  W. 
Va.  689,  47  S.  E.  243. 

A  showing  that  certain  directors  of 
a  defunct  banking  institution  were 
careless  and  negligent  as  such;  that 
they  exercised  no  supervision  over  its 
affairs,  but  turned  everything  over  to 
the  executive  officers,  and  allowed 
loans  to  be  made  to  the  officers  of  the 
bank  and  to  others,  practically  with- 
out security;  and  that  these  loans 
resulted  in  wrecking  the  bank — is  suffi- 
cient, in  an  action  on  behalf  of  stock- 
holders and  creditors  for  an  account- 
ing and  for  damages,  to  establish  a 
prima  facie  case  again-^t  such  directors. 
Warren  v.  Robison,  19  Utah,  289,  57 
Pac.  287,  75  Am.   St.   Rep.   734. 

Kirby's  Dig.,  §§  841,  863,  864,  provid- 
ing that  the  business  of  every  corpo- 
ration shall  be  managed  by  the  di- 
rectors, and  making  the  officers  of  a 
corporation  who  intentionally  neglect 
to  comply  with  the  statutes  and  to  per- 
form the  duties  required  of  them 
jointly  and  severally  liable  for  the 
debts  of  the  corporation  contracted 
during  the  period  of  such  negligence, 
etc.,  require  the  directors  of  a  corpo- 
ration to  perform  the  functions  re- 
quired of  them  by  statute,  common 
usage,  and  the  by-laws.  Therefore  the 
directors  of  a  bank  who  appoint  a 
cashier  can  not  divest  themselves 
of  the  duty  of  general  supervi- 
sion and  control  and  can  not  rely  en- 


§    54    (la)  OFFICERS  AND  AGENTS.  269 

surers  of  the  competency  or  fidelity  of  the  cashier  or  his  subordinates,  nor 
liable  for  their  acts  upon  any  principle  of  agency,««  nor  required  to  look 
Avith  suspicion  upon  the  conduct  of  these  agents  and  employees,  nor  to 
practice  a  system  of  espionage  over  the  cashier  or  his  subordinates,  in 
the  absence  of  circumstances  calculated  to  excite  doubt  or  suspicion,""  yet 
they  are  required  to  exercise  due  care  in  their  selection  and  proper  su- 
pervision over  their  actions  and  conduct  of  the  bank's  affairs/'''  While  in 
some  corporations  directors  may  constitute  merely  an  advisory  body  main- 
taining only  a  general  oversight  as  to  the  affairs  of  the  company,  it  is  not 
so  as  to  the  directors  of  banks.  As  directors,  it  is  their  duty  to  know  the 
system  of  management  and  its  daily  workings,  including  the  general  finan- 
cial condition  of  the  bank  and  all  important  matters  in  its  dealings.  They 
can  not  escape  liability  by  showing  that  they  were  ignorant  of  the  business 
of  the  corporation  with  respect  to  those  matters  which  it  is  their  duty 
to  know;  and  if  they  negligently  entrust  such  matters  to  others,  and  loss 
is    thereby    incurred,    it    should    fall    upon   them,    and    not   upon   their   de- 

tirely  on  the  good  faith  and  judgment  In  relation  to  these  officers,  the 
of  the  cashier;  so  that  where  the  duties  of  directors  are  those  of  con- 
directors  knowingly  allowed  the  cash-  trol,  and  the  neglect  which  would  ren- 
ier  to  lend  to  one  man  and  his  various  der  them  responsible  for  not  exercis- 
enterprises  without  substantial  se-  ing  that  control  properly,  must  depend 
cunty  sums  largely  in  excess  of  the  on  circumstances,  and  in  a  great 
capital  stock  of  the  bank  and  to  con-  measure  be  tested  by  the  facts  of  the 
tinue  that  course  of  dealing  for  a  case.  If  nothing  has  come  to  their 
period  of  several  years,  resulting  in  the  knowledge,  to  awaken  suspicion  of  the 
insolvency  of  the  bank,  the  directors  fidelity  of  the  president  and  cashier, 
were  personally  liable  to  creditors  be-  ordinary  attention  to  the  affairs  of  the 
coming  such  during  such  period.  institution  is  sufficient.  If  they  be- 
Bailey  v.  O'Neal.  92  Ark.  327,  122  S.  come  acquainted  with  any  fact  calcu- 
W.  r)03.         _  lated    to    put    prudent    men    on    their 

66.  Not  insurers  of  fidelity  of  em-  guard,  a  degree  of  care  commensurate 
ployees.— Mason  v.  Moore,  73  O.  St.  with  the  evil  to  be  avoided  is  required, 
275,  76  N.  E.  932,  4  L.  R.  A.  (N.  S.)  and  a  want  of  that  care  certainly 
597;  Wallace  v.  Lincoln  Sav.  Bank,  makes  them  responsible.  Briggs  v. 
89  Tenn.  630,  15  S.  W.  448,  24  Am.  St.  Spaulding,  141  U.  S.  132,  35  L.  Ed. 
Rep.   625.  ,                 _  662,   U   S.  Ct.  924. 

67.  Nor  required  to  look  with  Although  no  formal  resolution  au- 
suspicion  on  conduct  of  subordinates.  thorized  the  president  to  transact  the 
—Briggs  V.  Spaulding,  141  U.  S.  132,  35  business  of  the  bank,  yet  in  view  of 
L.  Ed.  662,  11  S.  Ct.  924;  Mason  v.  the  practice  of  fourteen  years  or  more, 
Moore,  73  O.  St.  275,  76  N.  E.  932.  4  it  must  be  held  that  he  was  duly  au- 
L.  R.  A.,  N.  S..  597.  tliorized  to  do  so.     It  does  not  follow 

68.  But  held  to  a  proper  oversight. —  that  the  executive  officers  should  have 
Briggs  V.  Si)au!(Iing.  141  U.  S.  ]:!2,  3.5  been  left  to  control  the  business  of 
L.  Ed.  662,  11  S.  Ct.  924;  Lowndes  v.  the  bank  absolutely  and  without  su- 
City  Nat.  Bank,  82  Conn.  8,  72  .A.tl.  pcrvision,  or  that  tlie  statute  furnishes 
150;  Wallace  v.  Lincoln  Sav.  Bank,  89  a  justification  for  the  pursuit  of  tliat 
Tenn.  630,  15  S.  W.  448,  24  Am.  St.  course.  Its  language  does  enable  in- 
Rep.  625;  Minton  v.  Stahlman,  96  Tenn.  dividual  directors  to  say  that  they 
98,  34  S.  W.  222;  Scale  v.  Baker.  70  were  guilty  of  no  violation  of  a  duty 
Tex.  283,  7  S.  W.  742,  8  Am.  St.  Rep.  directly  devolved  upon  them.  Whether 
592;  Warren  v.  Robison,  19  Utah  289,  they  were  responsible  for  any  neglect 
57  Pac.  287,  75  /Km.  St.  Rep.  734;  of  the  l)oard  as  sucli,  or  in  failing  to 
Marshall  v.  Farmers',  etc.,  Sav.  Bank,  obtain  proper  action  on  its  part,  is 
85  Va.  676,  8  S.  E.  586,  2  L.  R.  A.  534,  another  question.  Briggs  7'.  Spaulding, 
17  Am.  St.  Rep.  84;  Zinn  v.  Mendel.  9  141  U.  S.  132.  35  L.  Ed.  062.  11  S.  Ct. 
W.   Va.   580.  924. 


270 


BANKS  AND  BANKING. 


§  54  (la) 


positors  and  stockholders.e^  They  are  not  required,  however,  to  give  their 
whole  time  and  attention  to  the  performance  of  these  duties,  but  only  so 
much  as,  under  the  special  circumstances  of  each  particular  case,  may  be 
demanded  for  the  reasonable  protection  of  the  interests  committed  to 
their  care  J »  And  a  mere  failure  to  make  or  cause  an  investigation,  in  a 
short  term  of  service,  nothing  appearing  to  cause  suspicion,  is  not  negli- 
gence."^ 

69.  Same— Can  not  escape  liability  by 
plea  of  ignorance.— Briggs  v.  Spauld- 
ing,  141  U.  S.  132,  35  L.  Ed.  662,  11  S. 
Ct.  924;  German  Sav.  Bank  v.  Wul- 
fekuhler,  19  Kan.  60;  Meisse  v.  Loren, 
4  N  P.  100,  6  O.  Dec.  258;  Lane  &  Co. 
V.  Bank,  56  Tenn.  (9  Heisk.)  419;  War- 
ren V.  Robison,  19  Utah  289,  57  Pac. 
287,  75  Am.  St.  Rep.  734;  Marshall  v. 
Farmers',  etc.,  Sav.  Bank,  58  Va.  676, 
8  S.  E.  586,  2  L.  R.  A.  534,  17  Am.  St. 
Rep.  84;  Zinn  z'.  Mendel,  9  W.  Va. 
580-  Wolfe  V.  Second  Nat.  Bank,  54 
W.  Va.  689,  47  S.  E.  243;  Elliott  v. 
Farmers'  Bank,  61  W.  Va.  641,  57  S.  E. 
242. 

Directors  must  exercise  ordinary 
care  and  prudence  in  the  administra- 
tion of  the  affairs  of  a  bank,  and^  this 
includes  something  more  than  officiat- 
ing as  figureheads.  They  are  entitled 
under  the  law  to  commit  the  banking 
business,  as  defined,  to  their  duly-au- 
thorized officers,  but  this  does  not  ab- 
solve them  from  the  duty  of  reasonable 
supervision,  nor  ought  they  he  per- 
mitted to  be  shielded  from  liability 
because  of  want  of  knowledge  of 
wrong  doing,  if  that  ignorance  is  the 
result  of  gross  inattention.  Briggs  i'. 
Spaulding,  141  U.  S.  132,  35  L.  Ed.  662, 
11  S.  Ct.  924. 

A  bank  director  is  personally  re- 
sponsible to  a  depositor  for  loss  sus- 
tained by  him  for  a  dereliction  of  duty 
on  the  part  of  such  director  in  the 
following  particulars,  to  wit:  Failure 
to  hold  weekly  meetings  as  prescribed 
by  the  by-laws  of  the  bank,  it  appear- 
ing that  they  sometimes  only  met 
semi-annually  and  even  at  greater  in- 
tervals; allowing  a  depositing  railroad 
company  to  overdraw  its  account  to 
the  extent  of  many  thousand  dollars, 
such  director  being  the  president  of 
the  company  part  of  the. time  and  one 
of  the  bank  directors  being  president 
of  the  company  the  other  part  of  the 
time  in  question,  while  the  treasurer 
of  the  railroad  company  was  the  cash- 
ier of  the  savings  bank;  lending  money 
to  friends  and  relatives  without  any 
security;  failing  to  cause  the  books  of 
the  banks  to  be  examined  at  regular 
intervals   as   they   were    in   duty   bound 


to  do.  These  and  other  facts  show 
such  negligence  on  the  part  of  the  di- 
rectors as  will  make  them  personally 
liable  for  the  losses  caused  thereby. 
Marshall  v.  Farmers',  etc.,  Sav.  Bank, 
85  Va.  676,  8  S.  E.  586,  2  L.  R.  A.  534, 
17   Am.    St.    Rep.   84. 

One  who  is  a  director  and  vice-presi- 
dent of  a  bank  is  bound,  and  conclu- 
sively presumed,  to  know  its  general 
financial  condition  and  management, 
and  all  important  matters  in  its  deal- 
ings. He  is  chargeable  with  knowledge 
when  his  bank  is  in  an  embarrassed 
condition,  and  the  condition  of  an  ac- 
count which  has  been  overdrawn  sev- 
eral months.  The  fact  that  from  ill 
health  he  gives  no  personal  attention 
to  the  business  of  the  bank  will  not 
exempt  him  from  this  obligation  and 
liability.  German  Sav.  Bank  v.  Wulfe- 
kuhler^    19    Kan.    60. 

Bank  directors  must  be  considered 
as  affected  with  the  knowledge  of  such 
facts  as  appear  upon  the  bank  books. 
Zinn  z'.   Mendel,  9   W.   Va.   580. 

The  directors  of  a  bank  are  equally 
bound  with  the  cashier  to  constant 
activity  and  thorough  acquaintance 
with  its  daily  course  of  affairs  and 
dealings.  They  must  know  its  debts 
and  its  securities;  and,  in  the  absence, 
illness,  or  negligence  of  the  cashier, 
must  perfect  and  collect  them;  and 
perform  all  the  duties  devolving  upon 
him.  Lane  &  Co.  v.  Bank,  56  Tenn. 
(9    Heisk.)    419. 

A  long  and  systematic  violation  of 
the  directions  of  the  charter  by  the 
president  and  committeemen  is  prima 
facie  presumption  that  such  course  of 
misconduct  was  known  to  the  man- 
agers, and  the  latter  can  not  demur  to 
the  bill  seeking  to  charge  them  with 
such  mismanagement,  on  the  ground 
that  such  misconduct  is  not  traced  to 
them.  Meisse  z\  Loren,  4  N.  P.  100,  6 
O.   Dec.  258. 

70.  Not  required  to  give  entire  time 
and  attention. — Wallace  z:  Lincoln 
Sav.  Bank,  89  Tenn.  630,  15  S.  W.  448, 
24  Am.   St.  Rep.  625. 

71.  Failure  to  cause  investigation 
during   short   term  of   service. — Briggs 


§  54  (la) 


OFFICERS  AND  AGENTS. 


271 


Directors  as  Trustees — As  Agents. — It  has  been  held  in  a  number  of 
cases  that  the  relationship  of  otiicers  and  directors  of  a  corporation  and 
stockholders  and  creditors  is  that  of  trustees  and  cestuis  que  trustent,  and 
in  the  scrutiny  of  possible  breaches  of  duty  the  rigid  rules  which  govern 
trustees  have  been  applied.  This  has  been  especially  true  with  regard  to 
banking  corporations,  where  the  directors  owe  an  earlier  duty  to  the 
depositors,  and  where  they  are  liable  for  losses  incurred  through  their 
mismanagement,  neglect  of  duty,  or  abuse  of  trust.'^  But  while  bank  di- 
rectors are  often  styled  trustees,  this  is  not  true  in  any  technical  sense. 
They  are  not  express  trustees,  but  the  relation  is  rather  that  of  agents  or 
mandatories,  and  as  such  they  occupy  a  fiduciary  relation  just  in  the  sense 
that  every  agent  is  a  trustee  for  his  principal,  or  in  the  sense  that  any 
person  may,  under  given  circumstances  and  the  operation  of  familiar  prin- 
ciples of  equity,  be  held  as  an  implied  or  constructive  trustee  for  another.'^ 

Not  to  Manage  Affairs  of  Bank  for  Their  Personal  and  Private 
Advantage. — The  fiduciary  character  of  directors  is  such  that  the  law  will 
not  permit  them  to  manage  the  affairs  of  the  corporation  for  their  personal 


f.  Spaulding.  141  U.  S.  132,  35  L.  Ed. 
662.   11    S.   Ct.   924. 

Directors  should  not  be  subjected 
to  liability  upon  the  ground  of  want 
of  ordinary  care,  where  the  bank  be- 
came insolvent  within  ninety  days  after 
their  election  to  the  board  because 
they  did  not  compel  the  board  of  di- 
rectors to  make  an  investigation  and 
did  not  themselves  individually  con- 
duct an  examination,  during  their 
short  •  period  of  service;  or  because 
they  did  not  happen  to  go  among  the 
clerks  and  look  through  the  books, 
or  call  for  and  run  over  the  bills  re- 
ceivable, where  there  was  no  obvious 
reason  to  suspect  anything  wrong. 
P.riggs  r.  Spaulding,  141  U.  S.  132.  35 
L.  Rd.  662,  11  S.  Ct.  924,  affirming 
Movius  7'.   Lee.  30  Fed.  298. 

72.  Directors  as  trustees  or  agents. 
— Mutual,  etc.,  Sav.  Bank  z'.  Bosseiux, 
3  Fed.  817,  4  Hughes  387;  Hersey  v. 
Vcazie,  24  Me.  9.  41  Am.  Dec.  364; 
Smith  7'.  Poor,  40  Mc.  415,  63  .\m.  Dec. 
672;  Wilkinson  7'.  Dodd,  40  N.  J.  Eq. 
123,  3  Atl.  360;  Rol)inson  7'.  Smith  (N. 
Y.),  3  Paige  222,  24  Am.  Doc.  212; 
Cunningham  7'.  Pitts  (N.  Y.),  5  Paige 
607;  Rouse  7'.  Merchants  \at.  Bank, 
46  O.  St.  493,  22  X.  E.  293,  5  L.  R.  A. 
378,  15  .'Vm.  St.  Rep.  644;  Taylor  v. 
Miami  Exporting  Co.,  5  O.  162;  Zinn 
r.  Baxter,  65  O.  St.  341,  62  N.  E.  327; 
Meissc  7'.  Lorcn,  4  N.  P.  100.  6  O.  Dec. 
258;  Shea  7'.  Mabry.  69  Tcnn.  (l  Lea") 
319:  Lane  &  Co.  v.  Bank,  56  Tenn.  (9 
TTeisk.)  419;  Vance  7'.  Phoenix  Tns.  Co., 
72  Tenn.  (4  Lea")  385;  Parker  v.  Mc- 
Kcnna.  I^.  R.  10  ch.   ("Tenn.)  9;  Jackson 


z:  Ludeling,  21  Wall.  616,  22  L.  Ed. 
492;  Scale  r.  Baker,  70  Tex.  283,  7  S. 
W.  742,  8  Am.  St.  Rep.  592;  Hume  v. 
Commercial  Bank,  77  Tenn.  (9  Lea) 
728;  Marshall  v.  Farmers',  etc.,  Sav. 
Bank.  85  Va.  676.  8  S.  E.  586,  2  L.  R. 
.A..  534.  17  .Am.  St.  Rep.  84;  Elliott  t'. 
Farmers"  Bank,  61  W.  Va.  641,  57  S. 
E.  242. 

73.  Same — Implied  or  quasi  trustees. 
— Briggs  7'.  Spaulding,  141  U.  S.  132. 
147,  35  L.  Ed.  662,  11  S.  Ct.  924;  In  re 
Spering's  Appeal,  71  Pa.  St.  11,  10 
Am.  Rep.  684;  Hughes  r.  Brown,  88 
Tenn.  578,  13  S.  W.  286,  8  L.  R.  A. 
480;  Wallace  7'.  Lincoln  Sav.  Bank,  89 
Tenn.  630,  15  S.  W.  448,  24  Am.  St. 
Rep.  625;  M  in  ton  v.  Stahlman,  96 
Tenn.  98,  34  S.  W.  222;  Deadrick  7-. 
Bank,  100  Tenn.  457,  45  S.  W.  786; 
Scale  7'.  Baker.  70  Tex.  283,  294,  7 
S.   W.  742,  8  Am.  St.   Rep.  592. 

Directors  are  not  express  trustees. 
They  do  not  hold  the  legal  title,  and 
more  often  than  otherwise  are  not  the 
officers  of  the  corporation  having  pos- 
session of  the  corporate  property.  W^al- 
lace  7'.  Lincoln  Sav.  Bank.  89  Tcnn. 
630,  15  S.  W.  448,  24  Am.  St.  Rep. 
625;  Deadrick  7'.  Bank.  100  Tenn.  457. 
45   S.   W.   786. 

Every  director  of  a  bank  is  its 
agent:  appointed  l)y  the  bank,  and 
hold  out  to  the  pubh"c  as  entitled  to 
confidence.  Union  Bank  ?'.  Camp- 
bell, 23  Tenn.  (4  Humph.)  394.  Sec, 
to  the  same  effect,  Hume  v.  Commer- 
cial Bank,  77  Tenn.  (9  Lea)  728; 
Minton  7-.  Stahlman,  96  Tcnn.  98,  34 
S.   W.  222. 


272 


BANKS  AND  BANKING. 


54  (la) 


and  private  advantage,  when  their  duty  would  require  them  to  work  for 
and  use  reasonable  efforts  for  the  general  interest  of  the  corporation  and 
its  stockholders  and  creditors.  The  confidence  thus  reposed  in  them  can 
not  be  thus  abused  with  impunity ;  and  they  can  not  use  their  position  to 
promote  their  own  interest  in  respect  to  anything  thus  intrusted  to  them, 
to  the  prejudice  of  creditors  or  other  members.'"' 

Misfeasance  and  Nonfeasance— Mistake  of  Judgment.— As  agents 
—an  action  will  lie  against  directors  for  malfeasance,  misfeasance,  nonfeas- 
ance, or  negligence  in  office  ;'5  but  they  can  not,  in  general,  be  held  liable 
for  loss  or  depreciation  resulting  through  mere  error  of  judgment.' '^^  One 
accepting  a  director's  place,  however,  must  be  considered  as  holding  him- 
self out  as  possessed  of  ordinary  business  skill  and  ability,  and  if  he  is  not 
possessed  of  these  qualifications,  he  should  decline  to  serve,  for  if  he  com- 
mit an  error  of  judgment  through  mere  recklessness  or  the  want  of  or- 
dinary prudence  and  skill,  the  corporation  may  hold  him  responsible  for 
the  consequences.''^  They  must  show  reasonable  capacity  for  the  position 
they  accept,  and  use  in  it  their  best  discretion  and  industry,  and  a  scrupu- 
lous conscientiousness  in  every  matter,  and  obey  accurately  the  requisitions 
of  the  charter  and  of  the  general  law.'* 

Fraudulent  and  Illegal  Acts. — As  agents,  directors  are  of  course  liable 
for  their  fraudulent  or  illegal  acts.  If  they  fraudulently,  abuse  their  trust, 
and  misapply  the  funds  of  the  corporation,  they  are  personally  liable  to 
make  good  that  loss.''*     Though  to  inculpate  a  director,  it  is  not  necessary 


74,  Scale  z:  Baker,  70  Tex.  283,  7  S. 
W.   742,   8  Am.    St.    Rep.    592. 

75.  Misfeasance  and  nonfeasance. — 
Wallace  v.  Lincoln  Sav.  Bank,  89 
Tenn.  630,  15  S.  W.  448,  24  Am.  St. 
Rep.  635;  Deadrick  v.  Bank,  100  Tenn. 
457,  45  S.  W.  786;  Shea  v.  Knoxville, 
etc.,  R.  Co.,  65  Tenn.  (6  Baxt.)  277; 
Moses  V.  Ocoee  Bank,  69  Tenn.  (1 
Lea)  398;  Hume  v.  Commercial 
Bank,  77  Tenri.  (9  Lea)  728;  Seale  r. 
Baker,  70  Tex.  283,  7  S.  \V.  742,  8  Am. 
St.  Rep.  592;  Warren  f.  Robinson.  25 
Utah  205,  70  Pac.  989;  Marshall  z'. 
Farmers',  etc.,  Sav.  Bank,  85  Va.  676, 
8  S.  E.  586,  2  L.  R.  A.  534.  17  Am.  St. 
Rep.  84. 

A  liability  of  this  kind  should  not 
lightly  be  imposed  upon  directors  in 
the  absence  of  any  element  of  positive 
misfeasance,  and  solely  upon  the 
ground  of  passive  negligence;  and  it 
must  be  made  to  appear  that  the 
losses  for  which  defendants  are  re- 
quired to  respond  w^ere  the  natural 
and  necessary  consequence  of  omis- 
sion on  their  oart.  Briggs  v.  Spauld- 
ing,  141  U.  S.  132.  35  L.  Ed.  662,  11  S. 
Ct.   924. 

76.  Mere  errors  of  judgment. — Dunn 


v.  Kyle.  77  Ky.  (14  Bush)  134;  War- 
ren z\  Robinson.  25  Utah  205,  70  Pac. 
989;  Marshall  r.  Farmers',  etc.,-  Sav. 
Bank,  85  Va.  676,  B'S.  E.  586,  2  L.  R. 
A.   534,   17  Am.   St.   Rep.  84. 

Directors  of  a  bank  are  not  re- 
sponsible to  the  stockholders  for  loss, 
unless  occasioned  by  fraud  or  gross 
negligence  on  their  part.  Dunn  v. 
Kyle,  7?   Ky.    (14  Bush)   134. 

77.  Holds  himself  out  as  possessed 
of  ordinary  qualifications. — Alarshall  v. 
Farmers',  etc..  Sav.  Bank.  85  Va.  676. 
8  S.  E.  586,  2  L.  R.  A.  534,  17  Am.  St. 
Rep.   84. 

78.  Reasonable  capacity — Conscien- 
tious discharge  of  duty. — Marshall  :•. 
Farmers',  etc.,  Sav.  Bank,  85  Va.  676, 
8  S.  E.  586,  2  L.  R.  A.  534.  17  Am.  St. 
Rep.   84. 

79.  Fraudulent  and  illegal  acts. — 
Hersey  v.  Veazie.  24  Ale.  9,  41  Am. 
Dec.  364:  Smith  v.  Poor.  40  Me.  415. 
63  Am.  Dec.  672;  Robinson  v.  Smith 
(N.  Y.),  3  Paige  222.  24  Am.  Dec.  212; 
Cunningham  z:  Pitts  (N.  Y.),  5  Paige 
607;  Mabey  v.  Adams,  16  N.  Y.  346; 
Hume  V.  Commercial  Bank,  77  Tenn. 
(9   Lea)    728. 


§  54  (lb) 


OFFICERS  AND  AGENTS. 


273 


that  actual  dishonesty  should  be  shown,  or  that  it  should  be  proved  that 
he  was  influenced  by  interested  motives ;  it  is  sufficient  to  show  that  he 
has  been  guilty  of  a  breach  of  the  implied  obligations  arising  out  of  the 
nature  of  his  position.^" 

Mistakes  of  Law. — Directors  of  banks  are  not  liable  for  excusable 
mistakes  concerning  the  law :  that  is  to  say,  mistakes  involving  such 
knowledge  as  could  be  reasonably  expected  only  from  a  professional  man  ;^^ 
but  even  in  such  cases,  if  the  directors  feel  any  doubts,  they  may  be 
guilty  of  negligence  if  they  fail  to  seek  and  be  guided  by  competent  legal 
advice. *■- 

Right  to  Inspect  Books. — A  board  of  directors  has  no  right  to  pass 
a  resolution  excluding  one  of  its  members  from  an  inspection  of  its  books, 
though  they  deem  him  hostile  to  its  interests ;  and  a  mandamus  will  lie, 
commanding  that  the  books  be  submitted  to  his  examination. ^3 

Nominal  Directors. — A  director  in  law  and  fact,  who  actually  assumes 
the  duties  of  the  office,  must  be  held  to  its  responsibilities,  and  will  be  bound 
by  the  necessary  presumptions  raised  by  the  facts.  The  same  strict  rules 
are  clearly  not  applicable  to  nominal  directors  who  have  never  accepted 
the  office  although  held  out  as  such.  Xor  are  the  defendants  estopped  to 
deny  that  they  were  stockholders  by  the  fact  of  having  become  directors, 
or  held  themselves  out  as  such.-"^ 

§  54  (lb)  President's  Powers,  Duties  and  Liabilities. — The 
president  is  not  only  a  director  but  also  the  chief  executive  officer  of  the 
bank,  and  from  the  nature  of  his  office,  naturally  has  great  influence  upon 
the  policy  of  the  bank  and  the  conduct  of  the  various  employees  in  the 


80.  Actual  dishonesty  not  necessary. 

— Marshall  :•.  Farmers',  etc.,  Sav. 
Bank,  85  Va.  67G,  8  S.  E.  586,  2  L.  R. 
A.  534,  17  Am.  St.   Rep.  84. 

Banking  associations  organized 
under  the  general  banking  law  are 
within  1  Rev.  St.  pt.  1,  c.  18,  tit.  2. 
art.  1,  §  10,  to  prevent  the  insolvency  of 
moneyed  corporations,  and  making  di- 
rectors liable  to  stockholders  who 
suffer  an  actual  loss  by  the  deprecia- 
tion of  the  stock  in  their  hands  by 
reason  of  the  fraudulent  conduct  of  the 
directors.  Mabey  r.  Adams,  10  N.  Y. 
346. 

Under  the  Tennessee  Statutes  (Code, 
§  1488,  Act  of  1860.  ch.  27,  §  26,  Rev. 
Code,  §  18291))  declaring  directors  in- 
dividually liable  for  losses  occasioned 
through  fraud  and  willful  mismanage- 
rnent  it  is  held  that  the  cases  pro- 
vided for  are  cases  of  intcnti'jnal  fraud 
and  willful  mismanagcnicnt.  Hume  v. 
Commercial  Bank,  77  Tenn.  (9  Lea) 
728. 

1  B  &  B— 18 


Illegal    declaration    of    a    dividend. — 

The  illegal  declaration  of  a  dividend, 
where  there  are  no  net  profits  to  pay 
it,  maj^  subject  the  directors  to  a  per- 
sonal liability  to  the  association  or  its 
stockholders  for  damages  suffered  in 
consequence  thereof.  United  States  v. 
Britton,  108  U.  S.  199,  27  L.  Ed.  698. 
2  S.  Ct.  531;  Evans  v.  United  States. 
153  U.  S.  584,  38  L.  Ed.  830,  14  S.  Ct. 
934. 

81.  Mistakes  of  law. — Soloman  v. 
Bates.  118  N.  C.  311.  24  S.  E.  478,  54 
Am.  St.  Rep.  725;  Marshall  f.  Farm- 
ers', etc.,  Sav.  Bank,  85  Va.  676.  8  S. 
E.  586.  2  L.  R.  .'X.  534,  17  Am.  St. 
Rep.   84. 

82.  Failure  to  seek  competent  advice. 
— Marshall  -r.  Farmers',  etc.,  Sav. 
Bank,  85  Va.  683,  8  S.  E.  586,  2  L.  R. 
A.  .->:!4.   IT   .Am.   St.    Rip.  S4. 

83.  Right  to  inspect  books. — People 
7'.  Throop   (  X.   v.).   1:.'  Wend.   183. 

84.  Nominal  directors. — Hume  f. 
Commercial  Bank.  77  Tcnn.  (9  Lea) 
728. 


274  BANKS  AND  BANKING.  §    54    (Ic) 

discharge  of  their  duties. ^^  He  may  be  authorized  by  the  directors  to  do 
anything  within  the  authority  of  the  bank's  charter.^*'  It  is  his  duty  to  pre- 
side, and  his  other  duties  may  vary  according  to  usage  or  by-law  of  the 
institution,  and,  while  he  is  usually  expected  to  exercise  a  more  constant, 
immediate,  and  personal  supervision  than  an  ordinary  director,  the  mere 
fact  that  he  permits  the  cashier  to  have  physical  control  of  securities  is  not 
necessarily  proof  of  his  negligence.^"  He  is  to  be  regarded  as  a  trustee 
bound  to  exercise  such  care  and  prudence  in  his  office  as  men  of  common 
prudence  ordinarily  show  in  their  own  afifairs;  the  measure  of  his  care 
being  dependent  on  the  subject  to  which  it  is  due  and  the  circumstances  of 
each   particular   case.^^ 

§  54  (Ic)  Cashier's  Powers,  Duties  and  Liabilities. — The  cash- 
ier of  a  bank  is  its  executive  officer  through  whom  its  financial  operations 
are  conducted  and  by  whom  its  debts  are  received  and  paid  and  its  se- 
curities taken  and  transferred.^^  By  virtue  of  his  office  he  is  generally  en- 
trusted with  the  bank's  funds  and  securities  and  charged  with  the  duty 
of  superintending  its  books,  payments  and  receipts  as  a  moneyed  institu- 
tion.^^ But  it  does  not  follow  that  he  is  the  only  officer  of  the  bank  whose 
duty  it  is  to  look  after  the  securities  of  the  bank,  and  to  perfect  and  collect 
them.     It  is  equally  the  duty  of  the  president  and  directors.^^ 

An  Agent  of  the  Bank. — The  cashier  of  a  bank  is  its  agent,^^  ^nd  his 
acts,  to  be  binding  upon  the  bank,  must  be  done  within  the  ordinary  course 
of  his  duties. ^^ 

A  Quasi  Trustee. — Though  a  cashier  is  a  quasi  trustee,  and  though  in  his 
dealings  with  the  public  he  is  the  agent  of  the  bank,  and  is  held  as  to  the  bank 
like  a  trustee,  yet  he  is  not  strictly  speaking,  and  if  he  wrongfully  acquires  its 
funds  and  invests  them  in  his  own  name,  it  can  not  fasten  a  trust  or  lien  on 
the  property,  as  in  case  of  a  real  trustee,  since  the  acquisition  of  the  funds 

85.  President's  powers  and  duties.—  Bank  (Tex.  Civ.  App.),  27  S.  W.  897; 
Gidding  z'.  Baker,  80  Tex.  308,  16  S.  First  Nat.  Bank  2:  Ledbetter  (Civ. 
W.    33;    Brown   v.    Farmers',    etc.,    Nat.       App.).   34   S.   W.    1042. 

Bank,  88  Tex.  265,  31  S.  W.  285,  33  L.  90.    Custodian   of   funds— Supervision 

R.  A.  359,  reversing  31   S.  W.  216.  of    books— Payments     and    receipts.— 

86.  Same.— Boyd  v.  First  Nat.  Bank,  Davenport  f.  Prentice.  126  App.  Div. 
32    Ky.    L.    Rep    1323,   108   S.   W.   360.  451,  hq  N.  Y.  S.  1056;  Sturges  &  Co.  v. 

87.  Same.— Davenport  r  Prentice,  Bank,  11  O.  St.  153;  Durkin  v.  Ex- 
126  App.  Div.  451,  110  N.  Y.  S^  1056.  change    Bank    (Va.),   2   Pat.   &   H.   277. 

88.  Same— As  a  trustee— Diligence  See.  also.  Bank  v.  Wetzel.  58  W.  Va.  1, 
required. — Davenport    ■;••.    Prentice.    126       59   g    W    886 

App.   Div.  451,  110  N.  Y.   S.   1056.  n,     -n  '    -j  ^         j    j-       ..            1 

89.  Cashier's  duties-The  executive  91-  President  and  directors  also  re- 
officer.-United  States  z.  City  Bank  ^"•^'"f^  t°  T^^P^^'^f  VT^'f  ,^  ,f„  ^o.  v. 
(U.  S.),  21  How.  356,  16  L.  Ed.  130;  ^^"^''  '''^  ^^''''-  '^  Heifk.)  419. 
Davenport  zk  Prentice,  126  App.  Div.  92.  Cashier  as  agent  of  bank.— Max- 
451,  110  N.  Y.  S.  1056;  Sturges  &  Co.  well  z'.  Planters'  Bank,  29  Tenn.  (10 
V.  Bank,  11  O.  St.  153;  Lane  &  Co.  v.  Humph.)  507;  Wynn  z'.  Tallapoosa 
Bank,  56  Tenn.  (9  Heisk.)  419;  First  County  Bank.  168  Ala.  469,  53  So.  228. 
Nat.  Bank  z:  Greenville  Oil,  etc.,  Co.,  93.  Same — Power  to  bind  bank. — 
24  Tex.  Civ.  App.  645,  60  S.  W.  828.  Bank  z:  Wetzel,  58  W.  Va.  1,  5,  50 
See,     also,     Rosenberg    v.     First     Nat.  S.  W.  886. 


54  (Ic) 


OFFICERS  AND  AGENTS. 


275 


being  wrong  in  such  case,  the  trust  does  not  exist. ^■'''' 

Care  and  Diligence  Required— Duty  to  Observe  By-Laws.— A  bank 
cashier  is  rec|uired  to  exercise  reasonable  skill,  care  and  diligence  in  the 
discharge  of  his  duties,  and  is  personally  liable  to  the  bank  for  losses  re- 
sulting from  his  failure  to  exercise  such  care  in  the  discharge  of  the  duties 
of  his  ofifice  whether  it  be  in  the  matter  of  making  loans  or  transacting  the 
other  duties  of  his  office  ;^4  and  it  does  not  avail  that  the  directors  ordered 
or  authorized  him  so  to  act.  if  they  had  no  authority  to  do  so,  nor  to  do  the 
act  themselves  which  they  authorized  him  to  do,  and  he  knew  or  ought  to 
have  known  that  the  act  done  or  authorized  was  unlawful. ^•'''  He  is  not  re- 
sponsible for  losses  resulting  through  mere  errors  of  judgment.^'-  If  intrusted 
with  the  responsibility  of  making  loans,  he  will  be  liable  to  the  bank  for 
improper  loans,  discounts  or  overdrafts  where  he  fails  to  make  reasonable 
inquiry  into  the  financial  standing  of  those  to  whom  such  loans,  discounts 
or  overdrafts  are  made  or  allowed,  or  if  he  knowingly  or  negligently  fails 
to  take  proper  security ;  but  he  is  not  an  insurer  or  guarantor  of  their  sol- 
vency or  integrity.9'  Nor  is  the  cashier  liable  merely  because  he  did  not 
observe  the  by-laws,  unless  negligent  or  inexcusable  in  not  doing  sc^^  fhe 
directors  can  not,  by  neglecting  to  perform  any  duties,  and  imposing  all  on 
the  cashier,  make  him  an  absolute  insurer  of  the  bank  against  all  loss 
merely  because,  to  carry  on  its  business  successfully,  he  must  ignore  or  fail 
to  observe  the  by-laws,  or  fail  to  confer  with  them.»»  Whatever  the  direct- 
ors may  themselves  do,  they  may  authorize  the  cashier  to  do,  and  if  he  acts 
under  their  lawful  authority,  he  is  not  liable  to  them  or  to  the  bank.^  More- 
over, what  the  directors  may  authorize  in  the  first  instance,  they  may  also 
ratify,  and   stockholders,   directors,   committees  and  officers   must  be   pre- 


93a.  Cashier  as  a  trustee. — Wynn  z: 
Tallapoosa  County  Bank,  168  Ala.  469, 
5.3    So.    228. 

94.  Care  and  diligence  required  of 
cashier. — Wynn  z:  Tallapoosa  County 
Bank.  108  Ala.  469,  53  So.  228;  Com- 
mercial Bank  v.  Ten  Eyck,  48  N.  Y. 
;{0.'j;  Wallace  v.  Lincoln  Sav.  Bank,  89 
Tenn.  6:U),  15  S.  W.  448.  24  Am.  St. 
Rep.  62.-);  Vance  v.  Mottley,  92  Tcnn. 
:'.H).  21    S.   W.   59,3. 

95.  How  far  protected  by  order  of 
directors.— Wynn  f.  Tallapoosa  County 
I'.aiik,   i(;s  .Ala.  469,  .■,:;   So.  228. 

96.  Losses  through  errors  of  judg- 
n^ent. — Wynn  f.  'J'allapoosa  County 
I'ank.  168  .Ala.  469,  53  So.  228;  Com- 
mercial Bank  v.  Ten  Kyck,  48  N.  Y. 
305;  Wallace  r.  Lincoln  Sav.  Bank. 
89  Tenn.  630,  15  S.  W.  448,  24  Am.  St. 
Rep.    625. 

97.  Care  in  making  loans. — Wynn  z'. 
Tallapoosa  County  Bank,  168  Ala.  469, 
■'■.3  So.  228:  Wallace  v.  Lincoln  Sav. 
Rank,    89   Tcnn.    630.    15    S.    W.    448,    24 


)Am.    St.    Rep.    625;    Commercial    Bank 
z:  Ten   Eyck,   48   N.   Y.   305. 

98.  Failure  to  observe  charter  and 
by-laws. — Wynn  7\  Tallapoosa  County 
r.ank.    168   .Ma.   469,   53.   So.  228. 

99.  Same — Not  an  insurer. — Wynn  v. 
Tallapoosa  County  Bank,  168  Ala.  469, 
53    So.    228. 

If  directors  place  on  the  cashier  the 
duty  of  carrying  on  the  bank's  busi- 
ness, and  they  as  a  body,  or  the  com- 
mittees thereof,  fail  to  meet,  or  to 
instruct,  help,  and  supervise  him,  ab- 
sentins,^  themselves  from  the  bank  and 
its  l)usincss,  and  'thus  put  on  him 
tlie  whole  burden,  neither  they  nor  the 
bank  can  hold  him  responsible  for  not 
ronsultinf^  with  them,  as  required  I)y 
the  by-laws,  as  to  discounts  and  loans. 
Wynn  z\  Tallapoosa  County  Bank.  168 
Ala.  469.  53  So.  228;  Second  Nat.  Bank 
7'.    Burt,   93    N.    Y.   233. 

1.  Authorization  and  ratification  by 
directors. — Wynn  ;■.  Tali.iixxisa 
Cmnity    I'.ank,    16S    Ala.    469.   5;'.    S<>.   228. 


276 


BANKS  AND  BANKING. 


§  54  (le) 


sumed  to  have  known  of  and  consented  to  a  cashier's  course  of  business  as 
to  overdrafts,  loans  and  discounts  where  the  same  has  continued  over  a 
course  of  years  without  suspicion  or  complaint,  and  after  allowing  it  for 
that  period  of  time  and  profiting  thereby,  they  must  be  presumed  to  have 
ratified  his  acts.^ 

Duty  of  Director  Acting  as  Cashier. — A  director  appointed  as  acting 
cashier  and  acting  in  the  absence  of  any  regular  cashier  is  held  to  the 
same  duties  and  responsibilities,  and  required  to  perform  whatever  duties 
may  be  imposed  by  law  upon  the  cashier,  as,  for  example,  the  keeping,  or 
causing  to  be  kept,  of  the  list  of  shareholders  and  the  number  of  their 
shares  as  required  by  the  national  banking  act.-'^ 

§  54    (Id)    Wrongful  Acts  from  Which  No  Loss  or  Injury  Results. 

— Bank  officials,  though  negligent  or  guilty  of  wrongful  acts,  incur  no  lia- 
bility where  there  is  no  resulting  loss.^ 

§  54  (le)  Liability  for  Acts  Done  during  Absence,  Sickness, 
etc. — A  teller  of  a  bank  can  not  be  held  liable  for  losses  incurred  during 
his  absence  from  the  bank.-^     The  board  of  directors  has  power  to  grant 


2.  Sam  e. — \\'  y  n  n  z'.  Tallapoosa 
County  Bank,  168  Ala.  469,  53  So.  228. 

3.  Duty  of  director  acting  as  cash- 
ier.— Finn  v.  Brown,  142  U.  S.  56,  35 
L.  Ed.  936,  12  S.  Ct.  136. 

4.  Where  no  loss  results  from 
wrongful  act. — Wynn  z'.  Tallapoosa 
County  Bank,  168  Ala.  469,  53  So.  228; 
Jones  v.  Johnson,  86  Ivy.  530,  9  Ky.  L. 
Rep.  789,  6  S.  W.  582;  Commercial 
Bank  v.  Ten  Eyck,  48  N.  Y.  305;  Wal- 
lace V.  Lincoln  Sav.  Bank,  89  Tenn. 
630.  15  S.  W.  448,  24  Am.  St.  Rep.  625. 

The  directors,  having  removed  a 
cashier  on  account  of  his  overdrafts, 
took  his  notes,  secured  by  an  indorser 
and  mortgage,  in  settlement,  and  to 
reconcile  him,  and  avoid  exposure  and 
consequent  loss,  made  him  director 
with  a  salary.  Held,  a  proper  exer- 
cise of  their  discretion,  and  that,  as  no 
damage  resulted,  the  stockholders  had 
no  cause  of  action  against  them.  Jones 
V.  Johnson,  86  Ky.  530,  9  Ky.  L.  Rep. 
789,   6   S.   W.    582. 

A  cashier  forwarded  certain  bonds, 
pledged  to  his  bank  as  collateral  se- 
curity, to  responsible  brokers,  for  sale, 
drawing  against  them  for  a  portion 
of  the  value  of  the  bonds.  His  draft 
was  accepted  and  paid.  He  negligently 
omitted  to  inquire  after  the  securities, 
or  to  collect  the  balance  realized  from 
their  sale.  The  brokers,  with  knowl- 
edge of  the  interest  of  the  bank,  wrong- 
fully applied  such  balance  upon  a 
claim  of  their  own  against  the  pledgor 
of  the  bonds  to  the  bank.     Held,  that 


as  the  brokers  were  liable  to  the  bank 
for  the  balance,  and  were  able  to  re- 
spond in  damages,  the  bank  had  sus- 
tained no  damage  from  the  cashier's 
negligence,  and  he,  therefore,  was  not 
liable  for  want  of  care.  Commercial 
Bank  v.  Ten  Eyck,  48  N.  Y.  305. 

In  an  action  by  a  shareholder  against 
the  directors  of  a  bank,  to  recover  for 
alleged  losses  due  to  their  inattention 
and  mismanagement,  it  appeared  that. 
l)y  resolution  of  the  directors  on  the 
formation  of  the  bank,  the  entire  man- 
agement was  given  to  its  cashier,  a 
man  of  large  estate  and  rare  financial 
ability;  that  such  cashier,  without 
their  knowledge  or  consent,  borrowed 
enormous  sums  of  the  bank  for  a  firm 
of  which  he  was  a  member;  that  on 
discovery  of  such  fact,  after  several 
years,  he  was  deposed,  and  the  direct- 
ors obtained  security  for  his  indebted- 
ness, which  was  thereafter  reduced 
from  time  to  time  by  payments;  and 
that  an  action  by  the  trustee  of  the 
bank,  in  insolvency,  to  recover  the  bal- 
ance of  $28,000,  in  which  usury  was 
set  up  in  defense,  was  compromised 
by  leave  of  court  on  the  payment  of 
$8,000.  Held,  admitting  the  negligence 
of  the  bank  ofhcers,  that  no  such  loss 
was  shown  as  would  sustain  a  re- 
covery. Wallace  v.  Lincoln  Sav. 
Bank.  89  Tenn.  630.  15  S.  W.  448.  24 
Am.   St.   Rep.   625. 

5.  Liability  for  acts  during  absence 
or  sickness. — Bank  z\  Johnson.  Fed. 
Cas.  No.  919,  3  Cranch  C.  C.  228. 


§  54  (If) 


OFFICERS  AND  AGEXTS. 


277 


leave  of  absence  to  a  director,  for  good  cause  such  as  illness,  which  will 
excuse  him  from  all  duties  for  such  time,'^  and  a  director  of  a  bank 
(national),  who  has  been  granted  leave  of  absence  by  the  board  on  ac- 
count of  illness,  is  not  responsible  for  what  occurs  in  his  absence.' 

§  54  (If)  Duty  with  Respect  to  Statements  of  Bank's  Condi- 
tion.— See,  also,  ante,  "Reports  and  Statements,"  §  16;  post,  "Criminal  Re- 
sponsibility," §  60.  It  is  the  duty  of  directors  to  know  the  condition  of 
their  bank,  and  to  prevent  publication  of  false  statements  of  its  condi- 
tion, and  by  no  private  arrangement  can  they  be  excused  from  giving  proper 
attention  to  such  duties  because  they  are  nonresidents  of  the  town  wherein 
the  bank  is  located.^  Where  the  officers  of  a  bank  have  represented  to  the 
state  official,  who  examined  its  assets  and  condition,  that  certain  mortgages 
held  by  the  bank  were  valid  securities,  good  morals  and  public  policy  will 
not  allow  them  afterward  to  change  their  ground  with  respect  to  the  va- 
lidity of  the  mortgages.'' 

"Knowledge  and  Belief." — In  determining  whether  a  bank  president 
was  negligent  in  making  oath  that  a  report  to  the  superintendent  of  bank- 
ing was  true  to  the  best  of  his  knowledge  and  belief,  tlie  word  "knowledge" 


6.  Board  may  grant  leave  of  absence. 
— Briggs  z:  Spaulding,  141  U.  S.  132. 
35   L.    Ed.   G62,   11    S.   Ct.   924. 

7.  Same. — Briggs  v.  Spaulding,  141 
U.  S.  132,  3.5  L.  Ed.  662,  11  S.  Ct.  924, 
affirming    Movius   z\    Lee,   30    Fed.   298. 

Leave  of  absence  absolves  from  lia- 
bility.— Where  a  director  (who  was 
also  president)  of  a  national  bank  be- 
came seriously  ill,  it  was  within  the 
authority  of  the  board  to  grant  him  a 
leave  of  absence  for  a  year.  It  can 
not  be  contended  that  the  resolution 
referred  to  absence  as  president  and 
not  as  director,  and  that  no  power 
existed  to  allow  leave  of  absence  to 
a  member  of  the  board,  and  that 
the  resolution  should  be  limited  to  ex- 
cusinc?  him  from  attendance  at  the  bank, 
but  not  as  permitting  him  to  leave  the 
city;  or  that  if  he  wished  to  be  alj- 
solved  from  responsibility  while  ab- 
sent in  search  of  health,  he  should 
have  resigned.  He  was  guilty  of  no 
want  of  ordinary  care  in  acting  upon 
the  leave  of  absence,  and  was  not 
to  be  held,  because  he  did  not  resign, 
to  responsibility  >for  what  occurred 
in  his  absence.  Briggs  v.  Spaulding, 
141  U.  S.  132,  3.5  L.  Ed.  662,  11  S.  Ct. 
924. 

In  an  action  by  stockholders  of  a 
bank  against  the  directors  and  officers 
to  recover  for  depreciation  of  stock, 
the  court  found  that  a  certain  loan  was 
made  by  the   general   manager  surrep- 


titiously and  without  the  knowledge  of 
three  of  the  directors,  two  of  whom 
were  at  the  time  out  of  the  state  on 
important  business,  and  one  of  whom 
was  sick,  and  that  the  loan  was  for 
some  time  concealed  by  the  manager. 
When  the  directors  discovered  that 
the  loan  had  been  made,  they  made  all 
reasonable  efforts  to  collect  it.  Held, 
that  these  three  directors  were  guilty 
of  no  neglect  of  duty  making  them 
liable  to  stockholders  for  loss  on  the 
loan.  Warren  v.  Robinson,  25  Utah 
205.  70   Pac.   989. 

8.  Duty  with  respect  to  statements. 
—Houston  v.  Thornton,  122  N.  C.  305, 
29   S.   E.  827,   65  Am.   St.   Rep.   699. 

Where  it  appears  that  the  affairs  of 
a  bank  were  left  in  the  management 
of  officers  thereof,  who,  by  gross  frauds 
extending  through  a  period  of  several 
years,  ruined  the  I)ank,  and  during 
which  time  false  statements  were  pub- 
lished showing  the  Iiank  to  be  in  a 
good  condition,  the  fact  that  the  di- 
rectors resided  away  from  the  town 
where  the  bank  was  located  will  not 
warrant  the  assumption  that  such  di- 
rectors could  not,  in  the  proper  dis- 
charge of  their  duty,  have  ascertained 
that  such  statements  were  false.  Hous- 
ton z'.  Thornton,  122  N.  C.  365,  29  S.  E. 
827,  65  .\m.   St.  Rep.  699. 

9.  Same — Estoppel  with  respect  to 
representations. — Wliitc  <'.  Leslie  (N. 
Y.),  54  How.   Prac.  394. 


278  BANKS  AND  BANKING.  §    54    (Ig) 

must  be  taken  in  its  common,  ordinary  meaning. i*' 

§  54  (Ig)  Duty  with  Respect  to  Handling  and  Safe-Keeping  of 
Funds,  Securities,  etc. — An  officer  of  a  bank,  who  has  unfaithfully  man- 
aged its  funds,  is  liable  to  the  corporation. ^^  Such  an  ofificer  entitled,  as 
against  everybody,  to  the  care  and  control  of  its  assets,  and  who  accepts 
that  service  and  employment,  while  he  may  not  be  an  insurer,  yet,  when 
his  duties  are  fixed  and  determined  for  him,  in  the  accomplishment  of  that 
service,  and  the  manner  prescribed,  and  the  place  fixed,  and  the  where- 
withal provided  by  which  he  may  safely  perform  that  engagement,  is  held 
to  the  exercise  of  such  care  to  efifect  it  as  an  ordinarily  prudent  man,  under 
the  same  or  similar  circumstances,  would  exercise;  and  if  he  fails  in  this, 
and  loss  directly  results,  he  must  make  good  such  loss.^-  Reasonable  care 
upon  the  part  of  officers  having  the  care  of  the  funds  of  the  bank,  in  the 
matter  of  attending  to  the  vault  doors,  is  to  lock  them  and  see  that  they 
are  locked.  Failure  of  the  president  of  a  bank,  in  caring  for  its  funds,  to 
see  that  the  doors  of  the  vault  provided  for  their  safe-keeping  are  locked, 
will  render  him  liable  for  a  loss  resulting  therefrom ;  and  good  faith  on  his 
part,  and  a  reasonable  supposition  that  other  officers  of  the  bank  more 
particularly  intrusted  with  such  duty  will  perform  it.  is  no  defense.^^  But 
while  the  president  is  usually  expected  to  exercise  a  more  constant,  imme- 
diate and  personal  supervision  than  an  ordinary  director,  the  mere  fact 
that  he  permits  the  cashier  to  have  physical  control  of  securities  is  not 
necessarily  proof  of  his  negligence.^'* 

Usage  or  Custom. — When  the  question  is  one  of  diligence,  between  a 
bank  and  its  agent,  it  is  not  competent  for  the  latter  to  protect  himself, 
by  proving  the  custom  of  another  bank,  in  providing  its  agents  with  suit- 
able buildings  and  iron  safes,  for  the  purpose  of  keeping  securely  the  money 

10.  Same— Knowledge  and  belief. —  return  the  security,  notwithstanding 
Davenport  v.  Prentice,  126  App.  Div.  a  prevailing  custom  among  banks  to 
451,   110  N.  Y.   S.   1056.  allow    securities    to    be    taken    by    cus- 

11.  Handling  and  safe  keeping  of  tomers  for  inspection  and  comparison 
funds. — Hinsdale  v.  L  a  r  n  e  d,  16  with  their  books.  Citizens'  Bank  v. 
Mass.  65.  Wiegand    (Pa.),    33    Leg.    Int.    100,    11 

12.  Same.— Kalb    v.    American    Nat.  Pli'la.  326. 

Bank,    21  O.  C.    C.  1,  11    O.  C.    D.    437,  13.    Same— Care    in    locking    vault  — 

affirmed  in  65  O.  St.  566,  63  N.  E.  1129.  Kalb    z:    American    Nat.    Bank.    21    O. 

An    unauthorized    deposit    of    securi-  C.  C.  1.  11  O.  C.  D.  437. 

ties   by   the   managers   of   a   bank   with  To    instruct    the   jury,    in    such    case, 

third  parties,  when  there  is  a  contrary  that  if  the  officers  "acted  in  good  faith 

order  from  the  court,  is  a  gross  breach  about    the    affairs    of    the     bank,    and 

of   trust,   for   which    the    managers    are  used  reasonable  diligence  in  and  about 

liable.      Wilkinson    v.    Dodd,    40    N.    J.  the    closing  and   locking  of   the   door" 

Eq.  123,  3  Atl.  360.  they   would    be    relieved    from    liability 

A  president  of  a  bank,  who  allowed  would    have    been    improper.      Kalb    v. 

a    customer    to    take    a    bill    of    lading  American    Nat.    Bank.    21    O.    C     C     1 

which   had   been    deposited   as    security  11    O.   C.   D.   437,   affirmed   in  63   O.   St.' 

for   an   indebtedness   to   the   bank,   that  566.    63    N.    E.    1129. 

the    customer    might    compare    it    with  _    14.   As   between   president   and   cash- 

his   books,   is   liable   to   the   bank   for   a  ier. — Davenport    r.    Prentice,    126     \nn 

loss   through   the   customer's   failure   to  Div.   451,  110   N.   Y.   S.   1056 


§    54    (2)  OFFICERS  AND  AGENTS.  279 

of  the  principal.  But  it  is  competent  for  an  agent  who  has  been  robbed 
of  the  money  of  his  principal,  to  show  that  banks  and  other  custodians  of 
money,  look  to  their  vaults  and  safes  for  security,  and  not  to  the  outside 
fastenings  of  the  building  in  which  it  is  kept.^-"" 

Effect  of  Resolution  Exonerating  Officer. — A  resolution  passed  by 
the  board  of  directors  of  a  banking  corporation  exonerating  an  officer  of 
the  bank  from  any  liability  for  the  loss  of  money  which  was  stolen  or 
which  disappeared  from  the  bank,  does  not  amount  to  a  relinquishment  of 
the  claim  or  estop  the  corporation  from  subsequently  bringing  suit  to  re- 
cover the  money  on  the  ground  that  it  was  lost  through  the  negligence  of 
the  officials.^''' 

Rights  of  Officers  upon  Recovery  of  Lost  Securities. — Officers  who 
have  been  held  liable  for  such  losses,  and  compelled  to  make  the  same 
good  to  the  bank,  are  entitled,  upon  the  recovery  and  return  of  the  lost 
securities  to  the  bank,  to  be  subrogated  to  the  right  of  the  bank  in  such 
securities  or  the  proceeds  thereof. i" 

§  54  (2)  Misappropriation  of  Funds. — In  General. — Directors 
and  officers  who  "fraudulently  abuse  their  trust  and  misapply  the  funds  of 
the  corporation  are  personally  liable,  as  trustees,  to  make  good  that  loss.'^ 

Ultra  Vires  and  Unlawful  Investments. — Directors  are  personally 
liable  to  the  bank  for  losses  sustained  through  the  investment  of  the  funds 
of  the  bank  in  ultra  vires  and  forbidden  enterprises.^*^ 

Unlawful  Disposition  of  Stock. — Directors  of  a  banking  corporation 
accepting  securities  in  payment  of  its  stock  not  authorized  by  its  charter, 
are  personally  liable  for  the  whole  amount  so  accepted  in  breach  of  their 
trust.  While  those  suffering  such  securities,  however,  inferior  to  those 
required  by  the  charter,  to  be  lost  by  the  statute  of  limitations  would,  a 

15.  Usage  or  custom.— Wright  f.  18.  Misappropriation  of  funds.— 
Central  R,.  etc..  Co..  16  Ga.  .IS.                        Hersey    v.    Veazie,    24    Me.    9,    41    Am. 

16.  Resolution  exonerating  officer.-  ?^^-  !?4;  Smith  r.  Poor.  40  Me.  415  63 
Kalb  V.  American  Xat.  Rank,  21  O.  C.  •^,";-  ^ec.  6<2;  Robinson  r.  SmUh  (N. 
C.  1.  11  O.  C.  D.  437.  affirmed  in  6.5  l'^'  ^  ^^'^^  ^~^'J\^"\rP%''J^^'' 
O.  St.  .566.  63  N.  E.  1129.  Cunnmgham  r.   Pitts    (N.   Y.).   5   Paige 

17.  Rights  upon  recovery  of  lost  se-  ig,  uitra  vires  and  unlawful  invest- 
curities.— Royce  v.  Bank,  21  Okl.  4,S4,  ments.— Stone  r.  Rottman.  1S.5  Mo.  .-,.-,2 
'■>'>   J''ic.   640.                                                                    S2    S.    W.    76. 

Where  a  territorial  bank  commis-  A  .statute  declared  that  a  hank  might 
sioner  required  the  officers  of  a  hank  sell  all  kind.s  of  property  coming  into 
to  repair  its  a.ssets  by  a  deposit  of  its  hands  as  collateral  security  for 
$2,000  on  the  erroneous  assumption  loans,  but  forbade  an  investment  of 
that  certain  notes  were  lost,  ancl  the  funds  in  trade  or  commerce.  The  bank, 
officers  made  such  deposit,  on  the  dis-  on  a  sale  of  the  stock  of  a  corpo- 
covery  and  return  to  the  bank  of  the  ration  which  it  held  as  security,  pur- 
said  notes,  the  officers  making  the  de-  chased  the  stock,  and  through  its  offi- 
posit  were  entitled  to  be  subrogated  cers  ran  the  company,  which  traded  in 
to  the  riglits  of  the  bank  in  the  notes  coal,  for  four  years  at  a  continual  loss, 
or  the  proceeds  thereof;  and  it  was  Held,  that  the  directors  of  the  bank 
error  to  sustain  a  demurrer  to  the  an-  were  liable  for  the  loss  in  a  suit  by 
swer  setting  up  such  fact.  Royce  v.  the  receiver.  Stone  r'.  Rotlinau.  1.S3 
Bank,    21    Okl.    484.    06    Pac.    640.  Mo.  552.  82   S.    W.   76. 


280 


BANKS    AND    BANKING.  §    54    (2) 


fortiori,  be  subject  to  the  same  liability.  Trustees,  to  whom  the  manage- 
ment of  the  bank  had  been  confided,  would  be  similarly  liable  for  losses 
arising  through  their  laches,  especially  in  a  case  where  the  assets  had  been 
in  their  possession  for  years,  and  where  they  had  been  admonished  to  dili- 
gence and  good  faith  by  suits  of  creditors,  to  whom  they  had  refused  in- 
formation as  to  the  affairs  of  the  bank.^" 

Failure  to  Account  for  Funds.— Officers  and  agents  are  bound  to  ac- 
count to  the  bank  for  moneys  and  securities  belonging  to  it  and  shown  to 
have  come  into  their  hands.^i  The  liability  of  a  cashier  for  loss  of  money, 
based  on  failure  to  account  for  money  received  as  shown  by  the  books,  is 
not  affected  by  the  fact  that  on  other  occasions  there  was  more  cash  in 
the  bank  than  the  books  called  for,  when  he  does  not  claim  that  he  paid 
it  in."  The  mere  fact,  however,  that  notes  taken  by  the  cashier  are  en- 
tered on  the  books  as  bills  receivable,  is  not  sufficient  to  render  him  liable 
for  not  accounting  for  the  proceeds,  where  there  is  no  proof  that  they  were 
ever  paid.^^  And  even  the  appropriation  of  bills  receivable  by  directors  as 
indemnity  for  notes  issued  by  them  for  the  accommodation  of  the  bank 
will  not  render  them  liable  for  either  fraud  or  negligence,  where  done  in 
good  faith  and  in  ignorance  of  the  impending  insolvency  of  the  bank.^^ 
And  although  the  receipt  by  the  director  of  an  insolvent  bank  of  negotiable 
papers  against  third  persons  in  payment  of  a  debt  due  and  payable  from 
the  bank  to  such  director  may  be  a  breach  of  his  duty  to  the  bank,  such 
circumstance  constitutes  no  defense  available  to  the  person  liable  on  the 
papers  so  long  as  the  stockholders  make  no  complaint  of  it.^^  A  bank 
agent  to  collect  money  is  bound  to  respond  instanter.  Such  agent  collecting 
money  in  distinct  cases  against  the  same  individual,  although  he  gives  a 
single  receipt  for  moneys  collected,  is  liable  to  an  action  by  the  bank  in 
each  case.     The  consolidation  of  the  whole  amount  in  his  receipt  to  the 

20.    Unlawful   disposition   of   stock. —  ing  the  war;  and  B.  &  Co.  removed  to 

Moses    v.    Ocoee    Bank,    69    Tenn.    (1  the    same    city.      In   January,    1863,    M. 

Lea)  398.  collected  of  the  treasurer  of  the   state 

A      stockholder      released      a      valid  the    interest    on    state    bonds    held    by 

claim    for    services    against    the    bank,  the  bank,  in  Confederate  money.  Held, 

in    return    for    notes    given    by    him    in  that    after    the    w^ar    the    O.    D.    Bank 

payment  for  the  stock.     Held,  that  the  could  maintain  an  action  of  assumpsit 

other    stockholders    had    no    cause    of  against  M.  for  the  money  so  collected 

action   against   the   directors.     Jones  v.  by  him.     McVeigh  r.  Bank,  67  Va.   (26 

Johnson,    86    Ky.    530,    9    Ky.    L.    Rep.  Gratt.)   188. 
789,  6  S.  W.  582.  22.     Same — Surplus     cash     at     other 

21     Failure    to   account    for   funds. —  times. — Rio    State    Bank  v.   Amondson, 

Wynn  v.  Tallapoosa  County  Bank,  168  141    Wis.   82,   123   N.  W.   634. 
Ala.  469,  53  So.  228;   Merchants'   Bank  23.  Accounting  for  bills  receivable — 

V.     Rawls,    21    Ga.    289;     McVeigh    c'.  Proof    of    payment.— Wynn    z:    Talla- 

Bank,    67    Va.     (26    Gratt.)     188;     Rio  poosa    County    Bank,    168   lAla.    469,    53 

State'  Bank    v.    Amondson,    141    Wis.  So.  228. 
82,   123    N.   W.   634.  24.   Appropriation   of  bills  receivable 

M.  was  president  of  the  O.  D.  Bank,  as    indemnity    against    debts    assumed 

located   in   the   city   of   Alexandria,   and  for     bank. — In      re      Warner's     Appeal 

was  a  member  of  the  firm  of  B.  &  Co.  (Pa.)    7   Atl.   216,   1   Sad.   310. 
of  that   city.     In   May,   1861,    M.   went  25.   Same — No   defense   to   action   on. 

to   Richmond,  where  he   remained   dur-  bills. — Bruce   z:    Hawley,   31   Vt.   643. 


§  54  (2) 


OFFICERS    AND   AGENTS. 


281 


debtor,  does  not  constitute  a  contract  with  the  bank.  The  manner  of  his 
receipting  does  not  change  the  nature  of  his  liability. ^*' 

Applying  Funds  to  Private  Use  and  Benefit. — There  is  no  limit  to 
the  various  ways  in  which  funds  may  be  misappropriated,  and  each  case 
must  stand  upon  its  own  facts  to  determine  whether  or  not  the  funds  of 
the  bank  have  been  unlawfully  applied.-''  Assets  of  the  bank  coming  into 
the  hands  of  a  director,  even  after  the  dissolution  of  the  bank,  and  at  a 
time  when  he  is  the  sole  surviving  director,  are  still  the  property  of  the 
bank,  and  he  holds  them  as  a  trustee  for  the  bank  and  has  no  right  to 
apply  them  in  payment  of  his  individual  liabilities.-^ 

Loans  to  Officers  of  Bank. — In  the  absence  of  a  statute  forbidding 
loans  to  officers  of  the  bank,  there  is  no  moral  or  legal  turpitude  involved 
in  a  bona  fide  loan  obtained  from  the  bank  with  the  knowledge  and  con- 
sent of  the  directors.-'' 


26.  Accounting  for  moneys  collected 
— Manner  of  receipting. — Merchants' 
Bank  :■.  Rawls.  21  Ga.  2Si). 

27.  Misapplication  of  funds — Illus- 
trations.— The  president  of  a  bank, 
having  placed  the  money  of  a  de- 
positor to  his  own  credit,  instead 
of  the  depositor's,  and  then  having  al- 
lowed the  depositor  to  withdraw,  be- 
comes debtor  to  the  bank.  In  re 
Boker    (Pa.),   7    Phila.   479. 

It  is  an  imlawful  taking  and  misap- 
propriation, amounting  to  a  conversion 
of  its  funds  by  the  vice  president  of 
a  bank,  whose  charter  prohibits  its  offi- 
cers from  borrowing  its  funds,  either 
directly  or  indirectly,  where  he  takes 
checks  upon  the  bank  signed  by  its 
secretary  and  president,  and  uses  them 
in  individual  stock  speculations,  and 
such  checks  are  paid  by  other  checks 
upon  banks  where  his  bank  keeps  its 
funds  on  deposit.  Knapp  v.  Roche,  37 
N.  Y.  Super.  Ct.  395,  judgment  re- 
versed in  62  N.  Y.  614. 

A  cashier's  brother  was  his  creditor, 
and  agreed  that  the  cashier  should 
deposit  to  the  brother's  credit  the 
amount  of  the  indebtedness.  The 
brother  gave  the  cashier  receipted  bills 
of  the  indebtedness,  and  drew  on  his 
own  account.  The  cashier  paid  the 
drafts  out  of  the  funds  of  the  bank, 
but  did  not  credit  the  brother's  ac- 
count, or  deposit  to  that  account,  the 
amount  of  indebtedness  receipted  for. 
Held  to  constitute  an  apprripriation  of 
the  bank's  funds  to  the  cashier's  own 
use,  for  which  his  estate  was  bound. 
First  Nat.  Bank  v.  Briggs,  70  Vt.  599, 
41    Atl.   586. 

Where  money  was  taken  from  a 
bank    by    the    cashier,    witli    the    assent 


of  the  president,  who  was  the  financial 
officer  of  the  bank,  for  the  purpose  of 
fulfilling  an  engagement  by  them,  and 
purporting  to  bind  the  bank,  to  buy 
state  stocks,  to  carry  on  a  private  un- 
dertaking of  their  own,  it  was  held 
that  such  assent  of  the  president  did 
not  protect  the  cashier  from  his  lia- 
bility to  the  bank  to  repay  the  amount. 
Austin  f.  Daniels   (N.  Y.),  4  Dcnio  290. 

28.  Same — Assets  received  after  dis- 
solution of  bank. — New  York  Life  Ins. 
Co.  V.  Kansas  City  Bank,  121  Mo.  App. 
479.   97   S.   W.   195. 

Where  a  life  policy  was  assigned  to 
a  bank  as  security  for  a  debt,  and, 
upon  the  bank's  going  out  of  business, 
passed  to  a  director  and  trustee,  who 
became  the  surviving  director  and 
trustee,  an  assignment  of  such  policy 
by  him  to  a  third  person  in  payment 
of  an  indebtedness  owing  by  him  to 
such  third  person  was  invalid,  since  he 
held  the  policy  as  a  trustee  for  the 
shareholders  of  the  bank  and  had  no 
authority  to  pledge  or  assign  the  as- 
sets of  the  bank.  Upon  the  death  of 
the  insured,  the  director  was  entitled 
to  the  amount  of  the  policy  as  trustee 
for  the  sharehf)lders  of  the  bank.  New 
York  Life  Ins.  Co.  7'.  Kansas  City 
Bank,  131    Mn.   App.  479.  97   S.   W.   195. 

29.  Same — Loans  obtained  by  offi- 
cers.— Mcllroy  Banking  Co.  v.  Dick- 
son, 66  Ark.   337.   50   S.   W.   868. 

A  bank  cashier  obtaining  money  to 
build  a  residence  by  checks  drawn  on 
the  bank  by  his  wife,  with  the  knowl- 
edge of  the  other  oflicials,  is  not  guilty 
of  a  misuse  of  trust  funds,  but  simply 
obtains  a  loan  from  the  bank  in  the 
usual  way.  Mcllroy  Banking  Co.  v. 
Dickson,  66  .\rk.  327,  50   S.   W.   868. 


282  BANKS    AND   BANKING.  §    54    (2) 

Use  Made  of  Misappropriated  Funds  Immaterial. — Where  money 
has  been  actually  misappropriated,  it  is  immaterial  to  what  use  it  has  been 
applied,  whether  the  defaulting  official  spent  it  or  lost  it  in  unsuccessful 
speculations  or  loaned  it  to  his  friends  to  enable  them  to  prop  up  insolvent 
enterprises;  and  allegations  of  that  character  are  subject  to  be  stricken 
from  the  complaint. ^*^' 

Recovery — Following  Funds,  etc. — Where  the  sole  surviving  director 
of  a  bank  which  has  ceased  to  be  a  going  concern  collects  an  insurance 
policy  belonging  to  the  bank,  he  holds  the  proceeds  so  obtained  as  a  trustee 
lor  the  bank,  and  they  are  entitled  to  recover  them  from  persons  who  have 
received  them  with  notice  of  the  bank's  rights.^^  Where  the  officers  of  the 
bank  have  received  stock  of  a  corporation  in  payment  for  funds  and  prop- 
erty fraudulently  obtained  from  the  bank,  and  invested  in  the  corporate 
property,  the  bank  is  not  compelled  to  follow  the  stock  in  the  hands  of  the 
officers  (f  the  bank  so  receiving  it,  but  may,  at  its  option,  follow  the  prop- 
erty so  purchased  O';  created  with  such  fraudulently  u'isappropriated  bank 
funds,  with  the  profits  thereof,  or  their  proper  proportion,  where  substan- 
tially all  the  property  of  the  defendant  corporation  has  been  acquired  or 
created  with  the  misappropriated  bank  funds,  and  the  profits  thereof,  under 
circumstances  showing  that  the  defendant  received  such  property  with 
notice  of  all  the  facts,  and  where  all  the  stock  of  the  defendant  is  held  by 
the  bank  officers  or  by  parties  having  notice  of  all  the  facts.^^  It  has  been 
held,  however,  that  where  an  officer  of  a  bank  fraudulently  abstracted  the 
funds  and  invested  them  in  a  mortgage  in  his  own  name  and  on  his  own 
■account,  that  the  court  could  not  declare  him  a  trustee,  and  indemnify  the 
bank  out  of  the  mortgage. '^^ 

Defenses. — It  is  no  defense  to  an  action  brought  by  a  bank  against  its 
late  cashier  for  a  wrongful  appropriation  of  moneys,  that  at  the  time  of 
such  appropriation  he  was  the  owner  of  four-fifths  of  the  stock  of  the  bank, 
and  has  since  that  time  sold  all  of  said  stock  to  other  parties,  who  are  now 
the  officers  and  managing  authority  of  the  bank.^^  Nor  can  a  ratification 
of  such  wrongful  use  of  the  bank's  funds  be  established  by  evidence  show- 
ing that  the  various  transactions  were  entered  on  the  books  of  the  bank 
where  it  is  not  shown  that  the  directors  had  actual  knowledge  thereof. ^^ 

30.  Same — Use  made  of  misappro-  owned  by  defendant. — First  Nat.  Bank 
priated  funds  immaterial. — First  Nat.  r.  Drake,  29  Kan.  ."^11,  44  Am.  Rep.  646. 
Bank  z:  Gaddis,  31  Wash.  596.  72  Pac.  35.  Same— That  transactions  were 
460.  entered  in  books. — First   Nat.    Bank  z'. 

31.  Recovery — Following   funds,    etc.  Drake.  29  Kan.  311,  44  .A.m.  Rep.  646. 
— New    York   Life    Ins.    Co.   z:    Kansas  The  cashier  of  a  bank,  having  agreed 
City  Bank,  121  Mo.  App.  479,  97  S.  W.  to    discharge    his    duties    without    com- 
195.                            ^  pensation,    appropriated    funds    of    the 

32.  Same. — Farmers',  etc..  Bank  r.  bank  for  compensation.  Knowing  that 
Kiml-.all  Milling  Co.,  1  S.  Dak.  388,  47  the  rules  of  the  bank  forbade  interest 
N.   W.    402.  on    demand    certificates,    he    issued    de- 

33.  Same. — Pascoag  Bank  v.  Hunt  mand  certificates  on  interest  to  him- 
(N.  Y.).  3  Edw.  Ch.  583.  self,    and    took    funds    of    the    bank    to 

34.  Defenses— Majority      of      stock       pay  such  interest.     He  also  sold  bonds 


§  54   (3) 


OFFICICRS   AND   AGENTS. 


283 


Amount  of  Recovery. — Where  a  cashier  appUes  to  his  own  use  the 
notes  and  other  securities  of  the  hank,  he  is  liable  for  the  full  nominal 
amount,  and  can  not  show  that  they  were  depreciated.^*'  But  where  an 
officer  of  the  bank  collected  interest  owing  the  bank  in  Confederate  cur- 
rency and  used  the  moneys  so  collected  in  his  private  business,  it  was  held 
that  he  was  liable  to  account  to  the  bank  for  the  value  of  the  currency  so 
used  as  of  the  time  at  which  it  was  appropriated.^' 

Same — Interest. — When  the  directors  and  officers  of  a  bank  have  mis- 
appropriated its  funds,  they  are  liable  for  interest  on  the  amount  from  the 
date  of  the  misappropriation,  as  damages ;  and  no  statute  is  necessary  to 
authorize  the  allowance  of  such  interest  by  a  court  of  equity. ^^"^ 

Liability  of  Third  Person  for  Funds  Misapplied  by  Officer. — Third 
persons  colluding  with  a  bank  officer  in  the  misappropriation  of  the  bank's 
funds,  or  who  accept  such  funds  from  the  guilty  official  knowing  that  they 
are  being  misapplied,  is  equally  guilty  and  equally  liable  with  the  dishonest 
official  to  make  good  the  loss  to  the  bank.'^'^ 

§  54  (3)  Duties  and  Liabilities  with  Respect  to  Loans,  Dis- 
counts,  Overdrafts,   etc. — As  to  the  duties  of  directors,  see  also,  ante, 


belonging  to  the  bank  to  himself  for 
less  than  their  value.  These  trans- 
actions were  entered  on  the  bank 
books,  but  the  directors  had  no  actual 
knowledge  thereof.  Held,  that  a  rati- 
fication by  the  bank  could  not  be  im- 
plied. First  Nat.  Bank  v.  Drake,  29 
Kan.   :ni,   44   Am.    Rep.   646. 

36.  Amount   of   recovery. — Pendleton 
:•.    Bank    (Ky.).    1    T.    B.    Mon.    171. 

M.  was  president  of  a  bank  located 
in  Alexandria,  and  also  a  member  of 
a  firm  of  that  place.  In  May,  1861, 
he  went  to  Richmond,  where  he  re- 
mained during  the  war.  The  firm 
also  moved  to  the  same  city.  In  1863 
he  collected  of  the  Treasurer  of  the 
state  the  interest  on  state  bonds  held 
by  the  bank  in  Confederate  money. 
He  invested  this  money,  with  money 
of  the  firm,  in  tobacco,  intending  it 
to  be  at  his  own  risk,  and  holding  him- 
self bound  to  pay  the  Ijank  as  on  an 
investment,  with  interest.  The  to- 
bacco was  destroyed  during  the  war. 
Held,  that  M.  was  responsible  to  the 
bank  for  the  value  of  the  Confederate 
notes  at  the  timo  they  were  appro- 
priated by  liini  in  tlie  purchase  of  the 
tobacco.  McVeigh  z:  Bank,  67  Va.  (26 
Oratt.)    188. 

37.  Same — Conversion  of  confederate 
currency. — McVcigli  7'.  F.ank,  67  Va. 
f;i6    riratt.)    188. 

38.  Same — Interest. — Cooper  v.  Hill, 
r!6  C.  C.  A.  102,  <.)\  \'v<\.  r,H'.>. 

39.  Liability   of  third  party   for  mis- 


applied funds. — Kissam  v.  .\nderson, 
14.5  U.  S.  435,  36  L.  Ed.  765,  12  S.  Ct. 
960. 

The  managing  officer  of  a  bank 
who  had  practically  the  entire  control 
of  its  affairs,  being  engaged  in  stock 
speculations,  on  his  own  account,  used 
the  funds  of  the  bank  on  deposit  with 
a  correspondent  bank,  for  that  pur^ 
pose,  by  drawing  thereon  in  favor  of 
his  brokers  for  large  sums.  In  a  suit 
to  recover  from  such  I)rokers  funds 
of  the  bank  so  received  by  them,  it 
was  held  that  though  the  circum- 
stances were  such  as  to  affect  them 
with  notice  that  such  funds  were  being 
improperly  used  by  the  officer  for  his 
own  purpose  and  make  them  liable  to 
refund  same,  still,  if  it  further  approved 
that  the  brokers  had  from  time  to 
time  deposited  with  the  corre- 
spondent bank  varimis  sums  to  the 
credit  of  the  defrauded  bank,  thus  re- 
ducing the  net  amount  of  its  funds 
received  by  them  and  not  so  returned, 
they  were  entitled  to  have  it  su!)- 
mitted  to  the  jury  whether  the  offi- 
cers of  the  bank,  other  tliaii  tiie 
defaulting  officer,  in  the  exercise  of 
reasonable  ami  proper  care  could  have 
ascertained  thai  lliese  moneys  had 
been  deposited  to  the  account  of  tlioir 
bank,  and  would  or  would  not  have 
accepted  such  deposits  as  the  return  of 
I  lie  money  to  tlic  Iiank.  Kissam  r. 
.Anderson,  145  U.  S.  435,  36  L.  Kd.  765. 
12   S.   Ct.   960. 


284 


BANKS   AND   BANKING. 


§  54  (3) 


•Towers,  Duties  and  Liabilities  of  Directors,"  §  54  (la).  As  to  the  duties 
of  the  president,  see  also,  ante,  "President's  Powers,  Duties  and  Liabilities," 
§  54  (lb).  As  to  the  duties  of  the  cashier,  see  also,  ante,  "Cashier's  Pow- 
ers, Duties  and  Liabilities,"  §  54  (Ic). 

Loans  to  Officers  of  the  Bank.— There  is  no  question  as  to  the  in- 
dividual liability  of  directors  for  losses  resulting  from  loans  made  to  offi- 
cers of  the  bank  in  violation  of  a  statute  forbidding  such  loans  to  be 
made;  indeed,  the  statute  itself  usually  prescribes  that  individual  liability 
shall  follow  the  making  of  loans  in  contravention  of  its  provisions.^'^ 
The  question  most  frequently  arising  is  what  constitutes  a  violation  of  the 
statute.  Where  the  charter  provided  that  no  director  should  be  indebted 
to  the  bank,  except  as  therein  provided,  it  was  held  that  a  director  who 
was  at  the  same  time  president  of  a  company  which  had  borrowed  money 
from  the  bank,  and  who  gave  to  the  bank  his  draft  therefor,  drawn  upon 
the  treasurer  of  the  company,  incurred  no  liability  to  the  bank  by  reason  of 
such  draft,  and  that  his  estate  could  not  be  held  liable  thereon.-^i 

Loans  to  Insolvent  or  Irresponsible  Persons— Inadequate  Secu- 
rity.— It  is  the  duty  of  all  officers  charged  with  the  responsibility  of  lending 
the  bank's  funds,  to  inquire  with  reasonable  care  and  diligence  into  the 
solvency  and  responsibility  of  persons  applying  for  loans  and  to  see  that 
•adequate  security  is  taken  when  the  loan  is  made.-*-  If  the  bank  suffers 
loss  through  the  negligence  of  an  officer  thereof  in  loaning  money  to  an 


40.  Loans  to   officers   of  the  bank. — 

State  V.  Seneca  County  Bank,  5  O.  St. 
171;  Conant,  etc.,  Co.  v.  Reed,  1  O.  St. 
298. 

Under  the  "Act  to  incorporate  the 
State  Bank  of  Ohio  and  other  banking 
companies,"  each  director  of  a  bank 
incorporated  thereunder  who  know- 
ingly participated  in  or  assented  to  a 
loan  to  another  director  before  the 
adoption  by  the  stockholders  of  by- 
laws to  regulate  the  liabilities  of  di- 
rectors to  the  bank,  was  individually 
liable  for  all  damages  which  the  com- 
pany or  its  shareholders  sustained  in 
consequence  of  such  violation  of  the 
statute.  State  v.  Seneca  County  Bank, 
5  O.  St.  171;  Conant,  etc.,  Co.  v.  Reed, 
1  O.  St.  298;  Arnold  v.  Reid,  1  O.  Dec. 
347. 

41.  Same — What  constitutes  viola- 
tion of  the  statute. — Penn  v.  Bornman, 
102    111.    .52.3. 

42.  Same — Loans  to  insolvent  and 
irresponsible  person  s. — Commercial 
Bank  r.  Chatfield,  121  Mich.  641,  80  N. 
W.  712;  Stone  v.  Rottman,  183  Mo. 
552,   82   S.   W.   76. 

In  a  suit  by  the  receiver  of  a  bank, 
the  directors  were  liable  for  sums 
loaned    borrowers    who    were    at    the 


time  insolvent,  to  the  knowledge  of 
the  directors.  Stone  v.  Rottman,  183 
Mo.  552,  82   S.   W.  76. 

By-laws  requiring  two  indorsers. — 
A  bank  cashier  is  not  chargeable  with 
neglect  of  duty  in  discounting  paper 
not  bearing  the  names  of  two  firms, 
as  required  by  a  by-law  of  the  bank, 
where  the  names  of  the  firms  were 
different,  but  the  members  of  both 
were  the  same.  Second  Nat.  Bank  v. 
Burt.  93   N.  Y.  233. 

Loans  to  infant. — The  president  of  a 
bank,  who  requests  the  cashier  to 
make  advances  to  a  niinor,  verbally 
promising  that  he  will  see  them  re- 
paid, is  liable  to  the  bank  for  any  loss 
sustained  by  reason  of  said  loans,  as 
having  been  guilty  of  a  breach  of  trust. 
Brown  :>.  Farmers',  etc.,  Nat.  Bank,  88 
Tex.  265.  31  S.  W.  285,  33  L.  R.  A.  359, 
reversing  31  S.  W.  216. 

Where  the  president  of  a  national 
bank  advises  and  procures  a  loan  to 
be  made  by  his  bank  to  a  minor,  pay- 
ment of  which  can  not  be  enforced, 
he  is  liable  for  the  amount  of  the  loan, 
with  lawful  interest,  and  not  for  con- 
ventional interest  or  stipulated  at- 
tornev's  fees.  Brown  7'.  Farmers',  etc., 
Nat.  Bank,  88  Tex.  265,  31  S.  W.  285. 
33  L.  R.  A.  359,  reversing  31  S.  W.  216. 


§    54    (3)  OFFICERS  AND  AGENTS.  285 

irresponsible  person  on  inadequate  security,  the  mere  fact  that  in  doing  so 
he  acted  in  good  faith  will  not  relieve  him  from  liability  to  the  bank.*^ 
It  has  been  held,  however,  where  the  president  was  a  mere  figure  head  and 
the  directors  received  no  salary,  that  in  the  absence  of  fraud  they  were  not 
liable  to  the  stockholders  for  discounting  certain  notes  believing  the  makers 
and  indorsers  to  be  solvent  when  they  were  in  fact  worthless. ^^  A  cashier 
of  a  bank  authorized  to  loan  the  money  of  the  bank  without  security  is 
liable  for  losses  resulting  from  loans  without  security  not  entered  on  the 
books  of  the  bank,  and  treated  in  his  reports  as  cash  oh  hand.^^ 

Acknowledgment  Assuming  Responsibility. — Where  the  directors  of 
a  bank,  after  discounting  a  note,  acknowledged  in  a  writing,  signed  and 
sealed  by  them,  that  they  had  transcended  their  duty  in  discounting  said 
note,  and  that  they  considered  themselves  individually  bound  for  their 
equal  proportions  of  said  debt,  should  it,  or  any  portion,  under  any  cir- 
cumstances, be  lost  to  the  bank,  and  delivered  said  instrument  to  the  offi- 
cers of  the  bank,  it  was  held,  that  said  instrument  was  neither  a  suretyship 
nor  a  guaranty,  but  an  original  contract,  upon  which  said  parties  were  liable 
to  the  bank  in  the  event  of  loss  by  reason  of  said  discount;  and  that  a  re- 
lease by  the  bank  of  one  of  the  endorsers  of  said  note,  who  was  insolvent 
and  largely  indebted  to  the  bank  on  his  own  account,  of  all  indebtedness, 
upon  his  paying  a  certain  sum  of  money,  did  not  discharge  said  parties 
from  their  liability  under  said  instrument."**^ 

Excessive  Loans. — \\'hile  the  lending  of  an  amount  exceeding  the  en- 
tire capital  stock  of  a  bank  to  a  single  person  would  seem  to  be  unwise 
and  hazardous,  yet,  where  such  a  loan  was  made  to  one  of  the  directors, 
who  was  the  chief  merchant  of  the  town,  largely  while  his  business  and 
financial  standing  were  good,  and  afterwards  to  preserve  his  credit,  and 
with  an  entirely  honest  purpose  on  the  part  of  the  bank  officials  to  enable 
him  to  continue  business,  in  the  hope  that  he  would  finally  be  able  to  pay, 
it  was  held,  that  this  was  not  sufficient,  at  common  law,  in  the  absence  of 
any  trace  of  fraud,  to  render  the  directors  of  the  bank  personally  liable  to 
the  stockholders  (depositors  and  creditors  having  been  fully  jiaid )  for 
resulting  losses."*" 

43.  Good  faith  in  loaning  to  irre-  Aiken  County,  etc.,  Sav.  Bank.  75- 
sponsible     person. — Coniniercial     Bank       Fed.   781. 

z:   Clialticlcl,    1:31    Mich.   (;41,   <S()    N.    W.  Tlie  making  of  a  loan  (if  bank  funds 

712.  l)y   its   president   in   an  amount   e.xceed- 

44.  Same — Where  president  and  di-  inj^^  one-flftii  of  its  combined  surplus 
rectors  receive  no  salary. — Jones  v.  and  paid-up  capital,  withoul  taking 
Johnsr)!!,  H(\  Ky.  o.'iO,  9  Ky.  L.  Rep.  780.  collateral  of  a  vahie  lo  per  cent 
C>  S.  W.   .'■)S;>.  greater    than     the     sum    loaned,    while 

45.  Loans  without  security  entered  Laws  ISO.'},  c.  Oni!,  proliibitin.u;  a  I)ank 
as  cash. — San  Jcjaquin  Valley  Bank  t'.  from  making  sucli  loans,  was  in  force. 
Bours,  (>;■)  Cal.  247,  :i   Pac.  804.  was  illegal,   and   the  l)ank  may   recover 

46.  Acknowledgment  assuming  re-  the  amount  lost  by  such  a  loan  from 
sponsibility.  -  I'.ank  :■.  I'.;irksdalc.  :\7  the  president.  ScventeeiUh  Ward  Bank 
Tcnii.    (.-,   Siucd)   ::;.  r.    .Smith.    :>!    App.    Div.    S.'i!),    (14    N.    Y. 

47.  Excessive    loans. — Wlieeler     v.       S.  883. 


286 


BANKS  AND  BANKING. 


§  54  (3) 


Overdrafts. — The  question  of  the  liabiHty  of  bank  officials  for  paying 
out,  or  permitting  the  cashier  to  pay  out,  the  bank's  funds  upon  the  over- 
drafts of  depositors,  is  one  of  reasonable  care  and  good  faith.^^  Bank 
directors,  even  though  negligent  in  their  supervision  and  control  of  the 
corporate  affairs,  are  not  liable  for  overchecks  permitted  by  the  cashier 
to  a  reasonable  extent  in  favor  of  responsible  customers,  since  the  payment 
of  the  overdrafts  of  responsible  customers  in  a  reasonable  amount  is  some- 
thing which  they  might  properly  have  authorized  in  the  first  instance,  and 
the  loss  resulting  therefrom  can  not  be  said  to  have  resulted  from  their 
negligence  even  though  it  be  shown  to  have  existed. ^^^  Indeed,  it  has  been 
held,  that  the  directors  are  not  responsible  in  any  case  for  overchecks  per- 
mitted to  customers  by  the  cashier  without  their  authority  or  knowledge  ■,^^ 
and  that  the  fact  that  such  overchecks  appeared  upon  the  books  of  the 
bank  was  not  sufficient  to  affect  the  directors  with  knowledge  thereof  in  a 
suit  between  the  directors  and  the  bank.^i  \\'here  the  president  of  a  bank 
permits  or  directs  the  payment  of  overdrafts  in  favor  of  his  friends  or 
members  of  his  family  known  to  be  irresponsible  or  insolvent,  he  can  not 
be  said  to  have  acted  in  good  faith,  and  he  is  personally  responsible  for 
losses  resulting  from  the  payment  of  such  overdrafts;  especially  where  the 
funds  were  withdrawn  for  the  purpose  of  being  used  in  enterprises  in 
which  he  was  interested.^- 


48.  Overdrafts. — Oakland  Bank  v. 
Wilcox,  60  Cal.  126;  Western  Bank  v. 
Coldewey,  120  Ky.  776,  26  Ky.  L.  Rep. 
1247,  83  S.  W.  629;  First  Nat.  Bank  v. 
Reed,  36  Mich.  263;  Cope  v.  Westbay, 
188  Mo.  638,  87  S.  W.  504;  Wallace  v. 
Lincoln  Sav.  Bank,  89  Tenn.  630,  15 
S.  W.  448,  24  Am.   St.    Rep.   625. 

The  officers  of  a  bank  permitted  S., 
who  was  a  reliable  man  of  large 
means,  to  overdraw  his  account  to 
the  amount  of  $3,500,  on  his  agree- 
ment to  pay  interest  thereon,  after 
which  he  sold  his  business  to  R.,  the 
sale  including  debts  due,  which  were 
assumed  by  R.,  who  executed  a  deed 
of  trust  to  S.  covering  all  the  property 
conveyed.  The  bank,  being  advised  of 
the  transaction,  permitted  R.,  who 
continued  the  business,  to  make  de- 
posits in  the  same  name  as  had  been 
previously  used  by  S.,  and  draw  checks 
against  the  same,  which  continued 
until  the  property  conveyed  was 
burned,  when  there  was  an  overdraft 
of  $4,000,  consisting  of  the  $3,500  over- 
drawn by  S.  before  the  sale  and  the 
balance  afterwards  overdrawn  by  R., 
which  claim,  on  the  insolvency  of  the 
bank,  was  sold  for  much  less  than 
its  face.  Held,  that  such  facts  did  not 
establish  mismanagement  on  the  part 
of   the   officers   of   the    bank,   rendering 


them  personally  liable  to  stockholders. 
Cope  V.  Westbay,  188  Mo.  638,  87  S. 
W.   504. 

49.  Same — Liability  of  directors  for 
overdrafts  permitted  by  cashier. — 
Wynn  v.  Tallapoosa  County  Bank,  168 
Ala.  469,  53  So.  228;  First  Nat.  Bank 
z:  Reese,  25  Ky.  L.  Rep.  778,  76  S.  W. 
384;  Wallace  v.  Lincoln  Sav.  Bank,  89 
Tenn.  630,  15  S.  W.  448,  24  Am.  St.  Rep. 
625. 

50.  Same — Same. — Wallace  z:  Lin- 
coln Sav.  Bank,  89  Tenn.  630,  15  S.  W. 
448,  24  Am.  St.   Rep.  629. 

51.  Same — Knowledge  of  directors. 
—Wallace  r.  Lincoln  Sav.  Bank,  89 
Tenn.  630,  15  S.  W.  448,  24  Am.  St. 
Rep.   625. 

52.  Same — P  resident  permitting 
overchecks  to  irresponsible  persons, 
members  of  family,  etc. — Oakland 
Bank  v.  Wilcox.  60  Cal.  126;  Western 
Bank  z'.  Coldewey,  120  Ky.  776,  26  Ky. 
L.  Rep.  1247,  83  S.  W.  629;  First  Nat. 
Bank   7'.    Reed,   36   Mich.   263. 

Where  the  rules  of  a  bank  required 
that  all  applications  for  loans  be 
brought  before  the  directors  or  ad- 
visory committee  for  approval,  but  the 
president  of  the  bank  permitted  his  in- 
solvent son  to  overdraw  his  account 
without  bringing  the  matter  before  the 
directors    or    advisory    committee,    the 


§  54  (3) 


OFFICERS  AND  AGENTS. 


287 


Directors  May  Authorize  Payment  of  Overdraft. — The  directors  of 
the  bank  may  authorize  the  cashier  to  pay  the  overdrafts  of  its  customers  in 
good  credit  at  the  bank  ;°^  and  where  the  cashier,  in  accordance  with  a  cus- 
tom or  usage,  and  by  the  advice  of  the  president  and  directors  individually, 
pays  the  overchecks  of  such  customers,  he  is  not  absolutely  liable  therefor 
to  the  bank,  but  is  only  required  to  exercise  due  care  to  ascertain  the  finan- 
cial standing  of  the  customers.^-*  Even  in  the  absence  of  authority  from 
the  directors,  it  is  not  negligence  per  se  for  the  cashier  to  pay  the  over- 
drafts of  responsible  customers  in  a  reasonable  amount,  unless  there  is 
some  by-law  or  positive  order  to  the  contrary. ^^  A  cashier  on  whom,  by 
continued  absence  of  the  directors,  has  devolved  the  duty  of  making  loans 
and  discounts,  will  be  liable  for  losses  through  overdrafts  and  discounts 
made  by  him  only  where  it  appears  that  he  failed  to  make  reasonable  in- 
quiry into  the  financial  standing  of  those  making  the  overdrafts,  and  those 
whose  paper  was  discounted,  and  failed  to  exercise  the  care  and  discretion 
which  an  ordinarily  prudent  man  would  exercise  in  his  own  business.^*'  Of 
course  where  the  rules  or  by-laws  of  the  bank  require  that  the  cashier  shall 
keep  the  money  of  the  bank  and  pay  it  out  only  upon  the  checks  of  per- 
sons entitled  to  draw  upon  the  funds  of  the  bank,  and  require  that  loans 
and  overdrafts  shall  be  brought  before  the  president  and  directors  and 
passed  upon  by  them,  the  violation  of  such  rule  by  the  president  or  cashier 
is  in  itself  negligence,   which   in  the  absence  of   some  special  excuse  will 


president  was  liable  for  the  loss 
thereby  sustained  by  the  bank.  West- 
ern Bank  z:  Coldewey.  120  Ky.  776,  26 
Ky.    L.    Rep.    1247,    83    S.    W.    629. 

A  president  of  a  bank  who,  knowing 
a  customer  to  be  without  means,  in- 
duces him  to  open  an  account  at  the 
bank,  and  to  overdraw  that  account, 
and  who,  by  his  orders  to  the  cashier, 
estabHshes  the  custom  of  paying-  such 
overdrafts,  may  be  held  liable  to  the 
bank  for  the  amount  of  the  over- 
drafts. Oakland  Rank  7'.  Wilcox,  60 
Cal.  126. 

.'\  bank  president,  while  in  general 
charge  of  the  business,  with  the  cash- 
ier under  his  authority,  permitted 
and  directed  the  drawing  of  moneys 
from  the  bank,  without  security,  by 
one  known  to  be  irresponsible,  and 
with  whom  he  was  interested  in  tlie 
l)usiness  for  which  the  money  was  ob- 
tained, and  requested  the  cashier  not 
|o  sav  anything  to  the  directors  al-.onv 
it.  Held,  that  he  was  personally  liable 
to  the  bank  for  the  moneys  thus  pauI 
^"t  by  him  in  violation  of  his  trust. 
The  fact  that  they  were  charged  on 
the  l)ooks  of  the  bank  to  the  irrespon- 
sil)lc  borrower  would  not  necessarily 
determine  the  transaction  as  a  loan  to 
him    by    the    bank;    but    the    bank,    in 


the  absence  of  any  act  of  ratification 
or  acquiescence  on  its  part,  would 
have  a  right,  under  the  circumstances, 
to  repudiate  it  as  a  transaction  with 
the  nominal  borrower,  and  to  insist  on 
repayment  by  its  president.  First 
Nat.    Bank    7:    Reed,    .36    Mich.    26,3. 

53.  Directors  may  authorize  pay- 
ment of  overcheck. — Wynn  v.  Talla- 
]joosa  County  Rank,  168  Ala.  469,  53 
So.  228;  Wallace  r:  Lincoln  Sav.  Bank. 
89  Tenn.  630,  15  S.  W.  448,  24  .'\m.  St. 
Rep.   625. 

54.  Same     Cashier  acting  under   a" 
thority    of   directors. —  First    Nat.    Rank 
7'.    Reese,    2.'5    Kv.    L.    Rep.    778,    76    S. 
W.    384. 

55.  In  absence  of  authority  from  di- 
rectors.— Wallace  r.  Lincoln  Sav. 
Rank.  89  Tenn.  630,  Ij  S.  W.  448,  24 
.'Xm.  St.  Rep.  625. 

56.  Same — Care  required. — Prysc  7-. 
Farmers'  Rank,  17  Kv.  L.  Rep.  10.")6, 
33    S.    W.    .'-.32. 

Whether  it  is  negligence  in  a  cashier 
to  pay  the  overchecks  to  a  reasonable 
amount  of  regular  customers,  who 
have  but  little  property,  but  who  have 
credit  and  are  accustomed  to  pay 
their  debts,  qu.-ere?  Wallace  7-. 
Lincoln  Sav.  Rank.  89  Tenn.  630,  ^r> 
S.  W.  448,  24  Am.   St.   Rep.  62.5. 


288 


BANKS   AXD  BANKING. 


§  54  (3) 


render  him  personally  liable  to  the  bank  for  any  resulting  loss.^'  The 
cashier  of  a  bank  is  not  personally  liable  for  permitting  an  overdraft, 
where  the  transaction  is  in  realty  a  loan  upon  sufficient  security  i^^  and 
where  a  cashier  allows  numerous  drafts  to  accumulate,  and  afterwards 
closes  up  the  transaction  by  taking  secured  notes  therefor,  the  wrong,  if 
any,  for  which  he  is  liable  to  the  bank  was  in  the  original  transactions,  and 
not  in  taking  the  notes,  which  could  not  of  itself  injure  it.^'^ 

Defenses — Authorization,  Ratification,  etc. — The  cashier  can  not  he 
held  liable  for  unwise  or  fraudulent  loans  where  it  is  provided  in  his  con- 
tract of  employment  that  he  shall  not  be  charged  with  the  responsibility  of 
making  loans  or  selecting  securities,  and  where  in  making  such  loans  he 
acts  merely  under  the  instructions  of  his  superior  officers  whose  duty  it  is 
to  pass  upon  applications  for  loans.*^*^  Where  the  president  of  a  bank 
makes  a  loan  of  its  funds  which  is  illegal  because  not  secured  by  sufficient 
collaterals,  he  is  not  relieved  from  liability  from  the  loss  resulting  there- 
from by  the  ratification  of  the  loan  by  the  directors  ;'^i  and  even  where  a 
ratification  might  otherwise  avail,  it  is  no  defense  when  the  approval  of 
the  directors  was  obtained  through  misrepresentation  as  to  the  sufficiency 
of  the  collateral  upon  which  the  loan  was  made.'^-  \\'here  the  directors 
know  that  the  cashier  is  making  loans  and  discounts  to  certain  persons  or 
corporations  not  entitled  to  credit  in  the  first  instance,  and  permit  such 


57.  Payment  of  overcheck  in  viola- 
tion of  charter  or  by-law. — Western 
Bank  v.  Coldewey,  120  Ky.  776,  26 
Ky.  L.  R.  1247,  83  S.  W.  629;  Bank  v. 
Calder  (S.  C),  3  Strob.  403;  Wallace  f. 
Lincoln  Sav.  Bank,  89  Tenn.  630.  15 
S.   W.   448,   24  Am.   St.    Rep.   625. 

58.  Where  transaction  is  really  a 
loan. — Wynn  v.  Tallapoosa  Count}- 
Bank.  168  Ala.  469,  53  So.  22S;  Com- 
mercial Bank  v.  Ten  Eyck,  48  X.  Y. 
305. 

59.  Effect  of  taking,  note  or  security 
for  overdraft. — Wynn  t'.  Tallapoosa 
County  Bank,  16S  Ala.  469,  53   So.  228. 

60.  Defense — Authorization  and  rati- 
fication of  overcheck. — Warren  v. 
Robinson,  25  Utah  205,  70  Pac.  989. 

In  an  action  by  stockholders  of  a 
bank  against  the  directors  and  officers 
to  recover  for  depreciation  of  stock, 
it  was  found  that  by  the  cashier's  con- 
tract of  employment  it  was  agreed 
that  he  should  not  be  charged  with 
the  responsibility  of  making  loans  or 
selecting  securities.  The  vice  presi- 
dent and  manager  of  the  bank  was 
president  of  a  corporation  of  a  specu- 
lative character  and  financially  un- 
sound, to  the  knowledge  of  the  cashier, 
who  was  also  an  officer  of  the  corpo- 
ration. Without  the  knowledge  of  the 
cashier,  the  manager  negotiated  a 
loan    from    the    bank    to    the    corpora- 


tion, on  its  note  indorsed  by  a  solvent 
firm.  The  casliier,  under  the  instruc- 
tions of  the  manager,  entered  the 
amount  of  tlie  loan  to  the  credit  of 
the  corporation,  and  paid  it  out  on  the 
corporation's  checks.  Held,  that  tlie 
cashier  was  not  guilty  of  negligence 
or  of  any  violation  of  his  duties  to 
the  bank,  making  him  liable  to  the 
stockholders  for  anj-  part  of  ihe 
amount  lost  by  the  loan.  Warren  v. 
Robinson.   25   Utah   205,   70   Pac.   989. 

61.  Same — Ratification  of  improper 
loan. — Seventeenth  Ward  Bank  v. 
Smith,  51  App.  Div.  259,  64  N.  Y.  S. 
883. 

62.  Approval  obtained  through  mis- 
representation.— Commercial  Bank  v. 
Chatfield,  127  Mich.  407,  86  X.  W. 
1015. 

An  action  was  brought  by  a  bank 
against  a  former  president  and  di- 
rector to  recover  for  moneys  lost  hy 
his  negligence  in  permitting  the 
cashier  to  borrow  on  inadequate 
security.  Held  that,  if  defendant  had 
no  sufficient  collateral,  the  action  of 
the  board  in  approving  the  loan  in 
reliance  on  his  representation  was  not 
such  a  ratification  of  the  transaction 
as  to  estop  the  l)ank  from  holding  him 
accountable  for  the  loss.  Commercial 
Bank  t-  Chatfield,  127  Mich.  407,  86 
N.   W.   1015. 


§  34  (3) 


OFFICERS  AND  AGENTS. 


289 


practice  to  continue  for  a  great  lengtli  of  time,  accepting  the  profits  there- 
from so  long  as  profits  accrue,  they  can  not,  upon  such  transactions  result- 
ing in  ultimate  loss,  repudiate  the  whole  series  of  dealings  and  hold  the 
cashier   personally   responsible.^^ 

Same — Compromise  and  Settlement. — The  fact  that  the  bank  has 
compromised  or  settled  with  the  person  to  whom  loans  have  been  fraudu- 
lently or  negligently  made,  or  accepted  security  from  him  for  money  wrong- 
fully paid  out  upon  his  overdrafts,  will  not  estop  it  from  bringing  an  action 
to  recover  the  difference  or  net  loss  from  the  officers  guilty  of  making  such 
loans  or  of  advancing  the  moneys  upon  the  overdrafts. '^^ 

Duty  of  Officers  and  Ag-ents  with  Respect  to  Collection  of  Debts 
and  Claims  Owing  to  Bank.— It  is  the  duty  of  the  officers  and  agents 
of  banking  institutions  to  exercise  due  diligence  in  the  collection  of  debts 
and  claims  owing  to  the  corporation.  Where,  by  the  failure  of  the  cashier 
of  a  banking  firm  to  demand  payment  of  a  note  from  the  maker,  the  in- 
dorser,  the  only  solvent  and  responsible  party  to  the  note,  is  discharged, 
the  cashier  is  liable  to  his  employers  for  the  damages  arising  from  such 
failure,  and  the  subsequent  payment  of  his  salary  is  no  waiver  or  abandon- 
ment of  their  right  to  reimbursement.* ^  The  officers  of  a  bank  can  not 
consent  to  any  arrangement  by  which  the  security  of  the  bank  or  paper 


63.  Knowledge  of  improper  loans 
and  accepting  profits. — First  Nat. 
Bank  v.  Gaddis,  31  Wash.  596,  72  Pac. 
460. 

Even  if  the  corporation  to  which  rlie 
cashier  and  assistant  cashier  of  a  bank 
loaned  money  was  of  a  speculative 
character,  and  not  entitled  to  credit 
in  the  first  instance,  and  they  knew 
this  fact,  and  even  if  they  were  not 
authorized  to  extend  credit  to  it,  yet 
when  the  directors  of  the  bank  knew 
that  credit  had  been  extended,  and 
made  no  objection  thereto,  the  bank 
could  not,  after  five  years'  dealings 
with  the  corporation,  hold  the  ca.'^hicr 
or  assistant  cashier  liable  for  the 
amount  which  the  corporation  owed 
it  at  the  end  of  such  time.  First  Nat. 
Rank  v.  Gaddis,  31  Wash.  596,  72  Pac. 
460. 

G4.  Effect  of  compromise  and  set- 
tlement by  bank.— Western  Rank  v. 
Coldewey,  120  Ky.  776.  26  Ky.  L.  Rep. 
1247,  83  S.  W.  629;  Brown  v.  Farm- 
ers', etc.,  Nat.  Bank  fCiv.  .^pp.),  31 
S.   W.   216,    affirmed    in    88    Tex.   265. 

Where  the  president  of  a  bank  had 
agreed  to  answer  to  a  bank  for  the 
overdrafts  of  another  person,  the  fact 
that  the  1)ank,  in  accordance  with  its 
custom,  which  was  well  known  to  the 
president,  required  such  person  to  give 

1   B  &  B— 19 


notes  for  his  overdrafts  at  different 
times,  which  action  was  explained  to 
the  president,  and  not  objected  to  by 
him,  did  not  release  him  from  lia- 
bility for  the  amounts.  Brown  v. 
Farmers',  etc.,  Nat.  Bank  (Civ.  App.), 
31   S.   W.   216,   affirmed  in  88  Tex.   265. 

Where  the  president  of  a  bank 
wrong-fully  permitted  his  son  to  over- 
draw his  account,  and  thereafter  the 
son  made  a  deed  of  trust  for  the  bene- 
fit of  his  creditors,  and  the  bank,  to- 
g-ether with  other  creditors,  agreed  in 
consideration  of  the  conveyance  to 
look  onlj'  to  the  assets  so  conveyed 
for  the  satisfaction  of  its  claims 
against  the  son,  the  bank  was  not  es- 
topped from  liringing-  an  action  against 
the  estate  of  the  president  for  loss  sus- 
tained by  his  breach  of  trust  in  per- 
mitting- the  overdrafts.  Western  Rank 
V.  Coldewev,  120  Ky.  776,  26  Ky.  L. 
Rep.    1247,    83    S.    W.    629. 

65.  Duty  with  respect  to  collection  of 
debts  and  claims.  -Bidwell  v.  Madison, 
10   Minn.    13    CGil.   1  ). 

Rank  directors,  though  negfligent  in 
their  supervision  and  control  of  the 
corporate  affairs,  are  not  responsilde 
for  the  failure  to  collect  a  well-secured 
dcl>t  for  the  reason  tliat  usury  was  in- 
cluded therein.  Wallace  v.  Lincoln 
vSavings  Bank,  89  Tenn.  630,  15  S.  W. 
448,  24  Am.  St.  Rep.  625. 


290  BANKS   AND  BANKING.  §    54    (4) 

due  to  it  will  be  impaired. 6«  Acceptance  by  the  president  of  a  bank  of 
doubtful  securities  in  payment  of  good  debts  is  negligence  charging  him 
with  resulting  loss.^'" 

Collection  of  Debts  Owing  by  Officers  and  Agents  to  Bank. — In 
cases  of  this  character,  in  which  the  element  of  the  personal  interest  of 
the  officer  or  agent  enters,  the  circumstances  call  for  the  utmost  good 
faith  in  the  settlement  of  their  obligations  to  the  bank,  and  payment  in 
securities  instead  of  cash,  or  any  other  compromise  or  concession,  can  be 
had  only  with  the  consent  and  approval  of  the  governing  body  of  the 
bank.^'''  Of  course,  where  the  directors  discover  that  one  of  the  officers 
has  overdrawn  his  account  or  misappropriated  the  funds  of  the  bank 
they  may  compromise  or  settle  the  claim  or  take  such  security  therefor 
as  may,  under  the  circumstances,  seem  best  for  the  interests  of  the  bank, 
and  then,  if  loss  results,  they  will  not,  in  the  absence  of  negligence  and 
want  of  good  faith,  be  liable  therefor.*"'^ 

Same — Application  of  Payments. — Where  property  is  turned  over 
by  the  cashier  to  the  president  of  the  bank,  as  trustee,  to  secure  to  that 
extent  his  indebtedness  to  the  bank  by  reason  of  his  defalcations,  without 
designation  as  to  what  part  of  the  indebtedness  this  credit  shall  be  applied^ 
the  law,  upon  equitable  principles,  will  imply  that  the  debtor  intended  that 
it  should  be  used  in  payment  of  that  part  of  his  indebtedness  which  was 
the   most  precarious.'^*^ 

§  54  (4)  Liability  of  One  Officer  for  Acts  of  Another. — Lia- 
bility of  Directors  for  Acts  of  Other  Directors  and  Agents. — See, 
also,  ante,  "Powers,  Duties  and  Liabilities  of  Directors,"  §  54  (la).  A 
director  of  a  bank  undertakes  that  he  possesses  at  least  ordinary  knowl- 

66.  Same— Consent  to  impairment  personal  indebtedness  to  the  bank  can 
of  security.— Gallery  ".'.  National  Bank,  not  be  satisfied  by  his  acceptance  as 
41   Mich.  1(39,  2  N.  W.  193,  32  Am.  Rep.       cashier   of  the   note   of  a   third   person, 

„■       .  r     -I     ,    r  ,  •        smce  his  oblio^ation  is  to  pay  in  cash. 

67.  Acceptance  of  doubtful  securi-  pi^st  Nat.  Bank  v.  Gunhus,  133  Iowa 
ties. — Lawrence     z-.     Stearns,     79     Fed.       409    no  N   W   611 

R78  '  *         * 

The  purchase  of  a  note  by  the  pres-  ,  f;    Compromise    and    settlement    of 

ident   and  manasjn,?  officer   of  a   bank,  '^^^}  °^^"g  ^J  ?<^   "'.n°'a^?      r^p"'' 

for  which  he  paid  from  its  funds  over  l-Jfl'""']}  ^L^^^'  '^^'  ^   ^^-   ^-   ^^^• 

$20,000,    with    knowledge    that    it    was  '^■^'  ^  ^-  ^-  ^^^■ 

burdened  with  a  guaranty  made  by  the  Directors,  having  discovered  an 
payee,  which  might  defeat  its  collec-  overdraft  by  the  cashier,  took  his 
tion.  is  such  negligence  as  renders  him  notes  and  those  of  his  father-in-law, 
liable  to  account  to  the  bank  or  its  secured  by  mortgage,  to  the  full 
creditors  for  any  loss  which  resulted,  amount  of  the  overdraft.  Held  that, 
including  the  expenses  of  an  unsuc-  having  done  this  in  good  faith,  no  lia- 
cessful  defense  made  by  the  bank  to  bility  attached  to  them  for  lack  of  the 
an  action  by  the  maker  of  the  note  to  "tmost  diligence,  both  they  and  the 
enforce  the  condition.  Stearns  v.  stockholders  having  the  greatest  con- 
Lawrence,  28  C.   C.   A.  66,  83  Fed.  738.  fidence  in  the  solvency  of  both  parties. 

68.  Collection  of  debts  owing  by  of-  .Tones  7-.  Johnson,  86  Ky.  .530,  9  Ky.  L. 
ficers  and  agents  of  bank.— First   Nat.  Rep.  789,  6  S.  W.  582. 

Bank  v.   Gunlius,  133  Iowa  409,  110  N.  70.    Application    of    payments. — -Fan- 

W.  611.      _  clier   z:    Kancen    (O.),    5    N.    P.,    N.    S., 

The  obligation  of  a  cashier  to  pay  his       614. 


§  54  (4) 


OFFICERS  AND  AGENTS. 


291 


edge  and  skill,  and  that  he  will  bring  them  to  bear  in  the  discharge  of  his 
duties.  If,  through  recklessness  and  inattention  to  the  duties  confided  to 
him,  frauds  and  misconduct  are  perpetrated  by  other  officers  and  agents 
or  codirectors,  which  ordinary  care  on  his  part  would  have  prevented,  he 
is  personally  liable  for  the  loss  resulting."  ^  But  while  to  the  directors  of 
a  bank  are  committed  the  general  management  and  supervision  of  its 
affairs,  they  are  authorized  to  appoint  a  cashier  and  confer  upon  him 
the  usual  powers  pertaining  to  such  an  office,  and  to  him  may  be  properly 
confided  the  custody  of  the  money,  securities  and  valuable  papers  of  the 
bank,  and  the  supervision  of  its  books  and  accounts ;  and  while  this  does 
not  absolve  the  directors  from  the  duty  of  reasonable  supervision  and 
the  exercise  of  that  degree  of  care  which  is  exercised  by  ordinarily  care- 
ful and  prudent  men,  acting  under  similar  circumstances,  yet  they  are  not 
insurers  of  the  fidelity  of  the  cashier  and  other  agents  whom  they  have 
appointed;  and  where  such  directors  act  in  good  faith,  and  with  ordinary 
care,  they  are  not  responsible  for  losses  resulting  from  the  wrongful  acts 
or  omissions  of  such  cashier  or  other  agents  or  other  directors,  unless 
the  loss  is  a  consequence  of  their  own  neglect  of  duty  or  negligence  in 
failing  to  exercise  proper  care  in  the  selection  of  such  agents  in  the  first 
instance. '2 


71.  Liability  of  directors  for  acts  of 
other  directors  and  officers. — Marshall 
V.  Fanners',  etc.,  Sav.  Bank,  85  Va.  676, 
8  S.  E.  586,  2  L.  R.  A.  534,  17  Am.  St. 
Rep.  84. 

72.  Same. — Bank  v.  Bosseiux,  3  Fed. 
817;  Dunn  v.  Kyle,  77  Ky.  (14  Bush) 
134;  Savings  Bank  v.  Caperton,  87  Ky. 
306,  10  Ky.  L.  Rep.  201,  8  S.  W.  885, 
12  Am.  St.  R.  488;  Williams  v.  Halli- 
ard, 38  N.  J.  Eq.  (11  Stew.)  373;  Mason 
V.  Moore,  73  O.  St.  275,  76  N.  E.  932, 
4  L.  R.  A.,  N.  S.,  597:  Wallace  v.  Lin- 
coln Sav.  Bank.  89  Tcnn.  630,  15  S.  W. 
448,  24  Am.  St.  Rep.  625;  Jones  v. 
Clark.  66  Va.   (25   Gratt.)   642. 

A  director  of  a  bank  is  not  liable  to 
it  for  losses  suffered  l>y  it  through  the 
negligence  of  his  codirectors.  Com- 
mercial Bank  7'.  Chatficld,  121  ^Nlich. 
641.  80  N.  W.  712. 

The  directors  of  a  liank  are  not  li- 
able for  loss  resulting  from  tlie  frauds 
of  an  officer  of  the  bank  unless  they 
have  been  guilty  of  gross  neglect, 
which  means  an  ai)Soncc  of  tliat  dili- 
gence that  ordinarily  prurient  men  in 
the  conduct  of  such  l)usincss  would 
have  exercised.  Savinp^s  Bank  v.  Can- 
erton.  87  Ky.  306,  10  Kv.  L.  Rep.  201. 
8  S.  W.  885,  12  Am.  St.  Rep.  488. 

Tn  the  absence  of  any  showing  of 
fraufl  or  nf  such  gross  negligence  as 
would  imply  bad  faith  on  ihe  part  of 
the  directors  of  a  bank,  they  are  to  I)e 


regarded  as  gratuitous  bailees,  and  not 
liable  to  the  stockholders  for  losses 
sustained  by  the  bank  by  the  dishon- 
esty or  carelessness  of  the  cashier  or 
other  persons  emploved  by  them. 
Dunn  -v.  Kyle,  77  Ky.   ('l4  Bush)   134. 

Such  negligence  is  often  of  such  a 
character  as  to  amount  to  fraud.  Mar- 
shall t'.  Farmers",  etc.,  Sav.  Bank,  85 
Va.  676,  8  S.  E.  586.  2  L.  R.  A.  534,  17 
Am.  St.  Rep.  84,  citing  Trustees  v. 
Bosseiux,  3  Fed.  817;  Jones  v.  Clark, 
66  Va.   (25  Gratt.)   642. 

Corporate  managers,  who  were  not 
on  the  committees  of  investments,  are 
not  lial)le,  in  the  absence  of  cognizance 
or  complicity,  for  irregular  or  unsafe 
investments.  Williams  v.  TTalliard,  38 
N.  J.  Eq.   (11   Stew.)   373. 

The  directors  of  a  dissolved  banking 
corporation  can  not  be  held  personally 
responsible  for  a  loss  to  the  bank  by 
the  nesjligence  of  its  disluirsing  officers 
in  paying  unautliorizcd  checks.  Daugh- 
erty  7'.  Poundstone,  120  Mo.  App.  300, 
96   S.   W.   728. 

A  bank  director  is  not  required  to 
be  eitluT  an  expert  or  a  competent 
bookkeeper,  or  do  more  in  the  general 
management  of  the  bank  with  refer- 
ence to  its  casliier  and  bookkeeper, 
wluim  they  have  used  proper  care  in 
selecting,  than  to  see  that  the  daily  or 
weekly  statements  made  to  the  board, 
as    the    case    may   be,    correspond    with 


292 


BANKS   AND   BANKING. 


'A  (4) 


Liability  of  the  President  for  Acts  of  Other  Officers  and  Agents. 

— See,  also,  ante,  "President's  Powers,  Duties  and  Liabilities,"  §  54  (lb). 
A  bank  president  is  not  an  insurer  of  the  honesty  of  the  cashier  or  other 
agents  employed  by  the  bank,  and  is  only  required  to  exercise  reasonable 
care  and  diligence  in  the  supervision  of  such  subordinates  in  the  per- 
formance of  their  duties."^-"^ 

Liability  of  Cashier  for  Acts  of  His  Subordinates. — A  bank  cash- 
ier is  not  an  insurer  of  the  honesty  and  fidelity  of  those  who  occupy  subor- 
dinate positions  in  the  bank,  and  is  not  liable  for  misappropriations  by 
them,  if  he  exercised  reasonable  diligence  in  supervising  their  workj'*  He 
need  not  examine  and  supervise  every  act  of  his  subordinates,  but  as  to 
such  acts  need  only  use  such  care  and  diligence  as  an  ordinarily  prudent  man 
would  exercise  in  his  own  business  affairsJ^  The  cashier  only  undertakes  to 
supervise  the  acts  of  his  subordinates  in  their  work  in  the  bank  in  so  far 
as  is  practicable  with  reference  to  the  discharge  of  his  other  dutiesJ^^ 

Same — Assistants  Employed  by  Cashier. — A  cashier  employing  as- 
sistants to  aid  him  in  the  discharge  of  his  duties  is  held  to  the  exercise 
of  ordinary  care  and  good  faith  both  in  their  selection  and  in  their  sub- 
sequent supervision;  and  if  in  spite  of  such  care  and  diligence  on  his 
part  he  discovers  that  they  have  been  guilty  of  defalcations  or  irregulari- 
ties, it  is  his  duty  to  report  the  same  to  the  president  and  directors  at  once 
and  to  take  whatever  other  steps  that  may  be  necessary  to  protect  the 
interest  of  the  bank  and  its  depositors.'" 


the  general  balances  upon  the  books; 
and  this,  connected  with  the  period- 
ical count  of  the  money,  notes,  bonds, 
etc.,  is  all  the  supervision  required,  un- 
less there  is  some  reason  for  suspect- 
ing that  the  cashier  is  neglecting  his 
duties.  Savings  Bank  v.  Caperton,  87 
Ky.  306,  10  Ky.  L.  Rep.  201,  8  S.  W. 
885,  12  Am.  St.  Rep.  488. 

Where  one  bank  was  merged  into 
another,  the  president  of  the  new  bank 
was  properly  selected  by  the  directors 
to  transfer  the  balances  from  the 
books  of  the  old  bank  to  the  books  of 
the  new,  and  although  the  president 
was  at  the  time  a  defaulter  as  an  offi- 
cer in  the  old  bank,  but  nothing 
to  excite  any  suspicion  as  to  his 
honesty,  the  directors  were  not 
guilty  of  negligence  in  permitting  him 
to  use  the  books  of  the  old  bank  for 
the  purposes  of  the  new,  instead  of 
making  a  transfer  to  a  new  set  of 
books.  Savings  Bank  v.  Caperton  87 
Ky.  306,  10  Ky.  L.  Rep.  201,  8  S.  W 
885,  12  Am.  St.  Rep.  488.       • 

A  state  statute  merely  forbidding 
the  directors  and  other  officers  of  a 
state  bank  from  borrowing  any  money 
from    the    bank,    on    pain    of    criminal 


prosecution  (Rev.  St.  S.  C,  §  1540), 
affects  only  the  officer  so  borrowing, 
and  does  not  make  other  directors  per- 
sonally liable  to  the  stockholders  for 
losses  resulting  therefrom.  Wheeler 
r.  Aiken  County,  etc.,  Sav.  Bank,  75 
F.    781. 

73.  Liability  of  president  for  acts  of 
other  officers  and  agents. — Davenport 
7'.  Prentice,  126  App.  Div.  451,  110  N. 
Y.   S.   1056. 

74.  Liability  of  cashier  for  acts  of 
subordinates.— Wynn  z:  Tallapoosa 
County  Bank.  168  Ala.  469,  53  So.  228; 
Ratchelor  zf.  Planters'  Nat.  Bank,  78 
Ky.  435. 

75.  Same. — Wynn  v.  Tallapoosa 
County  Bank,  168  Ala.  469,  53   So.  228. 

76.  Same. — ^Pepper  v.  Planters'  Nat. 
Bank,    5   Ky.    L.    Rep.   85. 

77.  Same — Where  assistant  was  em- 
ployed by  cashier.— Grant  County  De- 
posit Bank  r-.  Points,  22  Ky.  L.  Rep. 
105,  56  S.  W.  662;  Vance  v.  IMottley.  92 
Tenn.  310,  21   S.  W.  593. 

A  bank  cashier  who,  without  author- 
ity or  necessity,  employs  an  assistant 
on  his  own  account,  is  liable  for 
moneys  of  the  bank  fraudulently  em- 
bezzled   by    such    assistant    while    thus 


§  54  (5) 


OFFICERS   AND  AGENTS. 


293 


Same — Effect  of  Examination  by  Directors. — The  fact  that  the 
board  of  directors  periodically  examined  into  the  affairs  of  the  bank,  and 
reported  its  condition  all  right,  did  not  estop  the  bank  from  holding  the 
cashier  liable  for  any  fraud  perpetrated  by  a  subordinate,  if,  on  exercising 
due  care  and  diligence,  the  cashier  could  have  prevented  the  fraud."^ 

Liability  of  Other  Oflacers.— A  bank  teller  who  knowingly  assists  in 
or  connives  at  the  misappropriation  of  funds  of  the  bank  by  the  cashier  or 
other  officer  is  answerable  to  the  bank  so  far  as  it  may  have  sustained  a 
loss  by  it.'^ 

§  54  (5)  Right  of  Stockholders  to  Enforce  Liability.— A  stock- 
holder has  a  remedy  in  chancer}^  against  the  directors  of  a  bank  to  pre- 
vent them  from  doing  acts  which  would  amount  to  a  violation  of  its  char- 
ter, or  to  prevent  them  from  any  misapplication  of  its  capital,  which 
might  lessen  the  value  of  the  shares,  if  the  acts  intended  to  be  done 
shall  amount  to  what    the    law    deems    a    breach    of    trust.s<)     Cases  are 


emplo3-ed.  upon  the  suit  of  the  bank, 
its  assignee,  or  successor  when  he 
fraudulently  concealed  the  fact  of  such 
embezzlement  after  it  came  to  his 
knowledge,  and  where  the  successor 
purchased  the  bank's  entire  assets,  sub- 
ject to  its  liabilities,  without  knowl- 
edge of  the  embezzlement.  Vance  v. 
Mottley,  92  Tenn.  310.  21   S.  W.   593. 

Where  F.,  a  bank  cashier,  who  had 
given  bond  for  the  faithful  discharge 
of  his  duties,  though  incompetent,  by 
reason  of  drunkenness,  to  perform  his 
duties  during  the  last  two  years  of  his 
service,  continued  to  draw  his  salary, 
he  was  responsible  for  the  default  of 
N..  a  bookkeeper  originally  employed 
and  paid  by  him.  though  the  latter  was 
the  cashier  de  facto  during  that  time, 
and  received  from  the  bank  additional 
compensation  on  account  of  his  in- 
creased duties.  Grant  County  Deposit 
Rank  t/.  Points,  22  Ky.  L.  Rep.  10.'),  56 
S.  W.  662. 

As  the  lial)ility  of  F.  for  the  mis- 
conduct of  X.,  under  the  circum- 
stances, was,  in  substance,  only  that  of 
guarantor  or  surety,  he  was  entitled 
to  at  least  good  faith  from  the  bank;  and 
therefore  his  estate  can  not  be  held 
liable  for  an  overdraft  by  a  firm  of 
which  N.  was  a  member,  where  the 
firm  continued  to  do  business  with  the 
bank  for  five  years  after  N.  succeeded 
F.  as  cashier,  and,  with  knowledge  of 
the  bank,  made  and  withdrew  depos- 
its in  the  name  of  another  larc^ely  in 
excess  of  such  overdraft;  the  bank  con- 
tinuing during  that  time  to  publish 
semiannual  statements  giving  assur- 
ance   that    everything    was    right,    and 


thus  lulling  the  representatives  of  F. 
into  security  until  it  was  too  late  for 
them  to  protect  themselves.  Grant 
County  Deposit  Bank  v.  Points,  22  Ky. 
Law  R.  105,  56  S.  W.  662. 

By-law  making  cashier  liable  for 
acts  of  his  assistants. — A  by-law  mak- 
ing the  cashier  responsible  "for  all  the 
moneys,  funds,  and  valuables  of  the 
bank,"  in  force  when  defendant  was 
elected  cashier,  became  a  part  of  his 
contract  and  made  him  liable  for  losses 
from  mistakes  or  malfeasance  of 
his  assistant,  liable  under  another  by- 
law for  money  coming  into  his  posses- 
sion. Rio  State  Bank  v.  Amondson, 
141  Wis.  82,  123  N.  W.  634. 

78  Effect  of  examination  by  direct- 
ors.— Pepper  i:  Farmers'  Nat.  Baiik,  5 
Ky.  L.   Rep.  85. 

79.  Liability  of  other  officers. — Ho- 
bart  V.  Dovell,  38  N.  J.  Fq.  553;  Lati- 
mer V.  Veader,  20  .App.  Div.  418.  46  N. 
Y.    S.    823. 

80.  Right  of  stockholders  to  enforce 
liability — Remedy. —  Teffcrson  Branch 
Bank  V.  Skelly  (U.  S.),  1  Black  436,  17 
L.   Fd.  173. 

Where  the  directors  of  a  bank  re- 
fused to  take  the  proper  measures  to 
resist  the  collection  of  a  tax,  which 
they  themselves  believed  to  have  been 
imposed  upon  them  in  violation  of 
their  charter,  this  refusal  amounted  to 
what  is  termed  in  law  a  breach  of  trust, 
and  a  stockholder  had  a  right  to  file 
a  bill  in  chancery  asking  for  such  a 
remedy  as  the  case  might  require. 
Dodge  V.  Woolsey  (U.  S.),  IS  ITow. 
331,  15  L.  Ed.  401.  citing  Mechanics' 
etc..     Bank     v.     Debolt     (U.     S.\     18 


294 


BANKS   AND   BANKING. 


§  54  (5) 


numerous,  also,  where  the  directors  having  made  themselves  personally 
liable  for  neglect  or  breach  of  duty,  and  the  corporation  refusing  to  pro- 
ceed against  them,  a  stockholder  has  been  permitted  to  sue  in  its  behalf. 
In  such  cases  the  corporation  is  an  indispensable  party  defendant.  The 
refusal  to  sue  must  be  made  distinctly  to  appear,  and  the  avails  of  the 
litigation,  if  there  be  any,  go  to  the  corporation  and  are  a  part  of  its 
means,   as   if   it   had   itself   sued   and   recovered. '^^      Though   directors   are 


How.  380,  15  L.  Ed.  458;  Mechanics', 
etc..  Bank  v.  Thomas  (U.  S.),  18  How. 
384,   15  L.   Ed.  460. 

li  the  stockholder  be  a  resident  of 
another  state  than  that  in  which  the 
bank  and  persons  attempting  to  vio- 
late its  charter,  or  commit  a  breach  of 
trust  or  duty,  have  their  domicile,  he 
may  file  his  bill  in  the  courts  of  the 
United  States.  He  has  this  right  under 
the  constitution  and  laws  of  the  United 
States.  Dodge  v.  Woolsey  (U.  S.),  18 
How.  331,  15  L.  Ed.  401,  citing  Me- 
chanics', etc.,  Bank  7'.  Debolt  (U.  S.), 
18  How.  380,  15  L.  Ed.  458;  Mechan- 
ics', etc..  Bank  v.  Thomas  (U.  S.),  18 
How.  384,  15  L.  Ed.  460.  See,  also, 
Jefferson  Branch  Bank  7'.  Skelly  (U. 
S.),  1   Black  436,  17  L.  Ed.   173. 

81.  Same — Remedy. — Carey  f.  Hous- 
ton, etc.,  R.  Co.,  161  U.  S.  115,  131,  40 
L.  Ed.  638,  16  S.  Ct.  537,  reaffirmed  in 
Murphy  v.  Colorado  Paving  Co.,  166 
U.  S.  719,  41  L.  Ed.  1188;  Darragh  v. 
Wetter  Mfg.  Co.,  169  U.  S.  735,  42  L. 
Ed.  1216;  Blythe  Co.  v.  Blythe.  172  U. 
S.  644,  43  L.  Ed.  1183;  Mobile  Transp. 
Co.  V.  Mobile,  199  U.  S.  604,  50  L.  Ed. 
330,  26  S.  Ct.  751;  Greenwood  v.  Freight 
Co.  105  U.  S.  13,  26  L.  Ed.  961;  Dodge 
V.  Woolsey  (U.  S.),  18  How.  331,  15  L. 
Ed.  401;  Bacon  v.  Robertson  (U.  S.), 
18  How.  480,  15  L.  Ed.  499;  Memphis 
V.  Dean  (U.  S.),  8  Wall.  64,  19  L.  Ed. 
326;  Trask  v.  Maguire  (U.  S.\  18  Wall. 
391,  21  L.  Ed.  938;  Davenport  v.  Dows 
rU.  S.),  18  Wall.  626,  21  L.  Ed.  938; 
Dewing  v.  Perdicaries,  96  U.  S.  193,  24 
L.  Ed.  654;  Hawes  v.  Oakland,  104  U. 
S.  450,  26  L.  Ed.  827;  Detriot  v.  Dean, 
106  U.  S.  537,  27  L.  Ed.  300,  1  S.  Ct. 
560;  Smyth  v.  Ames,  169  U.  S.  466,  42 
L.  Ed.  819,  18  S.  Ct.  418;  Cotting  v. 
Kansas  City  Stock  Yards  Co..  183  U. 
S.  79.  46  L.  Ed.  92,  22  S.  Ct.  30;  Porter 
V.  Sabin.  149  U.  S  473,  37  L.  Ed.  815. 
13  S.  Ct.  1008;  Morgan  v.  King,  27 
Colo.  539,  63  Pac.  416;  Hanna  ?'.  Peo- 
ple's Nat.  Bank.  76  App.  Div.  224,  78  N. 
Y.  S.  516,  modified  Hanna  v.  Lyon,  179 
N.  Y.  107.  71  N.  E.  778;  Smith  v.  Rath- 
fun  (N.  Y.\  22  Hun.  150;  Butterworth 
V.  Fox  (N.  Y.),  15  How.  Prac.  545; 
Taylor  v.   Miami    Exporting  Co.,   5    O. 


162,  22  Am.  Dec.  785;  Mathews  v. 
Bank,  60  S.  C.  183,  38  S.  E.  437;  Dead- 
crick  V.  Bank,  100  Tenn.  457,  45  S.  W. 
786;  Shea  v.  Knoxville,  etc.,  R.  Co.,  65 
Tenn.  (6  Baxt.)  277;  Moses  v.  Ocoee 
Bank.  69  Tenn.  (1  Lea)  398;  Hume  v. 
Commercial  Bank,  77  Tenn.  (9  Lea) 
728;  Tenison  v.  Patton  (Tex.  Cr.  App.), 
64  S.  W.  810,  reversed  in  95  Tex.  284, 
67  S.  W.  92. 

A  stockholder  of  a  l^ank  who  has 
been  injured  by  fraud,  culpable  neg- 
lect of  duty,  or  a  violation  of  provi- 
sions of  law  by  an  agent  or  director  of 
the  bank  has  an  ample  remedy  against 
the  director  or  agent  whose  acts  or 
omissions  have  produced  his  loss,  but 
he  can  not  sue  the  bank  for  the  injury 
suffered.  Butterworth  v.  Fo.x  (N.  Y.), 
15   How.  Prac.  545. 

It  seems  that  at  common  law  and 
under  the  rules  of  equity  a  stockholder 
in  an  incorporated  bank  may  maintain 
an  action  against  the  directors  for  such 
damages  as  he  has  individually  sus- 
tained by  reason  of  the  wrongful  acts 
of  the  directors,  even  though  the  same 
acts  damnified  all  the  stockholders  in 
the  same  degree  as  they  did  him,  and 
even  though  the  corporation  is  a  going 
concern  and  has  not  been  dissolved. 
See  Zinn  v.  Baxter,  65  O.  St.  341,  62 
N.  E.  327;  Taylor  v.  Miami  Exporting 
Co.,  5  O.  162,  22  Am.  Dec.  785. 

Where  directors  of  a  bank  procured 
the  sale  of  mining  stock  owned  by  the 
bank  to  such  directors  in  fraud  of 
stockholders,  and  in  violation  of  their 
duties  as  directors,  the  fact  that  the 
stock  had  paid  dividends  exceeding  the 
purchase  price  which  the  directors  paid 
to  the  bank  showed  a  substantial  loss 
of  profits  to  the  bank,  justifying  a 
stockholder  in  suing  to  set  aside  the 
sale.  Morgan  v.  King,  27  Colo.  539. 
63   Pac.  416. 

Complainant's  bill  alleged  that  three 
vears  before,  at  a  meeting  of  the  stock- 
holders of  the  bank,  of  which  the  de- 
fendants were  directors  and  complain- 
ant a  stockholder,  it  was  resolved  that 
the  officers  of  the  bank  wind  ud  its 
affairs  and  return  the  stock  with  its 
profits   to  the   stockholders;   that  forty 


^-  34  (5) 


OFFICERS   AND  AGENTS. 


295 


liable  to  a  bank  which  has  suffered  loss  through  their  negligence,  and  any 
stockholder  may  prosecute  an  action  for  himself  and  others  in  a  similar 
situation,  where  the  bank  does  not  bring  the  action  after  demand,  or  with- 
out demand  when  the  ofificers  who  committed  the  wrong  are  still  directors, 
such  plaintiff'  must  be  a  stockholder  both  at  the  time  of  the  commission 
of  the  acts  complained  of,  and  at  the  time  of  the  commencement  of  the 
action. 8-     Thus   a   director  of   a  banking  association   is  not  liable  to  one 


per  cent  of  the  stock  had  not  been  re- 
turned; that  the  officers  were  still 
conducting  a  banking  business,  and 
through  their  deficient  business  capac- 
ity there  had  been  a  large  loss  of  as- 
sets; that  complainant  had  in  vain 
sought  information  as  to  the  bank's 
affairs  and  a  distribution  of  her  stock, 
and  she  prayed  for  an  accounting  by 
the  directors  and  the  appointment  of  a 
receiver.  Held,  that  the  bill  was  not 
demurrable  on  the  ground  that  the  re- 
lief could  only  be  granted  in  a  suit  by 
the  corporation.  Mathews  Z'.  Bank,  60 
S.  C.   183.  38  S.   E.  437, 

Defendant  cashier  was  authorized 
by  the  directors  of  a  l)ank  which  had 
gone  into  voluntary  liquidation  to  ex- 
ecute a  deed  of  land  owned  by  the 
bank  in  compliance  with  a  third  per- 
son's offer  to  pay  a  certain  amount  for 
it,  provided  defendant  would  take 
charge  of  it  and  resell  it.  Defendant 
was  to  be  allowed  a  share  in  the  prof- 
its realized  from  the  resale.  He  was 
the  only  member  of  the  board  who 
knew  the  value  of  the  land,  and,  though 
he  informed  the  board  fully  on  the  sub- 
ject, he  expected  to  make  a  profit  on 
the  sale.  The  grantee  executed  a 
power  of  attorney  to  defendant  au- 
thorizing the  sale  of  the  land  by  him. 
Defendant  surveyed  the  land,  finding 
it  to  contain  more  than  was  originally 
estimated,  which  fact  was  not  reported 
to  the  directors.  A  portion  was  sold 
to  one  party,  and  a  part  to  another; 
the  second  part  being  taken  back  by 
defendant's  grantee  in  default  of  pay- 
ment. The  bank's  stockholders  knew 
nothing  of  the  offer,  and  the  bank  re- 
fused to  sue  defendant  for  his  individ- 
ual profits.  Held,  that  the  defendant 
was  not,  as  a  matter  of  law,  liable  to 
the  bank  for  the  profits  made  upon  the 
resale,  but  that  the  burden  was  upon 
him  to  show  the  fairness  of  the  trans- 
action, failing  which  the  stockholders 
were  entitled  to  recover  against  him 
the  profits  he  was  entitled  to  receive. 
Tenison  v.  Patton,  9.'')  Tex.  284,  67  S.  W. 
92,  reversing  (Tex.  Civ.  App.),  64  S.  W. 
810. 

Contra. — As  tending  to  deny  the 
right    of   the    stockholder    to    maintain 


the  suit  in  such  case,  see  Brown  v. 
Adams,  Fed.  Cas.  No.  1986,  5  Biss. 
181;  Smith  v.  Hurd  (Mass.),  12  Mete. 
371,  46  Am.  Dec.  690;  Rich  v.  Shaw,  23 
Me.  343;  Zinn  v.  Baxter,  17  O.  C.  C. 
283,  9  O.  C.  D.  731;  Craig  v.  Gregg,  83 
Pa.   19,  22   Pittsb.  L.  J.  193. 

A  stockholder  of  a  bank  can  not 
maintain  an  action  against  the  direct- 
ors for  their  neglect  in  so  conducting 
its  affairs  that  its  capital  is  wasted 
and  lost.  Rich  t-.  Shaw,  23  Me.  343; 
Smith  z'.  Hurd  (Mass.),  12  Mete.  371, 
46  .^m.  Dec.  690. 

An  individual  stockholder  can  not 
maintain  an  action  against  the  direct- 
ors for  negligence.  Craig  t'.  Gregg,  83 
Pa.  19,  22  Pittsb.  L.  J.  193. 

Where  a  shareholder's  stock  in  a  na- 
tional bank  was  sold  to  satisfy  an  as- 
sessment by  the  comptroller,  to  make 
good  an  impairment  of  its  capital 
caused  by  the  negligence  of  the  offi- 
cers and  directors,  such  stockholder 
has  no  standing  to  sue  such  directors 
and  officers  to  recover  the  loss  so 
caused.  Zinn  t'.  Baxter,  17  O.  C.  C. 
283,  9  O'.  C.  D.  731. 

.A^  cashier  of  a  bank,  who  has  made 
sale  of  his  property,  and  holds  a  bal- 
ance in  his  hands,  must  be  deemed  the 
agent  of  the  board  of  directors,  and 
not  of  the  respective  stockholders,  and 
can  not  be  charged  by  an  individual 
stockholder  as  holding  such  balance 
for  his  benefit.  Brown  v.  Adams,  Fed. 
Cas.   No.   1.986.  5   Biss.  181. 

82.  Necessity  that  plaintiff  be  a 
stockholder — Time  of  acquiring  stock. 
— Mabcv  r.  .Vdains,  16  N.  Y."  Super. 
Ct.  346;  Hanna  v.  Lyon,  179  N.  Y.  107, 
71  N.  E.  778,  modifying  Hanna  7'.  Peo- 
ple's Nat.  Bank,  76  App.  Div.  224,  73 
N.   Y.   S.  516. 

Tt  has  been  held,  however,  that  a 
stockholder  in  a  bank,  who  olitained 
her  stock  from  a  director  who  had 
knowledge  of  the  prior  commission  of 
certain  necrlicrent  acts  by  the  directors 
and  stockholders,  causing  depreciation 
in  the  value  of  the  stock,  was  not  pre- 
cluded from  recovering  for  such  neor- 
litrence  by  reason  of  her  assignor's 
knowledge.  Warren  7'.  Robison.  2.5 
Utah  20.5,  70  Pac.  989. 


296 


BANKS   AND    BANKING.  §    54    (6) 


who  becomes  a  stockholder  for  false  statements  in  the  articles  of  asso- 
ciation respecting  the  amount  of  capital  actually  subscribed  and  paid  in, 
by  which  he  was  induced  thereafter  to  become  a  stockholder-^^  But 
although  the  stockholder  suing  is  not  qualified,  yet  if  a  qualified  stock- 
holder has  been  permitted  by  the  court  to  intervene,  the  complaint  should 
not  be  dismissed  as  to  such  intervening  stockholder-^-* 

Estoppel  of  Stockholders  to  Sue.— If  for  any  reason  the  corporation 
is  estopped  from  suing,  or  its  action  is  barred,  the  suit  of  the  stockholder 
or  creditor  is  likewise  affected,  since  the  suit  is  brought  to  enforce  the 
corporate  or  collective  rights,  and  not  the  individual  rights  of  the  share- 
holders.85  The  stockholders  may  also  be  estopped  to  sue  the  directors  upon 
the  ground  that  they  have  been  guilty  of  the  species  of  contributory  neg- 
ligence in  the  election  of  such  directors  and  in  permitting  them  to  continue 
in  office  after  knowledge  of  their  negligence  and  inattention  to  the  affairs 
of  the  bank;  and  this  is  especially  true  where  directors  serve  without  com- 
pensation, and  with  the  knowledge  of  the  stockholders  give  the  substantial 
management  of  the  bank  into  the  hands  of  salaried  officers  to  whose  fraudu- 
lent acts  great  loss  is  entailed. ^^ 

§  54  (6)  Individual  Interest  in  Transaction. — Wherever  in  deal- 
ings between  an  officer  or  agent  and  his  bank  the  element  of  the  personal 
interest  of  such  officer  or  agent  enters,  so  that  he  occupies,  as  regards  such 
personal  interest,  a  position  adverse  to  that  of  the  bank,  a  situation  has 
arisen  calling  for  the  exercise  of  that  degree  of  fairness  and  good  faith 
known  as  uberriemge  fidei.  In  every  such  transaction  his  conduct  will  be 
examined  with  the  closest  scrutiny,  and  it  is  his  duty  to  not  only  make 
full  disclosures  of  all  material  facts  within  his  knowledge,  but  if,  in  such 
transaction,  he  represents  both  the  bank  and  his  own  interests,  then  it  is 
plainly  his  duty,  as  an  officer  of  the  bank,  to  execute  his  trust  with  an 
eye  single  to  the  interests  of  the  bank,  and,  in  case  of  conflict,  to  guard 
the  interests  of  the  bank  even  to  the  loss  or  destruction  of  his  own.^"'^      In 

83.  Same.— Mabey  v.  Adams,  16  N.  Tenn.  630,  15  S.  W.  448,  24  Am.  St. 
Y.   Super.  Ct.  346.  Rep.  625. 

One  who  purchases  stock  in  a  bank-  86.      Same. — Brannin    v.    Loving,    82 

ing    association    from    the    association  Ky.   370,   6   Ky.    L.    Rep.   328;    Dunn  v. 

itself  can  not  maintain  an  action  against  Kyle,    77    Ky.    (14   Bush)    134;    Savings 

a  director  of  the  association  for  viola-  Bank  v.  Caperton,  87  Ky.  306,  10  Ky.  L. 

tions    of   the    statute    relating   to   mon-  Rep.  201,  8  S.  W.  885,  12  Am.  St.  Rep. 

eyed   corporations,   which   occurred  be-  488. 

fore  he  became  a  stockholder,  although  87.     Individual   interest   of  officer   in 

the   value    of   the    stock   is    depreciated  transaction. — Hicks  v.   Steel,  126  Mich, 

by    reason    of    such    violations    of    the  408,  85  N.  W.  1121;  McDowell  v.  First 

statute.      Mabey    v.    Adams,  16    N.    Y.  Nat.  Bank,  73  Neb.  307,  ]02  N.  W.  615; 

Super.  Ct.  346.  Leonhardt   v.    Citizens'    Bank,    56    Neb. 

84.  Same — Intervention  by  qualified  38,  76  N.  W.  452;  Gund  v.  Ballard,  73 
stockholder.— Judgment,  Hanna  I'.  Peo-  Neb.  547,  103  N.  W.  309;  Wallace  v. 
pie's  Nat.  Bank,  76  App.  Div.  224,  78  Lincoln  Sav.  Bank,  89  Tenn.  630,  15 
N.  Y.  S.  516,  modified  Hanna  v.  Lyon,  S.  W.  448,  24  Am.  St.  Rep.  625;  Brown 
179  N.  Y.  107,  71  N.  E.  778.  v.    Farmers',    etc.,    Nat.    Bank,    88   Tex. 

85.  Estoppel  of  stockholder  to  sue.  205,  31  S.  W.  285,  33  L.  R.  A.  359,  re- 
— Wallace    v.    Lincoln     Sav.    Bank.    89  versing  31  S.  W.  216. 


§    54    (6)  OFFICERS  AND  AGENTS.  297 

the  absence  of  full  knowledge  and  consent  on  the  part  of  the  directors 
or  managing  officers  of  the  bank,  it  is  contrary  to  the  well  settled  prin- 
ciples of  equity  and  to  the  policy  of  the  law  to  permit  an  officer  of  a  bank 
to  represent  both  himself  and  the  bank  in  a  transaction  in  which  his 
personal  interest  is  antagonistic  to  that  of  the  bank,  and  in  the  absence 
of  affirmative  proof  of  full  knowledge  and  consent,  ratification  or  estop- 
pel, such  contracts  are  presumptively  void,  and  are  voidable  at  the  option 
of  the  bank  or  its  stockholders,  and  an  action  will  lie  to  compel  restitution 
or  to  recover  whatever  loss  the  institution  may  have  sustained. ^^  The 
directors  of  a  corporation  hold  a  fiduciary  relation  to  the  stockholders, 
and  have  been  intrusted  by  them  with  the  management  of  the  corporate 
property  for  the  common  benefit  and  advantage  of  each  and  every  stock- 
holder, and  by  their  acceptance  of  this  office  they  preclude  themselves  from 
doing  any  act,  or  engaging  in  any  transaction,  in  which  their  private  in- 
terest will  conflict  with  the  duty  they  owe  to  the  stockholders,  and  from 
making  any  use  of  their  power  or  of  the  corporate  property  for  their 
own  advantage. ^^  It  is  against  public  policy  to  permit  persons  occupying 
fiduciary  relations  to  be  placed  in  such  a  position  that  the  influence  of 
selfish  motives  may  be  a  temptation  so  great  as  to  overpower  their  duty 
and  lead  to  a  betrayal  of  their  trust,  and  the  rule  is  unyielding  that  a 
trustee  shall  not,  under  any  circumstances,  be  allowed  to  have  any  deal- 
ings in  the  trust  property  with  himself,  or  acquire  any  interest  therein. 
Courts  will  not  permit  any  investigation  into  the  fairness  or  unfairness  of 
the  transaction,  or  allow  the  trustee  to  show  that  the  dealing  was  for 
the  best  interest  of  the  beneficiary,  but  will  set  the  transaction  aside  at 
the  mere  option  of  the  cestui  que  trust. ^"^  There  is  no  limit  to  the  variety 
of  the  circumstances  under  which  cases  illustrating  these  principles  may 
arise.  A  resolution  by  a  board  of  bank  directors  intrusting  the  lending 
of  money  and  discounting  paper  to  the  discretion  of  the  cashier  does  not 
authorize  him  to  lend  to  himself. ^^  The  president  of  a  bank  who  has 
been  in  the  habit  of  advising  and  assisting  the  bank  in  the  matter  of  loans, 

88.  Same — Contract  voidable  at  the  HO  Barb.  571;  Hoyle  v.  Plattshurgh,  etc., 
option  of  the  bank.— West  St.  Louis  Co.,  54  N.  Y.  314,  13  Am.  Rep.  595; 
Sav.  Bank  z'.  Parmalee,  95  U.  S.  557,  Barnes  v.  Brown,  80  N.  Y.  527;  San  Di- 
24  L.  V.d.  490;  Alortjan  v.  King,  27  Colo.  ego  v.  San  Diego,  etc.,  Co.,  44  Cal.  106; 
539,  63  Pac.  416;  Hicks  v.  Steel,  126  Wilbur  v.  Lynde,  49  Cal.  290,  19  Am. 
Mich.  408,  85  N.  W.  1121;  Lconhardt  Rep.  645;  Farmers'  Bank  z.:  Downey, 
V.  Citizens'  Bank,  56  Neb.  38,  76  N.  W.  53  Cal.  466;  Wickcrsham  t-.  Crittenden, 
452;    Dunn   r.    O'Connor,   25   App.    Div.  93  Cal.  17,  28  Pac.  788. 

73,  49  N.  Y.  S.  270;  Northwestern,  etc.,  90.     Same.— Davoue   v.    Fanning    (N. 

Ins.  Co.  V.  Lough,  13  N.  Dak.  601,  102  Y.),  2  Johns.  Ch.  252;  Taussig  v.  Hart, 

N.    W.    160;    Wallace    v.    Lincoln    Sav.  58    N.    Y.    425;     Elevated    R.    Case,    11 

Rank,   89   Tenn.    630,    15    S.   W.   448,   24  Daily     486;      Michoud     7'.      Girod      (U. 

Am.    St.    Rep.    625;    City    Nat.    Bank   v.  S.),     4     How.    503,      11     L.     Kd.      1076; 

Merchants',  etc.,   Nat.   Bank   (Tex.   Civ.  Davis  ?-.  Rock  Creek,  etc.,  Min.  Co.,  55 

App.),   105   S.   W.   338;    Leary  v.    Inter-  Cal.  359,  36  Am.   Rep.  40;  Wickcrsham 

slate    Nat.    Bank    (Tex.    Civ.    App.),    63  v.    Crittenden,   93    Cal.    17,   28    Pac.    788. 

S.  W.  149.  91.      Cashier    lending    to    himself.— 

89.  Same — Fiduciary  nature  of  re-  Wallace  z:  Lincoln  Sav.  Bank,  S9  Tenn. 
lation.— Coal   Co.   v.    Sherman    (N.   Y.),  630,  15  S.  W.  448,  24  Am.  St.  Rep.  625. 


298 


BANKS   AND  BANKING.  §    54    (6) 


discounts  and  investments,  and  who  presents  for  sale  or  discount  the  paper 
of  third  persons  which  he  personally  owns,  is  bound  to  make  full  dis- 
closure of  whatever  knowledge  he  may  possess  as  to  their  solvency  and 
responsibility,  and  for  his  failure  to  place  the  bank  in  possession  of  such 
facts  within  his  knowledge  it  is  entitled  to  rescind  its  purchase  of  the 
paper  and  recover  the  consideration  paid  therefor;  and  a  fortiori  is  this 
true  where  such  officer  affirmatively  misrepresents  the  facts  within  his 
knowledge  affecting  the  solvency  and  responsibility  of  the  makers  of  the 

paper.^2 

Officer  Securing  His  Debt  before  That  of  Bank.— Where  the  same 
person  is  indebted  both  to  the  bank  and  to  one  of  its  officers  individually, 
such  officer,  in  adjusting  such  debts,  has  no  right  to  secure  the  debt  owing 
to  him  as  an  individual  to  the  exclusion  or  injury  of  the  debt  held  by 
the  bank,  and  upon  a  readjustment  in  a  court  of  equity,  the  court  will 
see  that  the  obligation  owing  to  the  bank  is  satisfied  first.^-*^  But  where 
the  president  and  cashier  borrow  from  their  bank  and  lend  the  proceeds 
to  a  failing  debtor  of  the  bank  and  of  the  president,  taking  from  him  a 
mortgage  with  power  to  sell,  and  upon  the  understanding  of  all  parties 
that  the  proceeds  arising  from  foreclosure  shall  be  applied  to  pay  the 
debt  owing  by  the  president  and  cashier  to  the  bank,  such  officers  are  en- 
titled to  have  the  proceeds  of  the  foreclosure  applied  to  the  payment  of 
their  debt  to  the  bank  in  preference  to  other  indebtedness  owing  by  the 
mortgagor  to  the  bank.^-* 

Right  of  Officer  as  Surety  for  Bank.— Where  the  general  manager  of 
a  bank,  together  with  others,  became  sureties  for  the  repayment  of  a  loan 

92.  Personal  interest  of  president  in  The  president  and  cashier  borrowed 
loan  or  discount.-Hicks  r.  Steel.  126  oi  their  bank  a  sum  which  they  loaned 
Mich.  408,  85  N.  W.  1121.                                   to  a  failing  debtor  of  the  bank  and  of 

^  '                   .        ,  •     J  ,  ^  u  r  the     president.      The    debtor    gave     a 

93.  Officer  securing  his  debt  before  ^^^^tgage  on  goods  and  land,  and  de- 
that  of  bank.-Brown  T'.  Farmers  ,  etc.,  ,5^^^^^  ^j^^  property  to  the  mortgagees, 
Nat.  Bank,  88  Tex.  265,  31  b_  W  28a,  ^-^^  authority  to  sell  and  appropriate 
33  L.  R.  A.  359,  reversing  31  S.  W.  216.  ^^^  proceeds  to  the  mortgage  debt,  af- 
See,  also  McDowell  r  First  Nat.  applying  enough  of  the  goods  to 
Bunk,  73  Neb.  307,  102  N.  W.  615.  p^y    for    anSther    t?act    of   land,    which 

A  minor  executed  a  deed  of  trust  to  ^^s  accordingly  paid  for,  and  conveyed 
secure  his  creditors,  among  whom  j^y  the  debtor's  vendor  to  the  mort- 
were,  first,  the  president  of  the  bank  gagees.  It  did  not  appear  that  any- 
in  his  individual  capacity,  and,  second,  thing  more  was  realized  from  the 
after  such  payment,  the  debt  to  the  goods.  The  president  promised  that 
bank.  It  appearing  that  the  president  the  debt  to  the  bank  would  thus  be 
had  induced  the  cashier  to  advance  the  paid,  and,  relying  thereon,  the  direct- 
funds  to  the  minor  for  which  he  wp=.  ors  made  no  effort  to  collect  it  other- 
still  indebted,  promising  to  see  it  paid,  wise.  Held,  that  the  president,  who 
the  court,  having  appointed  a_  receiver  controlled  the  property  and  received 
for  the  trust  property,  will  direct  the  the  proceeds,  was  entitled  to  have  the 
payment  of  the  debt  to  the  bank  be-  proceeds  of  both  parcels  of  land  ap- 
fore  that  or  the  president.  Brown  v.  plied,  first,  to  the  payment  of  the  loan 
Farmers',  etc.,  Nat.  Bank.  88  Tex.  265,  to  him  and  the  cashier,  and  that  the 
31  S.  W.  285,  33  L.  R.  A.  359.  reversing  balance  should  be  applied  to  the  debts 
31  S.  W.  216.  due  to  the  bank  and  the  president.  Ap- 

94.  Same. — .\pperson  v.  Exchange  person  v.  Exchange  Bank.  10  Ky.  L. 
Bank,  10  Ky.  L.  Rep.  943.  10  S.  W.  801.  Rep    943,  10  S.  W.  801. 


§    54    (6)  OFFICERS  AND  AGENTS.  299 

from  the  state,  obtained  for  'its  benefit,  it  was  held  that  at  any  time  after- 
wards, while  the  bank  was  neither  insolvent  nor  contemplating  insolvency, 
he  might  use  the  funds  of  the  bank  to  buy  property  in  his  own  name,  for 
the  security  of  himself  and  his  cosureties.''"' 

Conflicting  Interests  in  Litigation. — W  here  the  president  of  a  bank 
engages  in  litigation  in  which  his  individual  interests  are  in  conflict  with 
those  he  represents  in  a  fiduciary  capacity,  actual  fraud  is  unnecessary  to 
•avoid  tlie  proceedings  thus  entered  into.''^ 

Purchasing  Property  from  Bank.- — Where  certain  directors  of  a  bank 
are  seeking  to  purchase  certain  property  from  it,  they  are  not  qualified  to 
participate  as  directors  in  consummating  the  sale  i''*'  and  where  directors,  by 
reason  of  their  position  as  such,  efifect  a  sale  of  property  owned  by  the 
bank  to  themselves  at  figures  greatly  below  its  actual  value,  such  trans- 
action is  fraudulent  as  a  matter  of  law,  and  good  faith  on  their  part  is  no 
defense  to  an  action  to  rescind  or  to  recover  damages. '^•^  It  has  been 
held  in  such  a  case  that  where  a  director  of  an  insolvent  bank  purchased 
a  note  from  the  bank  at  a  large  discount,  with  notice  that  its  transfer  had 
not  been  authorized  by  a  resolution  of  the  board  of  directors  as  required 
by  statute,  he  was  not  entitled  to  set  ofif  the  price  paid  against  a  bill  filed 
by  a  subsequently  appointed  receiver  to  set  aside  the  transfer.^"  On  the 
other  hand,  where  a  director  had  purchased  land  of  the  bank  at  a  price 
far  below  its  value,  but  without  any  willfully  fraudulent  purpose,  though 
knowing  that  the  transaction  was  probably  illegal,  it  was  held  that  he 
should  be  allowed  what  he  had  paid  for  the  land,  and  compelled  to  make 
good  the  difiference  between  that  amount  and  the  true  value. ^ 

Officer  Executing  Deed  to  Himself. — A  deed  executed  by  the  cash- 
ier of  a  bank  to  himself  as  an  individual  is,  in  the  absence  of  affirmative 
evidence  of  authority,  presumptively  void  and  of  no  efifect.- 

Rights  of  Third  Persons — Bona  Fide  Purchasers. — To  the  general 
rule  that  the  acts  and  contracts  of  a  general  agent,  within  the  scope  of 
his  powers,  are  presumed  to  be  lawfully  done  and  made,  there  is  an  ex- 
ception as  universal  and  inflexible  as  the  rule.  It  is  that  an  act  done  or 
a  contract  made  with  himself  by  an  agent  on  behalf  of  his  principal  is 
presumed  to  be.  and  is  notice  of  the  fact  that  it  is.  without  the  scope  of 
his  general  power,  and  no  one  who  has  notice  of  its  character  may  safely 
rely  upon   it  without  proof   that  the  agent  was  expressly  and   specifically 

95.  Rights    of    officer    as  surety    of       Colo.   5:!0.  fi?.   Pac.   410. 

bank. — Smith  :•.  Lansing,  22  X.  Y.  520.  99.      Same — Setting   off  price   paid. — 

96.  Conflicting    interests    in    litiga-  Gilkt   r.   Pliillips,  n  N.  Y.  114. 
tion.— Giind    -•.    Ballard,    7.3    Neh.    .'547.  1.     Same — Same. — Millsaps  v.   Chap- 
10:{    X.    W.    309.      See.    also,    McDowell  man,    7()    Mi.^s.   !)^2,   26   So.   309.   71    .Xm. 
V.  First  Xat.   Rank,  73  Xeh.  307.  102   X.  St.   Rep.  547. 

W.  615.  2.     Officer  executing  deed  to  himself. 

97.  Officer  purchasing  property  from  — West  St.  Louis  Sav.  B.-ink  :•.  Parnia- 
bank.— I.cary  r'.  Interstate  Xat.  Bank  lee.  95  U.  S.  557.  24  L.  Ed.  490:  Xorth- 
Cl'ex.  Civ.  .Xpp.).  63  S.  W.  149.  western,  etc..  Tns.  Co.  z:  Lough,  13  N. 

^98.       Same.— Morgan     v.      King,     27       Dak.  601,  102  X.  W.  160. 


300 


BANKS    AND   BANKING. 


§  54  (6) 


authorized  by  his  principal  to  do  the  act  or  make  the  contract.-"^  Persons 
not  paying  vahie  for  the  property  received  by  them  are  not  entitled  to 
claim  as  bona  fide  purchasers  for  value.  No  matter  what  the  facts  may 
be  as  to  notice  or  the  want  thereof  they  stand  in  no  better  position  than 
the  officials  from  whom  they  obtained  it.^ 

Avoidance  of  Contract — Estoppel. — The  right  to  waive  such  a  con- 
tract on  the  ground  of  fraud  and  illegality  rests  with  the  bank  or  stock- 
holders as  the  party  whose  rights  have  been  violated ;  it  is  not  available 
to  the  director  or  other  officer,  when  sued  thereon,  to  set  up  its  illegality.^ 
And  even  the  objecting  party,  though  otherwise  entitled  to  avoid  the  con- 
tract, will  not  be  entitled  to  do  so  after  accepting  its  benefits  with  full 
knowledge  of  the  facts.*^ 

Same  Persons  Officers  in  Both  Corporations. — A  contract  between 
two  banks  having  a  majority  of  the  controlling  officers  in  common  is  void- 
able, and,  if  questioned  at  the  proper  time,  will  be  set  aside  on  the  ap- 
pearance of  unfairness ;"   but  the   fact  that  one  person  was   an  officer  in 


3.  Rights  of  third  persons — Bona  fide 
purchasers. — Park  Hotel  Co.  v.  Fourth 
Nat.  Bank,  86  Fed.  742,  30  C.  C.  A. 
409;  Security  Bank  v.  Kingsland,  5  N. 
Dak.  263,  65  N.  W.  697;  Northwestern, 
etc.,  Ins.  Co.  v.  Lough,  13  N.  Dak.  601, 
102  N.  W.  160. 

4.  Same. — Morgan  v.  King,  27  Colo. 
539,  63   Pac.  416. 

Where  the  director  of  a  bank  trans- 
ferred mining  stock  which  he  had  pur- 
chased from  the  bank  under  an  abuse 
of  his  office  to  his  wife,  the  wife  was 
not  entitled  to  hold  the  same,  as 
against  stockholders  of  the  bank,  in 
an  action  to  set  aside  the  sale,  since 
she  acquired  no  better  title  than  her 
husband  possessed.  Morgan  v.  King, 
27  Colo.  539,  63  Pac.  416. 

5.  Avoidance  of  contract,  estoppel. 
—Bank  V.  Triplett  (Ky.),  6  J.  J.  Marsh 
549;  Dunn  v.  O'Connor,  25  App.  Div. 
73,  49  N.  Y.  S.  270. 

The  president  of  a  bank,  who  as  such 
made  a  loan  to  himself  in  excess  of 
one-fifth  of  its  capital  stock  and  sur- 
plus, in  violation  of  Laws  1892,  c.  689, 
§  25,  is  estopped  to  set  up  the  illegal- 
ity of  the  loan  as  a  defense  to  an  action 
to  foreclose  a  mortgage  given  by  him 
to  secure  it.  Dunn  v.  O'Connor,  25 
App.  Div.  73,  49  N.  Y.  S.  270. 

In  a  suit  instituted  by  the  president 
and  directors  of  the  bank  of  the  com- 
monwealth, on  a  promissory  note  to 
the  bank,  a  plea  by  one  of  defendants 
that  at  the  time  the  note  sued  on  was 
executed  he  was  a  director  of  the 
bank,  and  therefore  not  competent  to 
sign  said  note  as  a  surety,  and  that  he 


did  sign  it  as  a  surety  and  not  as  a 
principal,  states  no  defense.  The  con- 
tract as  surety  was  not  void,  but  was 
as  binding  on  defendant  as  it  would 
have  been  had  he  not  been  a  di- 
rector. Bank  v.  Triplett  (Ky.),  6  J.  J. 
Marsh.    549. 

6.  Same — Same.— City  Nat.  Bank  v. 
Merchants',  etc.,  Nat.  Bank  (Tex.  Civ. 
App.),   105   S.   W.   338. 

Where  one  bank  accepts  a  deposit 
from  another  bank,  agreeing  to  pay  the 
usual  two  per  cent  interest,  it  may  not 
avoid  the  contract  and  refuse  to  pay 
the  interest  after  retaining  the  de- 
posit for  several  months  merely  be- 
cause one  of  the  officers  was  com- 
mon to  both  banks.  City  Nat.  Bank 
V.  Merchants',  etc.,  Nat.  Bank  (Tex. 
Civ.   App.),   105   S.   W.   338. 

7.  Same  persons  officers  in  both 
corporations. — City  Nat.  Bank  v.  Mer- 
chants', etc.,  Nat.  Bank  (Tex.  Civ. 
App.),    105    S.    W.    338. 

Where  partners  engaged  in  bank- 
ing transfer  their  assets  to  an  incor- 
porated bank,  guarantying  the  paper 
transferred,  and  become  stockholders 
of  the  incorporated  bank,  and  some  of 
them  the  managers  thereof,  a  com- 
promise and  settlement  of  the  liability 
of  the  copartnership  and  the  incor- 
porated bank  by  its  managing  officers 
is  avoidable  at  the  election  of  the  in- 
corporated bank,  unless  in  such  set- 
tlement the  full  amount  due  on  the 
guaranty  is  paid,  or  the  settlement  is 
authorized  or  ratified  by  the  stock- 
holders or  board  of  directors  of  the 
bank,  the  oartners  not  voting  as  stock- 


§  54  (6) 


OFFICERS  AND  AGEXTS. 


301 


both    corporations    does    not    render    the    contract    void    as    against    public 
pohcy.* 

Duty  to  Account  for  Profits — Right  to  Buy  in  Property  Sold  for 
Banks  Debts. — It  is  a  general  principle,  applicable  to  the  otYicers  and 
agents  of  banks  as  well  as  to  other  cases,  that  where  a  person  is  actually 
or  constructively  the  agent  of  another,  all  profits  and  advantages  made  by 
him  in  the  business,  beyond  his  ordinary  compensation,  is  for  the  benefit 
of  his  employer.^  And  it  has  even  been  held  in  such  a  case  that  a  cashier 
was  estopped  from  denying  his  agency  and  from  claiming  the  profits,  not- 
withstanding the  transaction  may  have  been  outside  of  his  duties.^"  Profits 
derived  from  the  use  of  the  bank's  money  belong  to  the  bank ;  though  there 
is  no  principle  forbidding  the  officer  or  agent  of  the  bank,  where  not  for- 
bidden by  law,  from  obtaining  a  bona  fide  loan  from  his  bank  and  in- 
vesting it  for  his  own  profit.  ^^  And  where  a  director  is  charged  with  the 
duty  of  selling  property  as  a  trustee  for  the  bank,  it  is  a  question  depending 
upon  the  particular  facts  of  the  case  whether  he  is  liable  to  the  bank  for 
profits   received  by  him   individually   for  services   rendered   the  purchaser 


holders  or  directors.  Leonhardt  f. 
Citizens'  Bank,  56  Neb.  38,  76  N.  W. 
4.52. 

8.  Same. — City  Nat.  Bank  v.  Mer- 
chants', etc..  Nat.  Bank  (Tex.  Civ. 
App.).    105    S.    W.   338. 

L.  was  president  of  defendant  bank 
and  vice  president  of  plaintiff  bank. 
B..  cashier  of  defendant  bank,  with 
full  authority  to  make  such  a  contract, 
solicited  plaintiff  bank  to  deposit  the 
money  on  hand  with  defendant  bank, 
and  with  L.  ajjreed  to  pay  the  two 
per  cent  interest  on  the  deposit.  No 
fraud,  deception,  or  concealment  was 
claimed,  and  there  was  no  evidence 
that  the  contract  was  made  without 
the  consent  of  defendant's  officers,  di- 
rectors, and  stockholders.  Held,  that 
the  contract  was  not  void  on  the 
ji^round  of  L.'s  interest  in  the  plaintiff 
adverse  to  the  stockholders  in  defend- 
ant. City  Nat.  Bank  7'.  Merchants', 
etc..  Nat.  Bank  CTex.  Civ.  .\pp.),  105 
S    W.    338 

9.  Duty  to  account  for  profits;  pur- 
chase of  property  sold  for  bank's 
debts.— Pomcroy  7'.  Benton,  57  Mo. 
"<31;  Murdoch  7'.  Milner,  84  Mo.  90; 
Bent  V.  Priest,  86  Mo.  475;  Mt.  Vernon 
Bank  ?•.  Porter.  148  Mo.  176,  49  S.  W. 
982;  S.  C,  52  Mo.  App.  244. 

Profits  derived  by  a  cashier  of  a 
bank  from  a  sale  of  bonds  negotiated 
by  him  while  cashier,  and  in  the  dis- 
char!.(c  of  his  duties  as  such  cashier, 
bclonp  to  the  bank.  Judftment  (1896) 
'■'5  Mo.  .App.  448,  reversed.  Mt.  Vernon 
I'.ank  V.  Porter,  148  Mo.  176,  40  S.  W. 
982. 


10.  Same.— Mt.  Vernon  Bank  v. 
Porter,  52  ]\Io.  App.  244. 

Tn  an  action  by  a  bank  against  its 
cashier  to  recover  certain  commissions 
on  sale  of  bonds  which  the  bank  was 
ernployed  to  negotiate,  which  com- 
missions had  been  retained  by  the 
cashier,  he  is  estopped  from  denying 
his  agency,  and  from  claiming  the 
profits,  notwithstanding  the  transac- 
tion may  have  been  outside  his  du- 
ties. Mt.  Vernon  Bank  7'.  Porter,  52 
Mo.  App.  244. 

11.  Loans  to  ofhcers — Profits  from 
use  of  bank's  money. — Lindcmann  7'. 
Rusk,    125    Wis.    210,    104    N.    W.    119. 

Just  before  the  termination  by 
charter  limitation  of  the  existence  of 
a  banking  corporation,  a  director  ob- 
tained from  it  a  sum  which  he  invested 
in  another  banking  corporation.  The 
director  gave  his  note  for  the  money, 
secured  by  collateral  and  bearing  in- 
terest, and  the  amount  was  less  than 
the  director's  interest  in  the  assets  of 
the  corporation  from  which  the  money 
was  obtained.  The  note  was  paid. 
TTeld  that,  especially  in  the  absence 
of  an}'  showing  that  the  interest  paid 
by  tiie  director  did  not  equal  the 
profits  he  derived  from  the  use  of  the 
money,  the  court  was  justified,  in  a 
suit  to  wind  up  the  affairs  of  the  de- 
funct corporation.  in  treating  the 
transaction  as  a  loan  instead  of  an 
investment  in  the  new  corporation  for 
the  benefit  of  tliosc  interested  in  tlie 
old  one.  Lindt'inann  7'.  Rusk,  125  Wis. 
210,   104   N.   W.   119. 


302 


BANKS  AND   BANKING. 


54  (6; 


upon  a  subsequent  division  and  resale  of  the  same  property. ^^  A  bank 
officer  may  buy  in,  for  his  own  benefit,  a  pledge  held  by  the  bank ;  and, 
if  he  pays  enough  for  it  to  satisfy  the  debt  to  the  bank,  he  will  not  be  held 
as  a  trustee  for  the  residue,^^  but  if  he  use  the  funds  or  credit  of  the 
bank  in  making  the  purchase  he  is  bound  to  account  to  the  bank  for  any 
profits  arising  upon  his  purchase.^^ 

Using  Official  Position  for  Private  Advantage — Undue  Preference 
of  Officers  as  Depositors  and  Creditors. — Upon  well-settled  equitable 
principles  it  is  not  permitted  to  a  director  or  other  officer  to  use  his  official 
position  as  a  means  of  private  advantage  to  himself,  or  to  take  advantage 
of  his  inside  information  in  order  to  obtain  any  preference  for  himself 
as  against  stockholders  or  creditors  upon  the  dissolution  or  insolvency  of 
the  bank.^^     It  is  a  gross  breach  of  their  duty  as  trustees  and  a  fraud  upon 


12.  Compensation  for  services  ren- 
dered  purchaser     by     bank's      agent. — 

Tenison   v.    Fatten,   95   Tex.   284,   67    S. 
W.  92,   reversing  64  S.  W.  810. 

A  bank  director  who  held  title  to 
land  as  trustee  for  the  bank  and  also 
as  security  for  advances  made  by  him 
for  the  bank,  by  authority  of  the  di- 
rectors sold  it  to  a  third  party  for  a 
cash  price  satisfactory  to  the  directors, 
vv'hich  was  offered  with  the  under- 
standing, made  known  to  the  directors, 
that  the  trustee  was  to  take  charge  of 
subdividing  and  reselling  the  land  for 
the  purchaser,  and  to  share  in  any 
profits  over  the  purchase  price.  Held, 
that  the  trustee  was  not,  as  a  matter 
of  law,  liable  to  the  bank  for  the 
profits  gained  by  them  through  such 
resale,  but  the  question  was  one  of 
fact,  the  burden  being  on  him  to  show 
the  fairness  of  the  transaction. 
Tenison  v.  Patton,  95  Tex.  284,  67  S. 
W.   92,   reversing  64   S.   W.   810. 

13.  Right  to  buy  pledge  held  by 
bank. — Smith  v.  Lansing,  22  N.  V. 
520. 

14.  Same — Use  of  bank's  credit  or 
funds  in  making  purchase. — Moses  z'. 
Ocoee    P.ank,    69   Tenn.    (1    Lea)    .398. 

An  officer  of  a  bank  buying  in  prop- 
erty at  execution  sale  for  the  bank  debt 
for  which  it  was  sold,  will  not  be  per- 
mitted to  claim  the  benefit  of  the  pur- 
chase for  himself  where  he  used  the 
debt  for  a  time  to  pay  his  bid,  and 
then  without  any  corporate  action  to 
ratify  the  transactions,  settled  the  debt 
with  the  bank.  Property  so  purchased 
is  assets  for  the  benefit  of  the  creditors 
of  the  bank,  and  may  be  so  applied, 
allowing  the  bank  officer  the  proper 
credit  for  the  amount  actually  paid  by 
him  in  his  settlement  witli  the  bank. 
Moses  V.  Ocoee  Bank,  69  Tenn  (1 
Lea)    498. 


15.  Using  official  position  for  pri- 
vate advantage — Preference  of  oflficers 
as  creditors  and  depositors. — German 
Sav.  Bank  i:  Wulfekuhler,  19  Kan.  60; 
Swentzel  v.  Penn  Bank.  147  Pa.  140,  23 
Atl.  405,  15  L.  R.  A.  305,  30  Am.  St. 
R.  718;  Lamb  z'.  Laughlin.  25  W.  Va. 
300;  Lamb  v.  Cecil,  28  W.  Va.  653; 
Lamb   v.   Pannell,  28   W.  Va.   663. 

A  director  of  a  bank  can  not,  on  be- 
half of  a  firm  of  which  he  is  a  mem- 
ber, draw  the  firm's  money  from  the 
bank,  after  it  has  suspended  payment. 
Swentzel  v.  Penn  Bank,  147  Pa.  140, 
23  Atl.  405,  15  L.  R.  A.  305,  30  Am.  St. 
Rep.  718. 

One  who  was  director,  vice  presi- 
dent, and  stockholder  sold  his  shares 
in  the  bank,  when  it  was  in  an  em- 
barrassed condition,  to  a  customer  of 
the  bank,  who  had  already  overdrawn 
his  account.  The  purchaser  paid  for 
the  shares  by  a  check  on  the  bank,  by 
which  his  account  was  further  over- 
drawn. The  cashier,  in  breach  of  his 
duty  to  refuse  any  overdraft,  allowed 
the  seller  to  draw  out  the  money. 
Held,  that  the  bank  could  recover  it 
back,  on  the  ground  that,  as  an  officer 
of  the  bank,  the  seller  of  the  shares 
was  chargeable  with  knowledge  of  its 
embarrassed  condition,  and  of  the 
state  of  the  purchaser's  account.  Ger- 
man Sav.  Bank  r.  Wulfekuhler,  19 
Kan.    60. 

W.,  a  director  and  vice  president  of 
a  1:iank,  sold  his  stock  while' the  bank 
was  in  an  embarrassed  condition  to  H.. 
who  had  an  overdrawn  account  with 
the  bank  of  several  months  standing. 
W.  received  in  payment  for  his  stock 
a  check  for  $2,100  drawn  by  H.  on  the 
bank.  H.  afterwards  sold  the  stock 
to  the  cashier  of  the  bank,  who  pur- 
chased it  for  the  bank,  but  without  any 


§  54  (6) 


OFFICERS  AND  AGENTS. 


303 


the  public  for  directors,  having  knowledge  of  the  insolvency  of  the  bank, 
to  permit  it  to  continue  to  do  business  and  to  receive  deposits  until  they 
have  succeeded  in  withdrawing  their  own  deposits.  Any  such  fraudulent 
and  unlawful  preference  may  be  recovered  by  a  receiver  or  assignee  for 
the  benefit  of  the  bank  and  of  all  the  creditors. i"  And  when  a  director, 
who  is  also  a  depositor,  has  knowledge  that  the  bank  is  probably  insolvent 
and  that  it  will  likely  be  unable  to  continue  business  or  to  pay  depositors, 
obtains  from  the  cashier  without  authority  from  the  board  of  directors, 
discounted  bills  and  notes,  equal  to  the  amount  of  his  deposits,  and  for 
the  purpose  of  avoiding  the  loss  thereof,  such  transaction  will  be  held  in- 
valid, and  himself  liable  to  the  assignee  of  the  bank  for  the  amount  of  the 
securities  so  obtained. ^^  But  it  has  been  held  that  the  fact  that  one  is  a 
director  of  an  insolvent  bank  does  not  render  it  illegal  for  him  to  receive 
in  good  faith  from  the  bank  a  transfer  of  negotiable  paper  against  third 
persons,  held  by  the  bank,  in  payment  of  a  debt  due  and  payable  from 
the  bank  to  him ;  .  and  if  he  so  receive  negotiable  paper,  before  maturity, 
not  payable  on  its  face  to  the  bank,  he  may  collect  it  of  those  liable  upon 
it  in  his  own  name,  and  they  have  no  right  to  pay  it  in  the  bills  of  the 
bank. IS  Although  the  receipt  by  the  director  of  such  securities  may  be 
a  breach  of  his  duty  to  the  bank,  such  circumstance  constitutes  no  ground 
of  defense  for  the  person  liable  on  the  papers  so  long  as  the  stockholders 
of  the  bank  do  not  complain  of  it.^^  There  is  no  principle  which  forbids 
the  president  of  a  bank,  where  he  has  loaned  it  funds  or  advanced  it  money, 
in  order  to  tide  it  over  periods  of  embarrassment,  from  coming  in  as  any 
other  creditor  and  having  his  claim  allowed  ;-*^'  and  where  a  bank  director 


authority  from  it  or  from  any  one  else 
to  so  purchase  it,  and  gave  H.  credit 
for  $2,100  for  such  stock  on  the  bank's 
books.  On  the  same  day  he  gave  W. 
a  credit  on  the  bank's  iDooks  for  the 
same  amount,  and  charged  H.  with  a 
like  amount.  Several  days  afterwards 
W.  drew  the  $2,100  out  of  the  bank. 
Held  that,  as  affecting  the  right  of  the 
bank  to  maintain  an  action  against  W. 
for  the  amount  of  money  so  drawn 
I)y  him,  it  was  immaterial  that  such 
stock  in  fact  belonged  to  W.  and  his 
brother  as  partners,  and  that  all  the 
transactions  in  selling  such  stock,  giv- 
ing such  credit,  and  in  drawing  out 
money  were  done  in  the  name  of  the 
firm  German  Sav.  Bank  r.  Wulfe- 
kiihlcr.   10   Kan.   f.O. 

16.  Same — Continuing  to  receive  de- 
posits in  insolvent  bank. — I. ami)  7'. 
I.an'jiiliii,   -,ir,   W.   Va.   300. 

17.  Same  Same  Withdrawing  se- 
curities to  amount  of  deposits  in  in- 
solvent bank. — Lamb  7:  Cecil,  2H  W. 
Va.  05.3;  Lamb  z'.  Pannell,  28  W.  Va. 
GG3. 


18.  Same — Same. — Bruce  z'.  Hawley, 
31   Vt.  643. 

19.  Same. — Bruce  v.  Hawley,  31  Vt. 
643. 

20.  Rights  of  officer  who  has  made 
advances  to  bank.  —  State  Bank 
Comm'rs  7'.  vSt.  Lawrence  Bank  (N. 
Y.),   8   Barl).   436. 

A  banking  association,  l)eing  em- 
barrassed, authorized  its  president  anr! 
cashier  to  raise  money  to  redeem  the 
circulation  of  the  bank.  Tn  pursuance 
of  such  authority,  they  purchased  a 
large  amount  of  stocks  of  the  state, 
and  gave  notes  of  the  bank,  signed  by 
the  president  and  cashier,  payalile  at 
future  periods.  The  stocks  went  to 
the  use  of  the  bank.  The  notes  were 
protested  for  nonpayment,  and  the 
president,  on  being  ajjplied  to,  paid 
them,  lleld,  that  the  president  IkkI  a 
valid  legal  claim  against  the  Iiank  for 
the  amount  so  paid  liy  him,  and,  the 
liauk  having  failed,  he  was  entitled  to 
cume  in  as  a  creditor  thereof,  before 
the  receiver,  and  have  his  claim  al- 
lowed. State  P>ank  Comm'rs  7'.  St. 
Lawrence  Bank  (N.  Y.),  8  Barb.  436. 


304 


BANKS    AND   BANKING. 


§  54  (7) 


loans  money  to  the  bank  and  takes  a  mortgage  to  secure  it,  he  may  fore- 
close his  mortgage  after  the  insolvency  of  the  bank.^i  So  the  appropria- 
tion of  bills  receivable,  by  directors,  as  indemnity  for  notes  issued  by 
them  for  the  accommodation  of  the  bank,  if  done  in  good  faith,  in  ignorance 
of  the  impending  insolvency  of  the  bank,  does  not  render  them  liable  either 
for  fraud  or  negligence.-- 

§   54    (7)   Compensation  of  Officers. — Compensation  of  Directors. 

— A  director  in  a  banking  corporation  is  not  entitled  to  compensation  for 
his  service  as  director,  in  the  absence  of  any  agreement  in  advance  that  he 
shall  receive  such  compensation  ;~^  nor  have  they  any  authority  to  vote 
salaries  to  themselves  after  their  election  as  directors.-"^  If,  in  the  course 
of  his  office,  a  director  renders  to  the  corporation  any  unusual  services, 
that  may  be  the  basis  of  a  quantum  meruit  ;-^  provided  there  is  no  statu- 
tory or  charter  provision  prescribing  the  emoluments  to  be  allowed  to  di- 
rectors and  either  expressly  or  impliedly  forbidding  that  they  shall  re- 
ceive anything  additional  \-^  but  even  under  such  a  statute  the  giving  of 


21.  Same — Right  to  foreclose  mort- 
gage securing  advances. — IMillsaps  v. 
Chapman,  76  ?^Iiss.  9  42,  71  Am.  St.  Rep. 
547,   26    vSo.    :'.69. 

22.  Appropriation  of  bills  receivable 
as  indemnity  against  accommodation 
notes. — In  re  Warner's  Appeal  (Pa.), 
7    Atl.   216,   1    Sad.   310. 

23.  Compensation  of  directors. — 
Wickersham  z'.  Crittenden,  93  Cal.  17, 
28    Pac.   788. 

24.  Same. — Wickersham  v.  Critten- 
den, 93   Cal.   17,  28  Pac.  788. 

25.  Same — Unusual  services. — Wick- 
ersham z'.  Crittenden,  93  Cal.  17,  28 
Pac.  788;  Lowe  z'.  Ring,  106  Wis.  647, 
82   N.  W.  571. 

Where  by  the  vote  of  the  directors 
of  a  bank  the  plaintiff  was  appointed 
special  director,  to  receive  such  com- 
pensation as  "should,  in  the  opinion 
of  the  board,  be  reasonable  and  fair," 
and  he  declared  for  a  reasonable  com- 
pensation in  a  quantum  meruit  count, 
and  the  defendants  paid  into  court  the 
amount  voted  by  the  directors  to  be 
a  "reasonable  compensation,"  it  was 
held  that,  by  paying  the  money  into 
court,  the  defendant  waived  this  limi- 
tation of  the  contract.  Huntington  z'. 
American  Bank   (Mass.),  6  Pick.  340. 

Fourteen  dollars  a  day  for  forty- 
seven  days,  besides  traveling  expenses, 
awarded  to  a  director  of  a  bank  by 
the  verdict  of  a  jury,  for  attending  to 
the  collection  of  a  $3,000  note  held  by 
ihe  bank,  was  grossly  excessive,  where 
the  bank  paid  all  the  expenses  and  dis- 


bursements connected  with  the  prose- 
cution of  the  case,  including  attorney's 
fees,  and  where  the  necessity  of 
spending  fifteen  days  to  watch  the  as- 
signee of  the  debtor,  twelve  days  to 
attend  the  assignee's  sale,  and  twelve 
days  in  connection  with  the  trial  was 
not  shown.  Forster  z'.  Columbia  Nat. 
Bank,  77   Minn.   119,   79   N.  W.   605. 

26.  Same — Charter  provisions. — Mo- 
bile Branch  Bank  v.  Collins,  7  Ala.  95; 
Branch   Bank  v.  Scott,  7  Ala.  107. 

Under  the  statute  fixing  the  com- 
pensation of  directors  of  the  State 
Bank,  a  director  of  a  branch  bank,  re- 
ceiving the  compensation  provided  by 
law,  can  be  allowed  no  compensation 
by  the  board  for  extra  services  while 
he  continues  a  director.  Mobile 
Branch  Bank  v.  Collins,  7  Ala.  95; 
Branch   Bank  z'.  Scott,  7  Ala.  107. 

Where  work  was  done  by  mechanics 
for  the  bank,  under  the  superintend- 
ence of  one  of  the  directors,  the 
board  might  lawfully  direct  their  com- 
pensation to  be  paid  to  him  for  their 
use.  Mobile  Branch  Bank  v.  Collins, 
7    Ala.    95. 

A  provision  in  the  charter  of  a  bank 
that  "no  director  shall  be  entitled  to 
any  emolument  unless  the  same  shall 
have  been  allowed  by  the  stockholders 
at  a  general  meeting"  applies  to  the  di- 
rectors only  in  their  official  capacitv, 
and  does  not  prevent  them  from  tak- 
ing compensation  for  services  rendered 
individually  by  them,  as  agents  of  the 
bank.  Chandler  v.  Monmouth,  13  N. 
J.   L.   1   Green  255. 


§  54  (7) 


OFFICERS   AND  AGENTS. 


305 


compensation  to  a  member  of  the  board  of  directors,  for  extra  services  as 
an  agent  of  tlie  bank,  though  unlawful,  is  not  such  an  act  as  will  expose 
the  directors  to  liability,  if  done  in  good  faith,  and  with  the  honest  intent 
of  benefiting  the  bank.-" 

Compensation  of  the  President.— The  law  raises  no  implied  promise 
to  pay  the  president  of  a  bank  for  his  official  services;  nor  can  he  recover 
pay  for  such  services  upon  a  ciuantuni  meruit. -^  Neither  is  there  any  im- 
plied obligation  to  pay  for  extra  and  unusual  services  ;~^  though  where  such 
duties  are  wholly  foreign  and  outside  of  his  duties  as  president,  it  is  a 
question  for  the  jury  whether  the  circumstances  are  such  as  to  raise  an  im- 
plied contract  to  pay  for  the  same.^o  His  compensation  is  to  be  fixed  by 
the  directors  in  such  sum  as  they  may  think  reasonable.^i  or  in  such  sum 
as  they  and  the  president  may  agree  upon  ;32  and  where  such  contract  re- 


27.  Same— Same.— Godbold  :•.  Branch 
Bank,  11  Ala.   I'Jl,  46  Am.  Dec.  211. 

28.  Compensation  of  president. — • 
Sawyer  v.  Pawners'  Bank  (Mass.),  6 
Allen  207;  Holland  r.  Lewiston  Falls 
Bank,    52    Me.    564. 

There  is  no  implied  contract  on  the 
part  of  a  banking  corporation,  whose 
objects  are  partly  charitable,  to  pay 
for  official  services  rendered  to  it  by 
its  president;  nor  is  such  contract  es- 
tablished by  proof  that  the  president 
informally  mentioned  to  some  of  its 
directors  that  he  should  expect  com- 
pensation, and  that  they  made  no  re- 
ply. Sawyer  7:  Pawners'  Bank  (Mass.) 
6   Allen    207. 

But  see  contra  Withers  v.  Edwards. 
26  Tex.  Civ.  App.  189,  62  S.  W.  795, 
where  it  is  said  that  the  presumption 
1?  that  the  offices  of  president  and 
teller  are  lucrative,  and  that  the  law 
implies  that  a  reasonable  compensa- 
tion will  be  paid  to  the  persons  hold- 
injif  them. 

29.  Same — For  unusual  services  — 
Leavitt  r.  Beers  (X.  Y.),  Labor's  Supp. 
'Hill.  &  Denis)  221:  Pew  v.  First  Nat 
B.-ink,   1.30   Mass.    .391. 

The  president  of  a  liank  can  not 
niaintain  any  claim  for  .cruarantyintr 
Its  naner  \Mrthout  proof  of  a  clear  and 
explicit  contract  to  that  effect.  T.eavilt 
''•  Ijf^'^'-s  rN.  Y.),  Lal)or's  Supp.  (Hill 
fv    ncnls)    :>21. 

.''0.  Services  wholly  foreign  and  out- 
side of  duties  as  president.— Lowe  z' 
I'^UT..    100   Wis.   6  17.    82    \\   W.   571. 

Where  the  defendant  was  president 
f'f  n  bank,  and  was  rormested  liy  the 
"ther  directors  to  administer  an  es- 
t;itc.  so  that  the  bank  could  realize  as 
much  as  r)o«si1)le  from  securities  it 
held    as^'ainst    it.    and    lliere    was    no   cx- 

1   B  &  B— 20 


press  contract  to  pay  defendant  for 
such  services,  it  was  error  for  the  trial 
court  to  hold,  as  a  matter  of  law,  that 
the  defendant  was  entitled  to  no  com- 
pensation therefor,  since  they  con- 
stituted no  part  of  defendant's  duties 
as  president,  and  whether  the  circum- 
stances were  such  as  to  raise  an  im- 
plied contract  to  pay  for  such  serv- 
ices should  have  been  left  to  the  jury. 
Lowe  V.  Ring,  106  Wis.  647,  82  X  W 
571. 

31.  Salary  fixed  by  directors. — Hol- 
land r.  Lewiston  Falls  Bank,  52  Me 
564. 

32.  Or  by  contract. — Sawyer  7'. 
Pawners'  Bank  (Mass.)  6  Allen  207; 
Pew  z:  First  Nat.  Bank,  130  Mass. 
391. 

The  directors  of  a  bank,  Iiv  vote, 
fixed  the  salary  of  the  president  at 
$400  a  year,  for  which  he  served  for 
four  years,  then  demanded  an  increase 
of  salary,  and  verbally  resigned  his 
office.  A  committee  of  conference  re- 
ported at  a  subsequent  directors'  meet- 
ing that  he  would  not  serve  as  presi- 
dent unless  his  salary  was  $2,000. 
After  this  report,  the  directors  passed 
a  vote  fixing  the  salary  at  $400;  and. 
at  their  next  meeting,  a  vote  was 
nassed  approving  the  record  of  tlie 
last  meeting:  and  plaintiff,  in  igno- 
rance of  these  votes,  came  into  the 
meeting  and  presided,  sayimj-;  "  \t 
your  request,  and  unon  the  assurance 
that  the  salary  sliall  lie  arranged  to 
my_  satisfaction.  T  withdraw  my  resig- 
nation." Nothing  was  said  in  rculv  bv 
any  of  the  directors;  and  nlaiiitiff  c.n- 
tiniicfl  to  act  as  president  for  four 
months  longer,  when,  tiierc  haviii'^  been 
no  other  vote  p.-i>;sod  fixing-  his  salary, 
he    resigned,    ;ind    liis    resignation    was 


306 


BANKS  AND   BANKING. 


54  (7) 


quires  him  to  render  any  particular  service  or  to  devote  a  given  number 
of  hours  to  the  business  of  the  bank  each  day,  it  is  a  good  defense  that 
he  has  failed  to  do  so.^^  The  directors  can  not  in  any  instance,  however, 
vote  a  salary  to  one  of  their  number  as  president  when  he  takes  part  in 
the  proceeding  or  his  vote  is  essential  to  the  adoption  of  the  resolution.^^ 

Compensation  of  Vice-President. — A  vice-president  of  a  banking  cor- 
poration is  not  entitled  to  compensation  for  his  services,  in  the  absence  of 
a  governing  statute,  by-law,  regulation,  or  contract  to  which  his  own  vote 
was  not  essential,  providing  for  it.^^ 

Cashier  and  Other  Officers. — The  salary  paid  the  cashier  and  othei 
subordinates  is  fixed  by  contract,  and  questions  involving  the  amount  agreed 
to  be  paid,  the  mode  and  medium  of  payment,  etc.,  are  dependent  upon  the 
existence  and  proper  construction  of  the  contract. ^*5 

Waiver  or  Estoppel  to  Claim  Salary. — Where  the  officials  of  a  bank, 
being  large  stockholders,  and  desirous  of  making  a  good  showing,  omitted 


accepted.  Held,  that  there  was  no 
contract,  express  or  implied,  to  pay 
hiin  as  a  salary  more  than  $400  a  year. 
Pew  V.  First  Nat.  Bank,  130  Mass.  391. 

33.  Same — Breach  of  contract. — 
Lapsley  t'.  Merchants'  Bank,  105  Mo. 
App.  98,  78  S.  W.  1095;  Edwards  v. 
Merchants'  Bank  (Mo.),  78  S.  W.  1132. 

34.  Director — President  voting  sal- 
ary to  himself. — Butts  v.  Wood,  37  N. 
Y.  317;  Kelsey  v.  Sargent  (N.  Y.),  40 
Hun.  150;  Copeland  v.  Johnson  Mfg. 
Co.,  47  Hun.  235.  14  N.  J.  St.  Rep.  245; 
Gardner  v.  Butler,  30  N.  J.  Eq.  702; 
Ward  V.  Davidson,  89  Mo.  445,  1  S. 
W.  846;  Chamberlain  v.  Pacific  Wool, 
etc.,  Co.,  54  Cal.  103;  Wickersham  v. 
Crittenden,    93    Cal.    17,    28    Pac.    788. 

The  directors  of  a  baiik,  at  a  regii- 
Inr  meeting,  appointed  its  president, 
cashier,  and  a  director,  a  committee 
on  alterations  of  a  building  bought  by 
the  bank.  At  a  subsequent  meeting, 
complaint  being  made  that  nobody 
was  attending  to  the  work,  the  presi- 
dent, after  consultation  with  the  other 
members  of  the  committee,  and  with 
the  knowledge  of  the  directors,  but 
without  any  other  vote  having  been 
passed  upon  the  subject,  devoted  all 
his  tim.e,  except  what  was  required  for 
his  duties  as  president,  to  superin- 
tending the  work  for  a  period  of  six 
months.  If  he  had  not  done  so,  it 
would  have  been  necessary  to  employ 
a  superintendent.  Held,  that  he  could 
not  recover  for  such  services.  Pew 
V.    First   Nat.    Bank,   130    Mass.   391. 

35.  Compensation  of  vice  president. 
— Blue  V.  Capitol  Nat.  Bank,  145  Ind. 
518,    43    N.    E.    fi55. 

36.  Compensation  of  cashier  and 
other    officers. — State    Bank   v.    Crease, 


6  Ark.  292;  San  Joaquin  Valley  Bank 
z'.  Bours,  65  Cal.  247,  3  Pac.  864; 
Regester  v.  Medcalf,  71  Md.  528,  18 
Atl.    966. 

A  baiik  cashier  originally  appointed 
from  inonth  to  month,  at  a  salary'  of 
$200,  was  at  length  appointed  annually, 
and  continued  to  draw  the  same  sal- 
ary for  three  months,  when  he  drev/ 
$300  per  month,  which  amounts  were 
charged  in  the  books  of  the  bank,  and 
reported  to  the  board  of  trustees. 
Held,  that  an  implied  agreement  was 
created  fixing  the  salary  at  $300  per 
month.  Jan  Joaquin  Valley  Bank  v. 
Bours,  65   Cal.   247,  3   Pac.  864. 

In  an  action  on  an  alleged  contract 
of  employment  as  cashier  against  the 
persons  who  had  agreed  among  them- 
selves to  organize  a  bank,  and  who 
had  appointed  one  of  their  number  to 
make  arrangements  for  carrying  out 
their  plan,  refusal  to  charge,  as  re- 
quested by  certain  defendants,  that,  if 
they  were  not  present  when  the  reso- 
lution electing  plaintiff  as  cashier  was 
passed,  and  did  not  subsequently  ratify 
it,  then  plaintiff  could  not  recover,  was 
not  prejudicial  where  it  appeared  that 
one  of  the  organizers  might  have  been 
a  duly-authorized  agent  to  employ 
plaintiff.  Regester  v.  Medcalf,  71  Md. 
528,  18  Atl.  966. 

Medium  of  payment. — The  officers 
of  the  State  Bank  were  entitled  to 
have  their  salaries  paid  in  gold  and 
silver;  and,  notwithstanding  the  liqui- 
dation Act  of  1843,  they  were  entitled 
to  continue  in  office,  and  to  draw  their 
salaries,  until  the  surrender  of  the  as- 
sets of  the  bank  to  the  receivers.  State 
Bank   v.    Crease,    6    Ark.    292. 


§  54  (9a)  office;rs  and  agents.  307 

to  draw  their  salaries  for  the  first  year,  the  sums  due  being  placed  to  the 
credit  of  the  bank,  and  no  mention  thereof  made  in  the  published  repon. 
required  by  the  statute,  it  was  held,  that  this  omission  to  publish  did  not,  as 
against  other  stockholders  (as  distinguished  from  creditors),  estop  them 
from  claiming  their  salaries  upon  the  failure  of  the  bank/'" 

§   54    (8)   Power  to   Close   Bank    or    Decline    Deposits.— Unless 

specially  authorized  by  the  board  of  directors,  the  president  or  a  director 
of  a  bank  is  not  legally  authorized  to  close  the  bank,  or  to  prevent  the 
reception  of  deposits  so  long  as  the  bank  continues  solvent.  He  is  as  de- 
void of  power  in  this  regard  as  the  president  or  director  of  a  railroad  com- 
pany to  stop  the  operation  of  trains  or  other  business  of  the  company.^s 
Where  Bank  Has  Become  Insolvent. — See  post.  "Receiving  De- 
posits after  Insolvency."  §  57  (6)  ;  "Receiving  Deposits  after  Knowledge 
of  Insolvency."  §  61    (3b). 

§  54  (9)  Liability  on  Bond— §  54  (9a)  Duration  of  Liability.— 
Constituting  Liability.— A  bond  conditioned  for  the  faithful  discharge 
of  his  duties  by  a  director  while  he  shall  remain  a  director  extends  to  his 
duties  as  director  under  successive  annual  elections,  although  it  be  not  re- 
newed and  approved  as  required  by  statute  ;3»  and  a  bond  given  by  a  cash- 
ier to  secure  the  faithful  performance  of  his  duties,  containing  no  limits 
as  to  its  duration,  is  broad  enough  to  cover  a  continuing  liability  under  a 
statute  providing  that  the  officers  and  directors,  after  the  first  year,  shall 
be  such  as  may  be  prescribed  by  the  by-laws  and  shall  be  appointed  or  re- 
moved as  said  by-laws  may  provide;  for  the  election  of  a  cashier  to  an 
office  which  he  already  holds,  and  would  hold  without  election,  must  be 
regarded  as  a  manifestation  of  the  will  and  intent  of  the  directors  that 
he  should  hold  for  another  year.  In  such  a  case  the  court  said  that  "un- 
less we  are  to  charge  these  sureties,  who  were  also  directors,  with  a  gross 
violation  of  duty  in  not  demanding  a  new  bond,  they  must  have  con- 
strued the  bond  as  continuing.''^')  On  the  contrary,  however,  under  a 
statute  providing  that  bank  officers  shall  hold  their  office  until  others  shall 
be  chosen  in  their  stead,  it  has  been  held  that  the  term  of  office  of  a  cash- 

37.  Waiver  or  estoppel  to  claim  sal-  ''"t  never  j^ave  any  other  bond.  Held, 
ary.— Wlitflcr  ?'.  Aiken  County,  etc..  'li'it  notwithstanding  the  statute  for- 
Sav.   Rank,   7.'>   Fed    781.  '>?.de   any   liank   director   from   enterins? 

38.  Power  to  close  bank.— Kx  parte  "r»'^"  *^^  duties  of  his  ofTice  until  his 
S^milh,  .«  Nev.  490,  111  Pac.  9:38;  Ex  '"^"^1  had  been  executed  and  approved, 
parte  Griffin,  3.'i  Nev.  490,  111  Pac.  J'""^'  also  provided  th-it  a  director  should 
9?,0                                                   '                 '  iiold    hie    office    until    another    was    an- 

39.  Continuing  liability  on  bond  in  ^^'rtl!''^  ""'''l  nj'^li'H^^l- . 'H-erthcless  the 
absence  of  renewal.-Treasurer  r  '^'"^"^  Ta/  "^  considered  an  annual 
M-inn     M   Vf     •'-1     9U^\,..UnJrau  one,  and  M.  was  to  be  regarded  as  act- 

M       ■'         ,     ■;•  '■"-    ^'^    director    each    year    under    his 

•■Vl.,   a   hank   director   elected    in    1R49,  last    preceding?    election.      Treasurer    t'. 

pave  a  bond  conditioned  for  dischar^.'■e  Mann,   34   Vt.   371,   80   Am     Dec    088 

of    his    duties    "while    he    should    1)e    a  40.       Same.— Klam      r.       Conimercial 

fMrector."     fh-  was  re-elected  annually,  I?ank,   80  Va.   02,  9   S.    K.   498. 


308  BANKS    AND    BANKING.  §    54    (9a) 

ier,  elected  for  a  year,  comes  to  an  end,  as  to  that  particular  term,  upon 
his  re-election  at  the  end  of  the  year  to  succeed  himself,  so  that  his  bonds- 
men for  the  first  year  are  not  liable  for  defalcations  in  the  second."*^  Where 
the  bond  is  given  by  an  officer  of  a  bank,  appointed  by  the  finance  com- 
mittee to  fill  a  vacancy,  its  life  will  be  held  to  cover  only  the  period  in- 
tervening between  such  appointment  and  its  confirmation  by  an  election 
by  the  board  of  directors ;  and  the  laches  and  negligence  of  the  directors  at 
the  time  of  such  confirmation,  in  failing  to  provide  for  a  new  bond  predi- 
cated upon  such  election,  is  the  misfortune  and  default  of  the  bank,  and 
can  not  be  charged  against  the  bondsmen."* - 

Same — Renewals  of  Bond. — An  indemnity  bond  promising  "during  the 
term"  of  one  year  for  which  it  is  executed,  "or  any  subsequent  renewal  of 
such  term,"  to  reimburse  and  make  good  fraudulent  and  dishonest  trans- 
actions and  losses  by  a  bank  cashier,  "committed  during  the  continuance  of 
said  term,  or  any  renewal  thereof,  and  discovered  during  said  continuance  or 
renewal  thereof  or  within  six  months  thereafter,"  is  a  continuous  contract 
extending  the  indemnity  from  year  to  year,  as  distinguished  from  separate 
and  distinct  contracts  for  each  year,  and  covers  a  misappropriation  or 
fraud  committed  during  the  first  year  of  the  contract  of  indemnity  but  not 
discovered  until  six  months  after  the  bond  had  been  renewed."*^  Where  a 
bank,  pursuant  to  its  by-laws,  requires  the  cashier  to  renew  his  bond, 
and  the  order  requiring  the  renewal  provides  that  the  previous  bond  shall 
not  thereby  be  impaired  until  given  up  to  be  cancelled,  the  first  bond,  re- 
maining uncancelled,  continues  in   force  after  the  second  is  executed.^"* 

Upon  Extension  of  Charter. — Where  the  charter  of  a  bank  is  extended, 
and  no  new  security  taken  of  the  cashier,  securities  under  the  first  charter 
are  not  liable  for  defalcation  under  the  new  charter.^-'' 

Liability  after  Suspension  of  Cashier. — The  liability  of  the  sureties 
continues  after  the  cashier's  suspension  from  office  by  the  board  until 
communicated  to  the  cashier  and  carried  into  eft'ect,  three  days  later.-* '' 

41.  Same. — Mcllroy  Banking  Co.  r.  office  of  cashier  of  one  of  the  offices 
Dickson,   66   Ark.   327,   50   S.   W.    S68.  of    discount    and    deposit,     during-      the 

42.  Bond  of  officer  appointed  to  fill  term  he  should  hold  that  office;  the 
vacancy. — Fancher  v.  Kaneen,  5  N.  P.,  president  and  directors  of  the  bank 
N.   S.,   614.  having    discovered    that    he    had    been 

43.  Renewal  of  bond. — Cutts  7'.  guilty  of  a  gross  breach  of  trust,  passed 
Spear  (O.),  8  N.  P.,  N.  S.,  445,  19  O.  a  resolution,  at  Philadelphia,  on  the 
D.  N.  P.  608.  27th     of    October.    1820,    "tha^    A.    W. 

44.  Continuance  of  former  bond  un-  McC,  cashier,  etc..  he  and  he  is 
cancelled. — Pendleton  z\  Bank  (Ky.),  hereby  suspended  from  ofince,  till  the 
1   T.   P>.   Mon.   171.          _  further    pleasure     of     the      board       be 

45.  Effect  of  extension  of  charter. —  known;"  and  another  resolution,  "that 
Thompson   v.    Yountj,   3   O.   334  the    president   of   the   office    at    Middle- 

46.  Liability  after  suspension  of  town,  be  authorized  and  requested  to 
cashier.— McGill  v.  Bank  (U.  S.\  receive  into  his  care,  from  A.  W.  McG  . 
12   Wheat   .511,   512,   6   L.   Ed.   711.  the   cashier,   the   cash,   bills   discounted. 

Termination. — A.    W.    McG.    gave    a  books,    papers    and    other    properly    in 

bond  to  the  Bank  of  the  United  States,  said   office,   and  to  take   such   measures 

with  sureties,  conditioned  for  the  faitlv  for    having    the    duties    of   cashier    dis- 

ful    performance    of   the    duties    of   the  charged,   as   he   may  deem  expedient;" 


^  (-%) 


OFFICERS    AXD    AGENTS. 


309 


§  54  (9b)  Risks  and  Delinquencies  Covered  by  Bond. — Con- 
struction of  Bond  in  Favor  of  Liability. — W  here  a  bond  given  by  a 
surety  company  to  a  bank  for  its  cashier  is  sued  on  after  breach,  if,  look- 
ing at  all  its  provisions,  the  bond  is  fairly  and  reasonably  susceptible  of 
two  constructions,  one  favorable  to  the  bank  and  the  other  favorable  to 
the  surety  company,  the  former,  if  consistent  with  the  objects  for  which 
the  bond  was  given,  must  be  adopted,  and  this  for  the  reason  that  the  in- 
strument which  the  court  is  invited  to  interpret  was  drawn  by  the  at- 
torneys, officers  or  agents  of  the  surety  company."*" 

Risks  and  Delinquencies  Covered  by  Bond. — It  obligates  not  only 
to  honesty,  but  to  reasonable  skill  and  diligence;'*''  it  covers  willful  or  per- 
missive misapplication  of  the  bank's  funds  ;-*^  and  default  can  not  be  ex- 
cused by  any  act  or  vote  of  the  directors  in  violation  of  their  duties.^"'  such 
as  an  attempted  sanction  of  an  usage  to  allow  overdrafts.^*  or.  in  the  ab- 


tliese  resolutions  were  immediately 
transmitted  by  mail,  to  the  president 
of  the  office  at  Middletown,  who  re- 
ceived them  on  the  morning  of  Sun- 
day, the  29th  of  the  same  month,  but 
did  not  communicate  them  to  the 
cashier,  nor  carry  them  into  effect,  un- 
til the  afternoon  of  the  30th,  between 
four  and  five  o'clock.  Held,  that  the 
sureties  continued  liable  for  his  de- 
faults until  that  time.  McGill  v.  Bank 
(U.  S.),  12  Wheat.  511,  512,  6  L.  Ed. 
711. 

The  resolution  was  only  to  suspend, 
and  this  implies  the  right  to  restore. 
The  cashier's  salary  went  on.  and  had 
the  board  rescinded  their  resolution, 
ihere  would  have  been  no  necessity 
for  a  redelivery  of  his  bond.  McGill 
V.  Bank  fU.  S.),  12  Wheat.  511.  514.  C 
L.  F.d.  711. 

47.  Construction  of  bond  in  favor  of 
liability  thereon. — American  Suretv  Co. 
T'  Paulv.  Xo.  1.  170  U.  S.  1.33.  42  L 
Kd.  977,  18  S.  Ct.  552:  S.  C.  No.  2,  170 
U.  S.  160,  42  L.  Ed  987,  18  S.  Ct.  563. 
See  post,  "Supervision  and  Notice  o"" 
Default  or  Loss,"  TV,  B,  2,  a,  (2).   fc). 

48.  Risks  and  delinquencies  covered 
by  bond — Obligates  to  reasonable  skill 
and  diligence. — The  condition  of  a 
ca'^liicr's  bond.  "Well  and  truly  to  ex- 
ecute the  duties  of  the  office."  includes 
not  onlv  honestv.  Iiut  reasona1)lc  skill 
and  dilicrence.  Tf  the  duti'.'s  arc  per- 
formed ncglicrently  and  unskillfully — 
if  they  are  violated,  from  v/ant  of  ca- 
pacity or  want  of  care — they  cnn 
never  l)e  sa'd  to  be  "^vell  and  trulv 
executed  "  The  operations  of  a  bank 
require  diligence,  with  fitness  and  c'- 
nacity,  as  well  as  honesty,  in  ils  cash- 
ier; and  the  securitv  for  the  faithful 
discharge    of   his    duties,    would    be    ut- 


terly illusory,  if  we  were  to  narrow 
down  its  import  to  a  guarantee  against 
personal  fraud  only.  Minor  v.  Me- 
chanics' Bank  (U.  S.),  1  Pet.  46,  7  L. 
Ed.   47. 

49.  Willful  or  permissive  misappli- 
cation.— The  sureties  are  liable  upon 
the  cashier's  bond,  for  any  willful  or 
permissive  misapplication  of  the 
moneys  of  the  bank,  which  the  cashier 
knowingl}^  made,  or  suffered,  without 
authority,  whereby  the  same  moneys 
have  been  lost  to  the  bank.  Minor  v. 
^Mechanics'  Bank  (U.  S.),  1  Pet.  46,  7 
L.    Ed.    47. 

50.  Authorization  of  directors  no 
excuse. — Minor  v.  Mechanics'  Bank  fU. 
S.).^  1   Pet.  46,  7  L.   Ed.  47. 

No  act  or  vote  of  the  board  of  di- 
rectors of  a  bank,  in  violation  of  their 
own  duties,  and  in  fraud  of  the  rights 
and  interests  of  the  stockholders  of 
the  bank,  will  justify  the  cashier  of 
the  bank  in  acts  which  are  in  violation 
of  the  stipulation  in  his  official  bond, 
"well  and  truly"  to  execute  the  duties 
of  his  office.  Acts  done  by  a  cashier, 
under  the  authority  of  sucli  a  vote,  or 
of  a  usasje  permitted  by  the  directors, 
in  violation  of  the  trusts  assumed  by 
them,  are  on  the  responsibility  of  the 
rashier.  and  of  his  sureties.  Minor  w 
Alpchanics'  Bank  iV .  S.\  1  Pet.  46, 
7  L.   Ed.  47. 

51.  Same — With  respect  to  over- 
drafts.— Minor  7-.  Mechanics'  Bank  (U. 
S.).    1    Pet.    46,    7    E.    Ed.    47. 

.\  usaL^e  to  allr)w  custoiners  to  over- 
dr;i\v.  and  to  have  their  checks  and 
noles  chartred  uji.  without  present 
funds  in  tlu'  I)ank — strii)ped  of  all 
technical  dis«:uise.  the  usage  and  prac- 
tice, thus  attempted  'o  l)e  sanctioned, 
is    a    usage    and    practice     to      misapply 


310 


BANKS    AND    BANKING. 


§  54  (9b) 


sence  of  express  agreement,  by  tbe  laches  or  negligence  of  the  directors, 
not  amounting  to  fraud  or  bad  faith,  or  by  the  connivance  of  ordinary 
agents  or  employees. ^^ 

Construction  of  Bonds  Conditioned  against  Fraud  and  Dis- 
honesty.— "Fraud  or  dishonesty"  of  a  bank  cashier  "amounting  to  embez- 
zlement or  larceny,"  for  which  a  fidelity  and  guaranty  company  promises 
"to  make  good  and  reimburse,"  comprehends  such  dishonest  and  fraudu- 
lent conduct  resulting  in  loss  as  is  equivalent  to  embezzlement  or  larceny, 
and  is  not  confined  to  the  technical  offenses  mentioned  or  such  misap- 
propriation of  funds  as  would  subject  the  cashier  to  a  conviction  for  em- 
bezzlement or  larceny. •'••^ 

Change  in  Position — Added  Duties  and  Responsibilities. — The  offi- 
cial bond  of  a  cashier  must  be  construed  to  cover  all  defaults  in  duty  which 
are  annexed  to  the  office,  from  time  to  time,  by  those  w4io  are  authorized 
to  control  the  aft'airs  of  the  bank;  and  the  sureties  in  the  bond  are  pre- 
sumed to  enter  into  a  contract,  with  reference  to  the  rights  and  authorities 


the  funds  of  the  bank;  and  to  connive 
at  the  withdrawal  of  the  same,  with- 
out any  security,  in  favor  of  certain 
privileged  persons.  Such  a  usage  and 
practice  is  surely  a  manifest  departure 
from  the  duty,  both  of  the  directors 
and  the  cashier,  and  can  not  receive  any 
countenance  in  a  court  of  justice, 
could  not  be  supported  bj^  any  vote 
of  the  directors,  however  formal;  and 
therefore,  whenever  done  by  the 
cashier,  is  at  his  own  peril,  and  upon 
the  responsibility  of  himself  and  his 
sureties.  Minor  ?'.  Mechanics'  Bank 
(U.   S  ),  1   Pet.   46.  7   L.   Ed.  47. 

52.  Laches  or  neglect  of  directors. 
— Fidelity,  etc.,  Co.  z'.  Courtney,  18(i 
U.  S.  342,  46  L.  Ed.  1193,  22  S.  Ct.  833, 
reaffirmed  in  Cherry  z'.  Fidelitv,  etc., 
Co,  205  U.   S.   537,  51   L.   Ed.  920. 

It  is  well  settled  that,  in  the  absence 
of  express  agreement,  the  surety  on  a 
bond  given  to  a  bank,  conditioned  for 
faithful  performance  by  an  employee 
of  his  duties,  is  not  relieved  from  lia- 
bility for  a  loss  within  the  condition 
of  the  bond  by  reason  of  the  laches  or 
neglect  of  the  board  of  directors,  not 
amounting  to  fraud  or  bad  faith,  and 
that  the  acts  of  ordinarv  agents  or  ein- 
ployees  of  the  indemnified  corporation, 
conniving  at  or  cooperating  with  the 
wronsful  act  of  the  bonded  emplovee, 
will  not  be  imputed  to  the  corporation. 
Fidelity,  etc.,  Co.  v.  Courtney,  186  U. 
S  342,  46  L.  Ed.  1193,  22  S.  Ct.  833,  re- 
affirmed in  Cherry  7'.  Fidelity,  etc., 
Co.,  205  U.   vS.  537,  51   L.  Ed.  920" 

It   can   not  be   said   that   if  one   serv- 


ant of  a  bank  neglects  his  duty,  and  by 
his  carelessness  permits  another  serv- 
ant of  the  bank  to  commit  a  fraud,  the 
surety  of  the  fraudulent  servant  shall 
he  therel)y  discharged.  Fidelity,  etc., 
Co.  r.  Courtney,  186  U.  S.  342,  46  L. 
Ed.  1193,  22  S.  Ct.  833,  reaffirmed  in 
Cherry  z:  Fidelity,  etc.,  Co.,  205  U.  S. 
.537.   51   L.    Ed.   920. 

53.  Construction  of  bonds  condi- 
tioned against  fraud  and  dishonesty. — 
Cutts  z:  Spear  (O.),  8  N.  P..  N.  S.,  445, 
19  O.  D.  N.  P.  608. 

The  cashier  of  a  bank,  whose  bond, 
with  sureties,  was  conditioned  that  he 
would  "faithfully  and  honestly  dis- 
charge his  duties  as  cashier,  and  ac- 
count for  all  such  moneys,  funds  and 
valuables"  as  came  into  his  hands, 
cashed  a  draft,  payable  to  his  order, 
amply  secured  by  bills  of  lading  of  cot- 
ton, and  duly  forwarded  the  same,  with 
the  l)ills  of  lading,  to  a  bank  in  another 
city,  for  collection.  The  draft  and  bills 
of  lading  were  lost  in  t^e  mail.  The 
cashier's  bookkeeper,  whose  duty  it 
was  to  check  the  statements  and  ac- 
counts with  other  banks,  reported  the 
draft  as  ciedited  on  their  account  with 
the  bank  to  which  they  had  been  for- 
warded, and  his  accounts  balanced  ac- 
cording to  his  report.  The  agent  of 
tlie  railroad  compnnv.  without  produc- 
tion of  the  bills  of  ladinc;  and  without 
the  consent  of  the  cashier,  delivered 
the  cotton  to  consifrnee.  Held,  that 
the  cashier  was  not  liable  on  his  bond. 
First  Nat.  Bank  v.  Still  (Civ.  App.X  32 
S.  W.  61. 


§  54  (9b) 


OFFICERS    AND    AGENTS. 


311 


of  the  president  and  directors,  under  the  charter  and  by-laws;^"*  but  the 
liability  of  the  sureties  upon  a  bond  given  to  secure  the  faithful  per- 
formance of  the  duties  of  a  bank  official  in  a  given  position  does  not 
extend  to  acts  of  dishonesty  committed  by  him  in  a  higher  and  more 
responsible  position  to  which  he  has  been  promoted  by  the  bank  subse- 
quent to  the  execution  of  the  bond,  unless  the  bond,  fairly  construed,  was 
intended  to  provide  for  such  added  responsibility. •'■•'  The  obligation  is 
not  enlarged  to  cover  the  default  in  such  case  by  reason  of  a  stipulation 
contained  in  the  bond  "and  in  every  way  faithfully  and  honestly  admin- 
ister his  duties  while  in  the  employ  of  the  aforesaid  bank."-^*^ 

Breach  of  Trust  or  Theft  Outside  Scope  of  Duties. — A  bond  con- 
ditioned upon  the  faithful  performance  of  the  duties  assigned  to,  and  the 
trust  reposed  in,  one  of  the  obligors  as  an  employee  of  a  bank  is  not  to 
be  narrowed  by  construction  into  an  undertaking  to  make  good  only  those 
losses  resulting  from  a  failure  of  the  employee  to  faithfully  perform  and 
execute  the  trust  in  so  far  as  it  relates  only  to  the  duties  incident  strictly 
to  his  particular  position,  but  it  is  an  undertaking  to  stand  sponsor  for 
his  honesty  as   an  employee  of  the  bank,   without   regard  to   whether  he 


54.  Change  in  position — Added  du- 
ties and  responsibilities. — Minor  z'.  Me- 
chanics' Bank  (U.  S.),  1  Pet.  46,  7  L. 
Ed.  47. 

55.  Same. — Northwestern  Nat.  Bank 
V.  Keen  (Pa.),  14  Phila.  7. 

It  has  been  held  that  the  official  bond 
of  a  bank  cashier  conditioned  for  the 
faithful  performance  of  "the  duties  of 
the  said  office  of  cashier,  which  may 
be  prescribed  by  the  board  of  direct- 
ors," extends  to  all  duties  theretofore 
prescribed,  as  well  as  those  thereafter 
to  be  prescribed;  that  it  is  intended  to 
be  more  comprehensive  even  than  a 
bond  conditioned  for  good  behavior 
or  for  the  performance  of  the  duties 
of  the  office,  without  saying  more; 
either  of  which  conditions  will  be  suf- 
ficient to  bind  and  charge  the  securi- 
ties, without  any  prospective  or  future 
prescription  of  duty.  Durkin  7'.  Ex- 
change Bank  (Va.),  2  Pat.  &  H.  277. 

Under  a  contract  by  which  a  fidel- 
ity and  casualty  company  binds  itself 
to  make  good  to  a  bank,  to  a  specified 
extent,  such  pecuniary  loss  as  the  lat- 
ter may  sustain  by  reason  of  the  fraud 
or  dishonesty  of  a  named  employee 
in  connection  with  his  duties  as  re- 
ceiving teller,  "all  the  duties  to  which, 
in  the  employer's  service,  he  may  I)e 
consequently  appointed  or  a-ssigned  by 
the  employer,"  it  is  the  right  of  tlic 
bank,  without  notifying  tlie  company, 
to  confer  upon  this  employee  the  office 
of  assistant  cashier  in  addition  to  that 


of  receiving  teller;  and,  upon  this  be- 
ing done,  the  company  is  as  much 
bound  to  make  good  to  the  bank  losses 
occasioned,  during  the  period  covered 
by  the  contract,  by  reason  of  the  em- 
ployee's fraud  or  dishonesty  while  act- 
ing in  the  capacity  of  assistant  cash- 
ier as  in  that  of  receiving  teller.  Fi- 
delity Trust,  etc.,  Co.  v.  Gate  City  Nat. 
Bank,  97  Ga.  634.  25  S.  E.  392,  33  L.  R. 
A.   821,  54  Am.    St.   Rep.   440. 

A  bank  was  incorporated  with  the 
power  to  appoint  necessary  officers,  ta 
take  bonds  from  them,  and  to  make  all 
necessary  by-laws,  rules  and  regula- 
tions. By  one  of  the  by-laws  of  such 
corporation  it  was  provided,  that  it 
should  be  the  duty  of  every  officer  of 
the  bank,  to  perform  such  services  as 
might  be  required  of  them,  by  the 
president  and  cashier.  In  an  action 
against  principal  and  sureties,  on  a 
):ond  given  l)y  a  bookkeeper  of  said 
bank,  conditioned  for  the  faitliful  per- 
formance of  the  duties  required  of  him 
in  said  bank,  etc.,  it  is  held,  that  the 
bond  was  taken  in  conformity  to,  and 
authorized  by  the  charter.  And  where 
such  bookkeeper,  whilst  in  the  dis- 
charge of  "other  duties  in  said  bank," 
fraudulently  took  large  sums  of 
money  therefrom,  the  securities  on  his 
official  l)ond  were  liable  to  the  amount 
of  their  bonrl.  Planters'  Bank  t'.  Lam- 
kin    (Ga.),    R.   M.   Charl,  2!). 

56.  Same — Stipulation  construed. — 
Northwestern  Nat.  Bank  t'.  Keen  (Pa.), 
14  Phila.  7. 


312 


BANKS    AND    BANKING. 


54   (9c) 


purloins  the  particular  money  or  property  entrusted  to  him  by  virtue  of 
his  position,  or  whether  he  misappropriates  other  funds  of  the  bank  which 
do  not.  in  the  ordinary  course  of  business,  come  into  his  hands,  and  with 
which  he  officially  has  nothing  to  do,  but  to  which  his  employment  enables 
him  to  gain  access/''^  The  contrary  doctrine  was  applied,  however,  in  a 
Virginia  case,  in  which  it  was  held  that  the  sureties  of  an  accountant  were 
not  hable  for  moneys  taken  by  him  out  of  the  teller's  drawer,  without  the 
teller's  knowledge  or  consent,  the  accountant  not  being  entrusted  with  nor 
put  in  possession  of  any  moneys  of  the  bank.^^  fhe  majority  of  the 
court  in  that  case  took  the  ground  that  the  sureties  were  not  bound  for 
his  faithfulness  in  matters  outside  the  scope  of  the  duties  of  his  position, 
as  that  he  should  commit  no  theft  or  other  felony  against  the  bank  with 
respect  to  matters  wholly  unconnected  with  the  duties  of  his  position. 
But  dishonesty  and  theft  can  never  be  within  the  scope  of  an  employee's 
duties,  and  beyond  question  the  better  doctrine  is  that  stated  in  the  New 
York  case,  which  criticises  and  refused  to  follow  the  Virginia  decision. ^^ 

§  54  (9c)  False  Representations  in  Procuring  Bond. — A  bank  is 
responsible  for  the  representations  of  its  cashier  and  its  president  in  pro- 
curing these  contracts  of  indemnity.  Where  the  representations  made  in 
the  certificate  or  declaration  on  which  the  officer's  bond  was  issued  were 
clearly  misrepresentations,  by  such  officer,  made  on  behalf  of  the  bank  to 
procure  the  bond  for  the  bank,  and  acting  for  the  bank,  the  bank  can  not 
recover  on  the  bond.'^**     Thus  w^here  a  certificate,  required  by  a  bonding 


57.  Breach  of  trust  or  theft  outside 
scope  of  duties. — Rochester  City  Bank 
V.  Elwood,  21  N.  Y.  88. 

A  bond  conditioned  upon  the  faith- 
ful discharge  of  the  trust  reposed  in  one 
of  the  obligors  as  an  assistant  book- 
keeper in  a  bank  is  not  simply  an  un- 
dertaking that  he  would  keep,  with 
reasonable  care  and  skill,  such  books 
of  the  bank  as  he  might  properly  be 
required  to  keep  as  assistant  book- 
keeper, and  nothing  more,  but  is  an 
engasrement  for  his  honesty  and  fidel- 
ity to  his  trust  as  an  employee  of  the 
bank.  Rochester  City  Bank  v.  Elwood, 
21  N.  Y.  88. 

The  surety  upon  such  bond  is  liable 
for  a  loss  occasioned  by  his  principal's 
embezzling  the  funds  of  the  bank  and 
making  false  and  fraudulent  entries  in 
the  books  of  the  bank  for  the  purpose 
of  avoiding  detention.  It  is  immate- 
rial that  the  credit  journal,  in  which 
such  false  entries  were  made,  was  us- 
ually kept  by  the  teller  when  the  book- 
keeper entered  upon  his  duties.  Ro- 
chester City  Bank  v.  Elwood,  21  N. 
Y.  88. 

58.  Same. — Allison  v.  Farmers' 
Bank,  27  Va.  (6  Rand.)  204. 


59.  Same.— Rochester  City  Bank  v. 
Elwood,  21   N.  Y.  88. 

60.  False  representations  in  procur- 
ing bond. — Guarantee  Co.  v.  jNIechan- 
ics'  Sav.  Bank,  etc.,  Co.,  183  U.  S.  402, 
46  L.  Ed.  253,  22  S.  Ct.  124;  Fidelity, 
etc.,  Co.  V.  Courtney,  186  U.  S.  342,  46 
L.  Ed.  1193,  22  S.  Ct.  833,  reaffirmed  in 
Cherry  v.  Fidelity,  etc.,  Co.,  205  U.  S. 
537.  51  L.  Ed.  920. 

It  was  competent  for  the  defendant 
Ijonding  company  to  show  that  the 
bank  had  concerned  itself  in  and  about 
the  obtaining  of  the  bond  and  renewals 
in  such  manner  as  to  cause  the  trans- 
action to  become  in  efifect  the  business 
of  the  bank.  The  bank  had  notice 
from  the  terms  of  the  original  bond 
that  it  was  issued  in  reliance  upon 
statements  and  representations  made 
on  its  behalf  to  the  surety  company, 
and  that,  in  the  ordinary  course,  re- 
newals, which  were  to  be  optional  with 
the  surety  company,  might  also  be 
based  upon  further  statements  to  be 
made  on  behalf  of  the  bank.  Thus,  in 
the  original  bond,  it  was  recited  that 
"The  said  employer  has  delivered  to 
the  company  a  certain  statement,  it 
being  agreed  and  understood  that  such 


§  34  (9c) 


OFFICERS    AND    AGENTS. 


313 


company,  that  the  bonded  officer's  accounts  had  been  examined  and  found 
correct,  was  false  as  furnished  by  the  bank,  the  bond  issued  thereon  is  not 
binding  on  the  company.*'^  But  where  the  certifying  officer  (president) 
was  a  confederate  in  the  dishonesty  of  the  bonded  officer,  and  the  pro- 
curing of  the  bond  was  the  business  of  the  officer  to  be  bonded  and  not 
of  the  bank,  it  was  held  that  it  was  no  part  of  the  duties  of  the  president 
to  make  such  a  certificate  as  to  the  honesty  and  fidelity  of  the  applicant, 
and  the  bank  was  not  responsible  for  his  misrepresentation  so  as  to  bar 
recovery  on  the  bond.*'-     Such  a  certificate  is  competent  evidence  to  go  to 


statement  constitutes  an  essential  part 
of  the  contract  hereinafter  expressed." 
It  was  a  reasonable  and  proper  pre- 
caution, in  anticipation  of  a  desired  re- 
newal, to  propound  the  inquiries  which 
were  submitted  by  the  surety  com- 
pany. The  inquiry  was  contained  in 
a  written  communication,  addressed 
to  the  bank;  it  was  received  by  the 
bank,  and  it  was  proper  to  presume 
that  it  was  delivered  to  the  official  who 
made  reply  thereto,  by  authority  of 
the  bank,  he  being  the  executive  officer 
who  was  charged  with  conducting  the 
correspondence  of  the  bank.  The 
making  of  the  certificate  was  an  act 
done  in  the  course  of  the  business  of 
the  bank,  by  an  agent  dealing  with  the 
surety  company  for  and  on  behalf  of 
the  bank.  It  did  not  purport  to  be,  nor 
was  it  designed  to  be,  the  mere  per- 
sonal representation  of  the  individual 
who  filled  the  office  of  cashier,  but  it 
was  an  official  act,  performed  on  be- 
half of  the  bank.  The  information  so- 
licited was  such  as  was  proper  to  be 
asked  of  and  communicated  by  the 
bank,  and  as  the  renewal  was  presum- 
ably made  upon  the  faith  of  the  state- 
ments contained  in  the  certificate,  the 
bank  ought  not  to  be  heard,  while 
seeking  to  ol)tain  the  benefits  of  the 
stipulations  agreed  to  be  performed 
by  the  surety,  to  deny  the  authority  of 
its  officer  to  make  the  representations 
which  induced  the  surety  to  again  Innd 
itself  to  be  answerable  for  the  faithjul 
performance  by  the  defaulting  officer 
of  the  duties  of  his  employment.  Fi- 
delity, etc..  Co.  V.  Courtney,  186  U.  vS. 
.''.42.  40  L.  Kd.  lUt.'i,  22  S.  Ct.  833.  reaf- 
firmr-fl  in  Clierrv  v.  Fidelity,  etc.,  Co, 
20.-,  u.  S.  .-.:;:,  .-,i  L   F.d.  02n. 

61.  False  certificate  furnished  by 
bank  as  a  bar  to  recovery  on  bond. — 
Guarantee  Co.  v.  IMechanics'  Sav.  P.ank. 
etc.,  Co.,  183  U.  S.  402.  4r,  L.  Fd.  253,  22 
S.  Ct.  124,  reaffirming  in  Cherry  7'. 
T'idelity,  etc.,  Co.,  20r,  U.  S.  537,  .51  L. 
I'.d.  020. 

Where  a  bank   teller's  l)on<l  ijrovided 


that  a  certificate  must  be  furnished  be- 
fore each  renewal  every  year  that  the 
accounts  of  the  teller  had  been  ex- 
amined by  the  bank's  finance  committee 
and  found  correct,  and  when  the  bond 
was  renewed  in  January,  1892,  the 
bank's  books  showed  that  the  em- 
ployee was  a  defaulter  in  the  sum  of 
$19,600  understated  liabilities,  and  of 
$3,765.44  abstracted  from  bills  receiv- 
able, both  of  which  could  have  been 
detected  by  the  taking  of  a  trial  bal- 
ance as  is  customary,  or  a  mere  com- 
parison between  the  books  kept  by 
teller  and  the  individual  ledger,  and  a 
correct  footing  of  the  notes,  the  bank 
had  not  only  failed  to  comply  with  its 
engagements  above  referred  to,  and 
falsely  certified  to  a  verification  which 
in  fact  had  not  been  had,  but  was  guilty 
of  such  laches  as  would  of  itself  defeat 
a  recovery.  Guarantee  Co.  v.  Mechanics' 
Sav.  Bank,  etc.,  Co.,  183  U.  S.  402,  46 
L.  Ed.  253,  22  S.  Ct.  124,  reaffirmed  in 
Cherry  v.  Fidelity,  etc.,  Co.,  205  U.  S. 
537,  51   L.  Ed.  920. 

62.  Same — Officer  exceeding  author- 
ity.— Guarantee  Co.  v.  Mechanics'  Sav. 
Bank,  etc.,  Co.,  183  U.  S.  402,  46  L.  Ed. 
253,  22  S.  Ct.  124,  reaffirmed  in  Cherry 
V.  Fidelity,  etc.,  Co.,  205  U.  S.  537.  51 
L.  Ed.  920. 

American  Surety  Co.  ?•.  Pauly,  170 
U.  S.  133,  42  L.  Ed.  977,  18  S.  Ct.  552, 
distinguished  in  Guarantee  Co.  v.  Mer- 
chants' Sav.  Bank,  etc.,  Co.,  183  U.  S. 
402,  46  L.  Ed.  253,  22  S.  Ct.  124,  where 
it  was  said:  "In  Pauly's  Case,  the 
president  and  the  cashier  were  con- 
federates in  the  dishonesty  of  the 
casliier,  for  the  purpose  of  defrauding 
the  bank;  and  also  it  was  licld  no  part 
of  the  duties  of  the  president  under 
the  circumstances  there  disclosed  to 
certify  to  the  integrity  of  the  cashier 
as  he  did.  In  this  case  tlie  dislionesty 
was  that  of  the  cashier  alone;  the 
statements  were  roduircl  id  be  .md 
were  made  on  behalf  of  llie  l).ink.  :nul 
the  president  acted  for  the  bank  in  so 
doing;    and    the    bonds    were    procured 


314 


BANKS    AND    BANKING. 


§  54  (9d) 


the  jiiry.*'^ 

§  54  (9d)  Supervision  and  Notice  of  Default  or  Loss.— A  stipu- 
lation for  due  supervision,  contained  in  a  bank  officer's  bond,  means  that  it 
is  to  be  exercised  by  the  bank,  and  the  neglect  or  omission  of  a  minority 
of  the  board  or  of  a  subordinate  officer  or  agent,  is  not  a  breach  thereof.^^^ 


by  the  bank,  and  the  bank  paid  the 
premiums."  Cherry  v.  Fidehty,  etc., 
Co.,  205  U.  S.  537,  51  L.  Ed.  920. 

There  are  many  acts  which  the  presi- 
dent of  a  bank  may  do  without  express 
authority  of  the  board  of  directors,  in 
some  cases  because  the  usage  of  the 
particular  bank  impliedly  authorized 
them,  in  other  cases  because  such  acts 
were  fairly  within  the  ordinary  routine 
of  his  business  as  president;  but  the 
making  of  a  statement,  as  to  the  hon- 
esty and  fidelity  of  an  employee  for 
the  benefit  of  the  employee,  and  to  en- 
able the  latter  to  obtain  a  bond  insur- 
ing his  fidelity,  was  no  part  of  the  or- 
dinary routine  business  of  a  bank 
president,  and  there  was  nothing  to 
show  that  by  any  usage  of  this  par- 
ticular bank  such  function  was  com- 
mitted to  its  president.  American 
Surety  Co.  v.  Pauly,  170  U.  S.  133,  42 
L.  Ed.  97?;  18  S.  Ct.  552. 

The  procuring  of  a  bond  for  the 
cashier,  in  order  that  he  might  become 
qualified  to  act  as  cashier,  was  no  part 
of  the  business  of  the  bank  nor  within 
the  scope  of  any  duty  imposed  upon 
the  president  of  the  bank.  It  w^as  the 
business  of  the  cashier  to  obtain  and 
present  an  acceptable  bond.  And  it 
was  for  the  bank,  by  its  constituted 
authorities,  to  accept  or  reject  the 
bond  so  presented.  The  bank  did  not 
authorize  its  president  to  give,  nor 
was  it  aware  that  he  gave,  nor  was  he 
entitled  by  virtue  of  his  office  as  presi- 
dent to'  sign,  any  certificate  as  to  the 
efficiency,  fidelity  or  integrity  of  the 
cashier.  No  relations  existed  between 
the  bank  and  the  surety  company  until 
the  cashier  presented  to  the  former  the 
bond  in  suit.  What  therefore  the 
president  assumed  in  his  capacity  as 
president  to  certify  as  to  the  cashier's 
fidelity  or  integrity,  was  not  in  the 
course  of  the  business  of  the  bank  nor 
within  any  authority  he  possessed. 
He  could  not  create  such  authority  by 
simply  assuming  to  have  it.  American 
Surety  Co.  v.  Paulv,  170  U.  S.  133.  42 
L.   Ed.   977.   18   S.   Ct.   552. 

Tf  he  gave  the  certificate  that  he 
mieht,  with  the  aid  of  the  cashier, 
carry  out  his  purpose  to  defraud  the 
bank   for  his   personal   benefit,   the   law 


will  not  presume  that  he  communi- 
cated to  the  bank  what  he  had  done  in 
order  to  promote  the  scheme  devised 
by  him  in  hostility  to  its  interests. 
American  Surety  Co.  v.  Pauly,  170  U. 
S.  133,  42   L.   Ed.  977,   18   S.   Ct.  552. 

As  between  the  bank  and  the  surety 
compan}',  the  former  can  not  be 
deemed,  merel}^  by  reason  of  the  pres- 
ident's relation  to  it,  to  have  had  con- 
structive notice  that  he  as  president 
gave  the  certificate  in  question.  Amer- 
ican Surety  Co.  v.  Pauly,  170  U.  S.  133, 
42   L.    Ed.   977,   18   S.   Ct.   552. 

63.  Certificate  in  evidence. — Fidelity, 
etc.,  Co.  V.  Courtney,  186  U.  S.  342,  46 
L.  Ed.  1193,  22  S.  Ct.  833,  reaffirmed  in 
Cherry  v.  Fidelity,  etc.,  Co.,  205  U.  S. 
537,  51   L.  Ed.  920. 

"As  held  in  First  Nat.  Bank  v.  Stew- 
art, 114  U.  S.  224,  29  L.  Ed.  101,  5 
S.  Ct.  845,  a  communication  which 
on  its  face  evidences  that  it  was  writ- 
ten by  the  cashier  of  a  bank,  should 
not  be  excluded  from  the  jury  as  not 
being  an  act  of  the  bank,  where 
'it  appears  with  reasonable  certainty 
to  have  regard  to  the  business  of 
the  bank.'  In  the  case  at  bar  it 
is  manifest  these  elements  were 
present,  and  the  exclusion  of  the  cer- 
tificate, as  also  of  the  evidence  de- 
signed to  establish  that  the  giving  of 
the  certificate  was  an  act  done  in  the 
course  of  the  business  of  the  bank,  was 
erroneous."  Fidelity,  etc.,  Co.  v 
Courtney,  186  U.  S.  342,  46  L.  Ed.  1193, 
22  S.  Ct.  833, .  reaffirmed  in  Cherry  v 
Fidelity,  etc.,  Co.,  205  U.  S.  537,  51  L 
Ed.  920. 

But  where  the  very  question  which 
the  jury  would  have  been  called  upon 
to  determine  if  the  certificate  had  been 
received  in  evidence  was  fully  sub- 
mitted to  them  and  was  necessarily 
negatived  by  their  verdict,  no  founda- 
tion exists  for  holding  that  prejudicial 
error  resulted  from  excluding  the  cer- 
tificate. Fidelity,  etc..  Co.  v.  Courtney. 
186  U.  S.  342,  46  L.  Ed.  1193.  22  S.  Ct. 
833,  reaffirmed  in  Cherry  v.  Fidelity, 
etc.,  Co..  205  U.  S.  537.  .51  L.  Ed.  920. 
64.  Stioulation  for  due  supervision 
construed. — Fidelity,  etc..  Co.  7'.  Court- 
ney. 186  U.  S.  342,  46  L.  Ed.  1193,  22 
S.   Ct.   833,   reaffirmed   in   Cherry  t.   Fi- 


§  54  (9d) 


OFFICERS    AND    AGENTS. 


315 


And  where,  in  addition  to  the  provisions  already  mentioned,  it  was  agreed 
"that  the  employer  shall  at  once  notify  the  company,  on  his  becoming  aware 
of  the  said  employee  being  engaged  in  speculation  or  gambling,  or  indulg- 
ing in  any  disreputable  or  unlawful  habits  or  pursuits,"  and  the  cashier 
did  become  informed  of  speculation  by  the  teller,  and  told  the  pftisident, 
but  on  the  teller's  assurance  that  he  had  ceased  such  practices,  did  not  in- 
form the  bonding  company,  this  was  a  breach  of  the  bank's  duty  to  that 
company  which  w^ould  defeat  recovery  on  the  bond.*^^     But  notice  need  not 


dclity,  etc.,  Co.,  20.5  U.  S.  537,  51  L.  Ed. 
920. 

A  stipulation  in  a  bank  officer's 
bond:  "That  the  employer  shall  ob- 
serve, or  cause  to  be  observed,  due 
and  customary  supervision  over  the 
employee  for  the  prevention  of  default, 
and  if  the  employer  shall  at  any  time 
during  the  currency  of  this  bond  con- 
done any  act  or  default  upon  the  part 
of  the  employee  which  would  give  the 
employer  the  right  to  claim  hereun- 
der, and  shall  continue  the  employee 
in  his  service  without  written  notice 
lo  the  company,  the  company  shall 
not  be  responsible  hereunder  for  any 
default  of  the  employee  which  may  oc- 
cur subsequent  to  such  act  or  default 
so  condoned,"  is  not  fairly  subject  to 
the  construction  that  it  was  the  inten- 
tion that  the  neglect  or  omission  of  a 
minority  in  number  of  the  board  of 
directors  or  the  neglect  or  omission  of 
subordinate  officers  or  agents  of  the 
bank  should  be  treated  as  the  neglect 
or  omission  of  the  bank.  The  provi- 
sion is  not  that  a  minority  in  number 
of  the  board  of  directors  or  that  sub- 
ordinate officers  or  agents  would  ex- 
ercise due  and  customary  supervision, 
and  would  not  condone  a  default  of 
the  bonded  employee  or  retain  him  in 
his  employment  after  the  commission 
of  a  default,  1)ut  the  agreement  is  that 
the  hank  would  do  or  not  do  these 
things.  Fidelity,  etc.,  Co.  v.  Courtnev, 
18f)  U.  S.  342,  46  L.  Ed.  1193,  22  S.  Ct. 
833,  reaffirmed  in  Cherry  v.  Fidelity, 
etc.  Co.,  205  U.   S.  537,  51    L.   Ed.  920. 

"The  court  rightly  refused  to  in- 
struct the  jury  that  the  mere  knowl- 
edge of  one  or  more  directors,  less 
than  a  majority  of  the  board,  and  of 
(he  vice  president  of  the  bank,  of  the 
dffault  of  the  nresident,  was  imputable 
ti^i  the  ])ank.  Indeed,  when  the  charge 
y/hich  the  court  gave  is  considered,  it 
is  apparent  tliat  the  court  went  quite 
as  far  as  ihe  law  warranted,  in  favor 
of  the  defenrlant,  since  the  court  in- 
structed that  knov/lcdgc  acquired  by 
the  cashier  in  the  course  of  tlie  busi- 
ness  of   the    bank,    and    not    communi- 


cated by  him  to  the  board  of  directors, 
should  be  regarded  as  the  knowledge 
of  the  bank."  Fidelity,  etc.,  Co.  v. 
Courtney,' 186  U.  S.  342,  46  L.  Ed.  1193, 
22  S.  Ct.  833,  reaffirmed  in  Cherry  v. 
Fidelitv,  etc.,  Co.,  205  U.  S.  537,  51  L. 
Ed.  920. 

To  instruct  the  jury  in  broad  terms 
that  if  they  found  that  the  directors 
were  careless  in  the  management  of 
the  bank  generally  they  should  find 
for  the  defendant  bonding  company, 
could  only  have  served  to  mislead. 
The  court  did  not  err  in  refusing  the 
requested  instructions.  Fidelity,  etc., 
Co.  V.  Courtney,  186  U.  S.  342,  46  L 
Ed.  1193,  22  S.  Ct.  833,  reaffirmed  in 
Cherry  v.  Fidelity,  etc.,  Co.,  205  U.  S 
537.  51    L.   Ed.   920. 

65.  Speculation  and  other  bad  hab- 
its— Notice.— Guarantee  Co.  v.  Meclian- 
ics'  Sav.  Bank,  etc.,  Co.,  183  U.  S. 
402,  46  L.  Ed.  253,  22  S.  Ct.  124,  reaf- 
firmed in  Cherry  v.  Fidelity,  etc.,  Co., 
205  U.  S.  537,  51  L.  Ed.  920. 

\yhere  the  officer's  bond  required 
notification  if  the  bank  were  informed 
of  speculation  on  the  officer's  part, 
and  the  president  had  heard  of  such 
sneculation.  it  was  his  duty  to  inform 
the  banking  company,  not  withstand- 
ing the  second  stipulation  was  that  he 
would  inform  the  company  as  to 
matters  about  which  he  deemed  it  ad- 
visable for  the  company  to  inquire. 
The  word  "deem"  might  be  said  to  give 
a  considerable  discretion,  but  it  was  not 
a  discretion  to  be  abused.  That  the 
company  would  consider  it  advisal)le 
to  make  inquiry  is  too  plain  for  argu- 
ment, and  the  bank  was  responsible 
for  the  misrepresentation  in  the  an- 
swer. Guarantee  Co.  v.  Me^-hanics' 
v'^av.  Rank,  etc.,  Co.,  183  U.  vS  402.  46 
E.  Ed.  253,  22  S.  Ct.  124,  reaffirmed  in 
Cherry  7'.  Fidelity,  etc.,  Co.,  205  U.  S. 
537.   .'il    E.    Ed.  920. 

Wliat  tlie  company  stipulated  for 
was  prompt  notification  of  informal  ion 
by  Xhr-  bnnl:  in  recrard  to  speculation 
rtr  gamliling  on  the  part  of  tlie  em- 
ployee. Tt  was  entitled  to  exercise  its 
own  judgment  on  th;it  information  and 


316 


BANKS    AND    BANKING. 


54   (9d) 


be  given  of   mere  suspicions  of   an  act  which  may   involve  a   loss;  there 
must  be  knowledge/'''  and  the  notice  need  not  be  given  instantly,  but  within 


had  not  agreed  to  rely  on  the  bank's 
belief  in  that  regard.  It  kad  the  right 
to  investigate  for  itself  whether  the 
bank  did  so  or  not.  Notification  of  the 
existence  of  reason  for  inquiry  was 
exactly  what  the  clause  was  intended 
to  secure.  The  bank  neither  investi- 
gated nor  gave  the  company  notice  of 
the  information  it  had,  and  substituted 
its  own  judgment  as  to  the  value  of 
that  information  for  that  of  the  com- 
pany. This  conduct  on  its  part 
amounted  to  a  breach  of  the  stipula- 
tion. Guarantee  Co.  v.  Mechanics' 
Sav.  Bank,  etc.,  Co.,  183  U.  S.  402,  46 
L.   Ed.   253,   22  S.   Ct.   124. 

It  was  the  duty  of  this  bank  to  have 
made  prompt  investigation,  or  at  all 
events  to  have  notified  the  company 
at  once  of  the  information  that  it  had, 
and  the  bank's  misplaced  confidence 
in  its  officer  affords  insufficient  ground 
for  enforcing  the  liability  of  the  surety 
company  on  the  theory  of  good  faith. 
The  failure  of  the  bank  in  the  particu- 
lars adverted  to  defeats  a  recovery  on 
the  teller's  bond  for  defalcation  after 
information  of  his  being  engaged  in 
speculation  was  received.  Guarantee 
Co.  V.  Mechanics'  Sav.  Bank,  etc.,  Co., 
183  U.  S.  402,  46  L.  Ed.  253,  22  S.  Ct. 
3  24,  reaffirmed  in  Cherry  f.  Fidelity, 
etc.,   Co.,  205   U.   S.   537,   51   L.    Ed.   920. 

"Whatever  the  common-law  duty  on 
the  part  of  the  employer  to  notify  the 
guarantor  of  the  fraud  or  dishonesty 
of  the  employee  whose  fidelity  is  guar- 
anteed, the  parties  to  this  contract  un- 
dertook to  declare  the  duty  of  the 
bank  to  the  company  in  certain  speci- 
fied particulars.  It  required  that  the 
employee  should  not  have  been  guilty 
of  previous  default  or  dereliction  with- 
in the  knowledge  of  the  employer.  It 
provided  for  notification  of  any  act  of 
the  employee  which  might  involve  a 
loss  without  unreasonable  delay  after 
the  occurrence  of  the  act  came  to  the 
knowledge  of  the  employer.  And  it 
required  immediate  notification  on  the 
employer  becoming  aware  of  the  em- 
ployee being  engaged  in  speculation  or 
gambling.  The  words,  'becoming 
aware,'  were  manifestly  used  as  ex- 
pressive of  a  dififerent  meaning  from 
having  'knowledge.'  ''  Guarantee  Co.  z\ 
Mechanics'  Sav.  Bank,  etc.,  Co.,  183  U. 
S.  402,  46  L.  Ed.  253,  22  S.  Ct.  124,  re- 
affirmed in  Cherry  z'.  Fidelity,  etc., 
Co.,  205  U.   S.   537.   51   L.   Ed.   920. 

66.  Same — Mere  suspicion  without 
knowledge. — American     Surety     Co.     :'. 


Pauly,   170  U.   S.   133,  42   L.    Ed.   977,  18 
S.    Ct.   552. 

Where  the  bond  for  the  cashier  re- 
quired written  notice  to  be  given  to 
the  company,  at  its  office  in  New  York, 
of  any  act  on  the  part  of  the  cashier 
"which  may  involve  a  loss  for  which 
the  company  is  responsible  hereunder, 
as  soon  as  practicable  after  the  oc- 
currence of  such  act  shall  have  come 
to  the  knowledge  of  the  employer," 
the  defendant  was  entitled  to  notice 
in  writing  of  any  act  of  the  cashier 
which  came  to  the  knowledge  of  the 
plaintiff  of  a  fraudulent  or  a  dishonest 
character  as  soon  as  practicable  after 
the  plaintiff  acquired  knowledge.  It 
is  not  sufficient  to  defeat  the  plaintiff's 
right  of  action  upon  the  policy  that  it 
be  shown  that  the  plaintiff  may  have 
had  suspicions  of  dishonest  conduct 
of  the  cashier;  but  it  was  plaintiff's 
duty  under  the  policy,  when  it  came 
to  his  knowledge,  when  he  was  satis- 
fied that  the  cashier  had  committed 
acts  of  dishonesty  or  fraud  likely  to 
involve  loss  to  the  defendant  under 
the  bond,  as  soon  as  was  practicable 
thereafter  to  give  written  notice  to 
the  defendant.  Though  he  may  have 
had  suspicions  of  irregularities,  and 
of  fraud,  he  was  not  bound  to  act  tm- 
til  he  had  acquired  knowledge  of  some 
specific  fraudulent  or  dishonest  act 
which  might  involve  the  defendant  in 
liability  for  the  misconduct.  Ameri- 
can Surety  Co.  t'.  Pauly.  170  U.  S.  133, 
42  L.   Ed.  977,  18  S.  Ct.  552. 

Where  a  surety  company  gave  bond 
for  the  president  of  a  national  bank, 
which  was  sued  upon  by  the  bank's  re- 
ceiver, it  was  proper  to  instruct  the 
jury  that  the  receiver  need  not  have 
given  the  required  notice  on  mere  sus- 
picion as  to  acts  by  the  president  in- 
volving fraud  or  dishonesty  on  his  part 
as  president  of  the  bank,  but  was  bound 
to  do  so  only  when  satisfied  that  he 
had  committed  some  specific  act  of 
fraud  or  dishonesty  likely  to  involve 
loss  to  the  companv.  American  Surety 
Co.  :•.  Pauly,  170  U.  S.  160,  42  L.  Ed. 
987.  18  S.  Ct.  563. 

The  provision  in  the  bond  in  these 
words:  "Now,  therefore,  in  considera- 
tion." etc.  "It  is  hereby  declared  and 
acrreed,  that  subject  to  the  provision 
herein  contained,  the  company  shall, 
within  three  months  next  after  notice, 
accompanied  by  satisfactory  proof  of 
a  loss,  as  hereinafter  mentioned,  has 
been  given  to  the  company,  make  good 


§  54  (9e) 


OFFICERS    AND    AGENTS. 


3i; 


a  reasonable  time  under  the  circumstances. <5" 

§  54  (9e)  Filing  Claim  for  Loss.— A  requirement  in  a  bank  offi- 
cer's bond  that  claim  of  loss  be  tiled  "as  soon  as  practicable""  after  written 
notice,  means  that  a  full  statement  thereof  shall  be  filed  as  soon  as  it  can 
be  prepared  with  reasonable  diligence.*'^  The  period  of  six  months  from 
"the   death   or   dismissal   or   retirement"   of   the   officer   from   employment, 


and  reimburse  to  the  employer  all  and 
any  pecuniary  loss  sustained  by  the 
employer  of  moneys,  securities  or 
other  personal  property  in  the  posses- 
sion of  tlie  employee,  or  for  the  pos- 
session of  which  he  is  responsible,  by 
any  act  of  fraud,  or  dishonesty,  on  the 
part  of  the  employee,  in  connection 
with  the  duties  of  the  office  or  position 
hereinbefore  referred  to,  or  the  duties 
to  which  in  the  employer's  service  he 
may  be  subsequently  appointed,  and 
(occurring  during  the  continuance  of 
this  bond,  and  discovered  during  said 
continuance,  or  within  six  months 
thereafter,  and  within  six  months  from 
ihe  death  or  dismissal  or  retirement  of 
the  employee  from  the  service  of  the 
employer.  It  being  understood  that 
a  written  statement  of  such  loss,  cer- 
tified by  the  duly  authorized  officer  or 
representative  of  the  employer,  and 
based  upon  the  accounts  of  the  em- 
ployee, shall  be  prima  facie  evidence 
thereof" — is  so  drawn  as  to  leave  room 
for  two  constructions  of  its  provisions, 
cither  of  which,  it  may  be  conceded, 
is  reasonable,  one  favorable  to  the 
company,  and  the  other  favorable  to 
the  bank  and  most  likely  to  subserve 
the  purposes  for  which  the  bond  was 
given.  In  such  a  case  the  terms  used 
must  be  interpreted  most  strongly 
against  the  party  who  prepared  the 
bond  and  delivered  it  to  the  party  for 
whose  protection  it  was  executed. 
Amoricpn  Suretv  Co.  v.  Pauly,  No.  2, 
170   U.    S.    160.    42    L.    Ed.   987,   18    S.    Ct. 

r)f;:{. 
67.      "Immediately"    not    necessarily 

instantly.— Fidelity,  etc.,  Co.  v.  Court- 
ney. ISC,  U.  vS.  ,'H2.  46  L.  Ed.  119:'!,  22 
vS.  Ct.  8.3.3;  .'\merican  Surety  Co.  :'. 
Paulv,  170  U.  S.  160.  42  L.  Ed.  987,  18 
S.  Ct.  .563.  reaffirmed  in  Cherry  v.  Ei- 
delity.  etc.,  Co.,  20.5  U.  S.  537,  51  L. 
Ed.  920. 

A.  rernn'remcnt  in  the  bond  of  ;i  ])ank 
nTfiror  "that  the  employer  sliall  imme- 
di.'itolv  give  the  companv  notice  in 
writjnn^  of  the  discovery  of  any  default 
or  loss"  ouirht  not  to  receive  the  con- 
stnirtion  that  it  was  intended  bv  the 
oarties  that  notice  of  a  default  should 
be  given   instantly  on  the  discovery  of 


a  default,  but  that  what  was  meant 
was  that  notice  should  be  given  within 
a  reasonable  time,  having  in  view  all 
the  circumstances  of  the  case.  Fidel- 
ity, etc.,  Co.  V.  Courtney,  186  U.  S.  342, 
4G  L.  Ed.  1193.  22  S.  Ct.  833. 

Ihe  trial  court  was  right  in  refusing 
to  instruct,  as  a  matter  of  lav.-,  that  the 
notice  was  not  given  as  soon  as  rea- 
sonably practicable  under  the  circum- 
stances of  the  case,  or  without  unnec- 
essary delay,  and  in  leaving  the  jury 
to  determine  the  question  whether  the 
receiver  had  acted  with  reasonable 
promptness  in  giving  the  notice,  as  he 
did.  from  ten  to  seventeen  days  after 
the  first  discovery  of  a  default.  Fidel- 
ity, etc..  Co.  V.  Courtney,  186  U.  S.  342, 
46  L.  Ed.  1193,  22  S.  Ct.  833.  reaffirmed 
in  Cherrv  v.  Fidelitv,  etc..  Cc;.,  205  U. 
S.   537,   51   L.   Ed.   920. 

It  was  not  error  to  leave  it  to  the 
jury  to  say  whether,  under  the  proof, 
and  looking  at  all  the  circumstances, 
a  notice  given  May  23d,  of  a  loss  dis- 
covered after  May  1st,  was  given  with 
reasonable  promptness.  American 
Suretv  Co.  v.  Paulv,  170  U.  S.  160.  42 
L.    Ed.    987,    18    S.    Ct.    563. 

68.  Time  for  filing  claim. — Fidelity, 
f  tc.  Co.  V.  Courtney,  186  U.  S.  342,  46 
L.  Ed.  1193.  22  S.  Ct.  833.  reaffirmed  in 
Cherry  v.  Fidelity,  etc.,  Co.,  205  U.  S. 
537.  51  L.  Ed.  920. 

Where  the  requirement  of  the  bond 
was  that  the  employer  "shall  file  with 
the  company  his  or  her  claim  hereun- 
der, with  full  particulars  thereof,  as 
soon  as  practical)le''  after  the  giving 
of  written  notice  of  a  default  or  loss, 
what  was  required  was  not  a  partial. 
l)Ut  a  full  statement  of  all  tlie  items 
of  claimed  misappropriation  on  which 
the  right  to  recover  upon  the  bond 
was  based.  The  investigation  to  ac- 
certain  the  various  defaults  continued 
after  the  giving  of  the  preliminarv  no- 
tice of  default,  and  the  evidence  in  tlie 
record  fails  to  give  any  support  to  ;he 
contention  that  the  proof  of  claim  was 
unreasonably  delayed,  and  was  not 
made  as  soon  as  practicable  after  the 
full  narticulars  thereof  were  ascer- 
tained. Fidelitv.  etc.  Co.  7'.  Courtnev. 
18G  U.  S.  342.  46  L.   Ed.  1193.  22  S.   Ct. 


318 


BANKS    AND    BANKING. 


54  (9e) 


within  which  a  bond  required  that  the  default  be  discovered  and  notice 
given,  did  not  begin  with  the  suspension  of  the  bank,  but  only  ran  from 
either  the  officer's  death  or  actual  retirement  or  dismissal,  or  possibly  from 
his  taking  service  under  the  receiver.'^^ 


833,  reaffirmed  in  Cherry  t'.  Fidelity, 
etc.,  Co.,  205  U.  S.  537,  51  L.  Ed.  920. 
Evidence  of  knowledge  of  defaults. 
— The  court  did  not  en  in  instructing 
the  jury  that  the  averments  contained 
in  a  petition  filed  by  the  receiver  in  an 
action  in  attachment  against  the  de- 
faulting officer  brought  to  recover  va- 
rious items  of  alleged  indebtedness  to 
the  bank,  should  be  given  no  effect  in 
their  deliberations,  as  but  one  of  said 
items  was  embraced  in  the  present  ac- 
tion. The  petition  referred  to  was  pre- 
sumably introduced  in  evidence  on  be- 
half of  the  defendant,  as  tending  to  es- 
tablish that  the  proof  of  claim  was  not 
made  by  the  receiver  as  soon  as  prac- 
ticable after  the  giving  of  notice  that 
the  officer  had  been  guilty  of  a  default. 
Tlie  petition  counted  upon  various 
items,  a  portion  only  of  which  were 
embraced  in  the  petition  in  the  action 
on  trial,  and  the  fact  that  the  oetition 
in  the  attachment  action  showed  that 
when  filed  the  receiver  knew  of  some 
of  the  misappropriations  of  the  officer, 
did  not  tend  to  prove  that  he  then  had 
knowledge  of  all  of  his  defaults.  Fi- 
delity, etc.,  Co.  7'.  Courtney,  186  U.  S. 
342,  46  L.  Ed.  1193,  22  S.  Ct.  833,  reaf- 
firmed in  Cherry  v.  Fidelity,  etc.,  Co., 
205  U.  S.  537.  51   L.   Ed.   920. 

69.  Termination  of  liability. — .Amer- 
ican Surety  Co.  7'.  Paulv.  170  U.  S.  133, 
42  L.  Ed.  977,  18  S.  Ct.  552. 

When  the  bank  suspended  the  busi- 
ness, and  the  investigation  by  the  ex- 
aminer commenced,  the  cashier  ceased 
to  perform  the  ordinary  duties  of  a 
cashier,  but  within  the  meaning  of  the 
bond,  did  not  retire  from,  but  re- 
mained in,  the  service  of  the  employer 
during  at  least  the  investigation  of  the 
bank's  affairs  and  the  custody  of  its 
assets  by  the  national  bank  examiner, 
w^hich  lasted  until  the  appointment  of 
a  receiver  and  his  qualification  on  the 
29th  day  of  December,  1891.  Certainly, 
the  six  months  from  "the  death  or  dis- 
missal or  retirement  of  the  employee 
from  the  service  of  the  employer." 
within  which  his  fraud  or  dishonesty 
must  have  been  discovered  in  order 
to  hold  the  company  liable,  did  not 
coininence  to  run  prior  to  the  date  last 
named.  American  Surety  Co.  7'.  Paulv. 
170  U.  S.  133,  42  L.  Ed.  977,  18  S.  Ct. 
552. 


Of  course  the  cashier's  death  would 
have  terminated  his  employment  as 
cashier.  But  he  was  never  dismissed, 
for  his  dismissal  could  only  iiave  oc- 
curred by  the  act  of  the  bank  or  of 
some  one  who  represented  it  before 
or  after  it  suspended  business.  His 
"retirement,"  which  would  arise  from 
his  voluntary  act,  occurred  either 
when  he  took  service  under  the  re- 
ceiver, or  when  he  voluntarily  left  that 
service  on  the  2nd  day  of  March,  1892. 
Whether  within  the  meaning  of  the 
bond  he  was  in  "the  service  of  the 
employer"  while  he  was  in  the  service 
of  the  receiver,  or  not,  it  is  sufficient 
for  this  case  to  hold  that  he  was  in  the 
service  of  the  employer  at  least  up  to 
the  time  of  the  receiver's  appointment 
and  qualification.  which  occurred 
within  six  months  prior  to  the  discov- 
ery of  his  fraud  and  dishonesty  and  the 
giving  of  notice  thereof.  American 
Surety  Co.  7'.  Pauly.  170  U.  S.  133.  43 
L.   Ed.   977,   18    S.   Ct.   552. 

It  is  sufficient  in  this  case  to  ad- 
judge that  the  officer,  within  the  mean- 
ing of  the  bond,  was  in  the  service  of 
the  bank  up  at  least  to  the  date  on 
which  the  receiver  took  possession,  and 
that  his  fraudulent  acts  were  discov- 
ered and  notice  thereof  given  within 
six  months  after  that  date.  The  acts 
of  fraud  and  dishonesty  complained  of 
were  discovered  a  few  days  prior  to 
May  23,  1892.  and  notice  thereof  to 
tlie  company  was  given  on  that  day. 
and  was  followed  by  a  claim  or  proof 
of  loss  mailed  June  24,  1892,  and  re- 
reived  by  the  company  July  1,  1892. 
Such  are  the  facts  which  the  verdict 
of  the  jtiry  must  be  taken  to  have  es- 
tablished. And  if  it  be  further  true. 
as  the  verdict  imports,  that  the  notice 
of  May  23,  1892,  was  given  as  soon  as 
practicable  after  the  occurrence  of  the 
alleged  fraudulent  acts  came  to  the 
knowledge  of  the  receiver,  then  the 
loss  was  discovered  during  the  contin- 
uance of  the  bond  and  "within  six 
months  from  the  *  *  *  retirement  of 
the  employee  from  the  service  of  the 
employer."  And  if  the  bond  is  to  be 
regarded  as  having  expired  upon  his 
death,  it  also  results  that  the  claim  of 
loss  was  made  within  the  time  re- 
cuired.  American  Surety  Co.  7'.  Paulv. 
170  U.  S.  160.  42  L.  Ed.  987.  18  S.  Ct. 
563. 


§    55     (1)  OFFICERS    AND    AGENTS.  319 

§  54  (9f)  Actions  on  Bonds.— See  post,  "Actions  and  Proceedings 
to  Enforce  Liability,"  §  55. 

§  55.  Actions  and  Proceedings  to  Enforce  Liability — §  55  (1) 
Nature  and  Form — Jurisdiction. — The  directors  of  a  bank  having  been 
guilty  of  malfeasance,  misfeasance  or  negligence,  an  action  at  law  lies  in 
favor  of  the  corporation,  while  a  going  concern,  for  the  losses  so  sustained, 
or  to  the  assignee,  trustee,  or  whatever  officers  are  charged  with  winding 
up  its  affairs,  after  it  has  ceased  to  be  a  going  concern.""  Upon  the  re- 
fusal of  the  corporation  or  its  liquidating  officers  to  sue,  the  stockholders 
have  their  remedy  by  a  suit  in  equity  to  compel  them  to  make  good  the 
loss,  but  can  not  sue  at  law.'i  To  enable  the  stockholders  to  sue,  it  must 
appear  either  that  proper  effort  has  been  made  to  get  the  corporation  to  sue, 
or  that  efforts  of  that  kind  would  have  been  perfunctory  and  useless,  as 
would  be  the  case  where  so  many  of  the  directors  were  involved  in  guilt 
that  it  would  be  idle  to  expect  them  to  prosecute  themselves.' 2  The  cash- 
ier of  a  bank,  intrusted  with  the  control  and  custody  of  its  funds,  will, 
in  a  court  of  equity  be  held  as  a  trustee  for  the  bank  and  may  be  sued  by 
it  in  such  court,  and  compelled  to  account  for  and  pay  any  loss  sustained 
by  it,  which  was  caused  by  any  negligence  or  wrongful  conversion  or  by 
any  misapplication  or  use  of  any  of  its  funds  by  such  cashier  in  violation 
of  the  duties  of  his  trust.  The  relation  of  cestui  and  trustee  is  sufficient  to 
confer  jurisdiction.' ^  And  even  a  private  unchartered  company,  associated 
for  the  purpose  of  carrying  on  business  as  a  bank,  though  such  associa- 
tions are  contrary  to  law,  will  be  entertained  in  a  court  of  chancery,  in 
a  suit  against  its  cashier,  for  an  account  of  his  agency.'-*  The  cashier  of  a 
bank  who  has  sold  its  assets,  and  converted  them  into  cash,  must  be  deemed 

70.  Nature  and  form  of  action — Juris-  Bank,  89  Tenn.  630,  15  S.  W.  448,  24 
diction.— Union  Nat.  Bank  Z'.  Hill,  148  Am.  St.  Rep.  625;  Deaderick  f  Bank 
Mo.  rjso.  49  S.  W.  1012,  71  Am.  St.  Rep.  100  Tenn.  457,  45  S.  W.  786;  Shea  z> 
615;  S.  C,  155  Mo.  279,  55  S.  W.  1133;  Maxville,  etc.,  R.  Co..  65  Tenn.  (6 
Higgins  V.  TefiFt,  4  App.  Div.  02.  38  \.  Ba.xt.)  277;  Moses  r.  Ocoee  Bank,  69 
Y.  S.  716.  74  N.  St.  Rep.  100;  Paine  v.  Tenn.  (1  Lea)  398;  Hume  Z'.  Commer- 
Barnum  (N.  Y."),  59  How.  Prac.  303;  cial  Bank.  77  Tenn.  (O  Lea)  728;  Zinn 
Wnijht  V.  Davenport,  66  Pa.  148;  Wat-  ?'.  Mendel.  9  W.  Va.  580.  Sec,  also, 
lace  V.  Lincoln  Sav.  Bank,  89  Tenn.  ante,  "Rij?ht  of  Stockholders  to  Fn- 
630,  15  S.  W.  448,  24  Am.  St.  Rep.  625;  force  Liability."  §  54   (5). 

Deaderick  7',    Bank,    100   Tenn.   457,   45  72.    Same— Demand    and    refusal    of 

S.  W.  786;  Hume  t'.  Commercial  Bank,  corporation  to  sue. — Herscy  z:   Vcazic, 

77  Tenn.   (9  Lea)   728.  24    Me.    9,    41    Am.    Dec.    364;    Smith   z'. 

71.  Same — Stockholders  may  sue  in  Poor,  40  Me.  415,  63  Am.  Dec.  672; 
equity.— Allen  z:  Curtis.  26  Conn.  456;  Robinson  v.  Smith  (N.  Y.),  3  Pai^e 
Smith  V.  Hurd  TMass.),  12  Mete.  371,  222,  24  Am.  Dec.  212;  Cunnincham  z'. 
46  Am.  Dec.  690;  Smith  v.  Poor,  40  Pitts,  5  Paige  (N.  Y.)  607;  Wallace  z'. 
Me.  415.  63  Am.  Dec.  672;  Union  Nat.  Lincoln  Sav.  Bank,  89  Tenn.  630  15  S 
Bank  t'.  Hill.  148  Mo.  380.  49  S.  W.  1012,  W.  448.  24  .Am.  St.  Rep.  625 

71  Am.  St.  Rep.  615:  S.  C.  155  Mo.  279,  73.  Cashier  may  be  sued  in  equity.— 

•'5.')    S.    W.    1133;    Winter   z'.    Baker    (N.  :\Torchants'  Bank  7'.   TclTrirs.  ;^1   W    Va 

Y.\  34   Plow.   Prac.   183;  Taylor  zk   Mi-  504. 

arni   K.xportinc?   Co.,   5    O.    162.   22   Am.  74.    Same— Suit     by     unincorporated 

nee.  785;  Meisse  Z'.  Loren.  4  N.  P.  100,  company. — Berksliirc   z\    I'.vans,   31    Va. 

6  O.  Dec.  258;  Wallace  7'.  Lincoln   Sav.  (4  Leish)  223. 


320  BANKS    AND    BANKING.  §    55    (2) 

the  agent  of  the  board  of  directors  for  the  purpose  of  dividing  the  balance 
in  his  hands  after  paying  all  claims  against  the  bank  among  its  stockhold- 
ers ;  and  he  can  not  be  charged  as  trustee  by  an  individual  stockholder  as 
holding  a  portion  of  such  balance  for  his  benefit."-^  And  in  so  far  as  a  bill 
by  a  bank  against  the  administrator  of  its  deceased  cashier  seeks  an  ac- 
counting against  the  agent,  it  contains  equity.''^  The  president  of  a  bank 
is  not  such  a  trustee  of  its  funds  as  to  give  equity  jurisdiction  of  a  suit 
against  him  for  their  misappropriationJ"^ 

Duty  to  Exhaust  Remedy  against  Parties  Primarily  Liable. — An 
action  may  be  maintained  against  trustees  of  a  bank  for  making  a  loan 
without  authority  of  law  to  borrowers  alleged  to  be  worthless  and  insol- 
vent, without  first  suing  such  borrowers,  and  exhausting  all  remedies 
against  themJ"* 

Statutory  Requirement  as  to  Report  Finding  Insolvency  to  Have 
Been  Fraudulent. — Where  a  statute  requires  the  appointment  of  auditors 
and  authorizes  an  investigation  and  trial  by  the  court  only  upon  the  report 
of  such  auditors  that  the  insolvency  was  caused  by  the  fraudulent  conduct 
of  the  directors,  there  can  be  no  procedure  under  that  provision  of  the  act 
where  the  auditors  do  not  report  that  the  insolvency  is  fraudulent.''* 

Asserting  Rights  by  Means  of  Set-Off,  Counterclaim,  etc. — The 
cause  of  action  which  a  bank  has  against  its  cashier  for  wrongfully  per- 
mitting a  depositor  to  overdraw  his  account  is  a  cause  of  action  arising 
on  contract,  within  the  meaning  of  the  statute  regulating  counterclaims. ^'^ 
But  the  liability  of  a  director  of  a  bank  for  misfeasance  can  not  be  pleaded 
as  a  set-ofif  to  an  action  by  him  to  foreclose  a  mortgage  given  by  the  bank 
to  secure  money  actually  loaned  to  it.'^^ 

§   55    (2)    Limitations  and  Laches. — While  the  directors  are  some- 

75.  Cashier  not  chargeable  by  indi-  tions  43  and  44  provide  that  the  court 
vidual  stockholder,  when. — Brown  z'.  shall  thereupon  appoint  auditors  to  in- 
Adams,  Fed.  Cas.  No.  ]98(),  .5  Biss.  181.       vestigate  and  report,  and,  in  case  they 

76.  Accounting  against  estate  of  report  that  the  insolvency  was  fraudu- 
cashier. — Wj-nn  t'.  Tallapoosa  County  lent,  it  shall  be  their  duty  to  ascertain 
Bank,  168  Ala.  469.  53   So.  228.  and    report    the    amount    due    from    the 

77.  Suit  against  president  as  trustee.  several  directors.  Section  45  provides 
— In  re  McMullins'  Appeal,  131  Pa.  370,  that  the  court  shall  thereupon  investi- 
18  Atl    10.56.  gate    the    report,    and    shall    determine 

78.  Duty  to  exhaust  remedies  against  whether  the  insolvency  was  fraudulent 
parties  primarily  liable. — Paine  z'.  or  otherwise;  or  they  may  direct  an 
Barnum   (X.   Y.).   .59   Plow.  Prac.   303.  issue   to  try  the   fact   of  fraudulent   in- 

79.  Statutory  requirement  as  to  re-  solvency.  Held  that,  where  the  audit- 
port  finding  insolvency  to  have  been  ors  do  not  report  that  the  insolvency 
fraudulent. — Wright  v.  Davenport,  66  is  fraudulent,  and  the  amount  due  from 
Pa.   148.  the    directors,   the   court  has   no  power 

Act  April  16,  18.50,  §  40,  provides  to  proceed  under  §  45.  Wright  v. 
that,  if  the  insolvency  of  a  bank  be  oc-  Davenport,  66  Pa.  148. 
casioned  by  the  fraudulent  conduct  of  80.  Asserting  rights  by  means  of 
the  directors,  they  shall  be  liable  to  counterclaim  or  set-off. — Board  f.  Es- 
the  stockholders.  Section  42  provides  tate.  12  Mo.  Aop.  104. 
that  upon  assignment  the  directors  81.  Using  director's  liability  for  mis- 
shall  file  with  the  prothonotary  a  state-  feasance  as  an  off-set  against  him. — 
ment  of  the   affairs   of  the   bank.     Sec-  Ahl  z\  Rhoads,  84  Pa.  319. 


(2) 


OFFICERS  AND  AGENTS. 


321 


times  said  to  be  trustees,  so  far  as  the  statute  of  limitations  is  concerned 
thev  can  not  be  held  to  be  more  than  implied  trustees,  and  the  statutes  of 
limitation  run  in  their  favor,  the  limitation  apj^licable  to  the  suit  of  the 
corporation  at  law  being  equally  applicable  to  the  suit  of  the  stockholder 
upon  the  corporate  right  of  action  in  equity.^-  In  Ohio,  however,  it  is 
held  that  the  managers  of  a  savings  bank  stand  in  the  relationship  of 
trustees  to  the  depositors,  so  that  the  statute  of  limitations  will  not  be  a 
bar  against  a  charge  of  mismanagement  on  their  part.--*  In  the  case  of 
fraud,  the  cause  of  action  accrues  and  limitations  and  laches  begin  to  run 
only   from  the  time  of   its   discovery.''-*     Where  a   stockholder  of  a  bank 


82.  Limitations  and  laches. — God- 
bold  7'.  Branch  Bank,  11  Ala.  191,  46 
Am.  Dec.  211;  Neal  z:  Moultrie,  12  Ga. 
104;  Williams  v.  Halliard,  38  N.  J.  Eq. 
373;  Biinckerhoff  v.  Bostwick,  99  N.  Y. 
185,  1  X.  E.  603;  In  re  Sperihg's  Appeal, 
71  Pa.  11.  10  Am.  Rep.  684;  Hughes 
V.  Brown,  88  Tenn.  578,  13  S.  W.  286,  8 
L.  R.  A.  480;  Wallace  v.  Lincoln  Sav. 
Bank,  89  Tenn.  630.  15  S.  W.  448,  24 
Am.   St.   Rep.   625. 

An  action  by  a  shareholder  of  a 
bank  against  its  directors,  to  recover 
for  inattention  and  mismanagement, 
resulting  in  alleged  losses  from  loans 
made  by  the  cashier  to  a  firm  of  which 
he  is  a  member,  though  brought  in 
equity,  is  to  enforce  a  legal  right,  and 
is  subject  to  the  operation  of  the  stat- 
ute of  limitations.  Wallace  z'.  Lincoln 
Sav.  Bank,  89  Tenn.  630.  15  S.  W.  448, 
24  Am.  St.  Rep.  625. 

The  liabilities  of  the  directors  of  tlie 
Commercial  Bank  at  Macon,  created 
by  the  eighth  rule  of  the  bank  charter, 
which  limits  the  amount  of  indebted- 
ness the  incorporation  inay  incur,  be- 
ing statutory,  are  not  barred  until  after 
20  years.     Neal  v.  Moultrie,  12  Ga.  104. 

A  complaint  for  the  benefit  of  the 
stockholders  of  an  insolvent  bank, 
against  the  directors,  charging  them 
with  lial)ility  for  property  of  the  bank 
lost  and  stolen  through  their  miscon- 
duct, is  in  the  n?.ture  of  an  equitable 
;iction,  calling  them  to  account  as 
trustees,  and  the  limitation  of  such  an 
action  is  ten  years,  under  Code  N.  Y  , 
§  388.  Brinckerlioff  z:  Bostwick,  99  N. 
Y.  185,  1    N.   E.   663. 

83.  Same — In  Ohio. — ATeisse  z\ 
T.orcn,  4   \.  P.   100,  (1  ().  Dec.  258. 

84.  When  statute  begins  to  run — 
Accrual  of  action. — McGrc2:or  z\  Wit- 
ham,  126  Ga.  702.  56  S.  E.  55;  First 
Nat.  Bank  v.  Strait,  75  Minn.  396,  78 
N.  W.   101. 


An  instruction  that  it  is  a  construct- 
ive fraud  on  a  bank  for  its  cashier, 
president,  or  any  director  having 
knowledge  of  a  cause  of  action  or  a 
demand  in  its  favor,  against  himself, 
not  to  make  known  the  existence  of 
such  cause  of  action  to  the  governing 
body  of  the  bank,  and  that  the  duty  of 
such  bank  officer  requires,  in  the  pres- 
ent case,  that  he  communicate  to  such 
1,'ody  the  facts  relating  to  the  demand 
or  cause  of  action,  and,  if  he  fails  to  do 
so,  the  right  of  action  of  the  bank  does 
not  accrue,  so  as  tc  start  limitations 
in  motion,  until  such  information  is 
obtained  by  the  governing  body,  while 
perhaps  too  broad  as  an  al^stract  prop- 
osition of  law,  is  correct  as  applied  to 
a  case  where  the  president  and  the 
cashier  of  a  national  bank  were  jointly 
lialile  to  the  bank  on  a  firm  note 
which,  it  was  imderstood  between 
tbemselves,  the  cashier  should  take 
care  of,  where  the  only  way  it  was  paid 
was  by  the  individual  note  of  the 
cashier,  of  which  the  president  did  not 
notify  the  board  of  directors,  the  gov- 
erning body.  First  Nat.  Bank  v. 
Strait,   75   Minn.  396,  78  N.  W.   101. 

Where  the  president  of  a  bank,  who 
lias  been  in  the  habit  of  helping  the 
l)ank  to  make  loans,  knowing  that  it 
relied  on  his  advise,  sold  it  a  note  witli 
knowledge  that  the  maker  was  eml)ar- 
rassed,  if  not  insolvent,  and  that  the 
indorsers  were  not  financially  strong, 
liut  representing  to  the  bank  tliat  he 
believed  lioth  maker  and  indorsers  to 
have  the  best  of  credit,  the  hank  is  not 
guilty  of  laches  in  not  tendering  a  re- 
turn of  the  note  for  one  and  one-lialf 
years  after  it  was  due  and  unpaid, 
wbere  it  did  not  know  of  the  insol- 
vency of  the  maker  and  indorsers,  or 
have  reason  to  suppose  tliat  defendant 
knew  of  it,  unlil  sliortly  before  tlie 
tender  was  ni.idr.  Hicks  f.  Steel,  126 
Mich.    408,   85    N.   W.    1121. 


1   B  &  B— 21 


322  BANKS   AND   BANKING.  §    55    (3) 

sues  to  set  aside  a  sale  of  mining  stock  by  the  bank's  trustee  to  some  of 
its  directors,  for  fraud,  laches  on  the  part  of  the  plaintifif  in  not  discovering" 
the  fraud  by  examination  of  the  bank's  books  can  not  be  set  up  by  the  di- 
rectors, who  have  purchased  the  stock  and  received  the  dividends  there- 
from equal  to  the  purchase  price,  since  they  occupy  a  fiduciary  relation 
towards  the  plaintiff,  and  are  in  no  way  injured  by  his  delay  in  discover- 
ing such  facts. 85  And  where  there  is  a  conspiracy  upon  the  part  of  a  presi- 
dent and  a  cashier  to  defraud  the  bank  and  misappropriate  its  funds,  an 
action  instituted  within  the  statutory  period  from  the  time  of  the  actual 
misappropriation  of  the  funds  and  carrying  out  of  the  conspiracy  is  well 
brought,  notwithstanding  it  would  be  barred  counting  the  time  elapsed  since 
the  conspiracy  was  formed. s*^"  Where  in  an  action  to  recover  the  penalty 
of  an  official  bond  given  by  the  cashier  the  question  arises  as  to  which  of 
two  statutes  of  limitation  is  applicable,  such  question  becomes  immaterial 
upon  its  being  made  to  appear  that  the  misappropriation  occurred  within 
less  than  the  shorter  period  next  preceding  the  institution  of  the  suit.^''' 

§  55  (3)  Parties. — Parties  Plaintiff. — The  bank  is  a  proper  party 
to  bring  an  action  against  its  president  for  damages  resulting  from  his 
making  an  illegal  loan  of  its  funds. ^^^  Where  loss  has  resulted  from  the 
negligence  of  the  directors  of  a  bank,  the  bank  or  its  assignee,  and  not  the 
depositors,  is  the  proper  party  plaintiff,  unless  it  plainly  appears  that  a 
cause  of  action  exists  and  that  the  bank  refuses  to  bring  the  action. ^^  For 
losses  resulting  from  the  malfeasance,  misfeasance,  or  negligence  of  di- 
rectors, it  has  been  seen  that  the  bank  or  its  assignee  may  maintain  an 
action  at  law,  and  that  upon  the  refusal  of  the  bank  or  its  assignee  to  sue,, 
the  stockholders  have  their  remedy  by  suit  in  equity  ;^*^  and  in  such  a  bill 
they  may  join  individual  stockholders  with  the  corporation,  may  pray  for 
an  account  of  stock  and  funds,  and  for  restoration  of  whatever  may  have 
been   fraudulently   withdrawn   from  the  common   stock. ^^ 

Parties  Defendant. — Where  several  officers  of  a  bank  wrongfully  per- 
mit certain  overdrafts,  the  bank  may  maintain  an  action  for  loss  so  sus- 
tained against  all  of  them,  or  against  one  or  more.^-  The  president  of  a 
bank  is  not  a  necessary  party  defendant  to  an  action  against  two  of  its 
directors  to  recover  damages  for  the  misappropriation  of  the  bank's  funds 

85.  Laches  not  available  to  directors  sue. — Savings  Bank  v.  Caperton,  87 
making  fraudulent  purchase  of  stock. —  Ky.  306,  10  Ky.  L.  Rep.  201,  8  S.  W. 
Morgan  r.   King.   27   Colo.   539,   63   Pac.       885,  12  Am.   St.  Rep.  488. 

416.  90.   Stockholders  sue  in  equity. — See 

86.  Running  of  time  against  action  ante,  "Xature  and  Form,"  §  55  (l). 
for  conspiracy.— McGregor  v.  Withani,  See,  also,  Deaderick  v.  Bank,  100  Tenn. 
126  Ga.  702,  56  S.   E.  55.  457,  45  S.  W.  786. 

87.  Which  of  two  statutes  applicable.  91.  Same — Joinder  of  other  parties. 
— Elam  7'.  Commercial  Bank,  86  Va.  — Taylor  f.  Miami  Exporting  Co.,  15^^ 
92,  9  S.  E.  498.  O.    162,   22    Am.    Dec.    785. 

88.  Bank  the  proper  party  plaintiff. —  92.  Joint  and  several  liability  of  par- 
Seventeenth  Ward  Bank  z\  Smith,  51  ties  defendant. — Western  Bank  v.  Cold- 
App.  Div.  259,  64  N.   Y.   S.  888.  ewey,  120  Ky.  776,  26  Ky.  L.  Rep.  1247,, 

89.  Same — Where    bank    refuses    to      83  S.  W.  629. 


§55    (4)  OFFICERS  AND   AGEXTS.  323 

by  the  president,  of  which  such  cHrectors  had  knowledge,  and  might  have 
prevented,  but  which  they  neghgently  permitted,  aided,  and  assisted,  con- 
ceaHng  the  same  from  the  stockholders.^-^  Upon  a  bill  by  a  stockholder 
the  corporation  itself  should  in  all  cases  be  made  a  party  defendant,  to- 
gether with  the  delinquent  officials  and  any  objecting  or  nonconsenting 
stockholders.'^-*  Where  a  director  of  an  insolvent  bank  has  been  appointed 
receiver,  and  stockholders  obtain  leave  to  sue  the  directors  for  miscon- 
duct, it  is  proper  to  allow  such  action  to  be  brought,  joining  the  receiver 
and  the  corporation  as  parties  defendant. ^="^ 

§  55  (4)  Pleadings. — Action  for  Conversion  of  Funds. — In  a  suit 
by  a  bank  against  its  cashiers  for  conversion  of  its  funds,  the  allegation 
that  the  money  was  converted  to  the  use  of  the  defendants  is  sufficient  to 
warrant  the  introduction  of  evidence  showing  the  purpose  for  which  the 
money  was  used.^*^  It  is  immaterial  to  whom  the  cashier  and  assistant 
cashier  of  a  bank  gave  money  belonging  to  it,  which  they  are  sued  for  con- 
verting to  their  own  use,  or  for  what  they  spent  it,  or  whether  they  loaned 
it  to  an  insolvent  or  a  going  corporation  or  to  a  private  person,  and  allega- 
tions of  that  character  are  subject  to  be  stricken  from  the  complaint. ^'^ 

Failure  to  Safely  Keep  Funds. — A  petition  in  an  action  by  a  banking 
corporation  against  its  officers,  the  vice  president  and  cashier,  setting  forth 
the  character  of  the  plaintiff  and  its  business,  that  it  made  ample  provisions 
for  the  safe  keeping  of  its  funds,  by  vault  and  safe  locks  and  time  locks, 
of  approved  strength  and  pattern,  the  official  character  and  employment 
of  defendants,  and  the  acceptance  of  the  duties  and  responsibilities  by  each 
of  his  respective  office,  that  it  was  their  duty,  and  the  duty  of  each  of  them, 
to  have  charge  of  and  keep  the  money  of  the  bank,  and  to  see  to  it  that 
at  proper  times  it  was  kept  in  the  safe  and  vault  and  behind  the  locks  and 
bolts  and  bars  provided  for  its  reception,  and  averring  that  they  failed  in 
this,  that  they  did  not  use  the  ecjuipment  provided  for  the  safety  of  the 
money  and  by  the  use  of  which  it  would  have  been  preserved,  and  that  by 
reason  of  this  neglect  to  do  so  the  money  disap])cared,  and  has  never  been 
returned  or  its  loss  made  good,  states  a  cause  of  action  against  such  officers. ^'^ 

93.  President    actually    misappropri-       Liability, "   §   .">4    {'>). 

ating  funds  need  not  be  joined  in  ac-  95.  joinder  of  receiver  and  corpora- 

tion against  directors.  -  Sniiih  r.  Ralli-  tion.— Weslosky  v.  Quartorman,  123 
Inm   (.v.   Y.l,  '.r.i  Tluii     ]:>i).  q.^    312,  51    S.  E.  42C). 

94.  Corporation  should  be  made  de-  n„     o  ^-..-l..,    :\,    „-,*;^»,    f^^ «„.«^ 

r_„j ,     '           ,•,,    .              ...         1 1  96.    Petition    in    action    tor    conver- 

lendant    upon    bill    in    equity. —   krsev  •          r  r      j         ,-.   \-   .    r,      ^         r^     1 

,.    ,-            \, ,    ,,       ,,     ,,   ^,      -^  T-,        .w ,  sion  of  funds. —  l-irst   Nat.  Bank  r'.  Cad- 

Smitli  V.  Poor,  40  Me.  41.5,  03  Am.  Dec.  '^''-  '"  ^^  ''''^'■.  '•"••  '"  ^  '^^  ^'''^-  ,.  , 
';72;     Roi)inson    v.    Smith     (N.    Y.).    3  97.    Allegations    as    to   use   to   which 

PaiRc    222,  24  Am.  Dec.  212;  Cunning-  misappropriated    funds    applied.— First 

ham  V.  Pitts  (N.  Y.).  r,  Paige  007;  Tay-  ■^':''-    '•■"i''''   •■■   ^':"I<lis.   :'.l    Wash.  r.90,  72 

lor     V.    Miami     Exporting    Co.,    5      n.  ''<''*^"-  ^''''*- 

102,  22  Am.  Dec.  78o;  Wallace  v.  Ein-  98.    Alleging    failure    to    safely    keep 

coin  Sav.  Rank,  89  Tenn.  030,  1.")  S.  W.  funds. — Kalb    7:    American    .\at.    liank, 

448,    24    Am.    St.    Rep.    02.'}.      See    ante,  11    O.  C.  D.  437,  21   O.  C.  C.  1.  affirmo<! 

"Right     f)f     Stockholflcrs     to     Enforce  in  cr,  O.   St.  ."00,  03   X.   ]'..   1120. 


324  BANKS   AND   BANKING.  §    55     (4) 

For  Making  Loans  on  Insufficient  Security. — An  allegation,  in  an 
action  against  directors  of  a  bank,  that,  contrary  to  the  statute  requiring 
them  not  to  make  loans  on  realty  for  over  half  its  value,  they  loaned  money 
on  land  which,  on  foreclosure,  brought  less  than  half  the  loan,  is  insuffi- 
cient. It  should  state  the  land  was  worth  less  than  twice  the  loan  when 
the  loan  was  made.^'' 

Refusing  to  Permit  Revenue  Agent  to  Examine  Checks. — The  dec- 
laration, in  an  action  against  a  cashier  for  refusing  to  allow  a  collector  to 
examine  its  paid  bank  checks,  must  allege  that  the  checks  were  not  duly 
stamped  when  made,  signed  and  issued. ^ 

Action  on  Official  Bond. — In  actions  to  recover  the  penalty  of  official 
bonds  given  by  bank  officers  to  secure  the  faithful  performance  of  their 
duties,  where  there  has  been  a  misappropriation  or  misapplication  of  the 
funds  of  the  bank,  the  evidence  must  of  necessity  be  general ;  therefore, 
an  attempt  to  state  the  breaches  of  the  condition  contained  in  the  bond  with 
exactness  of  detail  would  lead  to  great  prolixity  of  pleading,  and  so  some 
generality  of  statement,  in  the  interest  of  justice,  must  be  permitted.^  A 
demurrer  to  the  declaration  will  not  be  sustained  on  the  ground  that  the 
assignment  of  breaches  is  not  specific  enough,  where  it  appears  that  most 
of  the  books  and  papers  which  could  shed  light  upon  the  transactions  vmder 
investigation  have  been  destroyed,  and  whatever  information  existed  out- 
side of  these  sources  is  in  the  possession  of  the  adverse  party.  In  such 
case  the  assignment  of  breaches  is  as  specific  as  practicable  under  the  cir- 
cumstances.'^ The  declaration  need  not  set  forth  the  particular  persons 
from  whom  money  was  received,  nor  the  sums  received  from  each,  nor 
the  time  when  the  breaches  were  committed,  if  it  appears  that  they  occurred 
during  the  continuance  of  the  defendant  in  his  office.^ 

99.   Alleging  loan   on  insufficient  se-  tlie   time   they  were   made,  signed,  and 

curity. — Colorado   Sav.    Rank   i'.   Evans,  issued.     United   States  z'.   Mann,   95   U. 

1-2    Colo.   App.   334,   .56   Pac.   9S1.  S.   5S0,   24    L.    Ed.   .531. 

1.    Refusal   to   permit   revenue   agent  2.   Alleging   breaches   of  bond. — AUi- 

to    examine    books. — United    States    z:  son?:'.  Farmers"  Bank,  27  Va.  (6  Rand.) 

IMann,  95  U.   S.  580,  24  L.   Ed.  531.  204;  Caldwell  r.  Farmers'  Bank,  27  Va. 

Under    §    3177    of   the    Revised    Stat-  (6    Rand.)     241;     Elam    7'.    Commercial 

utes,   authorizing   any  collector,   deputy  Bank,  86  Va.  92,  9  S.  E.  498.     See,  also, 

collector,  or  inspector,  to  enter,  in  the  Durkin    z'.     Exchange     Bank     (Va.),    2 

daytime,   any   building    or   place    where  Pat.  &  H.  277. 

any  articles  or  objects  suliject  to  tax  3.  Same — Where  books  destroyed — 
are  made,  produced,  or  kept,  within  Evidence  in  possession  of  adverse 
his  district,  so  far  as  it  may  be  neces-  party. — Elam  z'.  Commercial  Bank,  SG 
?ary  for  the  purpose  of  examining  said  Va.  92,  9  S.  E.  498;  Allison  z'.  Farm- 
articles  or  objects,  the  United  States  crs'  Bank,  27  Va.  (6  Rand.)  204;  Cald- 
brou.ght  suit  against  the  cashier  of  a  well  z'.  Farmers'  Bank,  27  Va.  (fi  Rand,  i 
national    bank,    having    charge     of    its  241. 

place  of  business,  where  were  kept  4.  Averments  as  to  time,  amount  of 
checks  drawn  upon  and  paid  by  it,  who  funds  received,  etc. — Allison  z'.  Farm- 
refused  to  permit  the  collector  of  the  ers'  Bank,  27  Va.  (6  Rand.)  204. 
proper  district  to  examine  said  bank  In  an  action  of  debt  upon  an  official 
checks.  Held,  that  the  declaration  was  bond  of  a  bank  accountant,  a  demur- 
bad  in  not  alleging  that  the  paid  rer  to  the  declaration  was  overruled 
checks  pn  the  bank  remaining  in  its  ^dthough  it  did  not  state  in  a  sin,gle 
possession    were    not    duly    stamped    at  instance    the    time    or   place,    names    or 


§    55     (4)  OFFICKRS   AXD   AGENTS.  325 

Same— Allegation  of  Damage.— In  an  action  for  the  penalty  of  an 
official  bond  of  a  bank  accountant  conditioned  for  the  faithful  discharge 
of  the  duties  of  his  office,  it  is  not  necessary  to  state  that  in  consequence 
of  the  refusal  of  the  defendant  to  pay,  the  plaintiff  sustained  damages. 
In  actions  of  debt,  and  particularly  for  the  penalty  of  a  bond,  the  damages 
are.  in  general,  nominal,  and  none  need  be  stated  unless  the  plaintiff  goes 
for  damages  beyond  the  penalty.  It  is  sufficient  if  it  is  stated  that  an  ac- 
tion has  accrued  to  the  plaintiffs  to  demand  and  have  the  penalty  of  the 
bond.  The  declaration,  in  stating  the  bond,  the  condition,  and  the  breaches, 
states  all  that  is  necessary  to  entitle  them  to  their  action  for  the  penalty. 
For  the  law  implies  damage  from  the  breach;  and  it  is  not  incumbent  on 
the  party  to  state  what  the  law  implies.^ 

Bill  for  Accounting.— A  bill  filed  by  a  bank  against  its  cashier  for  a 
settlement  of  his  accounts  as  such  which  only  alleges  that  the  defendant 
was  such  cashier;  "that  during  his  term  as  cashier  he  lent  sundry  sums  ot 
money  to  sundry  irresponsible  persons  without  the  consent  of  the  board 
of  directors  of  said  bank,  for  which  he  is  liable  personally ;  and  that  the 
books  and  papers  and  cash  items  show  a  large  deficiency  in  the  assets  of 
said  bank  during  the  said  cashier's  term"  of  office:  but  which  contains  no 
averments  that  the  bank  sustained  any  loss  by  such  unauthorized  loans; 
or  that  the  moneys  so  lent  have  not  been  repaid ;  or  that  said  deficiency 
in  its  assets  was  caused  by  any  act  or  negligence  of  such  cashier,  is  clearly 
insufficient;  and  a  demurrer  thereto  ought  to  be  sustained,  because  it  pre- 
sents no  cause  of  action  against  said  defendant.''  A  bill  by  a  bank  against 
an  administrator  of  a  deceased  cashier  for  an  accounting  which  avers  va- 
rious claims  and  demands  covering  transactions  extending  over  more  than 
seven  years,  but  which  does  not  inform  the  court  or  respondent  as  to  the 
time  a  liability  accrued,  except  that  it  was  within  such  period,  and  which, 
as  to  many  transactions,  gives  no  other  description  of  the  liabilitv  or  de- 
mand than  that  it  was  for  allowing  an  overdraft,  or  for  taking  insufficient 
security  for  a  loan,  or  for  making  a  loan  in  violation  of  the  by-laws,  or 
witlunit  consulting  the  board  of  directors,  is  not  sufficiently  specific' 

Stockholder's  Bill.— An  action  brought  by  a  stockholder  of  a  bank  on 
behalf  of  himself  and  other  stockholders  against  his  directors,  to  call  them 
to  account  for  losses  and  damages  sustained  by  the  bank  because  of  mis- 
conduct and  negligence  on  their  part  in  the  discharge  of  their  duties,  is 
an  equitable  action  wherein  the  defendants  are  not  entitled,  as  matter  of 
ri,i,dn.  to  a  trial  of  the  whole  issues  by  jury,  and  plaintiff  need  not  sepa- 

sums    of    tiic    money    wliicli    had    been  204,    followed    in    Caldwell    ;•.    I'^arniers' 

misappropriated.      .Mlison    7'.    Farmers'  P.ank,   ;?7   Va.    (O    Kand.)   :>I1. 

Bank,  27  Va.   (c,  Rand.)   204,  cited  with  6.      Bill     for     an      accounting.— Mer- 

approval  in   Klam  7'.  Commercial   Rank,  chants'   r,;iid<  :•.   feffries    ;>  i    W    Va    r,Oi 

fiO  Va.  02,  0  S.  I-:.  498.  7.    Same-Description   of   claims   and 

5.  Averments  as  to  damage. — Allison  demands. — Wynn  <'.  Tallapoosa  Connty 

"'.    Farmers'    Bank,    27    Va.    (O    Rand.)  I'.ank,  HIS  .Ma.  4f)(),  T).-}  So.  22S. 


326  BANKS   AND  BANKING.  §    55    (4) 

rately  state  and  number  his  causes  of  action.^  And  in  a  suit  against  the 
president  and  directors  of  a  bank  for  negligence  in  conducting  the  busi- 
ness of  the  bank,  it  is  not  necessary  to  allege  what  particular  loss  was  oc- 
casioned by  the  negligence  of  a  particular  officer,  or  to  state  who  were  on 
the  managing  board  at  the  time  of  the  particular  loss,  or  to  allege  all  the 
losses  com])lained  of.^ 

Same— Amendments. — While  a  stockholder  of  a  bank  can  not  main- 
tain an  action  in  his  own  name  against  its  directors  for  negligence  and 
malfeasance,  without  alleging  that  the  bank  had  refused  to  bring  it,  yet  an 
amended  complaint,  in  an  action  so  brought,  making  the  bank  a  party  plain- 
tiff, and  alleging  that  it  had  been  ordered  and  allowed  by  the  court  to  be 
so  joined,  is  not  subject  to  demurrer;  since,  by  demurring,  defendant  ad- 
mitted the  making  of  the  order,  the  validity  of  which  could  not  be  deter- 
mined on  demurrer.  1*'  Where  a  petition  by  stockholders  against  the  officers 
of  a  bank  charges  the  defendants  with  embezzlement  of  the  funds  of  the 
bank,  an  amendment,  which  describes  the  transaction  as  a  loan,  and  alleges 
that  it  was  fraudulent  and  illegal  because  one  of  the  defendants  left  worth- 
less and  uncollectible  paper  in  lieu  of  the  money  of  the  bank,  and  because 
th*e  loan  to  said  officer  exceeded  half  the  capital  stock  of  the  bank,  con- 
trary to  law,  does  not  change  the  cause  of  action,  but  sets  forth  a  cause  of 
action  in  favor  of  the  receiver  of  the  bank  against  such  officers  since  the 
defendants  were  liable  to  the  bank  for  money  fraudulently  appropriated 
to  their  own  use,  if  the  bank  thereby  sustained  a  loss.^^ 

Misjoinder  of  Causes. — In  a  suit  in  equity  against  directors  to  recover 
damages  for  the  waste  and  loss  of  the  corporate  assets,  caused  by  the  neg- 
ligence of  the  directors  in  the  discharge  of  their  official  duties,  a  complaint 
alleging,  as  the  result  of  defendant's  negligence,  that  plaintiff's  stock  be- 
came worthless,  and  that  they  had  also  been  obliged  to  pay  an  assessment 
imposed  by  the  comptroller  of  the  currency  under  the  national  bank  act, 

8.  Stockholders'  bill— Separately  one  individual  to  the  amount  of  $25,000 
statrng  and  numbering  causes  of  ac-  beyond  the  sum  of  $15,000,  for  which 
tion.— Meisse  v.  Loren  (O.),  4  N.  P.  gum  he  was  indebted  to  the  bank  at 
100,    6   O.    Dec.   258.  the    time,    and    that    by    reason    thereof 

9.  Certainty  of  allegations  as  to  the  bank  did  advance  to  the  individual 
loss.— Sigw^ald  7'.  Cuy  Bank,  74  S.  on  his  obligation  $25,000  in  excess  of 
Car.  473,  55  S.  E.  109.  ten    per     cent     of    the     paid-in     capital 

In  an  action  by  a  stockholder  un-  stock,  which  said  indebtedness  was 
der  Comp.  St.  84,  §  56,  agamst  direct-  not  for  deposits  made  by  the  bank, 
ors  for  losses  sustained  in  conse-  nor  for  the  purchase  of  bills  of  ex- 
quence  of  the  violation  of  the  banking  change,  is  sufficient.  Buell  v.  War- 
laws  providing  that  no  individual  shall  ^er  33  Vt  570 
be   indebted   to   the   bank   in   a   greater  ^^    '  Amendment    of    complaint-Al- 


amount     than     ten     per     cent     of     its 


leging    order    permitting    suit — Demur- 


paid-up      stock      except     for    .deposits  ^e^.-Smith    z-     Rathbun     (N.     Y.),    22 

made   by   the    bank,    and    for    indebted-  tt        i^rx 

r  ii  1  r  1  -11  riun  150. 

ness  arising  from  the  purchase  of  bills  i         •        f       j   i 

of     exchange,     a     declaration     alleging  H-    Amendment  charging  fraudulent 

that    the    capital    stock    of    the    bank  loan  held  not  to  state  a  new  cause  of 

was    $150,000,    that    the    directors    per-  action.— McGregor  i-.  \\  itham,  126  Ga. 

mitted  the  bank  to  advance  money  to  ''^^-  ^^  S.   E.  55. 


§    55    (4)  OFFICERS   AND  AGENTS.  327 

in  order  to  pay  the  debts  of  the  bank,  is  not  demurrable  on  the  ground  that 
several  causes  of  action  have  been  improperly  united,  as  special  elements 
of  damage  are  alleged,  but  only  one  cause  of  action. i-  A  complaint  against 
two  directors  to  recover  damages  for  the  misappropriation  of  the  funds 
of  a  national  bank  by  its  president,  which  states  that  defendants  knew  of 
the  president's  acts,  and  might  have  prevented  them,  but  negligently  per- 
mitted, aided,  and  assisted  him  in  doing  them,  is  not  subject  to  demurrer 
on  the  ground  that  two  causes  of  action  are  improperly  joined,  viz.  one 
for  malfeasance,  and  one  for  negligence,  but  states  only  one  cause  of  ac- 
tion; since  it  is  impracticable  to  clearly  distinguish  between  the  acts  which 
defendants  permitted  merely  and  those  which  aided  the  president  in  his 
wrongdoing.  1^ 

Motions  and  Objections  to  Pleadings.— \Miere  an  action  by  stock- 
holders of  a  bank  against  the  directors  and  the  receivers,  who  was  one  of 
them,  for  misconduct,  is  permitted  by  the  court,  and  the  petition  is  good 
against  a  general  demurrer,  a  motion  to  vacate  permission  to  sue  is  prop- 
erly refused,  irrespective  of  the  question  whether  plaintiff's  pleadings  are 
open  to  objections  w^here  that  question  can  be  raised  by  special  demurrer. ^^ 
\\'here  the  claim  upon  the  bond  arises  out  of  the  wrongful  act  of  the  cash- 
ier in  certif)ing  his  personal  check  to  pay  his  personal  indebtedness  to 
another  bank,  and  the  refusal  of  the  other  bank  to  refund  the  money,  the 
comj^laint  is  demurrable,  since  it  shows  upon  its  face  that  the  other  bank, 
in  accepting  the  check,  was  put  upon  inquiry  as  to  the  authority  of  the 
cashier  to  certify  his  own  check,  and  that  it  had  no  right  to  charge  it  against 
the  balance  in  its  hands  standing  to  the  credit  of  the  bank  on  which  drawn, 
and  that  the  right  of  the  drawee  bank  to  recover  such  balance  was  not 
thereby  impaired. ^^ 

12.  Misjoinder  of  causes.— Hand  v.  wrongfully  certified  the  same  as  its 
Adantic  Nat.  Bank  (N.  Y.),  55  How.  cashier,  his  deposit  account  therein 
Prac.  2.31,  9  Abb.   N.  C.  287.  having    been    overdrawn;    that    the    C. 

13.  Same — Alleging  malfeasance  and  Bank  charged  the  amount  of  the  check 
negligence.— Smith  :•.  Rathhun  ( N.  to  the  E.  Bank's  account,  credited  it 
Y.),  22    Hun    150.  to    defendant,   and    had    refused    to    re- 

14.  Motion  to  vacate  permission  to  pay  to  the  E.  Bank  the  sum  of  $8,000 
sue. — Weslosky  :\  Quartcrman,  12.3  thereof  and  interest.  Held,  that  since, 
Ga.    312,    51    S.    E.   42G.  if   such    facts   were    true,    the    C.    Bank. 

15.  Complaint  showing  rights  of  at  the  time  of  accepting  the  check, 
bank  to  be  unimpaired,  demurrable. —  was  put  on  inquiry  as  to  defendant's 
Rankin  v.  Bush,  !»3  App.  Div.  is'l,  87  authority  to  certify  the  same,  and  his 
N-  Y._  S.  539.  act    in    so    doing    being    wrongful    and 

Plaintiff's   complaint    alleged   that   he  without    authority,   the    E.    Bank's    title 

was    receiver    of    the    E.    Bank,    which  to  the  deposit  against  which  the  check 

had    a    deposit    account    with    the    C.  was  charged  was  not  impaired  thereby. 

Bank,    to    which    defendant,    who    was  and    hence    a    denuirrer    to    the    com- 

cashier    of     plaintiff's    l)ank,    was     in-  plaint  against  defendant  and  liis   sure- 

debted   on   May  5,   1893,  in   the   sum   of  tics   on    his   bond    for   the   faithful    per- 

$15,000   and   interest;   that   on   that   day  formance   of  his   duties   as   casliier,   for 

defendant    gave    to    the    C.     Bank    his  want  of  facts,  was  not  frivolous.     Ran- 

personal  check  on  the  E.  Bank  for  tlic  kin  7'.  Bush,  93  App.  Div.  181,  87  N.  Y. 

amount      of      his      indebtedness,      and  S.   539. 


328  BANKS   AND   BANKING.  §    55     (5) 

§  55  (5)  Evidence,  Issues,  etc.— Issues.— Where  negligence  of  di- 
rectors in  permitting  a  false  and  fraudulent  statement  of  the  condition  of 
a  bank  is  the  basis  of  an  action  against  the  directors,  the  plaintiff's  right 
to  recover  should  not  be  restricted  to  one  instance  of  negligence,  where 
there  are  many  others  in  evidence.^'' 

Presumption  and  Burden  of  Proof.— A  director,  in  a  suit  between 
himself  and  the  corporation,  or  those  suing  upon  the  corporate  right  of 
action  for  losses  resulting  from  his  alleged  negligence,  is  not  presumed  to 
have  knowledge  of  all  that  is  shown  by  the  books  of  the  company.  Such 
presumption  applies  only  to  suits  between  the  bank  and  a  stranger. ^'^  And 
in  an  action  by  a  shareholder  of  a  bank  against  its  directors,  to  recover 
alleged  losses  caused  by  their  inattention  and  mismanagement,  the  burden 
is  on  complainant,  not  only  to  prove  the  losses,  but  that  such  losses  were 
the  consequence  of  defendants'  negligence.^s  But  willful  w^aste  or  mis- 
application may  be  presumed  from  a  failure  to  pay  over  and  account  for 
funds,  rebuttable  by  evidence  of  loss  by  negligence  or  accident.^''  And 
where  it  is  conceded  in  an  action  on  the  bond  of  a  bank  cashier  that  certain 
collateral  was  embezzled  during  the  term  covered  by  his  bond,  the  burden 
is  on  the  sureties  to  show  that  any  part  of  said  collateral  was  subsequently 
returned  and  placed  in  the  files  of  the  bank.-*^ 

Competency  of  "Witness. — The  teller  of  the  bank  is  competent  to  tes- 
tify concerning  the  handwriting  of  the  president  or  cashier  of  such  bank. 21 

Admissibility. — In  an  action  against  a  defaulting  president,  his  ledger 
account  and  proof  of  alleged  prior  frauds,  as  well  as  evidence  showing  the 

16.  Issues,  restricting  grounds  of  19,  Waste  and  loss  presumed  from 
recovery. — Houston  z'.  Thornton.  122  failure  to  account. — Minor  v.  Mechan- 
N.  C.  365,  29  S.  E.  827,  65  Am.  St.  Rep.       ics'  Bank  (U.  S.),  1  Pet.  46,  7  L.  Ed.  47. 

^^^-      .„                ...             ,          ,  The   presumption    of  a  willful   waste 

17.  Presumption  of  notice  or  knowl-  ^^^  misapplication  of  the  funds  of  the 
edge.-Wallace  tv  Lincoln  Sav  Bank.  ^^^^^^  ^  ^j^^  cashier,  was  a  natural 
89  Tenn.  630,  15  S.  W.  448,  24  Am.   St.  conclusion     from     his     failure     to     pay 

^^:    ^^^"               .           .    ,          ,    .  over    or    account    for    the    same,    and 

The    presumption    of    kno^yledge    at-  ^,^  instruction  to  that  effect  is  proper, 

tachmg  to  a  director  which  is  referred  -^   -^   -^   ^^^           ^^   ^j^^    -^^^   ^5  ^  prg. 

to  in  .the  case  of  Lane  &  Co.  v.  Ban,-:.  s,„,,ption    incapable    of   being   rebutted 

56  Tenn.  (9  Heisk.)  419.  applies  only  in  ^      evidence    showing   a   loss   by   negli- 

suits  between  the  bank  and  a  stranger  ^^^^^  ^^  accident.     If  such  a  loss  ac- 

The   doctrine  has  never  been  extended  ^^^^jj      occurred,    it    was    incumbent    on 

to  suits   between  the  bank   and  its   di-  ^^^    ^^^^.^^  ^^      ^^^^   j^^   ^^^   j^jg   total 

't^'^^'ha    ?ri?^'  T      P    ""  on?'«  S'^'W        omission     to     offer     any     such     proof, 
S-  ^-.^o^'  A      H.  ^-D       P-.cc    "ri  ^-  which,    from    the    nature    of    the    case, 

885     12    Am.    St.    Rep     488;    Clews    v.       ^^^^^   ^^    ^^^^^   ^^-^^-^   l^j^   ^^„  ,^ 

Bardon,    36    Fed.    61.;    In    re    Dunham,       ^,^^,^    ^^^^   ^^   ^j^^   ^^^^    ^^^^  ^^   l^^d 
2o   Ch.   Div.  725.     The   doctrine  of  the       ^,^^    .  ^    ^^^    presumption     of    the 

Lane  case  is  carefully  limited  in  Mar-       nonexistence    of    any    such    negligence, 

n"   Tc     S   '.oi     aV;  u'    ''        T^-      1  or  accidental  loss.  Minor  v.  Mechanics' 

49.    3  S.    Ct.    428_^  Wallace    ^'-Lincoln  ^^^^^  g^    ^  p^^  ^  L.   Ed.  47. 

Sav.    Bank,    89    Tenn.    630,    15    b.     W.  ^      ■.  ,  ■  .  r 

448.   28   Am.    St.    Rep.    625.  20.  Burden  of  proving  return  of  em- 

18.  Burden  of  proving  loss  to  be  bezzled  funds.— Fancher  v.  Kaneen 
due    to    negligence.— Wallace    v.    Lin-  (O.),  5  N.  P.,  N.  S..  614. 

coin    Sav.    Bank,    89    Tenn.    6,30,    15    S.  21.   Competency  of  witness.— Hess  f. 

W.    448,    24    Am.    St.    Rep.    625.  State,  5  O.  5,  22  Am.  Dec.  767. 


§    55    (5)  OFFICERS    AXD    AGENTS.  329 

extent  of  his  indebtedness  to  the  bank,  are  all  admissible,  and  objections 
based  npon  their  admission  are  not  well  taken.--  And  where,  in  an  action 
by  a  bank  against  its  president  to  recover  damages  resnlting  from  his  mak- 
ing a  loan  of  bank  funds  without  the  collateral  required  by  law.  the  neg- 
ligence of  the  president  in  making  the  loan  is  in  issue,  and  it  is  error  to 
refuse  to  admit  testimony  showing  the  standing  of  the  securities  taken.-' 
Where  the  action  is  against  the  estate  of  the  president  for  negligence  in 
making  the  loan  on  worthless  collateral,  evidence  that  such  collateral,  to- 
gether with  other  securities,  had  been  accepted  by  various  other  bankers  as 
security  for  loans  to  the  same  person,  is  inadmissible,  in  the  absence  of  proof 
as  to  what  estimate  was  placed  on  the  questionable  collaterals,  apart  from 
the  other  securities,  in  such  transactions.-'*  Neither  is  it  permissible  lo 
show  that  other  banks  had  made  loans  to  the  same  party  where  it  is  not 
apparent  that  any  of  the  collaterals  in  question  were  accepted  as  security 
for  such  loans. --^  Where  the  action  is  by  the  bank  against  a  former  pres- 
ident and  director  to  recover  for  moneys  lost  by  his  negligence  in  permitting 
the  cashier  to  borrow  money  on  inadequate  security,  the  admission  of  tes- 
timony that  the  loans  to  the  cashier  were  not  read  off  at  meetings  of 
directors  subsequent  to  the  loans,  and  to  show  that  the  notes  given  by  the 
cashier  were  not  reported  to  the  committee  on  such  matters,  is  proper.-^ 
It  is  competent,  however,  in  order  to  establish  a  lack  of  ratification,  or  to 
establish  negligence  on  the  part  of  the  directors,  to  show  that  when  they 
learned  of  the  loan  they  relied  on  a  statement  in  the  note  given  by  the  cash- 
ier to  the  effect  that  the  collateral  securing  the  note  was  in  the  hands  of 
defendant.-"  Testimony  that  the  cashier  informed  the  president  that  he 
wanted  the  money  to  invest  in  a  mining  venture  is  also  competent  as  bearing 
on  the  question  of  the  defendant's  good  faith. ^s  Where  the  charge  is  that 
the  president  or  cashier  has  been  guilty  of  a  conversion  or  misappropria- 
tion of  the  funds,  and  the  issue  is  whether  the  transaction  whereby  the 
funds  wer^  obtained  amounted  to  a  conversion  or  misappropriation,  it  is 
error  to  instruct  the  jury  to  consider  the  fact  that  the  defendant's  indebted- 
ness to  the  bank  exceeded  ten  per  cent  of  its  capital  ;-^  neither  is  it  per- 
missible to  show  that  the  corporation  to  which  the  defendants  loaned  the 

22.  Admissibility  of  e  v  i  d  e  n  c  e.—  26.  As  to  improper  loans  permitted 
American  Surety  Co.  v.  Pauly,  170  U.  by  president  to  cashier.— Commercial 
vS.   ir,0,  42   L.   Kd.   !)S~,  18   S.   Ct.   .503.              Bank    v.    Cliatfleld,    127    Midi.    407.    86 

23.  As  to  standing  of  securities  taken  '  '„_    „          '  kt     i-                           ..     r  j- 
for  loans.-Sevenicenth    Ward    Bank  :•.  ^J.  Same-Negligence  on  part  of  di- 
<;r.-.;»u     K^     A^^     n-       o-n     i- <    M     V     c  rcctofs. — Commercial     Bank;     x'.     Chat- 
Smith,    .51    App.    Div.    2o9,    04    N.    Y.    S.  ^^^^    ^,„   ^j^,^    ^„^_   ^,   ^    ^^j    ^^^^^ 

-■     ^,  .  .  ,  ,  28.   Same — Statements  by   cashier   as 

24.  That  securities  were  accepted  by  to  purpose  for  which  money  wanted.— 
other  banks.— Seventeenth  Ward  Bank  C.Mnniercial  P.ank  v.  Cliatfiehl,  121 
V.   Smith,  83   App.    Div.   04,   82   N.   Y.   S.  Midi    (Ml     80   N     W    7r' 


520 


29.  Amount  of  defendant's  indebted- 


25.    Loans    by    other    banks     to     the  ness  to  bank  as  evidence  of  conversion, 

same   party. — Seventeenth    Ward    Bank  bad  faith,  misappropriation,  etc. —  Moli- 

V.  Smith,  S.-J  App.   Div.   04,   82   N.   Y.   S.  ren.stecher   t'.    Westervelt,    ,'{0    C.    C    .\. 

529.  .584,  87   Fed.   157. 


330  BANKS    AND    BANKING.  §    55    (5) 

money  which  they  are  charged  with  converting  to  their  own  use  was  of  a 
speculative  character  and  without  property  and  unworthy  of  credit.'-"^ 

Weight  and  Sufficiency— To  Show  Mismanagement,  Negligence  in 
Supervision  and  Inspection.— Evidence  that  a  bank's  directors,  through 
their  committee,  examined  it  twice  a  year,  in  the  way  in  which  such  banks 
are  usually  examined,  in  addition  to  the  examinations  by  the  bank  ex- 
aminer, without  discovering  the  cashier's  defalcations,  extending  over  ten 
years,  during  all  of  which  time  he  had  an  excellent  reputation  for  honesty, 
was  sufficient  to  sustain  a  finding  that  they  exercised  due  care  in  the  man- 
agement of  the  bank,  though  they  knew  he  lost  $4,000  in  stock  speculations 
four  years  before  they  elected  him.si  ^or  can  the  directors  of  a  bank  be 
held  liable  at  the  suit  of  a  shareholder  for  losses  alleged  to  have  been  caused 
by  their  inattention  and  mismanagement,  on  proof  merely  of  a  large  deficit 
— the  difference  between  the  liabilities  of  the  bank  including  capital  stock 
and  the  nominal  value  of  all  assets,  good  and  bad ;  especially  where  it  ap- 
pears that  large  dividends  were  paid  by  carrying  large  amounts  of  papei 
which  subsequently  turned  out  as  worthless,  and  real  estate  taken  for  debts, 
which  had  depreciated  in  value. ^- 

Same— To  Prove  Negligence  in  Care  and  Keeping  of  Funds.— 
Where  the  evidence  showed  that  money  disappeared  from  the  vaults  of  a 
bank  on  a  certain  date,  and  it  appears  that  the  combinations  and  time  locks 
were  not  broken  or  disturbed,  and  it  was  also  shown  that  if  said  locks  and 
combinations  had  been  set,  as  it  was  the  duty  of  the  officers  to  set  them, 
it  would  have  been  a  physical  impossibility  to  secure  the  money  without 
destroying  or  breaking  the  lock,  was  sufficient,  as  against  the  mere  asser- 
tion of  the  officers  that  the  doors  were  closed  and  the  locks  adjusted,  to 
sustain  a  verdict  based  upon  the  conclusion  that  the  officers  negligently 
failed  to  perform  that  duty.'^s  And  evidence  that  the  books  of  a  bank 
kept  by  the  cashier  and  subordinates  showed  that  a  specified  amount  had 
been  received  and  had  not  been  accounted  for  was,  in  the  absence  of  ex- 
piration, prima  facie  proof  that  the  money  to  that  amount  was  missing, 
making  the  cashier  liable  therefor  under  a  by-law  making  him  responsible 
for  the  moneys  of  the  bank."-* 

Same — Fraud  or  Negligence  with  Respect  to  Loans,  Discounts 
and  Overdrafts. — In  an  action  by  a  bank  against  one  who.  when  vice 
president  and  director,  made  false  representations  as  to  a  certain  note  dis- 
counted for  his  benefit,  evidence  that  defendant  represented  the  maker  of 

30.  Same — Character  of  corporation  lace  v.  Lincoln  Sav.  Bank,  89  Tenn. 
to  which  funds  loaned.— First  Nat.  630,  15  S.  W.  448,  24  Am.  St.  Rep.  625. 
Bank  z\  Gaddis,  31  Wash.  596,  72  33,  To  show  negligence  in  care  and 
Pac.   460.  handling    of   funds. — Kalb    :■.   American 

31.  Sufficiency  to  show  due  care  in  Xjjt  Bank,  11  O.  C.  D.  437,  21  O.  C.  C. 
selection  and  supervision  of  cashier. —  ]  affirmed  in  65  O.  St.  566,  63  N.  E. 
Ricker   z:    Hall,    69    N.    H.    592,    45    Atl.  I'log. 

^^^-      T  .•  J  1-  ^  34.  Same.— Rio  State  Bank  r.Amond- 

32.  Inattention    and    negligence    not       ^^^^    ^^^  ^^-^    82    ^og  n.  W.  634. 
shown  by  mere  proof  of  deficit. — Wal- 


§    55    (5)  OFFICERS   AXD  AGENTS.  331 

the  note  to  be  good  and  the  indorser  worth  $75,000.  whereas  correspond- 
ence between  the  indorser  and  defendant  tended  to  show  the  financial  em- 
barrassment of  both  maker  and  indorser,  was  sufficient  to  call  for  the  sub- 
mission of  plaintiff's  case  to  the  jury.^'^ 

Same — To  Show  Misappropriation  or  Conversion. — In  an  action  by 
a  bank  to  recover  money  fraudulently  paid  out  by  its  president  by  means 
of  drafts,  a  finding  that  the  president  was  not  a  depositor,  and  that  such 
wrongful  appropriation  constituted  embezzlement,  was  not  nullified  by  the 
fact  that  it  was  also  found  that  the  entries  on  the  bank's  books  tended  to 
show  that  the  bank  was  paid  for  the  drafts  so  drawn.-'^*'  And  in  an  action 
by  a  stockholder  of  a  bank  to  compel  an  accounting  of  money  received  by 
defendant's  intestate,  as  cashier  and  liquidator  of  the  bank,  the  mere  fact 
that  a  note  discounted  by  the  bank  appears  on  its  bills  receivable  book  is 
wholly  insufficient  to  create  a  personal  liability  upon  intestate,  especially 
after  a  lapse  of  ten  years  from  the  last  payment  to  the  stockholders.^" 

Same— False  and  Fraudulent  Reports  and  Statements. — Alleged 
fraud  of  bank  directors  in  their  report  of  the  financial  condition  of  the 
bank,  inducing  a  sale  of  the  stock  thereof,  is  not  proved  by  the  appearance 
in  such  report,  placed  there  for  the  purpose  of  making  it  balance,  of  such 
items  as  "unadjusted  errors  in  stocks,"  etc..  "unadjusted  errors  in  loans," 
etc..  "unadjusted  errors  in  cash  paid,"  etc..  "unadjusted  errors  in  real  es- 
tate," which  items  the  commissioner  of  banking  mistakenly  treated  as  as- 
sets and  reported  the  bank  sound,  when  in  fact  the  statement  of  the  directors 
showed  that  its  capital  was  impaired. ^-^ 

Variance. — In  a  suit  for  an  accounting  against  the  administrator  of  a 
deceased  cashier,  based  on  wrongful  acts  as  to  loans,  discounts,  and  over- 
drafts, it  was  alleged  that  a  great  number  were  made  or  allowed  by  him  to 
certain  parties  named,  for  certain  amounts,  without  fixing  any  dates  or 
otherwise  identifying  them,  while  the  proof  showed  losses,  discounts,  over- 
drafts, etc..  of  different  amounts,  and  several  times  to  dift'erent  parlies, 
and  in  a  number  of  instances  the  wrongful  act  alleged  was  the  making  of  a 
loan  to  a  certain  person,  and  the  taking  of  notes  therefor  without  sufficient 
security,  while  the  proof  showed  that  the  transactions  alleged  were  not  a 

35.  False  representations  as  to  se-  37.  Bills  receivable  as  evidence  of 
curities  for  loans. — St.  Tohns  Xat.  misappropriation. — Kellcv  :■.  Foster,  55 
Bank  V.  Steel,  l.'i.l  Mich,  ^dr,.  97  N.  W.  ITun  Gil,  8  N.  Y.  S.  OOl.  30  N.  Y.  St. 
704.  Rep.   3.53,   5   Silvermail  476.   affirmed   in 

Evidence  held  to  conclusively  show  132  N.  Y.  546,  30  N.  E.  370. 
that  a  loss  to  a  bank  on  account  of  Evidence  examined,  and  held  insuffi- 
overdrafts  allowed  by  its  deceased  cient  to  show  either  a  wrongful  tak- 
cashicr,  whose  administrator  was  sued  ing  or  a  conversion  of  the  funds  of  a 
therefor,  was  the  fault  of  the  bank  or  bank  by  its  cashier  and  assistant  cash- 
its  officers  after  his  death.  Wynn  t'.  ier.  First  Nat.  Bank  f.  Gaddis,  31 
Tallapoosa  County  Bank.  168  Ala.  469.  Wash.  596,  72  Pac.  460. 
"•'!   Sf).  228.  38.     Sufficiency    to    show    false    and 

36.  To  show  misappropriation  and  fraudulent  report. —  Penrnbl  ;•.  Charle- 
embezzlement. — Lamson  c'.  Beard,  36  voi.x  Sav.  Bank.  140  Midi.  12().  103  N. 
C.  C.  .\.  .-.6,  94   Fed.  30,  45  E.   R.  A.  822.  W.    572. 


332  BANKS    AND   BANKING.  §    55     (6) 

loan,  but  the  closing  up  of  a  previous  indebtedness  of  such  person  to  the 
bank,  by  notes  and  security,  or  making  a  past-due  and  existing  indebted- 
ness more  secure,  by  extending  the  time  of  payment  and  taking  notes  and 
collateral  security.  It  was  held,  that  the  variances  were  material,  though  a 
mere  difiference  in  the  amount  in  any  transaction  would  not  be  if  it  was 
shown  to  be  the  same.-''^ 

§  55  (6)  Trial. — Province  of  Court  and  Jury. — In  an  action  against 
a  bank  president  for  negligence  in  verifying  a  false  report  to  the  superin- 
tendent of  banking,  it  is  a  question  for  the  jury  whether  he  was  negligent 
in  failing  to  see  for  himself  the  securities  listed  therein  at  the  time  he 
made  the  verification.^^  And  where  a  bank  president,  who,  while  in  general 
charge  of  the  bank  business,  has  permitted  moneys  to  be  drawn  from  the 
bank  without  security  by  a  person  known  by  him  to  be  irresponsible,  and 
with  whom  the  president  was  interested  in  the  business  for  which  the 
money  was  obtained,  is  sought  to  be  held  personally  responsible  to  the  bank 
for  such  moneys  on  the  ground  of  a  breach  of  trust,  the  question  as  to  the 
effect  to  be  given  the  long  silence  of  the  directors  of  the  bank  after  the  entry 
upon  the  bank  books  of  a  charge  to  the  nominal  borrower  is  one  of  rat- 
ification, which  should  be  submitted  to  the  jury.'*! 

Instructions. — Instructions  in  this  class  of  cases  are  subject  to  the  prin- 
ciples applicable  to  instructions  in  general.  They  should  be  applicable  to 
the  pleadings  and  evidence,  and  in  addition  to  stating  the  applicable  prin- 
ciples in  a  correct  manner  they  should  present  the  issues  and  the  contentions 
of  each  party  based  thereon  fairly  and  without  omitting  any  that  may  be 
material  to  the  cause  of  either  party."*- 

39.  Variance,  as  to  amounts  of  loans,  not.  in  the  exercise  of  ordinary  judg- 
discounts  and  overdrafts. — Wynn  t'.  ment,  belie  i^ed  by  the  president  to  be 
Tallapoosa  County  Bank,  168  Ala.  good  security  for  the  amount  of  the 
469.   53    So.   228.  loan,    then    they    should    find    a    verdict 

40.  Province  of  court  and  jury. —  for  plaintiff,  is  properly  refused,  as  it 
Davenport  i\  Prentice,  126  App.  Div.  ignores  defendant's  claim  that  the  loan 
451,  110  N.  Y.  S.  1056.  was  made  in  the  usual  course  of  busi- 

41.  Same — Knowledge  of  directors  ness,  and  that  the  other  directors  also 
— Ratification. — First  Nat.  Bank  v.  knew  of  the  loan,  and  were  as  negli- 
Reed,  36   Mich.   263.  gent  as   defendant.     Commercial   Bank 

42.  Instructions. — Commercial  Bank  r.  Chatfield,  121  Mich.  641,  80  N.  W. 
V.    Chatfield,    121    Mich.    641,   80    N.    W.  712. 

712;    S.    C,    127    Mich.    407,    86    N.    W.  In    an    action    by    a    bank    against     a 

1015.  former    president    and    director    to    re- 

Where   defendant,   in   an   action   by   a  cover    for    moneys    lost    by    his    negli- 

bank    against    one    who    had    been    its  gence  in  permitting  the  cashier  to  bor- 

president  to  recover  for  money  lost  by  row   on   inadequate   security,   the    court 

reason    of    loans    negligently    made    to  charged   that   the   facts   that   the   notes 

the  cashier,  claims  that  the  loans  were  were   read    oflf   at   meetings    of   the    di- 

made   in   the   usual   course   of  business,  rectors,    and    the    statement   made    that 

and  were  known  to  the  other  directors,  defendant   held   the   collateral,   and   de- 

and    that    they    made    no    dissent,    and  fendant    sat   by,    and    said    nothing,    did 

that  he  acted  in  good  faith,  a  requested  not    render    him    liable    for    the    money 

instruction   that,   if   the   president   con-  taken  on  the  loan,  but  that,  if  defend- 

sented     to     the     cashier's    taking    the  ant  had  no  valid   security,  or   none   at 

money    on    his    note,   with    certain    col-  all,  and  gave  the  board  no  information 

lateral,    and    that    such    collateral    was  in    regard    to    it.   but    allowed    them    to 


§  37  (la) 


OFFICERS  AXD  AGENTS. 


Judgment— Amount  of  Recovery.— On  a  cashier's  bond,  the  recovery 

against  tlie  sureties  is  Hmited  to  the  penaUv."*-' 

Same— Application  of  Payments— Interest.— Partial  payment  hav- 
ing been  made  by  the  sureties  (subject  to  all  questions),  the  application  of 
these  payments  was  made  by  deducting  them  from  the  penalty  of  the  bond, 
and  allowing  interest  on  the  balance  thus  relating  from  the  commencement 
of  the  suit,  there  having  been  no  previous  demand  of  the  penalty,  or  ac- 
knowledgment that  the  whole  was  due.  But  interest  was  refused  to  the 
sureties  on  the  payment.'*'* 

§  56.  Liability  of  Directors  and  Officers  to  Third  Persons— §  57. 
Nature  and  Extent— §  57  (1)  In  General— §  57  (la)  Affirm- 
ative View. — Appointment  of  receiver  to  enforce  liability,  see  post.  '"Ap- 
pointment and  Removal  of  Receiver,"  §  77  (  1).  As  to  stockholders  in  gen- 
eral, see  ante,  "Liability  for  Debts  and  Acts  of  Bank,"  §  46,  et  seq. 

Fiduciary  Relation  of  Directors— Quasi  Trustees.— Upon  the  ques- 
tion of  the  personal  liability  of  the  directors  of  a  bank  to  depositors  and 
creditors  for  losses  resulting  from  their  negligence  and  mismanagement  of 
the  bank's  affairs,  there  is  a  direct  conflict,  not  to  say  confusion,  of  author- 
ity. According  to  the  one  view  the  relation  of  the  directors  of  a  bank  to 
its  depositors  and  creditors  is  confidential  and  fiduciary.^-^  or  that  of  trus- 
tees to  cestuis  que  trustent,^^  at  least,  in  the  sense  that  every  agent  entrusted 


believe  he  had  collateral,  which  they 
had  a  right  from  the  statement  made 
in  the  board  to  believe  proper  col- 
lateral, then  he  might  be  liable:  that 
when  the  statement  was  made  to  the 
board  by  the  cashier  that  the  collateral 
was  in  the  hands  of  the  president,  and 
the  president  assented,  it  was  not  un- 
reasonable for  the  members  to  assume 
that  he  held  proper  collateral.  Held, 
tliat  the  instruction  was  proper.  Com- 
mercial Bank  -'.  Chatfield.  127  Mich. 
407.  86   N.   VV.   101-,. 

43.  Recovery    limited    to    penalty.^ 

McGill  r.  Bank  (U.  S.^  12  Wheal.  r>l\. 
a  L.  Ed.  711;  Farrar  v.  United  States 
(U.  S.).  5  Pet.  37.3,  8  U  Ed.  1.59;  Leg- 
gett  V.  Humphreys  (U.  S.),  21  How. 
6fi,   16    U.    Ed.    .50. 

44.  Application  of  payments — In- 
terest.—McC.il!  ;■.  r.ank  (IJ.  S.),  12 
VVlicat.  .->n.  C,  L.   ]'.(1.  ill. 

45.  Fiduciary  relation   of  directors. — 

Cassidy  v.  Uhlmann,  27  App.  Div.  80, 
50  X.  Y.  S.  318,  iudgment  reversed  in 
103  X.  Y.  380,  07  X.  E.  620,  79  .^m.  vSt. 
Kcp.  .-,96. 

46.  Same. — Trustees  z'.  Bossciux,  in  4 
Hughes  387.  3  Fed.  817;  Delano  -•. 
Case,  121  111.  247,  12  N.  E.  676,  2  Am. 
St.  Rep.  81;  Solomon  v.  Bates,  118  X. 
C.   311.   24    S.    E.   478.   54    Am.    St.    Rep. 


725;  Marshall  z'.  Farmers',  etc.,  Sav. 
Bank,  85  Va.  676,  8  S.  E.  586,  2  L.  R. 
A.  534.  17  Am.  St.  Rep.  84;  Elliott  z: 
Farmers'  Bank,  61  W.  Va.  641,  57  S. 
E.  242;  Lamb  v.  Laughlin,  25  W.  Va. 
300;  Lamb  v.  Cecil,  28  W.  Va.  653; 
Lamb  z:  Fan n ell,  28  W.  Va.  663. 

"Bank  directors  are  not  mere  agents 
like  cashiers,  tellers  and  clerks.  They 
are  trustees  for  the  stockholders,  and 
?s  to  their  dealings  with  the  bank, 
they  not  only  act  for  it  and  in  its 
name,  but  in  a  qualified  sense,  are  the 
bank  itself.  It  is  the  duty  of  the  board 
to  exercise  a  general  supervision  over 
the  affairs  of  the  bank,  and  to  direct 
and  control  the  action  of  its  subordi- 
nate officers  in  all  important  transac- 
tions. The  community  have  the  right 
to  assume  that  the  directory  does  its 
duty,  and  to  hold  them  personally  li- 
able for  neglecting  it.  Their  contract 
i.s  not  alone  with  the  bank.  They  in- 
vite the  public  to  deal  with  the  cor- 
poration, and  when  any  one  accepts 
their  invitation  he  has  the  right  to  ex- 
pect reasonable  diligence  and  good 
faith  at  tt-eir  hands;  and  if  they  fail 
in  either,  they  violate  a  duty  they  owe 
not  only  to  the  stockholders,  but  to 
the  creditors  and  patrons  of  (he  cor- 
poration." Seale  z:  Baker,  70  Tex.  283, 
7   S.   W.  742.  8  .Am.   St.   Rep.  592. 


334  BANKS  AND  BANKING.  §    57    (la) 

with  the  management  of  the  affairs  of  another  is  a  mandatory  or  trustee  for 

such  other.-*" 

Errors  of  Judgment  and  Mistakes  of  Fact.— As  such  agents  or  trus- 
tees, directors  are  not  chargeable  with  losses  resulting  from  any  mere 
errors  of  judgment  or  mistakes  of  fact,  committed  in  good  faith  while  in 
the  performance  of  their  duties,  unless  such  errors  and  mistakes  result 
from  the  want  of  reasonable  and  ordinary  care  in  forming  their  judgment, 
or  from  ignorance  of  facts  of  which  they  could  not  have  been  ignorant  had 
they  exercised  ordinary  care  in  discharging  the  functions  of  their  officers 

Held  to  Reasonable  Capacity— Ordinary  Care  and  Diligence.— But 
while  directors  are  not  responsible  for  losses  resulting  from  mistakes  of 
fact  and  mere  errors  of  judgment,  they  owe  to  the  corporation  reasonable 
capacity,  scrupulous  good  faith,  and  the  exercise  of  their  best  judgment; 
and  in  accepting  positions  as  directors  they  must  be  taken  as  holding  them- 
selves out  as  possessed  in  a  fair  degree  of  the  knowledge  requisite  for  the 
performance  of  the  duties  which  they  have  assumed,  and  as  undertaking  to 
discharge  those  duties  with  ordinary  care  and  diligence.  They  are  not  mere 
figure  heads  but  must  attend  to  the  duties  incident  to  their  position,  and  for 
a  failure  to  do  so,  they  may  render  themselves  personally  liable  to  third 
persons,  not  only  for  acts  and  omissions  so  grossly  wrong  as  to  evidence  a 
want  of  the  necessary  knowledge  for  the  performance  of  their  duties,  or  to 
warrant  the  imputation  of  fraud  and  deceit  or  gross  negligence,  but  for 
losses  resulting  from  the  failure  to  exercise  that  degree  of  care  and  diligence 
which  men  of  ordinary  prudence  would  exercise  in  like  concerns  of  their 
own.^^     In  some  few  cases  it  has  been  held  that  inasmuch  as  directors  ren- 

47.  Same. — Williams  v.  McDonald,  sponsible  for  losses  on  loans  and  dis- 
43  N.  J.  Eq.  392,  7  Atl.  866;  In  re  counts  made  in  good  faith  simply  be- 
Spering's  Appeal,  71  Pa.  11,  10  Am.  cause  in  the  light  of  subsequent  events 
Rep.  684.  what   then    seemed   to   be  a   good   loan 

.„    _,  r  •   J  4.        J  _;  4.  1  «„       turns    out    to    have    been    an    error    of 

48.  Errors  of  judgment  and  mistakes       j^^^j         ^^   ^-j^ters  z,  Sowles,  31  Fed.  1. 

fJ^T^-^    ifV^o%Ticf'iolwh  49-     Reasonable     capacity-Ordinary 

132,  3o  L.   Ed.  662,  11   S.   Ct    924     Wit-  ^^^^   ^^^   diligence.-Briggs   v.   Spauld- 

ters   :-.   Sow  es    31    Eed.   1;    Godbold   v.  ^^^  ^    ^^           35  j^    ^^_  gg^    ^^  g_ 

Branch  Bank.  11  A  a.  191,  46  Am.  Dec^  ^^             ^   ^^^^^    ^,     Woodward,    Fed. 

A1  '    ?r^     V'-U          M    f    Yr%.?''\sr  Cas.    No.    3223,   5    Sawy    403;    Trustees 

Ala.    503;    Neall    r.    Hdl,    16    Cal.     146;  gosseiux,  4  Hughes  387,  3  Fed.  817; 

P^;^y/-.M;llaudon   (La.),  8  Mart^  (N.  Wheeler    v.    Aiken    County,    etc.,    Sav. 

fi^i    IV  ^^""vT^  ^1   ?       Q.    P         79?:  Bank,   7.5   Fed.   781;   Foster  v.   Bank,  88 

r  l'/    U  ■  ^-R  f        it^M     r     -Fo.     li       Fed.   604;   Godbold  v.  Branch   Bank,  11 
g^'^well    f.    Bates.    118    N     C.    323.    24       ^j       ^^    '  ^^  ^^^  j^^l^,^^   ,, 

&    ^-    V     '  -Z     '-""'"IV^I^     if'^f    '  Case,  121  111.  247,  12  N.  E.  676,  2  Am.  St. 

N    J.    Eq    o92.    7    Atl.    866;    Hodges  ^.  g     ^       ^^    j^      ^ 

New   England   Screw   Co     1   R.   L   312,       ^^l^^^.     '      ^     -^       g^   ^      3,^0^  g   Ky. 

53    Am.    Dec.    624;    Marshall    ?'.    Farm-       j     j-,        „„„    c      ■  r>   „i    ^,    r-,^..^*-^^,  • 

I       .       c         T>      \     o-    ^.T      r-^a    DC        L.  Rep.  328;  Savmgs  Bank  v.  Laperton, 

%''k^!   o't     I-    ?^".^l    1%X^-  ^;  I  87  Ky   306,  10  Ky.  L.  Rep.  201,  8  S.  W. 

£■    M  '  fi  h,  ^  .  '     I     '""•  ^k^7-  885,  12  Am.  St.  Rep.  488;  Dunn  v.  Kyle, 

lo\?A-       .r^     .9°M    W    Aon^'l^-U^^^^  ^^7    Ky.    (14   Bush.)    134;    Percy   ^^    Mil- 

82   Wis.    460    52    N.   W    600;    Killen   t'.  ,^^^^J^  ^^^a.),  8  Mart.   (N.  S.)  68;  Bank 

State  Bank,  106  Wis.  o46,  82  N.  W.^  536.  .,    pjj„_    .g   ^^    ^^^^   9^   j^^    j^^^    ^^q. 

The  officers  of  an  insolvent  national  Baxter  z'.  Coughlan,  70  Minn.  1,  72  N. 
bank    can    not    be    held    personally    re-       E.    797;    Wolf    f.    Simmons,    75    Miss. 


§  ^V    (la) 


OFFICERS  AND  AGENTS. 


335 


der  their  services  gratuitously,  they  are  not  to  be  held  to  that  degree  of 
responsibility  which  is  exacted  of  bailees  for  hire;  in  other  words,  that 
they  are  held  to  the  exercise  of  only  slight  care,  and  are  responsible  for 
only  gross  negligence. 5^*  On  principle  as  well  as  authority,  however,  there 
can  be  no  doubt  that  directors  are  held  to  the  exercise  of  ordinary  care 
and  diligence,  and  that  they  are  responsible  for  losses  resulting  from  their 
failure  to  exercise  that  degree  of  care,  which  may  be  defined  to  be  such  dili- 
gence as  ordinarily  prudent  men  would  exercise  in  conducting  the  affairs  of 
a  moneyed  institution  of  like  character  ;5i  and  even  in  some  of  the  cases 
holding  that  they  are  responsible  only  for  fraud  or  gross  negligence,  it  is 


539,  23  So.  586;  Solomon  z:  Bates,  118 
X.  C.  311,  24  S.  E.  478,  54  Am.  St. 
Rep.  725;  Caldwell  z:  Bates,  118  N.  C. 
323,  24  S.  E.  481;  Williams  v.  Halliard, 
38  N.  J.  Eq.  373;  Williams  f.  McKay, 
40  N.  J.  Eq.  189,  53  Am.  Rep.  775; 
Williams  z:  McDonald,  42  N.  J.  Eq. 
392,  7  Atl.  866;  Cassidy  v.  Uhlmann, 
170  N.  Y.  305,  63  N.  E.  554;  Hun  v. 
Carey,  82  N.  Y.  65,  59  How.  Prac.  439, 
37  Am.  Rep.  546;  Brinckerhofif  v.  Bost- 
wick,  88  N.  Y.  52;  Scott  v.  Depeyster 
(N.  Y.),  1  Edw.  Ch.  513;  Robinson  v. 
Smith  (N.  Y.),  3  Paige  222,  24  Am. 
Dec.  212:  Conant,  etc.,  Co.  v.  Reed,  1 
O.  St.  298;  In  re  Spering's  Appeal,  71 
Pa.  11.  10  .^m.  Rep.  684;  Swentzel  v. 
Penn  Bank,  147  Pa.  140,  23  Atl.  405, 
15  L.  R.  A.  305;  30  Am.  St.  Rep.  718; 
In  re  Warner's  Appeal  (Pa.),  7  Atl. 
216,  ]  Sad.  310;  Shea  v.  Mabry,  69 
Tenn.  (1  Lea)  319;  Vance  v.  Phcenix 
Ins.  Co.,  72  Tenn.  (4  Lea)  385;  Scale 
r.  Baker,  70  Tex.  283,  7  S.  W.  742, 
8  Am.  St.  Rep.  592;  Marshall  v. 
Farmers',  etc.,  Sav.  Bank,  85  Va.  676, 
8  S.  E.  586,  2  L.  R.  A.  534,  17  Am. 
St.  Rep.  84;  Elliott  z:  Farmers'  Bank, 
01    W.    Va.    041,    57    S.    E.    242. 

50.  Cases  holding  directors  to  exer- 
cise of  only  slight  care. — Briggs  v. 
Spaulding,  141  U.  S.  132,  :^r,  L.  Ed.  662, 
11  S.  Ct.  924;  Union  Nat.  Bank  v.  Hill, 
148  Mo.  380,  49  S.  W.  1012,  71  Am.  St. 
Rep.  615;  S.  C,  155  Mo.  279,  55  S.  W. 
1133;  Swentzel  v.  Penn  Bank,  147  Pa. 
HO,  23  Atl.  405,  15  L.  R.  .'\.  305,  30  Am. 
St.  Rep.  718;  In  re  Warner's  Appeal, 
147  Pa.  140,  23  .'\tl.  405,  15  L.  R.  A.  305, 
30  Am.  St.  Rep.  718;  North  Hudson, 
etc..  Ass'n  z'.  Childs,  82  Wis.  460,  r,2 
N.  W.  600;  Killen  z'.  State  Bank,  100 
Wis.  546,  82  N.  W.  536. 

There  is  no  doubt  that  trustees  are 
liable  for  gross  negligence  and  inat- 
tention of  their  duties.  Williams  z'. 
Halliard,  38  N.  J.  Eq.  373;  Robinson 
V.  Smith  CN.  Y.),  3  Paige  322,  24  Am. 
Dec.  212. 

Vor    the    mere    failure    of    bank    di- 


rectors to  exercise  ordinary  care  in 
managing  the  bank's  affairs,  whereby 
the  bank  sustains  loss  and  becomes 
insolvent,  such  directors  are  not  liable 
to  general  creditors  of  the  bank  in  a 
suit  by  them.  Union  Nat.  Bank  v. 
Hill,  148  Mo.  380,  71  Am.  St.  Rep. 
615,  49  S.  W.  1012;  S.  C,  155  Mo.  279, 
55   S.   W.   1133. 

A  director  of  a  bank,  whose  serv- 
ices are  gratuitous,  and  whose  duties 
are  to  attend  the  bank  once  or  twice 
a  week  to  assist  in  discounting  paper, 
to  see  how  much  money  there  is  to 
loan,  and  once  or  twice  a  year  to  count 
the  cash  on  hand,  and  examine  the 
bills  receivable  and  securities  to  see 
whether  they  correspond  with  the 
statement  furnished  by  the  officers, 
does  not  owe  the  creditors  of  the  bank- 
such  care  as  a  reasonably  prudent 
man  exercises  in  his  own  business,  but 
is  amenable  only  for  fraud,  or  for  such 
gross  negligence  as  amounts  to  fraud. 
Swentzel  r.  Penn  Bank,  147  Pa  140 
23  Atl.  405,  15  L.  R.  A.  305,  30  Am' 
St.   Rep.  718. 

Directors  of  banks  and  other  mon- 
eyed corporations  hold  the  relation  to 
stockholders,  depositors,  and  creditors 
of  trustees  to  cestuis  que  trustent,  and 
as  such  are  personally  responsible  for 
frauds  and  losses  resulting  from  gross 
negligence  and  inattention  to  the  du- 
ties of  their  trust.  Mutual,  etc.,  Sav. 
Bank  z:  Bosseiux,  4  Hughes  387,  3  Fed 
817. 

51.  On  principle  and  authority. — 
Briggs  C-.  Spaulding,  141  U.  S.  132  35 
L.  Ed.  662.  11  S.  Ct.  924;  Savings 
Bank  z'.  Caperton,  87  Ky.  306,  10  Ky. 
L.  Rep.  201,  8  S.  W.  885,  12  .\m.  St 
Rep.  488;  Percy  v.  Millaudon  (La.).  8 
Mart.  (N.  S.)  68;  Banl-  z:  Hill.  56  Me. 
385.  96  Am.  Dec.  470;  Williams  7' 
Halliard.  38  N.  J.  Eq.  373;  Hun  7-.  Carey, 
82  N.  Y.  65,  59  How.  Prac.  439.  37  Am. 
Rep.  546;  Scott  z'.  Depeyster  (N.  Y.).  t 
I'.dw.  Ch.  513;  Robinson  7'.  Smith  (N. 
y.).  3   Paige  222,  24   .\m.   Dec.   212. 


336 


BANKS    AND    BAXKIXG. 


§  57   (la) 


stated  that  gross  negligence  consists  in  the  failure  to  exercise  ordinary  care 
and  diligence,  or  the  absence  of  that  diHgence  which  ordinarily  prudent  men 
would  exercise  in  the  conduct  of  a  like  business. °- 

Same — What  Constitutes  Ordinary  Care  and  Diligence,  or  the 
Want  Thereof. — As  to  what  constitutes  ordinary  care  and  diligence  or 
the  want  thereof  depends  upon  the  subject  to  which  the  doctrine  is  applied, 
and  each  case  must,  generally,  be  determined  in  view  of  all  the  circum- 
stances,^-^ and  a  few  illustrations  are  given  in  the  footnotes. ^^     Still  there 


52.  Failure  to  exercise  ordinary  care 
held  to  be  gross  negligence. — Savings 
Bank  r.  Caperton,  87  Ky.  306.  10  Ky. 
L.  Rep.  201,  8  S.  W.  885.  12  Am.  St. 
Rep.  488;  Dunn  v.  Kyle,  77  Ky.  (14 
Bush)  134;  Hun  v.  Carey,  82  N.  Y. 
65,  59  How.  Prac.  439,  37  Am.  Rep.  546. 

53.  Want  of  ordinary  care  and  dili- 
gence— How  determined. — Briggs  v. 
Spaulding,  141  U.  S.  132,  35  L.  Ed. 
662,  11  S.  Ct.  924;  Percy  v.  Millaudon 
(La.),  8  Mart.  (N.  S.)  68;  Solomon  f. 
Bates,  118  N.  C.  311.  24  S.  E.  478,  54 
Am.    St.    Rep.   725. 

54.  Illustrations. — Where  the  bank 
was  run  in  two  departments,  as  a  sav- 
ings bank  and  a  commercial  bank,  the 
directors  were  not  guilty  of  negligence 
in  placing  certain  bonds  belonging  to 
the  savings  side  with  a  New  York 
bank  to  enable  the  bank  to  draw  on 
New  York  when  necessary,  which 
bonds  the  defaulting  cashier  afterwards 
pledged  to  raise  monev.  Savings 
Bank  v.  Caperton,  87  Ky.' 306,  10  Ky. 
L.  Rep.  201,  8  S.  W.  885,  12  Am.  St. 
Rep.   488. 

In  an  action  by  depositors  against 
the  directors  personally  for  loss  occa- 
sioned by  a  defaulting  cashier,  who 
owned  a  one-fifth  interest,  and  was  the 
leading  spirit,  of  recognized  ability, 
and  as  was  supposed  of  the  highest  in- 
tegrity, it  appeared  that  for  nine  j^ears 
be  had  been  making  false  entries,  and 
had  embezzled  a  large  amount:  that 
the  services  of  the  directors  were 
gratuitous:  that,  at  the  merger  of  an 
old  bank  in  a  new  one.  no  new  books 
had  been  opened,  so  that  the  cashier 
was  able  to  conceal  his  former  defal- 
cations: but  there  was  nothing  to  ex- 
cite suspicion,  the  frauds  being  perpe- 
trated by  false  entries,  which  made  the 
weekly  statements  apparently  correct: 
Ihat  the  duties  of  cashier,  bookkeeper, 
and  teller  were  all  performed  by  the 
cashier.  Hold,  that  the  directors  were 
not  liable.  Savings  Bank  v.  Caperton, 
87  Kv.  306,  10  Ky.  L  Rep.  201,  8  S. 
W.   885,   12    Am.    St.   Rep.   488. 

A  bank  president,  abetted  by  the 
cashier    and    several    clerks,    embezzled 


almost  all  the  funds  of  the  bank,  and 
concealed  the  fraud  by  false  entries 
in  the  books.  His  statements  to  the 
directors  from  time  to  time  showed  the 
bank  to  be  in  good  condition.  No 
fraud  was  discoverable  in  any  of  the 
books  except  the  individual  ledger, 
v.'hich,  by  a  rule  of  the  bank  conform- 
ing to  a  custom  largely  prevalent,  the 
directors  were  not  allowed  to  see.  The 
directors  were  among  the  heaviest 
stockholders,  and  at  the  first  suspen- 
sion they  raised  nearly  $300,000  on 
their  individual  credit  to  enable  the 
bank  to  resume  payment.  Held,  that 
the  directors  were  not  guilty  of  gross 
negligence.  Swentzel  v.  Penn  Bank, 
147  Pa.  140,  23  Atl.  405,  15  L.  R.  A. 
305.  30  Am.  St.  Rep.  718. 

The  president  of  a  bank  luisappro- 
priated  its  funds,  and  overdrew  his  ac- 
counts, and  a  brother  of  the  presi- 
dent, and  corporations  of  which  the 
officers  and  directors  were  also  offi- 
cers, largely  overdrew  their  accounts, 
and  were  loaned  large  sums  by  the 
bank  with  little  or  no  security,  though 
such  borrowers  were  irresponsible, 
and  another  borrower  was  permitted 
to  withdraw  his  security.  The  direct- 
ors, though  required  to  meet  weekly, 
met  but  two  or  three  times  a  year,  and 
never  caused  the  books  to  be  ex- 
amined, nor  called  for  statements  of 
accounts  with  other  banks.  The  cap- 
ital of  the  bank  was  small,  and  much 
of  it  was  not  paid  up.  and  the  paid-up 
portion  was  treated  as  a  loan.  The 
bank,  on  suspension,  was  able  to  pay 
but  ten  per  cent  on  the  deposits.  Held, 
that  thoueh  the  directors  were  igno- 
rant of  the  affairs  of  the  bank,  and 
v.'ere  not  guilty  of  bad  faith,  they 
were  guilty  of  such  negligence  as  ren- 
dered them  liable  to  the  depositors, 
^larshall  t'.  Farmers',  etc  .  Sav.  Bank, 
85  Va.  676,  8  S.  E.  586,  2  L.  R.  .\.  534, 
17  Am.   St.  Rep.  84. 

An  insolvent  bank's  charter  directed 
that  its  affairs  be  managed  bv  direct- 
ors, who  should  make  quarterly  state- 
ments of  the  bank's  actual  condition; 
and  the  by-laws  required  them  to  ex- 


(la) 


OFFICERS    AND    AGENTS. 


00/ 


are  a  few  general  principles  particularly  applicable  to  cases  of  this  char- 
acter. Thus  it  may  be  quite  true  that  since  directors  receive  no  compen- 
sation for  their  services,  and  since  the  benefits  derived  by  them  from  the 
profits  of  the  bank  benefit  them  only  in  their  capacity  as  stockholders,  their 
liability  is  not  to  be  measured  by  that  imposed  upon  the  president  and  cash- 
ier or  other  salaried  officers  who  receive  compensation  for  their  services 
and  who  are  charged  with  conducting  the  actual  details  of  the  business. 
The  degree  of  care  is  the  same  in  each  case,  but-  ordinary  care  does  not 
lequire  a  director  to  give  as  much  time  and  attention  to  the  business  of  the 
bank  as  the  same  degree  of  care  would  require  of  the  president  and  other 
salaried  officers.-'"'''  The  customs  and  methods  of  the  community  in  which 
a  banking  business  is  done  may  be,  for  such  community,  a  standard  of  pru- 
dence and  diligence  by  which  the  responsibility  of  the  bank  officers  and 
directors  at  common  law  is  to  be  tested;  and  if  there  has  been  a  reason- 
able conformity  to  these,  and  absolute  good  faith  and  honesty  of  purpose, 
it  would  be  unjust  to  hold  them  to  a  personal  accountability  for  losses  sus- 
tained through  loans  and  investments  which  time  has  shown  to  have  been 
imprudent  and  ill-advised.^^ 

Same — Same — Leaving  Management  to  Officers  and  Agents — 
Knowledge  of  Irregularities. — Directors  can  not,  however,  escape  re- 
sponsibility by  negligently  entrusting  to  others  matters  which  it  is  their  duty 
to  perform  in  person,  or  concerning  which  it  is  their  duty  to  be  informed. 
Ordinary  care  and  prudence  in  the  administration  of  the  afifairs  of  the  bank 
includes  something  more  than  officiating  as  mere  figure  heads ;  and  while 
under  the  law  they  are  entitled  to  commit   the  banking  business  to   dulv 


amine  the  bank  every  three  months. 
The  insolvent  bank  had  a  correspond- 
ent bank,  from  which  the  former's 
cashier  abstracted  large  sums  by 
drawing  checks,  and  entering  them  on 
the  insolvent's  books  for  less  amounts, 
i)y  drafts  which  were  never  credited, 
and  by  overcharges  and  false  charges 
against  the  correspondent  bank.  Such 
peculations  continued  for  several 
years  without  detection.  The  direct- 
ors trusted  the  correctness  of  the  cor- 
respondent's accounts  entirely  to  the 
cashier,  and  no  inquiry  was  made  as 
to  any  possible  discrepancy.  .A.n  ex- 
amination ?ind  comparison  of  the  ac- 
counts with  the  correspondent  would 
have  revealed  the  defalcations.  Held, 
sufficient  to  show  that  the  perpetration 
of  such  frauds  was  the  consequence  of 
the  directors'  neglect,  rendering  them 
liable  in  an  action  liv  the  bank's  re- 
ceiver. Campbell  r.  Watson,  62  N.  J. 
Kg.  .390,  .50  Atl.   120. 

The    duties    of    trustees    of    an    unin- 
corporated   bank    organized    under     an 
agreement    that    the    afifairs    should    be 
1   p,  &  R— 22 


under  the  control  of  a  board  of  trus- 
tees, who  pledged  themselves  to  an 
upright  discharge  of  their  duties  with- 
out being  responsible  for  any  loss,  ex- 
cept from  willful  misconduct,  and  re- 
quiring the  investment  of  deposits,  par- 
take more  of  the  character  of  ordinary 
trustees  than  of  bank  directors,  and 
where  they  for  over  two  years  paid  no 
attention  to  the  business,  and  failed 
to  invest  the  deposits,  l)ut  deposited 
tlieni  with  a  banking  firm,  known  by  a 
trustee  to  have  gone  into  the  stock 
brokerage  business,  and  the  depositors 
sustained  a  loss  in  consequence,  the 
trustees  were  liable.  Holmes  z'.  Mc- 
Donald, 22()  Til.  IfiO,  SO  N.  E.  714,  re- 
versing judgmeiu  in  McDonald  if. 
Holmes,   12K   111.   .\i)p.   51-0. 

55.  Applicable  principles. — Savings 
Bank  z'.  Caiierton,  S7  Ky.  ;!()(),  10  Ky. 
L.  Rep.  201,  8  S.  W.  ss.-,,  12  Am.  St. 
Rep.  488. 

56.  Local  customs  and  methods. — 
Wheeler  t'.  Aiken  C.  iinty,  etc..  Bank, 
~-y   Fed.  781. 


338 


BANKS    AND    BANKING. 


57    (la) 


authorized  and  salaried  officers,  this  does  not  absolve  them  from  the  exer- 
cise of  due  care  in  the  selection  of  such  officers,  nor  from  the  duty  of 
reasonable  supervision  after  their  selection,  and  if  a  loss  is  sustained 
through  their  negligence  in  failing  to  select  competent  officials  or  because 
of  want  of  knowledge  of  wrong  doing,  such  ignorance  being  the  result  of 
negligence  and  inattention,  such  loss  should  fall  upon  them  and  not  upon 
confiding  creditors  and  depositors.^" 


57.  Leaving  management  to  officers 
and  agents — Knowledge  of  irregulari- 
ties.— Briggs  V.  Spaulding,  141  U.  S. 
132,  35  L.  Ed.  662,  11  S.  Ct.  924;  Cor- 
bett  V.  Woodward,  Fed.  Cas.  No.  3,223, 
5  Sawy.  403;  Trustees  v.  Bosseiux,  4 
Hughes  387,  3  Fed.  817;  Robinson  v. 
Hall,  12  C.  C.  A.  674,  63  Fed.  222; 
Wheeler  v.  Aiken  County,  etc.,  Sav. 
Bank,  75  Fed.  781 ;  Gibbons  v.  Anderson, 
80  Fed.  345;  Delano  z:  Case,  17  III.  App. 
531;  Savings  Bank  v.  Caperton,  87  Ky. 
306,  10  Ky.  L.  Rep.  201,  8  S.  W.  885, 
12  Am.  St.  Rep.  488;  Bank  z:  Hill,  56 
Me.  385,  96  Am.  Dec.  470;  Ackerman 
v.  Halsey,  37  N.  J.  Eq.  356;  Williams 
V.  McKay,  40  N.  J.  Eq.  189,  53  Am. 
Rep.  775;  Williams  v.  McDonald,  42 
N.  J.  Eq.  392,  7  Atl.  866;  Hun  v.  Carey, 
82  N.  Y.  65,  59  How.  Prac.  439,  37  Am. 
Rep.  546;  Elliott  v.  Farmers'  Bank,  61 
W.  Va.  641,  57  S.  E.  242;  Land  Credit 
Co.  z'.  Lord  Fermary,  L.  R.  A.  Ch.  768. 

A  director  can  not  excuse  himself 
on  the  ground  that  a  loan  made  upon 
property  not  worth  at  least  double  the 
amount  of  the  loan  was  made  at  the 
solicitation  of  the  president  and  for 
the  alleged  benefit  of  the  bank,  when, 
as  a  manager,  director,  and  member 
of  the  finance  committee  he  was 
charged  with  the  duty  of  ascertaining 
the  facts  himself.  Williams  z'.  Mc- 
Donald,   42    N.    J.    Eq.    392,    7    Atl.    866. 

The  duty  of  the  board  of  directors 
is  not  discharged  by  merely  selecting 
ofificers  of  good  reputation  for  ability 
and  integrity,  and  then  leaving  the  af- 
fairs of  the  bank  in  their  hands,  with- 
out any  other  supervision  or  examina- 
tion than  mere  inquiry  of  such  ofificers, 
and  relying  upon  their  statements  until 
some  cause  for  suspicion  attracts  their 
attention.  The  board  is  bound  to  main- 
tain a  supervision  of  the  bank's  affairs, 
to  have  a  general  knowledge  of  the 
character  of  the  business  and  the  man- 
ner in  which  it  is  conducted,  and  to 
know  at  least  on  what  security  its 
large  lines  of  credit  are  given.  Gib- 
bons z'.  Anderson,  80  Fed.  345. 

A  receiver  of  a  national  bank  may 
sue     the    directors    to    hold    them    re- 


sponsible for  the  malfeasance  of  the 
managing  officer,  when  it  appears  that 
they  were  so  negligent  as  to  make 
practically  no  examination  of  its  books 
or  affairs,  and  held  meetings  only  at 
rare  intervals,  and  then  limited  their 
business  almost  wholly  to  the  election 
of  directors  and  the  declaration  of  divi- 
dends. In  such  case,  their  liability 
for  losses  should  begin  at  a  time  when 
they  ceased  to  discharge  the  duty  of 
giving  proper  supervision  to  the  con- 
duct of  the  bank's  affairs.  In  the  cir- 
cumstances of  the  present  case,  they 
were  held  liable  from  the  time  when, 
by  reason  of  the  failure  to  earn  divi- 
dends for  more  than  a  year,  their  at- 
tention should  have  been  drawn  to 
the  necessity  of  making  a  thorough  ex- 
amination. Gibbons  v.  Anderson,  80 
Fed.  345. 

Directors  of  a  national  bank  left  its 
management  for  more  than  three  years 
almost  wholly  to  its  cashier,  who  had 
but  little  property,  and  of  whom  they 
required  no  bond;  and  they  knowingly 
permitted  loans  to  be  made  to  indi- 
viduals and  firms  largely  in  excess  of 
the  amounts  allowed  by  law.  They  also 
failed  to  record  mortgages  given  to 
secure  large  debts  due  the  bank,  even 
after  they  were  aware  of  its  insolvency, 
and  erroneously  advised  an  examiner 
who  had  taken  charge  of  the  bank 
that  it  was  not  necessary  to  record 
them.  Held,  that  the  directors  were 
personally  liable  for  the  losses  caused 
by  such  neglect  and  mismanagement, 
and  the  fraud  and  defalcations  of  the 
cashier.  Briggs  v.  Spaulding,  141  U. 
S.  132,  35  L.  Ed.  662,  11  S.  Ct.  924,  dis- 
tinguished. Robinson  v.  Hall,  59  Fed. 
648,  reversed  in  12  C.  C.  A.  674,  63 
Fed.   222. 

In  an  action  by  a  bank's  receiver 
against  its  directors  for  losses  alleged 
to  have  been  occasioned  by  their  neg- 
ligence in  examining  the  cashier's  ac- 
counts, a  defendant  can  not  urge  his 
personal  ignorance  that  the  accounts 
were  incorrect,  arising  from  his  re- 
liance on  statements  made  by  the  ofifi- 
cers,    and     examinations     made     from 


§  37  (la) 


OFFICERS    AND    AGENTS. 


339 


Actual  Knowledge  Not  Essential  to  Liability. — Actual  knowledge  of 
irregularities,  however,  is  not  necessary,  since  it  is  the  duty  of  bank  direct- 
ors to  use  ordinary  diligence  in  acquiring  knowledge  of  the  business  of  the 
bank,  and  they  can  not  be  heard  to  say  that  they  were  not  apprised  of  facts 
the  existence  of  which  is  shown  by  the  books,  accounts  and  correspondence 
of  the  bank,  and  which  the  use  of  ordinary  diligence  in  the  supervision  of 
the  bank's  affairs  would  have  made  known  to  them.'^^ 

Doctrine  Dependent  upon  Negligence. — This  principle,  however,  is 
dependent  upon  negligence,  or  the  want  of  ordinary  diligence  in  the  selec- 
tion of  officers  and  in  the  supervision  of  the  affairs  of  the  bank.  Direct- 
ors are  not  insurers  of  the  fidelity  of  the  agents  whom  they  appoint,  nor 
can  they  be  held  responsible  for  losses  resulting  from  the  w'rongful  acts 
or  omissions  of  other  directors  or  agents,  unless  the  loss  is  a  consequence 
of  their  own  neglect  of  duty.-''''     Neither  are  they  held  as  a  matter  of  law 


time  to  time  by  the  state  officials. 
Campbell  v.  Watson.  62  N.  J.  Eq.  396, 
50   Atl.   120. 

In  an  action  by  a  bank's  receiver 
against  the  directors  for  losses  caused 
bj'  the  cashier's  abstractions  during 
several  years,  which  it  was  alleged  they 
negligently  failed  to  sooner  discover, 
defendants  can  not  claim  that  to  hold 
them  responsible  for  failure  to  discover 
such  defalcations  would  require  of  them 
too  high  a  degree  of  care  and  attention, 
where  the  examination  necessary  to 
discover  the  frauds  required  merely  an 
adjustment  of  accounts.  Campbell  v. 
Watson,   62    N.  J.    Kq.   396,   50   Atl.    120. 

58.  Actual  knowledge  not  essential. 
—Martin  v.  Webb,  110  U.  S.  7,  28  L. 
Ed.  49.  3  S.  Ct.  428;  Trustees  v.  Bos- 
sciux,  4  Hughes  387,  3  Fed.  817; 
Wheeler  t'.  Aiken  County,  etc.,  Sav. 
Bank.  75  Fed.  781;  Gibbons  v.  Ander- 
son, 80  Fed.  345;  United  Society  v.  Un- 
derwood (Ky.),  9  Bush  609,  15  Am. 
Rep.  731;  McDaniel  v.  Harvey,  51  Mo. 
App.  198;  Ackerman  v.  Halsey,  37  N. 
.1.  Eq.  356;  Williams  v.  McKay,  40  N. 
J.  Eq.  189,  53  Am.  Rep.  775;  Campbell 
V.  Watson,  62  N.  J.  Eq.  396,  50  Atl. 
120;  Hun  v.  Carey,  82  N.  Y.  65,  59 
How.  Prac.  439.  37  Am.  Rep.  546;  Em- 
pire State  Sav.  Bank  v.  Beard,  81  Hun 
184,  :u)  X.  Y.  S.  756,  62  X.  Y.  St.  Rep. 
701;  Roberts  v.  Washington  Nat. 
Bank,  11  Wash.  550.  40  Pac.  225;  El- 
liott V.  Farmers'  Bank,  f.i  W.  Va.  641. 
57    S.    E.   242. 

Where  the  books  and  papers  of  the 
bank  show  that  special  deposits  were 
being  wrongfully  disposed  of  by  tlio 
bank,  actual  knowledge  on  the  part  of 
the  directors  must  be  presumed.  United 
Society  v.  Underwood  (Ky.).  9  Bush 
609,   15   Am.    Rep.    731. 


Directors  can  not  absolve  them- 
selves from  liability  by  committing 
the  management  of  the  afifairs  of  the 
bank  to  the  cashier  or  president,  or 
other  officer,  or  to  a  committee  of  the 
directors,  and  thereafter  take  no  steps 
to  keep  themselves  informed  of  what 
is  being  done  with  the  assets  of  the 
corporation  and  the  money  of  the  de- 
positors, and  in  such  case  they  are 
liable  for  loss  sustained  through  the 
fraud  or  misconduct  of  such  officers 
and  which  reasonaljle  care  and  attention 
on  the  part  of  the  directors  would  have 
prevented.  Williams  v.  McKay,  40  N. 
J.  Eq.  189,  53  Am.  Rep.  775;  Hun  v. 
Carey,  82  N.  Y.  65,  59  How.  Prac.  439. 
37  Am.  Rep.  546;  Ackerman  v.  Hal- 
sey, 37  N.  J.  Eq.  356;  Trustees  v.  Bos- 
seiux.  4  Hughes  387.  3   Fed.  817. 

59.  Doctrine  dependent  upon  negli- 
gence.— Briggs  V.  Spaulding.  141  U.  S. 
132.  35  L.  Ed.  662.  11  S.  Ct.  924;  Cor- 
bett  V.  Woodward,  Fed.  Cas.  No.  3.223. 
5  Sawy.  403;  Delano  v.  Case,  17  111. 
App.  531;  Savings  Bank  v.  Caperton, 
87  Ky.  .306,  10  Ky.  L.  Rep.  201,  8  S. 
W.  885,  12  Am.  St.  Rep.  488;  Bank  v. 
Hill.  56  Me.  385.  96  Am.  Dec.  470; 
Solomon  V.  Bates,  118  N.  C.  311,  24 
S.  E.  478.  54  Am.  St.  Rep.  725;  Wil- 
liams 7'.  McKay,  40  N.  J.  Eq.  189,  53 
Am.  Rep.  775;  Wheeler  v.  Aiken 
County,  etc.,  Sav.  Bank.  75  Fed.  781 ; 
I-and  Credit  Co.  7',  Lord  Fermorv.  E. 
R.   A.  Ch.  768. 

The  directors  of  a  l)ank  who  serve 
without  compensation  are  not  liable 
personally  for  the  defalcation  of  the 
person  chosen  as  cashier,  teller,  and 
bookkeeper,  in  the  absence  of  any  n  a- 
son  for  suspecting  his  honesty,  or  any 
gross  neglect  on  their  part,  and  when 
thov    have    exercised    sucli    reasonable 


340  - 


BANKS    AND    BANKING. 


57   (la) 


to  a  knowledge  of  all  the  affairs  of  the  bank,  nor  all  that  its  books  and 
papers  would  show,  and  such  knowledge  can  not  be  imputed  to  them  ab- 
solutely and  as  a  matter  of  law  for  the  purpose  of  charging  them  with 
liability.'^"'  A  bank  director  is  not  required  to  be  an  expert  nor  even  a 
competent  bookkeeper,  nor  to  do  more  in  the  general  management  of  the 
bank,  with  reference  to  its  cashier  and  bookkeeper,  than  to  see,  in  the  ab- 
sence of  any  reason  for  doubting  his  fidelity  to  the  trust  confided  to  him, 
that  the  weekly,  daily,  or  monthly  statements  made  to  the  board  correspond 
with  the  general  balances  upon  the  books  ;"i  nor  can  directors  be  charged 
with  gross  negligence  merely  because  of  a  single  act  of  the  president,  not 
brought  to  their  actual  knowledge,  in  incurring  liabilities  in  excess  of  those 
authorized. '^- 

Frauds  Committed  during  Director's  Sickness  or  Absence. — If  a 
director  of  a  bank  is  seriously  ill,  it  is  within  the  power  of  the  other  di- 
rectors to  give  him  leave  of  absence  for  a  term  of  one  year,  instead  of 
requiring  him  to  resign,  and  if  frauds  are  committed  during  his  absence 
and  without  his  knowledge,  whereby  the  bank  suffers  loss,  he  is  not  re- 
sponsible for  them. '-=2  j\  mere  plea  of  ill-health,  however,  is  no  sufficient 
defense.*""* 

Defendants  Not  Directors  at  Time  of  Acts  of  Mismanagement. — 
That  certain  of  the  defendants  were  not  directors  at  the  time  some  of  the 
acts  of  mismanagement  occurred  will  not  exempt  them  from  liability  to 
depositors  for  the  wrongful  practices  of  which  they  were  guilty  after  they 
became  directors.*'^ 


diligence  and  ordinary  care  with 
reference  to  the  afifairs  of  the  bank  as 
ordinarily  prudent  men  would  exer- 
cise in  reference  to  such  business  af- 
fairs. Savings  Bank  7'.  Caperton,  87 
Ky.  306,  10  Ky.  L.  Rep.  201,  8  S.  W. 
885,  12  Am.  St.  Rep.  488. 

The  fact  that  bonds  belonging  to 
a  director  were  used,  in  his  absence, 
by  the  cashier,  in  his  statement,  as 
bank  assets,  the  bank  being  accus- 
tomed to  invest  in  like  bonds,  does  not 
indicate  negligence  of  the  directors  in 
failing  to  examine  the  books  to  see 
to  whom  the  bonds  had  been  charged, 
there  being  no  suspicion  of  the  cash- 
ier's integrity.  Savings  Bank  v.  Caper- 
ton.  87  Ky.  306,  10  Ky.  L.  Rep.  201,  8 
S.   W.   88.5,    13   Am.    St.    Rep.   488. 

60.  Not  held  to  knowledge  as  a  mat- 
ter of  law. — Savings  Bank  z'.  Caper- 
ton.  87  Ky.  306,  10  Ky.  L.  Rep.  201,  8 
S.  W.  885,  12  Am.  St.  Rep.  488;  Mason 
r.  Moore.  73  O.  St.  275,  4  L.  R.  A.,  N. 
S.,    597.   76    N.    E.   932. 

The  only  question  presented  in  such 
a  case  is,  whether  the  directors  acted 
in   good    faith    and   with    ordinary   care 


and  diligence  in  conducting  the  affairs 
of  the  bank,  or  such  diligence  as  ordi- 
narily prudent  men  would  have  exer- 
cised with  reference  to  the  conduct  of 
such  a  moneyed  institution.  It  is  not 
a  question  as  to  how  the  frauds  of  the 
cashier  might  have  been  discovered, 
but  were  these  directors  guilty  of  gross 
neglect,  which  means  an  absence  of 
that  diligence  that  ordinarily  prudent 
men  in  the  conduct  of  such  business 
would  have  exercised.  Savings  Bank 
7'.  Caperton.  87  Ky.  306.  10  Ky.  L.  Rep. 
201.   8   S.   W.   885.  12   Am.    St.   Rep.  488. 

61.  Directors  not  required  to  be  ex- 
pert accountants. — Savings  Bank  v. 
Caperton,  87  Ky.  306.  10  Ky.  L.  Rep. 
201.   8    S.   W.   885,   12   Am.    St.   Rep.   488. 

62.  Single  act  not  brought  to  knowl- 
edge of  directors. — Brannin  7\  Loving, 
82   Ky.   .170.   6   Ky.   L.   Rep.   328. 

63.  Frauds  during  director's  sickness 
or  absence. — Bricgs  i'.  Spaulding.  141 
U.    S.    132,   35   L.   Ed.   662,   11    S.   Ct.   924. 

64.  Plea  of  ill  health. — German  Sav. 
Bank  ?■.   Wulfekuhler,   19   Kan.  60. 

65.  Defendants  not  directors  at  time 
of   acts    of   mismanagement. — Boyd    v. 


§    ^7    (la)  OFFICERS    AND    AGENTS.  341 

Assignment  of  Liability. — It  is  almost  unnecessary  to  state  that  di- 
rectors and  stockholders  can  not.  by  making  an  assignment  to  which  the 
creditors  of  the  bank  are  not  parties,  and  to  which  they  have  not  consented, 
deprive  such  creditors  of  their  remedies  against  them  for  a  breach  of 
duties. *'*'' 

Distinction  as  to  Action  against  Bank  and  Action  against  Direct- 
ors.— Where  the  action  is  against  the  bank,  it  will  not  be  heard  to  say  that 
it  was  ignorant  of  frauds  and  thefts  committed  by  the  cashier,  for  in  such 
a  case  the  law  presumes  that  the  directors  know  every  entry  made  by  its 
subordinate  officers  in  the  bank  books,  and  the  misappropriation  of  funds, 
by  the  cashier,  unknown  to  the  directors,  constitutes  no  defense  to  the 
bank ;  but  in  an  action  against  the  bank  to  make  them  personally  liable,  no 
such  presumption  exists,  and  the  burden  is  on  the  creditor  of  the  bank  to 
show  want  of  diligence  on  the  part  of  the  directors  in  discovering  or  pre- 
venting the  fraud.*'" 

Violation  of  Law  or  Charter. — Where  a  statute  prohibits  the  doing 
of  an  act.  or  imposes  a  duty  for  the  benefit  and  protection  of  individuals, 
persons  who  disobey  the  prohibition  or  neglect  to  perform  the  duty  ren- 
der themselves  liable  to  those  for  whose  protection  the  statute  was  enacted 
for  any  damage  or  loss  proximately  resulting  from  such  disobedience  or 
neglect.''"*  Restrictions  contained  in  statutes  regulating  the  business  of 
banking  are,  generally,  of  this  character,  and  for  violations  of  the  charter 
or  general  statutes,  directors  may  render  themselves  personally  responsible 
to  creditors  and  depositors  who  sustain  loss  thereby  f^  as,  for  example, 
for  waste  of  the  corporate  funds  and  property  by  loaning  money  without 
security  in  cases  where  security  is  required  to  be  taken,  or  investing  the 
money  of  the  bank  in  speculative  enterprises  forbidden  by  law,  or  accept- 
ing securities  in  payment  of  subscriptions  to  the  capital  stock  when  it  is 
required  by  law  that  such  payments  shall  be  in  cash,  or  who  otherwise 
commit  violations   of   the   charter  or  general   law   whereby  the  money  or 

Schneider,    (ia    C.    C.    A.    209,    131    Fed.  7\    Pratt,    33    Minn.    323.   23    N.    W.   237; 

223.  Osborne   v.    McMasters,   40    Minn.    103, 

That   certain   of  the   defendants   sued  41    N.    W.    .'543.    12    Am.    St.    Rep.    698; 

were  not  directors  of  an  insolvent  bank  Baxter  v.   Coughlan,  70   Minn.   1,  72   N. 

at    the    time    acts     of     mismanagement  W.  797. 

complained  of  occurred,  did  not  exempt  69.    Same. — Baxter    7'.    Coughlan,    70 

them      from      liability      to      depositors,  Minn.    1,    72    N.    W.    797;    Solomon    v. 

where    it    appeared    that    during    their  Bates.   118   N.   C.   311.  34   S.   E.   478,   54 

term  of  office  dividends  were  paid  from  Am.  St.  Rep.  725;  Citizens'  Loan  Ass'n 

the  capital,  which  was  also  alleged  as  v.  Lyon,  29  N.  J.  Eq.  110;  Williams  v. 

a  ground  of  action.     Bovd  v.  Schneider,  McKay,  40  N.  J.   Eq.   189,  53   Am.   Rep. 

or,  C.   C.   A.  209.   131    Fed.  223.  775;    Hun    v.    Carey,    82    N.    Y.    05,    59 

66.  Assignment  of  liability.— Schley  How.  Prac.  439.  37  Am.  Rep.  540; 
V.   Dixrm.  ;m   r,a.  27:!.  71    Am.    Dec.   121.  P.rinckerhoff  ?■.    Bostwick,   88    X.    Y.  52; 

67.  Distinction  between  action  against  Rol)inson  7'.  Smith  (N.  Y.),  3  Paige 
bank  and  action  against  directors. —  222.  24  .\m.  Dec.  212;  Conant.  etc..  Co. 
Savings  Bank  7\  Capcrton,  87  Ky.  300,  7.  Reed,  1  O.  St.  298;  Hodges  v.  New 
10  Ky.  L.  Rep.  201.  S  S.  W.  885.  12  England  Screw  Co..  I  R.  L  312.  53  Am. 
Am.  St.  Pep.  488.  Dec.    024;    Moses   v.    Ocoee     Bank,     09 

68.  Violation  of  law  or  charter. — Butt  Tenn.  (1  Lea)  398. 


342 


BANKS    AND    BANKING. 


§  57   (la) 


property  of  the  corporation  is  lost  or  wasted.''^  But  while  directors  are 
bound  to  exercise  ordinary  skill,  and  to  possess  reasonable  capacity,  they 
are  not  held  to  a  technical  or  special  knowledge  of  the  law,  such  as  could 
be  expected  only  from  persons  learned  in  the  profession;  and  for  mis- 
takes concerning  the  law  with  regard  to  matters  involving  special  or  tech- 
nical knowledge  thereof,  they  are  liable,  if  at  all,  not  for  their  mistakes, 
but  for  negligence  in  failing  to  seek  competent  legal  advice.' ^ 

Violation  of  By-Laws  of  Bank. — Failure  to  comply  with  the  by-laws 
of  the  bank  is  negligence  in  itself,  and  directors  can  not  excuse  themselves 
for  losses  resulting  from  such  failure  upon  the  plea  that  they  were  ignorant 
of  their  existence;^-  and  in  a  suit  by  a  bank's  receiver  against  its  directors 
for  losses  occasioned  by  alleged  neglect  of  duty,  the  fact  that  a  by-law 
relied  on  by  the  receiver,  failure  to  comply  with  which  probably  led  to  the 
loss,  had  been  disregarded  for  so  long  a  time  that  its  repeal  might  be  pre- 
sumed, can  not  avail  the  defendants  as  a  defense.'-^ 

Good  Faith  as  a  Defense ;  Liability  of  Bank— Fraud  or  Negligence 
Proximate  Cause  of  Loss. — Where  fraud  or  culpable  negligence  is  shown, 
the  directors  can  not  excuse  themselves  by  pleading  mere  honesty  of  in- 
tention. Good  faith  alone  will  not  excuse  them  when  there  has  been 
that  lack  of  care,  attention,  and  circumspection  in  their  management  of 
the  affairs  of  the  corporation  which  is  exacted  of  them  as  quasi  trustees;''* 
nor  is  it  any  defense  that  their  principal  is  also  liable,'"  though  in  order 
that  the  creditors  may  hold  them  personally  responsible,  the  fraud  or  neg- 
ligence of  the  directors  must  have  been  the  proximate  cause  of  their 
loss.''''^ 


70.  Same. — Citizens'  Loan  Ass'n  v. 
Lyon,  29  N.  J.  Eq.  110;  Williams  v. 
McKay,  40  N.  J.  Eq.  189,  53  Am.  Rep. 
775;  Robinson  v.  Smith  (N.  Y.),  3 
Paige  222,  24  Am.  Dec.  212;  Hun  v. 
Carey,  82  N.  Y.  65,  59  How.  Prac.  439, 
37  Am.  Rep.  546;  Brinckerhofif  v.  Bost- 
wick,  88  N.  Y.  52;  Hodges  v.  New 
England  Screw  Co.,  1  R.  L  312,  53  Am. 
Dec.  624;  Moses  7'.  Ocoee  Bank,  69 
Tenn.   (1   Lea)   398. 

71.  Same — Ignorance  or  mistake  of 
law.— Solomon  v.  Bates,  118  N.  C.  311, 
24  S.  E.  478,  54  Am.  St.  Rep.  725; 
Marshall  z'.  Farmers',  etc.,  Sav.  Bank, 
85  Va.  676,  8  S.  E.  586,  2  L.  R.  A.  534, 
17  Am.   St.   Rep.   84. 

72.  Violation  of  by-laws  of  bank. — 
Campbell  v.  Watson,  62  N.  J.  Eq.  396, 
50  At).   120. 

Personal  liability  of  directors  who 
sanction  violations  of  the  charter  or 
by-laws  of  the  bank  may  be  provided 
by  statute  or  charter.  Johnson  %•. 
Churchwell,   38  Tenn.    (1    Head)    146. 

73.  Same. — Campbell  v.  Watson,  62 
N.  J.   Eq.  396,  50  Atl.   120. 


Where  a  bank's  by-laws  require  its 
directors  to  appoint  a  committee  every 
three  months  .for  an  examination  of 
the  bank's  condition,  the  fact  that  ex- 
aminations were  occasionally  made  by 
the  state  examiner  can  not  relieve  the 
directors  from  loss  occasioned  by  their 
failure  to  comply  with  such  require- 
ment. Campbell  z:  Watson,  62  N.  J. 
Eq.   396,   50  At!.   120. 

74.  Good  faith  and  honesty  of  inten- 
tion as  a  defense. — Townsend  v.  Wil- 
liams, 117  N.  C.  330,  23  S.  E.  461;  Solo- 
mon V.  Bates,  118  N.  C.  311,  24  S.  E. 
478,  54  Am.  St.  Rep.  725;  Shea  v. 
Mabry,  69  Tenn.  (1  Lea)  319;  Wil- 
liams V.  McDonald,  42  N.  J.  Eq.  392,  7 
Atl.  866;  Mason  v.  Moore,  73  O.  St. 
275,  76  N.  E.  932,  4  L.  R.  A.,  N.  S.,  597. 

75.  That  principal  is  also  liable. — 
Delano  2\  Case,  121  111.  247,  12  N.  E. 
676,  2  Am.  St.  Rep.  81;  Solomon  v. 
Bates,  118  N.  C.  311,  24  S.  E.  478,  54 
Am.   St.   Rep.   725. 

76.  Fraud  or  negligence  must  have 
been  proximate  cause  of  loss. — Delano 
z\    Case,    121    111.    247,    12    N.    E.    676,    2 


$  57  (lb) 


OFFICERS    AXD    AGEXTS. 


343 


Liability  of  President  and  Other  Officers.— The  same  liability  at- 
taches to  the  president  or  other  officers  as  to  the  directors  in  like  cases.'" 
A  president  serving  upon  only  a  nominal  salary  is  held  to  the  exercise  of 
only  ordinary  care  in  managing  the  affairs  of  the  bank.'^ 

Misappropriation,  Embezzlement  or  Theft. — All  officers  are  per- 
sonally liable  to  creditors  or  to  a  receiver  for  funds  which  they  have  mis- 
appropriated, embezzled,  or  stolen."^ 

§  57  (lb)  Negative  View. — According  to  the  negative  view  of  the 
liability  of  directors  and  officers  to  third  persons,  the  directors  are  the 
agents  of  the  bank,  and  the  only  trust  or  fiduciary  relation  which  they 
sustain  is  to  the  bank,  and  not  to  depositors  or  creditors;  while  as  be- 
tween the  bank  and  third  persons,  the  relation  is  said  to  be  merely  that 
of  debtor  and  creditor  dealing  at  arms  length.  In  these  jurisdictions  what 
is  known  as  the  "trust  fund"  doctrine  does  not  prevail :  hence,  no  action 
as  for  a  breach  of  trust  will  lie;  there  is  no  contractual  relation  between 
the  directors  and  third  persons,  hence,  no  action  ex  contractu  can  be 
maintained ;  while  as  agents  of  the  bank  they  are,  in  so  far  as  loss  or 
damage  resulting  from  mere  nonfeasance  or  ordinary  negligence  is  con- 
cerned, amenable  only  to  the  bank  as  their  principal,  and  liable  to  third 
persons  in  an  action  ex  delicto  only  when,  as  regards  such  third  persons, 
they  have  been  guilty  of  actionable  fraud  or  deceit.*"     Under  this  view  it 


Am.  St.  Rep.  81;  United  Society  v. 
Underwood  (Ky.),  9  Bush  609,  15 
Am.  Rep.  731;  Percy  v.  Millaudon,  3 
La.  568;  Hart  v.  Evanson.  14  N.  S.  570, 
105  X.  W.  942,  3  U  R.  A.,  N.  S.,  438; 
Hodges  V.  New  England  Screw  Co.,  1 
R.  I.  312,  53  Am.  Dec.  624;  Zinn  v. 
Mendel.    9    \\\    \'a.    580 

77.  Liability  of  president  and  other 
officers. — Solomon  v.  Bates,  118  N.  C. 
:ill,  24  S.  E.  478,  54  Am.  St.  Rep.  725: 
Caldwell  r.  Bates,  118  N.  C.  323,  24  S. 
E.   481. 

The  liability  of  the  president  and 
vice  president  to  depositors  and  other 
creditors  for  losses  sustained  by  them 
in  dealing  with  the  corporation  on  the 
faith  of  misrepresentations  by  such  offi- 
cers as  to  its  financial  condition,  or 
other  facts  forming  a  material  induce- 
ment to  the  deposit  or  contract,  is  the 
same  as  that  of  directors.  Solomon  v. 
Bates.  118  N.  C.  311,  24  S.  E.  478.  54 
Am.   St.   Rep.  725. 

78.  Where  president  receives  only 
nominal  salary.— Dunn  v.  Kyle,  77  Ky. 
Ml    Bush)    134. 

79.  Misappropriation,  embezzlement 
or  theft.— Austin  v.  Daniels  (N.  Y.),  4 
Denio  299. 

Where  the  officers  of  a  bank  pur- 
chased state  stocks,  to  carry  on  a  pri- 


vate undertaking  in  which  they  were 
engaged,  and  signed  a  contract  oblig- 
ing the  bank  to  pay  for  the  same,  and 
then  took  money  from  the  bank  to 
fulfill  such  engagement,  it  was  held 
that  they  were  liable  for  the  money  so 
taken  to  the  receiver  appointed  to 
close  up  the  concerns  of  the  bank. 
Austin  r.  Daniels  (X.  Y.),  4  Denio 
299. 

80.   Negative  view   of  liability  of  di- 
rectors and  officers  to  third  persons. — 

Briggs  z:  Spaulding,  141  U.  S.  132,  35 
L.  Ed.  662,  11  S.  Ct.  924;  HolHns  2: 
Brierfield,  etc.,  Iron  Co.,  150  U  S.  371, 
37  L.  Ed.  1113,  14  S.  Ct.  127;  National 
Exch.  Bank  v.  Peters,  44  Fed.  13; 
Howe  V.  Barney,  45  Fed.  668;  Bailey 
7:  Mosher,  11  C.  C.  A.  304,  63  Fed.  488; 
Andrews  v.  Foster,  76  Iowa  535,  41  N. 
W.  212;  Savings  Bank  v.  Caperton,  87 
Ky.  306,  10  Ky.  L.  Rep.  201,  8  S.  W. 
885,  12  Am.  St.  Rep.  488;  Vose  7'. 
Grant,  15  Mass.  505;  Abbott  v.  Mer- 
riam  (Mass.).  8  Cush  588;  Fusz  z-. 
Si)aunhorst,  67  Mo.  256;  Union  Nat. 
I'.ank?'.  Hill,  148  Mo.  380.  49  S.  W.  1012, 
71  .\m.  St.  Rep.  615;  IMaliev  z'.  .\dams, 
16  X.  Y.  Super.  Ct.  346;  Hart  7:  Evan- 
son.  14  N.  D.  570,  105  X.  W.  942,  3  L. 
R.  A..  N.  S..  438;  Minton  z'.  Stahlman, 
96  Tenn.   98,  34   S.   W.  222;    Deaderick 


344 


BANKS    AND    BANKING. 


§  57  (lb) 


has  been  held  that  nothing  short  of  intentional,  willful  and  affirmative 
wrongdoing  will  sulifice  to  confer  a  right  of  action  upon  third  persons,  and 
that  it  is  a  contradiction  in  terms  to  say  that  negligence  may  be  so  gross 
as  to  amount  to  willful  fraud  and  intentional  injury,  since  negligence, 
whether  slight,  ordinary  or  gross,  consists  of  the  want  of  care,  and  im- 
plies the  absence  of  intentional  wrongdoing.''^  There  must  not  only  be  a 
loss,  it  is  said,  but  the  loss  must  be  proximately  traceable  to  the  defend- 
ant's breach  of  a  legal  obligation  owing  to  the  plaintifif,  w^hich  obligation, 
as  here  defined,  is  to  refrain  from  willful  and  intentional  wrongdoings- 
Other  authorities,  while  upholding,  in  the  main,  the  doctrine  that  no  right 
of  action  will  lie  in  favor  of  third  persons  for  losses  resulting  froivi  tho 
want  of  ordinary  care  and  diligence,  hold  that  negligence  may  be  so  gross 
as  to  amount  to  fraud,  and  that  recovery  may  be  had  for  losses  so  sus- 
tained.^-'^  In  still  other  cases  it  is  held  that  whatever  the  plaintifif's  rights 
against  the  delinquent  directors  may  be,  they  can  not  be  enforced  in  an 
action  at  law,  it  being  variously  objected  that  the  directors  owe  no  duty 
in  a  legal  sense  to  the  creditors  or  to  the  public,  that  an  action  at  law 
must  be  brought  by  the  person  having  the  title  or  right  to  the  thing  de- 
manded, or  to  the  damages  sought  to  be  recovered,  that  there  is  no  legal 
privity  between  creditors  and  directors,  that  creditors  have  no  right  or 
power  to  intermeddle  with  the  property  or  concerns  of  the  bank,  or  to  call 


z:  Bank,  100  Tenn.  457,  45  S.  W.  786; 
Zinn  z\  Mendel,  9  W.  Va.  580:  Slack 
7'.  Northwestern  Nat.  Bank,  103  Wis. 
57,  79  N.  W.  51,  74  Am.  St.  Rep.  841; 
Killen  z:  State  Bank,  106  Wis.  546,  82 
N.  W.   536. 

"The  officers  of  a  corporation  act 
in  a  fiduciary  capacity  in  respect  to  its 
property  in  their  hands,  and  may  be 
called  to  account  for  fraud,  or  some- 
times even  mere  mismanagement,  in 
respect  thereto;  but,  as  between  itself 
and  its  creditors,  the  corporation  is 
simply  a  debtor,  and  does  not  hold  its 
property  in  trust  or  subject  to  a  lien 
in  their  favor  in  any  other  sense  than 
does  an  individual  debtor."  HoUins 
f.  Brierfield,  etc..  Iron  Co ,  150  U.  S. 
371,  37  L.  Ed.  1113.  14  S.  Ct.  127. 

Directors  of  such  institutions  may 
make  themselves  liable  in  an  action  at 
law  for  loss  and  damages  for  false 
representations  made  or  caused  to  be 
inade  by  them,  with  intent  thereby  to 
deceive  and  defraud  the  plaintiff,  and 
which  had  the  designed  efifect  and 
caused  loss  and  damage  to  the  plain- 
tifif.     Zinn  v.   Mendel,   9   W.  Va.   580. 

The  case  of  Abbott  v.  Merriam 
(]Mass.),  8  Cush.  588,  was  a  bill  in 
chancery  against  the  treasurer  and 
secretary  of  a  corporation,  charging 
mismanagement     of     its     affairs.      The 


bill  was  demurred  to,  and  the  demur- 
rer sustained.  C.  J.  Shaw,  in  deliver- 
ing the  opinion  of  the  court,  says: 
"They  (the  plaintiffs)  have  no  right, 
by  any  direct  suit,  legal  or  equitable,  to 
call  the  directors,  or  other  officers  of 
the  corporation,  to  an  account  for  mis- 
management. *  *  *  The  directors,  and 
other  officers,  and  agents,  are  amen- 
able only  to  the  corporation;  and  to 
give  every  individual  stockholder  a 
right  of  action  would  lead  to  a  multi- 
plicity of  suits."  Zinn  r'.  Alendel,  9  W. 
Va.  5'80. 

81.  Fraud  must  be  willful  and  inten- 
tional.—Briggs  f.  Spaulding,  141  U.  S. 
132,  35  L.  Ed.  662,  11  S.  Ct.  924;  Hart 
V.  Evanson,  14  N.  D.  570,  105  N. 
W.  942,  3  L.  R.  A..  N.  S.,  438;  Min- 
ion 7'.  Stahlman,  96  Tenn.  98,  34  S.  W. 
222;  Deaderick  :•.  Bank,  100  Tenn.  457, 
45  S.  W.  786. 

82.  Loss  must  result  from  breach  of 
legal  obligation. — Hart  z'.  Evanson,  14 
N.  D..  570,  105  N.  W.  942,  3  L.  R.  A.,  N. 
S.,  438. 

83.  Liability  in  case  of  gross  negli- 
gence.— Union  Nat.  Bank  v.  Hill,  148 
Mo.  380,  49  S.  W.  1012,  71  (Am.  St. 
Rep.  615:  S.  C,  155  AIo.  279,  55  S.  W. 
1133;  Swentzel  v.  Penn  Bank,  147  Pa. 
140,  23  Atl.  405,  15  L.  R.  A.  305,  30  Am. 
St.    Rep.   718. 


§  57   ( lb) 


OFFICERS    AXD    AGEXTS. 


345 


any  officer,  agent,  or  servant  to  account,  and  that  to  permit  them  to  do  so 
would  result  in  a  multiplicity  of  actions,  since  if  one  creditor  may  sue  all 
may  sue.^^  It  will  be  noticed  that  the  authorities  opposed  to  the  right 
of  depositors  and  creditors  to  hold  the  directors  personally  responsible  for 
losses  resulting  from  their  negligence  and  mismanagement  not  only  admit 
of  various  exceptions  to  their  position,  such  as  the  right  to  sue  where 
the  directors  have  been  guilty  of  actionable  fraud  or  deceit, ■"*•"'  or  where 
their  negligence  has  been  so  gross  as  to  amount  to  fraud,^**''  but  that  the 
reasons  advanced  in  support  of  most  of  the  objections  urged  by  them 
go  not  so  much  to  the  existence  of  the  right  as  to  the  difficulty  of  en- 
forcing it.  Xot  only  so.  but  to  hold,  as  some  of  the  cases  do,  that  the 
directors  are  amenable  solely  to  the  bank,  and  that  whatever  right  of 
action  exists  is  in  the  bank  as  a  separate  corporate  and  legal  entity,  is 
to  overlook  the  fact  that,  however  it  may  be  in  theory  and  in  contempla- 
tion of  law.  the  directors  are  in  fact  the  moving  and  life-giving  spirits  of  the 
bank,  and  that  as  a  separate  legal  entity,  it  remains  inert  and  inanimate 
until  they  act,  and  that  to  say  to  the  creditors  who  have  placed  their 
confidence  in  the  bank  upon  the  strength  of  the  names  appearing  in  the 
list  of  the  directory,  and  who  have  suffered  loss  through  their  inattention 
and  mismanagement  of  the  aff'airs  of  the  corporation,  that  their  dealing  is 
with  the  bank,  and  that  they  must  depend  upon  the  bank  to  call  the  guilty 
directors  to  account,  is,  in  its  practical  effect,  to  tell  them  that  they  must 
depend  upon  the  guilty  parties  bringing  themselves  to  account.  The 
mere  statement  of  such  a  proposition  demonstrates  its  absurdity  and  car- 
ries with  it  its  own  refutation.  Accordingly,  it  has  been  stated  in  some  of 
the  strongest  cases  opposing  the  right  of  the  creditor  to  hold  the  directors 


84.   Cases   holding   no  action   at  law. 

—Allen  7'.  Curtis,  26  Conn.  456;  Smith 
r.  Hurd  (Miss.),  12  Mete.  371,  46  Am. 
Dec.  690;  Smith  z:  Poor,  40  Me.  415, 
6.3  Am.  Dec.  672;  Fusz  v.  Spaunhorst, 
67  Mo.  256;  Hart  z'.  Evanson,  14  N.  D. 
.-.70,  105  N.  W.  942,  .3  L.  R.  A.,  N.  S., 
438;  Winter  z:  Baker  (N.  Y.),  34  How. 
Prac.  183;  Gardiner  v.  Pollard,  23  N. 
Y.  Super.  Ct.  674;  Deaderick  z'.  Rank, 
100  Tenn.  457,  45  S.  W.  786;  Zinn  z'. 
Mendel,   9   W.   Va.   580. 

Except  under  statutory  or  constitu- 
tional provisions,  a  dircctf)r  or  officer 
of  a  bank  is  not  individually  rcsponsi- 
l)lc  in  an  action  at  law  for  injury  re- 
sulting to  a  creditor  or  depositor  from 
tin-  nianapement  of  the  bank,  unless 
tin-  injury  is  occasioned  by  his  mali- 
cious (,r  fraudulent  act.  Fusz  z'.  Spaun- 
horst, 67  Mo.  256. 

A  creditor  of  a  corporation  can  not 
niaintain  an  action  at  law  against  the 
director  of  a  corporation  for  willful 
and  fraudulent  mismanagement  of  its 
affairs,    whereby    the    property    of    the 


corporation  was  wholly  wasted,  lost 
and  embezzled,  and  the  corporation 
rendered  wholly  insolvent,  and  the 
plaintiff's  claims  agfainst  the  corpora- 
tion rendered  wholly  worthless.  Win- 
ter r.  Baker  (N.  Y.),  34  How.  Prac. 
183;  Afifirming  Gardiner  v.  Pollard,  23 
N.  Y.  Super.  Ct.  674;  Smith  z'.  Poor, 
40  Maine  415,  63  Am.  Dec.  672;  Smith 
z'.  Hurd  (Mass.),  12  Mete.  371.  46  Am. 
Dec.  690:  Allen  z:  Curtis.  26  Conn. 
456. 

85.  Exception  in  case  of  actionable 
fraud  and  deceit.— Hart  ?■.  I'.vanson,  14 
N.  D.  570,  105  N.  W.  ;;42,  3  L  R  \ 
N.  S.,  438;  Zinn  z:  Mendel.  9  W.  Va! 
580;  Killen  7'.  State  Bank,  l()(i  Wis  546 
82    N.    W.   536. 

86.  Exception  as  to  gross  negligence. 

—Union  Nat.  Rank  .-.  Hill,  lis  Mo. 
380,  49  S.  W.  1012.  71  Am.  Si.  Rep. 
615;  S.  C,  155  Mo.  279.  55  S.  W.  I  I.!.!; 
Swentzel  z'.  Penn  Rank,  147  Pa  140 
23  Atl.  405,  15  I..  K.  A.  .305,  ;iO  Am, 
St.    Rep.   718. 


346  BANKS    AND    BANKING.  §    57    (Ic) 

personally  responsible,  that  where  the  necessities  of  the  case  so  require 
the  creditor  may  enforce  his  claim  in  the  right  of  the  corporation  or  its 
representative;  that  is,  through  the  agency  of  an  assignee  or  a  receiver.s'^ 

§  57  (Ic)  Constitutional  and  Statutory  Provisions.— By  statutes 
enacted  in  various  states  it  is  provided  that  directors  may  be  held  per- 
sonally responsible  for  losses  resulting  from  their  negligence  and  mis- 
management. The  language  of  these  statutes  is  not  always  harmonious, 
but  they  usually  provide  that  personal  liability  shall  follow  gross  negli- 
gence or  willful  or  fraudulent  misconduct.  Thus,  under  the  Indiana 
statutes,ss  defining  the  powers  and  duties  of  directors,  they  are  held  to 
be  the  agents  of  the  corporation,  having  the  general  custody,  control  and 
management  of  its  property  and  affairs,  and,  as  such,  liable  for  losses 
and  waste  of  money  and  property  occurring  through  their  gross  inatten- 
tion to  the  business  of  the  bank,  or  their  willful  violation  of  their  duties. ^^ 
In  Tennessee  it  is  provided*^*^  that,  if  directors  of  any  bank  in  the  state 
shall  be  guilty  of  any  fraud  or  willful  mismanagement  of  its  affairs,  by 
which  loss  is  occasioned  to  creditors,  they  shall  be  individually  liable  for 
such  loss.  Under  this  statute  the  directors  are  not  personally  liable  upon 
the  insolvency  of  the  bank  resulting  from  inattention,  imprudence  and 
want  of  care  in  making  loans  and  managing  the  business  of  the  bank,  but 
the  evidence  must  show  intentional  fraud  or  willful  mismanagement,  and 
this  must  be  distinctly  alleged  in  the  pleadings. ''i  In  Arkansas,  under  a 
statute  declaring  that  if  the  directors  intentionally  neglect  their  statutory 
duties  they  shall  l)e  liable  for  all  debts  contracted  during  such  neglect,^-  it 

87.  Enforcement  of  claim  through  as-  circumstances,  as  this  is  a  case  at  law, 

signee   or   receiver. — Hart  f.    Evanson,  and   not   a   case   on   the   equity   side   of 

14  N.  Dak.  570,  105  N.  W.  942,  3  L.  R.  the  courts." 

A.,      N.      S.,     438;      Killen     z'.      State  gS.       Indiana     statute.— Burns     Rev. 

Bank,  lOf.  Wis.  540,  82  N.  W.  556.  See,  Stats.    1894,    §§    2922,    2925,    2927,    2929, 

also,  Savings  Bank  ?'.  Caperton,  87  Ky.  2934 

306,  10  Ky.L.  Rep.  201.8  S.W.  88.5    12  gg      game-Liable     for    gross    negli- 

Am.   St^  Rep.  4SS;   bouth    bend  Chilled  ^^^   inattention.-Coddington  v. 

S°M    ?.?■   ^lo^T^^    ^°"  n      ^00- w'  Canaday.   157   Ind.  243.  61   N.    E.   567. 

72   N.   W.   749;    Gores   v.   Day,   99   Wis.  i,                                          „,              , 

276,  74  N.  W.  787;  Gager  ^..  Bank,  101  ^90-      Tennessee      statute.-Shannon  s 

Wis.  593,  77  N.  W.  920;  Gager  v.  Mars-  Code,   §  3242. 

den,  101   Wis.  598,  77   N.   W.  922.  91-     Same — Must     show     intentional 

In  Hart  v.  Evanson,  14  N.  Dak.  570,  fraud  or  willful  mismanagement.— Min- 

105   N.   W.  942,  3  L.   R.   A.,   N.   S.,   438,  ton  v.  Stahlman,  96  Tenn.  98,  34  S.  W. 

the  court  says:  "If  he  violated  his  obli-  222;  Deaderick  v.  Bank,  100  Tenn.  457, 

gation    to    the    bank,    or    neglected    his  45    S.    W.    786;    Hume    v.    Commercial 

duty  to  it,   redress   must  be   sought  by  Bank,    77    Tenn.    (9    Lea.)    728. 

the     corporation     itself     or    its     repre-  By  the  charter  of  the  Bank  of  East 

sentatives   for   the    common   benefit    of  Tennessee,    the    directors    of   the   insti- 

all   creditors   and   stockholders."  tution,  who  might  sanction  certain  vio- 

And    even   in    Zinn   v.    Mendel,   9    W.  lations  of  the  charter  specified  therein, 

Va.  580,  it  is  said  (p.  599)   "It  is  unnec-  could  be  held  liable  in  their  individual 

essary   to    ascertain    in    this    case    what  property,     for     any     loss     or     damage 

remedy,    or    remedies,    creditors    of   an  thereby,   to   the   creditors   of   the   bank, 

incorporated   moneyed    institution   may  Johnson    t'.    Churchwell,    38    Tenn.    (1 

have   against   the    bank   and    its    direct-  Head)  146. 

ors,    or    stockholders,    in    a    court     of  92.    Arkansas    statute. — Kirby's    Dig., 

equity,    in    any   given   state    of   facts    or  §  863. 


§    3/'    (2)  OFFICERS    AND    AGENTS.  347 

is  no  defense  to  an  action  brought  under  the  statute,,  for  loss  caused  bv  the 
president's  mismanagement,  that  the  directors  had  good  reason  to  beHeve 
and  did  believe  the  president  to  be  honest  and  competent,  and  so  com- 
mitted the  management  of  the  bank  to  him.^^  Under  the  Wisconsin  statute,^-^ 
the  creditor  has  not  the  absolute  right  to  maintain  such  an  action,  and  where 
the  title  to  the  claim  for  damages  is  in  an  assignee  for  the  benefit  of  cred- 
itors, he  is  the  person  who  should  invoke  the  jurisdiction  of  the  court, 
and  a  creditor  can  not  take  his  place  in  the  matter  unless  the  necessities  of 
the  case  so  require  or  the  court  so  direct ;  and  the  facts  in  that  regard, 
according  to  the  settled  practice,  must  be  made  to  appear  on  the  face  of 
the  complaint.-'-^  Under  the  Elaine  statute,'"^  authorizing  a  creditor  who 
has  sufl'ered  loss  through  the  ofiicial  mismanagement  of  directors  to  main- 
tain a  bill  in  equity  against  them,  directors  are  only  personally  responsible 
for  the  official  mismanagement  which  occurred  during  the  year  for  which 
they  were  chosen,  and  during  which  thev  acted.''" 

Same — Stipulation  in  Articles  against  Personal  Liability. — A  pro- 
vision in  the  articles  of  a  banking  association  that  any  person  dealing 
with  them  disavows  having  recourse  on  any  pretense  whatever  to  the  per- 
son or  separate  property  of  any  present  or  future  member  of  the  com- 
pany, does  not  prevent  the  recovery  of  a  judgment  against  the  individual 
members  brought  by  a  laborer  employed  by  such  members  and  with  whom 
he  contracted. ^'^ 

§  57  (2)  Individual  Liability  upon  Obligations  of  Bank.— Offi- 
cers and  agents  of  corporations  acting  within  the  scope  of  their  authority 
are  not  individually  liable  upon  the  contracts  and  obligations  of  the  bank 
where,  from  the  manner  in  which  the  instrument  is  executed,  it  is  made 
to  appear  that  it  is  the  obligation  of  the  bank  and  that  the  bank  is  the  con- 
tracting party ;  but  it  is  otherwise  where  the  instrument  is  executed  in  the 
names  of  the  officers  and  agents  of  the  bank;  and  it  is  not  sufficient  that 
they  describe  themselves  as  officers  or  agents  of  the  bank,  since  such 
words  will  be  taken  to  be  merely  descriptio  personas,  and  are  not  sufficient 
to  relieve  them  from  personal  liability  upon  an  agreement  into  which  they 

93.  Same — Committing  management  showed  that  the  person  in  whom  the 
to  president.— I'lctclicr  ?■.  Ea.L;lc,  74  title  to  the  cause  of  action  was  vested 
.'Xrk.  585,  86  S.  VV.  810,  109  Am.  vSt.  was  hostile  to  its  enforcement,  there- 
Rep.  100.  fore  the  creditor  was  permitted  to 
i,.?*"  Wisconsin  statute.— Rev.  Stats.  stand  in  the  place  of  such  hostile  party 
\V's.,  §§  :i:.':i7,  ;',2.'i9.  and    enforce    the    claim    in    his    right. 

95.  Same— Suit  by  assignee  or  cred-  Killcn  7'.   State   Bank,  106  Wis.  546,  82 

Iter.— Killcn    f.    State    Bank,    106    Wis.  N.  Vv.  5:i6. 

546,  82  N.  W.  5.'{6.  96.    Maine   statute.— Rev.    Stat.    c.   47, 

The    right    to    maintain    such    an    ac-  §§  4!!,  47. 

tion    was    sustained     in     South     Bend  97.       Same — Duration     of     responsi- 

Chilled  Plow  Co.  v.  Crihb  Co.,  97  Wis.  bility.— Bank   :•.    Hill,    56    Me.     385,     96 

230,  72  N.   W.  749,  and   Gores  v.   Day,  Am.  Dec.  470. 

99    Wis.   276,   74    N.    W.    787;    Gager   v.  98.   Stipulation  against  individual  lia- 

Bank,    101    Wis.    59.3,    77    N.    W.    920;  bility   of   directors   and   officers.— Davis 

Gager    v.    Marsden,    101     Wis.    598,    77  i>.    Beverly,    2    Crancli    C.    C.     35,     Fed. 

N.  W.  922.  The  complaint  in  each  case  Cas.   No.  3,627. 


348 


BANKS    AND    BANKING. 


§  57  (2) 


have  entered  over  their  own  signature.  In  other  words,  if  they  wish  to 
escape  personal  hahihty,  they  must  make  it  appear,  either  expressly  or  by 
necessary  implication,  that  the  obligation  is  that  of  the  bank  and  not  of 
themselves.^'*  Irrespective  of  the  question  as  to  the  manner  of  form  in 
which  an  obligation  was  executed,  directors  may  render  themselves  per- 
sonally liable  upon  the  obligations  of  the  bank  by  reason  of  fraud,  illegality 
or  gross  negligence. ^  And  one  contracting  in  the  name  of  the  bank,  but 
without  authority  to  do  so,  thereby  binds  himself  upon  his  implied  war- 
ranty of  authority,  unless  the  other  party  knows  or  is  held  to  a  knowledge 
of  his  want  of  authority. - 

Statutory  Liability  on  Insolvency.— By  statutory  provision  in  some 
jurisdictions  directors  are  made  individually  responsible  for  the  debts  of 
the  bank  on  its  becoming  insolvent,  and  it  has  been  held  under  such  a 
statute  that  they  are  liable  for  debts  contracted  before  the  law  took  effect 
where  the  bank  became  insolvent  thereafter.^     It  is  no  defense  to  an  action 


99.  Personal  liability  upon  obliga- 
tion of  the  bank.— United  States  v. 
Robertson  (U.  S.).  5  Pet.  641.  8  L.  Ed. 
257;  Taylor  v.  Williams  (Ky.)  17  B. 
Mon.  489;  Lawler  v.  Burt,  7  O.  St. 
340;  Medill  v.  Collier,  16  O.  St.  599; 
In  re  International  Contract  Co.,  L. 
R.   Ch.   525. 

An  agreement  executed  by  the 
president  and  directors  of  a  bank  as 
such  is  the  agreement  of  the  bank 
alone.  The  president  and  directors 
must  have  signed  as  individuals  had 
they  intended  to  bind  themselves  in- 
dividually by  that  agreement  for  a 
bond.  As  an  official  act,  it  was  suffi- 
cient that  it  be  entered  on  their 
journals;  as  an  undertaking  of  indi- 
viduals, it  ought  to  be  signed  by  them. 
It  is  referred  to  in  the  recital  of 
the  condition,  in  these  words:  "and 
whereas,  an  agreement  has  this  day 
been  entered  into  between  the  United 
States  on  the  one  part,  and  the  presi- 
dent and  directors  of  the  said  Bank 
of  Somerset  of  the  other  part,  in  these 
words,"  etc.  This  language  indicates 
an  agreement  by  the  president  and  di- 
rectors, in  the  corporate  character  in 
which  they  are  mentioned,  rather  than 
in  their  individual  characters  in  which 
they  are  not  mentioned.  United  States 
V.  Robertson  (U.  S.).  5  Pet.  641,  8 
L.  Ed.  257. 

1.  Same — By  reason  of  fraud,  ille- 
gality or  gross  negligence. — Schley  i'. 
Dixon,  24  Ga.  273,  71  Am.  Dec.  121; 
Brannin  v.  Loving,  82  Ky.  370,  6  Ky.  L. 
Rep.   328. 

Directors  can  not  be  held  personally 
liable  for  debts  of  the  bank,  unless 
they   are    guilty    of    gross    negligence. 


Brannin  v.  Loving,  82  Ky.  370,  6  Ky. 
L.  Rep.  328. 

Where  the  directors  of  a  bank,  con- 
trary to  their  charter,  issue  bills  be- 
fore a  certain  portion  of  their  capital 
is  subscribed  and  paid  in.  they  are 
liable  for  all  the  consequences  to  per- 
sons injured  by  their  misconduct. 
Schley  V.  Dixon,  24  Ga.  273,  71  Am. 
Dec.  121. 

The  directors  of  a  bank  falsely  re- 
ported that  twenty-five  per  cent  of  its 
capital  stock  had  been  paid  in,  as  re- 
quired by  law.  After  failure  of  the 
bank,  suit  was  brought  against  the  di- 
rectors, to  charge  them  personally 
with  the  debts  of  the  bank.  Held,  that 
the  fact  that  certain  directors  having 
knowledge  of  the  fraud  were  not  the 
original  incorporators  did  not  relieve 
them.  Schley  v.  Dixon,  24  Ga.  273,  71 
Am.  Dec.   121. 

2.  Same — I  m  p  1  i  e  d  warranty  of 
authority. — Frost  Mfg.  Co.  v.  Foster, 
76  Iowa  535,  41  N.  W.  212;  Watson  v. 
Bennett  (N.  Y.),  12  Barb.  196;  Baltzen 
r.  Nicolay,  53  N  Y.  (8  Sickles)  467; 
Dung  V.  Parker.  52  N.  Y.  494;  White 
V  Madison,  26  N.  Y.  117,  26  How.  Prac. 
481. 

A  cashier  executing  an  indemnity 
bond  to  the  sheriff,  and  directing  a 
sale  of  property  levied  on  under  an 
execution  in  favor  of  the  bank,  is  not 
personally  liable  when  he  acted  under 
special  direction  of  the  directors, 
though  otherwise  if  acting  merely 
within  his  general  authority.  Watson 
V.   Bennett    (N.    Y.),   12    Barb.    196. 

3.  Statutory  liability  on  insolvency — 
Debts  contracted  before  law  took  ef- 
fect.— White  V.  How,  Fed.  Cas.  No. 
17,548,  3  McLean  111. 


§    57    (3)  OFFICERS    AND    AGENTS.  349 

brought  under  such  a  statute  that  there  has  been  a  judgment  of  forfeiture 
against  the  bank.  Such  a  judgment  does  not  discharge  the  habihty  of  the 
directors.-*  Neither  are  the  directors  released  from  liability  by  reason  of 
the  waste  or  destruction  of  the  assets  of  the  bank  in  the  hands  of  the 
assignee. '"^  And  it  is  immaterial  that  the  notes  upon  which  the  action  is 
brought  were  fraudulently  put  into  circulation.  A  plea  setting  up  such 
fact  constitutes  no  answer  to  the  declaration." 

§  57  (3)  Liability  for  Ultra  Vires  Acts.— It  is  not  disputed  that  the 
officers  and  agents  of  corporations  are  protected  from  private  liability  while 
acting  within  the  scope  of  corporate  powers ;  but  how  far  such  protection 
is  extended  when  they  transcend  the  corporate  authority  is  not  clearly 
defined.  The  existence  of  a  personal  liability  in  such  case  has  been  recog- 
nized in  many  cases."  It  is  not  always  true  that  directors  who  fail  to  bind 
the  bank,  because  of  the  ultra  vires  character  of  their  contract,  bind  them- 
selves, since  there  are  exceptions  to  the  rule  that  an  agent  who  goes  be- 
yond his  authority  binds  himself.  Thus  if  the  directors  make  no  repre- 
sentations as  to  the  powers  of  themselves  or  of  the  bank,  and  are  guilty 
of  no  fraud,  and  the  other  party's  means  and  sources  of  knowledge  are 
equivalent  to  their  own,  and  both  believe  the  contract  to  be  a  valid  agree- 
ment of  the  bank,  the  directors  can  not  be  held  personally  liable  thereon, 
since  the  credit  was  extended  and  the  contract  made  in  the  belief  that  the 
bank  would  be  responsible  therefor,  and  the  parties  having  thus  made 
their  own  contract,  the  law  will  not  create  a  new  and  different  one  holding 
the  directors  personally  liable.'''     Where,  however,  the  officer  or  agent  con- 

4.  Directors  not  discharged  by  judg-  17  Mass.  1,  29;  Kearny  7-.  Buttles,  1  O. 
ment  of  forfeiture  against  bank. —  Har-  St.  362;  Lawler  v.  Burt.  7  O.  St.  .'540; 
grove  z:   Chamliers,   30   Ga.   580.  Medill  v.  Collier,  16  O.  St.  599;  Lawler 

5.  Waste  or  destruction  of  assets  in  r.  Walker,  18  O.  151. 

hands   of  assignee    no    defense.— Har-  8.   Same— When   not  liable   for  ultra 

.proves  z:   Chaml)ers,   30   Ga.   580.  vires     contracts. — Frost     Mf^'.     Co.     t'. 

6.  No  defense  that  notes  were  fraud-  Foster,  76  Iowa  535,  41  N.  W.  212; 
ulently  put  into  circulation.— Wliitc  <■.  .A.ljeles  f.  Cochran.  22  Kan.  405,  31 
How,  I'ed.  Cas.  Xo.  17,549,  3  ^.IcLean,  Am.  Rep.  194;  Sandford  z:  Mc.\uthur 
2!'l-  (Ky.),    18    B.    Men.    411;    Fidelity,    etc.. 

In     a  sun     by  the     receiver  of  a     bank  Co.    z'.    National     Bank,    48    Tex.    Civ. 

against  an  ex-president  and  director,  the  App.    301,    106    S.    VV.    782,    citing    First 

complainant  averred  that   the   defendant  Nat.    Bank   z'.    Conlmercia!    Nat.    Bank, 

used    fictitious    notes   in    lieu   of   money  99  Tex.   118,  87   S.   \V.  1032. 
of    the    bank,    which    was    fraudulently  Thus,   where    the    directors    made    an 

used    and    disposed    of    by    the    bank;  ultra    vires    contract    for    the    purchase 

that  such  notes  were  among  the  assets  of    stock    from    a    third    person    which 

of   the    bank.      Held,    that    these    facts,  was  of  no  value  to  the  bank,  and  from 

if    proven,    would    l)c    sufficient    to    put  which  the  bank  received  no  benefit  and 

the  defendant  on   his  defense;   that  the  lepudiated    ihe    purchase    and    both    di- 

rlaim   was  one  which   would   belong  to  rectors  and  the   seller  of  the  stock  be- 

the    receiver,    and    might    be    collected  lieved    the    contract    to    be    good,    and 

I'V    him.      Butterworth   z'.    O'Brien    (N.  the    seller's   means   of  knowledge    were 

v.).     39     Barb.     192,     24     How.     Prac.  equal  with  that  of  the  directors,  it  was 

^  ■*''^-    .      .  Held  they  could  not  be  held  personally 

7.  Liability    for    ultra    vires    acts.—  liable  on  the  contract.  Abeles  z'.  Coch- 
Taylor  z.'.   Williams    (Ky.).   17   B.   Mon.  ran,  22  Kan.  405.  31   Am.  Rep.   194. 
489;    Salem    Bank  v.   Gloucester   Bank,  Where     the     directors     ordered     an 


350  BANKS    AND    BANKING.  §    57    (3) 

tracts  or  undertakes  personally  to  do  that  which  is  beyond  the  powers  of 
his  bank,  he  will  be  held  to  be  personally  bound  on  his  undertaking;'^  and 
if  the  bank  receives  and  retains  the  benefit  of  an  ultra  vires  contract,  it 
may  be  compelled  to  account  or  make  restitution. ^o  Where  the  directors 
or  trustees,  after  their  election  and  qualification,  do  nothing  whatever  in 
the  execution  of  corporate  power,  the  mere  fact  of  the  existence  of  the 
corporate  agency  will  not  shield  them  from  individual  liability  in  an  action 
based  solely  on  a  contract  entered  into  by  them  in  conducting  a  business 
wholly  foreign  to  the  objects  and  purposes  of  the  incorporation,  though 
such  business  was  conducted  and  such  contract  entered  into  in  an  asso- 
ciate name  which  could  properly  be  used  in  corporate  as  well  as  private 
business. 11  Where  a  charter  makes  the  individual  directors  personally  re- 
sponsible for  all  or  any  particular  debts  contracted  by  the  corporation,  in 
violation  of  the  charter,  the  inhibited  contracts  of  the  corporation  become, 
in  general,  by  force  of  the  charter,  the  contracts  of  such  directors;  and  the 
creditors  may  sue  the  latter  and  recover  from  them  as  if  the  contracts 
were  in  fact  made  by  them.  The  liability  in  such  case,  and  the  action,  is 
upon  the  contract,  and  the  creditor  is  limited  by  the  terms  of  the  contract, 
and  recovers  the  amount  of  the  debt  remaining  unpaid. i- 

Liability  for  Torts. — The  liability  of  directors,  ofificers  and  agents  for 
torts  rests  upon  different  principles.  Torts  are  always  ultra  vires  and 
personal,  in  the  sense  that  the  perpetration  of  fraud  or  deceit  or  othei 
actionable  wrong  is  never  within  the  legitimate  corporate  powers,  and  in 
the  sense  that  every  person  is  liable  in  an  action  ex  delicto  for  his  action- 
able wrongs,  and  it  is  no  defense  that  he  was  acting  as  the  agent  of  another 
or  in  a  representative  capacity. i-"*  The  liability  of  the  bank  for  the  tortious 
acts  of  its  directors,  officers  and  agents  is  a  question  depending  upon  other 
principles  not  now  under  consideration,  which  will  be  fully  treated  else- 
where. !■* 

issue  of  notes  in  excess  of  the  amount  12-    Personal   liability   under   charter. 

authorized  by  the  law  of  the  bank's  in-  — Sturges   z:    Burton,   8    O.    St.   215,   72 

corporation,   they   were   not   personally  ^™-   Dec.  582. 

responsible      therefor,      since     persons  13.    Personal     liability     for     torts.— 

dealing  with   the   bank  were  bound   to  National    Bank   v.    Graham     100    U.    b. 

take  knowledge  of  the  limitations  con-  699,  25   L.   Ed.  750:   First   Nat.   Bank  v. 

tained  in  its  charter  and  of  the  powers  Anderson,  172  U.  S.  573,  43  L.  Ed    558, 

granted    by   law   to    its   agents.      Sand-  ^9    S.    Ct.   284;    Salmon   ^'.    Richardson, 

ford    V.    McArthur    (Ky.),    18    B.    Afon.  30  Conn.  360,  79  Am.  Dec.  255:   Phelps 

411  V.  Wait,  30  N.  Y.   78;   New  York,  etc., 

„      c             -IX7U              cc                            i.  R-   Co.  V.  Schuyler,  34  N.   Y.  30;   Bruff 

9      Same-Where     officer     or     agent  y^y    gg   j^/y.   200,  34   How.    Prac. 

'^^"''o^J'^^-P^'!^   ifT       p''  ''io?  338;     Suydam    r.     Moore     (N.    Y.),     8 

ran,  22   Kan.  40;,.  31  Am.   Rep.  194.  g^;^    g^^.  ^^^^  ^,    E^^^son,  14  N.  Dak. 

10.  Same— Liability  of  bank  retain-  579  105  n.  W.  942,  3  L.  R.  A.,  N.  S., 
ing  benefit  of  ultra  vires  contract.—  433;  Zinn  v.  Mendel,  9  W.  Va.  580; 
Abeles  r.  Cochran,  22  Kan.  405,  31  KiHen  v.  State  Bank,  106  Wis.  546, 
Am.   Rep.  194.  go   N.  W.   536. 

11.  Personal  liability  in  ultra  vires  14.  Liability  of  bank  for  torts  of  offi- 
business  carried  on  by  directors. —  cers,  agents,  etc. — See  post,  "Torts," 
Ridenour  v.   Mayo,  40   O.    St.   9.  §  100;  "Wrongful  Acts,"  §  112. 


§   '^y   (4) 


OFFICERS    AND    AGENTS. 


351 


Fraud  of  Third  Person. — Where  the  president  or  director  of  a  bank 
undertakes,  at  the  request  of  another  bank  or  of  a  third  party,  to  perform 
a  service  which  is  confessedly  not  within  the  powers  of  his  bank,  such  as 
effecting  the  execution  of  a  certain  obligation,  and  in  performing  such  serv- 
ice he  acts  in  entire  good  faith  and  uses  ordinary  care,  neither  he  nor  his 
bank  can  be  held  responsible  for  a  loss  which  results  from  the  fraudulent 
act  of  the  maker  in  forging  the  name  of  a  third  person  as  surety.^-' 

§  57  (4)  For  Incurring  Excessive  Indebtedness.— It  is  a  common 
provision  found  in  the  charters  of  banking  corporations  and  in  the  statutes 
of  many  states  that  such  institutions  shall  not  become  indebted  in  excess 
of  a  certain  sum.  such  sum  usually  being  fixed  at  a  certain  ratio  to  the 
amount  of  the  capital  stock ;  and  for  a  violatioi\  of  such  inhibition  it  is 
usually  provided  that  the  directors  and  officers  guilty  tliereof  shall  be 
personally  liable,  either  for  the  excess  above  the  statutory  limit,  or  for 
some  specified  proportion  thereof.  The  first  question  that  naturally  pre- 
sents itself  in  this  connection  is,  how  far  a  director  must  have  participated 
in  bringing  about  the  excessive  indebtedness  in  order  to  incur  personal  lia- 
bility, and  upon  this  point  the  decisions  are  not  in  harmony.  In  Georgia, 
it  is  held  that  tlie  personal  liability  of  the  directors  created  by  the  statute 
of  that  state  is  joint,  and  that  no  one  director  can  defend  an  action  to 
enforce  the  same  by  showing  that  he  was  absent  at  the  time  the  indebted- 


15.  Neither  officer  nor  bank  liable  for 
fraud  of  third  person. — First  Nat.  Bank 
r.  Commercial  Nat.  Bank,  99  Tex.  118, 
87  S.  W.  1032,  reversing  97  Tex.  629, 
77  S.  W.  239,  no  op.  See,  also,  Com- 
mercial Nat.  Bank  v.  First  Nat.  Bank, 
97  Tex.  536,  80  S.  W.  601,  89  S.  W. 
418. 

S.,  desiring  to  borrow  $2,000  from 
appellant.  First  National  Bank  of 
Cuero,  Texas,  oflfered  as  his  security 
therefor,  R.,  one  of  the  vice-presidents 
of  the  Commercial  National  Bank  of 
Beeville.  The  appellant,  having  upon 
inquiry  become  satisfied  as  to  R.'s 
financial  standing,  mailed  to  the  Com- 
mercial National  Bank  of  Beeville,  a 
letter  asking  them  to  hand  the  en- 
closed note  to  Mr.  R.  for  signature  of 
himself  and  S.  R.  was  not  then  in 
Beeville  and  F.,  the  president  of  the 
Commercial  National  Bank,  mailed 
the  note  to  S.,  who  after  he  had 
signed  it  and  also  forged  the  name  of 
R.  thereto,  returned  the  same.  F.  re- 
lumed the  note  to  the  First  National 
Bank  of  Cuero  in  a  letter  signed  as 
president  in  which  he  said  the  note 
was  "properly  signed  up."  When  the 
note  became  due  appellant  sued  S.  and 
R.  thereon  and  recovered  judgment 
aRainst    the    former,    but     R.,     having 


pleaded  by  oath  and  proved  that  the 
note  as  to  him  was  a  forgery,  judg- 
ment was  returned  in  his  favor.  In  an 
action  by  the  First  National  Bank  of 
Cuero  against  the  Commercial  Na- 
tional Bank  of  Beeville,  and  its  presi- 
dent personally,  to  recover  the 
amount,  it  was  held  that  these  facts 
established  conclusively  that  there 
was  no  relation  of  principal  and  agent 
between  F.  and  the  Cuero  Bank  and 
no  liability  could  be  predicated  upon 
the  fact  of  agency.  F.,  as  president 
of  the  Beeville  Bank,  performed  an  act 
which  the  corporation  had  no  power 
to  perform:  he  did  not  bind  the  bank 
and  there  being  nothing  to  show  that 
his  statement  made  to  the  bank  with 
reference  to  the  note  was  made  with- 
out belief  in  its  truth,  or  was  made 
recklessly  and  without  regard  to 
whether  it  was  true  or  not  and  having 
made  no  representations  with  regard 
to  the  authority  of  the  bank  to  per- 
form the  acts,  or  with  regard  to  the 
genuineness  of  R.'s  signature,  he  did 
not  bind  himself.  First  Nat.  Bank  zk 
Commercial  Nat.  Bank,  99  Tex.  118, 
87  S.  W.  1032,  reversing  97  Tex.  629. 
77  S.  W.  239,  no  op.  Sec.  also.  Com- 
mercial Nat.  Bank  ?-.  First  Nat.  Bank, 
97  Tex.  536,  80  S.  W.  601.  89  S.  W.  418. 


352  BANKS    AND    BANKING.  §    57    (4) 

ness  was  created,  nor  by  showing  that  he  dissented  from  the  action  of  the 
other  directors  in  creating  the  indebtedness. i''  In  Michigan,  a  director  who 
objects  to  the  action  of  the  board  in  incurring  the  debt  is  not  subject  to 
the  personal  HabiHty  imposed  by  statute ;  at  least,  it  was  so  held  in  the 
federal  court  sitting  in  that  state  ;^'  while  under  the  Pennsylvania  statute 
directors  are  held  to  be  personally  liable  only  when  they  participate  in  or 
assent  to  the  wrong,  i"*  And  in  Kentucky  it  was  held  that  directors  who 
did  not  participate  in  creating  the  excessive  debt  and  who  had  no  knowl- 
edge that  one  of  their  number,  who  was  also  president  of  the  bank,  was 
endorsing  the  bank's  name  upon  business  paper  to  such  an  extent  as  to 
involve  it  beyond  the  legal  limit  of  its  indebtedness,  could  not  be  held 
liable  therefor  unless  they  were  negligent  in  not  discovering  and  prevent- 
ing such  action,  and  that  as  the  transaction  was  isolated  the  exercise  of 
ordinary  care  on  their  part  did  not  afford  them  notice,  and  it  would  not  be 
presumed  that  they  had  notice  simply  because  they  were  directors ;  but  that 
it  was  otherwise  as  to  the  president  and  director  who  indorsed  the  bank's 
name  upon  the  paper,  since  as  to  him  it  was  not  a  question  of  negligence 
but  an  actual  breach  of  trust  and  violation  of  duty.^^  In  Ohio,  the  statute 
makes  special  provision  whereby  absent  or  dissenting  directors  may  ex- 
onerate themselves  by  having  their  dissent  or  absence  entered  upon  the 
records  of  the  bank  and  by  giving  notice  to  the  stockholders  and  to  the 
auditor  of  the  state. 2*' 

Effect  of  Insolvency,  Loss  of  Assets,  etc. — Under  the  ^lichigan 
act, 21  providing  that  the  debts  of  the  bank  shall  not  exceed  three  times 
the  amount  of  the  capital  stock  actually  paid  in  and  possessed,  and  that 
the  directors  shall  be  individually  liable  for  all  excess  and  for  all  deficits 
occasioned  by  the  insolvency  of  such  bank,  the  directors  are  liable  for  all 
excess  of  debts  above  the  amount  authorized  without  regard  to  the  in- 
solvency of  the  bank,  and  they  are  responsible  for  all  deficits,  in  case  of 
insolvency,  without  reference  to  excess  of  debts  incurred.--  Under  the 
Georgia  statute  making  the  directors  liable  for  the  excess  of  the  bank's 
debts  above  a  certain  amount,  they  can  not  escape  liability  because  of  the 
loss  of  the  assets  of  the  bank  in  the  hands  of  the  assignee,  and  because  ot 
his  neglect  and  waste.  Such  loss  is  the  loss  of  the  bank,  and  not  of  the 
creditors. ^-^ 

16.  Liability  under  Georgia  statute.  Loving,  82  Ky.  .370,  6  Ky.  L.  Rep.  328. 
— Banks   r.   Darden,   18   Ga.   318.  20.      Special    provisions    under    Ohio 

17.  Michigan  statute — Objection  of  statute. — Sturges  7'.  Burton,  8  O.  St. 
director   to    incurring    of    debt. — White  2]. 5,  72  .^m.  Dec.  582. 

v.   Howe,   Fed.   Cas.    No.   17,548,   3    Mc-  21.     Effect  of  insolvency  and  loss  of 

Leon   111.  assets. — Act  Mich.  March  15,  1837,  §  25. 

18.  Pennsylvania  statute. — Stephens  22.  Same — Michigan  statute. — White 
V.  Monongahela  Nat.  Bank,  88  Pa.  157,  v.  How,  Fed.  Cas.  No.  17,548,  3  Mc- 
32  Am.   Rep.  438.  Lean  111. 

19.  Kentucky  statute — Participation  23.  Same — Georgia  statute. — Har- 
— Negligence — Notice. — Brannin      z'.       groves  r.  Chambers,  30  Ga.  580. 


§    37    (4)  OFFICERS    AND   AGEXTS.  353 

Nature  of  Liability  as  Joint  or  Several,    Penal    or    Remedial.— 

Under  the  Georgia  statute  declaring  that  the  directors  shall  he  liahle  in 
their  private  and  individual  capacities  for  the  excess  of  debts  over  and 
above  the  statutory  limit,  it  is  held  that  their  liability  is  not  penal  but 
remedial,  joint  and  not  several:  and  that  neither  absence  at  the  time  the 
debt  was  created  nor  dissent  from  its  creation  will  relieve  a  director  from 
liability.24  Under  the  Ohio  statute  it  is  held:  1.  The  section  does  not  make 
the  directors  personally  liable  on  the  contracts  of  indebtedness  which 
created  the  excess,  but  solely  for  the  excess  itself.  2.  The  liability  of  the 
directors  for  the  amount  of  this  excess  is  not  to  persons  who  hold  the  con- 
tracts of  indebtedness  created  in  excess  of  the  limitation,  but  to  any  cred- 
itor or  creditors  of  the  bank.  Hence  the  ground  of  the  action  is  not  the 
original  contracts  with  the  creditors:  those  contracts  simply  give  any  of 
them  the  right  or  title  to  sue  as  plaintiff.  3.  The  amount  of  the  recovery 
by  any  creditor  does  not  depend  upon  the  amount  the  bank  owes  hini. 
nor  upon  the  nature  of  the  debt  due  to  him:  under  the  statute  the  cred- 
itor who  sues  recovers  the  amount  of  the  excess,  and  that,  too,  whether 
the  debt  due  the  plaintiff  forms  a  part  of  the  excess  or  not.  4.  The  lia- 
bility of  the  directors  is  provided  for  as  in  penal  statutes,  to  vindicate  a 
violation  of  law.  5.  The  action  provided  is  the  usual  action  prescribed  by 
penal  statutes  to  recover  a  penalty.  6.  The  action  of  the  creditor  must 
be  debt,  whether  his  contracts  with  the  bank  be  such  as  to  authorize  such 
a  form  of  action  or  not.^s  In  other  words,  it  is  held  that  the  statute  pro- 
vides for  a  penal  action,  and  not  an  action  ex  contractu;  and  that  since 
all  creditors  are  equally  injured  by  a  violation  of  the  statute,  it  is  given 
to  any  creditor  for  the  benefit  of  all  and  to  create  a  fund  for  the  indemnity 
of  all,  and  that  the  amount  of  the  recovery  is  measured  by  the  amount 
of  excess  of  liability  created  by  the  directors.^c 

Obligations  within  the  Inhibition.— Certificates  of  deposit  are  debts, 
within  the  meaning  of  an  act  which  makes  the  directors  liable  when  the 
amount  of  debts  which  the  corporation  shall  at  any  time  owe,  whether  by 
bond,  bill,  note,  or  other  security,  shall  exceed  three  times  the  amount  of 
their  capital  stock.2" 

Duration  of  Liability.— In  Georgia  it  has  been  held  that  since  the  obli- 
gation of  the  director  is  statutory,  the  limitation  with  respect  to  penalties 
and  forfeitures  has  no  application  and  that  such  obligation  is  not  barred 
until  after  the  lapse  of  twenty  years  ;28  also  tliat  it  is  not  extinguished  by 
the  expiration  of  the  charter  of  the  bank  by  its  own  limitation.--'' 

24.  Liability  joint  or  several— Penal  27.      Obligations    within    the    inhibi- 

or  remedial.— I'.anks  ::    Dar.len.    18   fki.  tion.— 1  lar-rovcs    :'.    Cliamhcrs     :!0    Ga 

■'18;   Kdliinson  :■.   I'.calk-.  :iO  ("ia.  27r>.  r,H(). 

25.  Same— Under   the    Ohio   statute.  28.      Duration    of    liability —Ncal    ?• 
— Sturucs    ::    P.urton.    H    Q.    St.    215,    72  >rf)ultric     12   Ga    10  1 

ofl  '^e"-  ''^^-  o              r.  29.      Same— Effect    of    expiration    of 

»        o    Same— Same.— SturRcs    v.     Bur-  charter.— I  lar^rovcs    r.    Chaiiil)crs,    :(() 

ton,  8  O.  St.  210.  72  .\m.  Dec.  .582.  Ga.    .580.      But    see    contra,    under    the 
1  B  &  B— 2.3 


354  BANKS    AND   BANKING.  §    57    (5) 

Fraud  as  a  Defense. — Under  the  Michigan  Act  of  March  15,  1837, 
§  25,  making  bank  directors  personally  liable  for  the  bank's  debts  if  at 
any  time  such  debts  exceeded  three  times  its  capital  paid  in,  directors  can 
not  escape  liabihty  in  an  action  on  the  bank's  bills  on  the  ground  that  such 
bills  were  fraudulently  put  in  circulation,  unless  the  plaintiiif  was  con- 
nected with  or  had  notice  of  the  fraud.^" 

Release. — Under  a  charter  provision  making  the  directors  liable  to  the 
stockholders  for  bills  redeemed  by  the  stockholders  if  they  be  bills  issued 
in  "excess"  of  the  quantity  of  bills  which  the  charter  authorizes  to  be  issued, 
a  release  of  the  directors  by  the  holders  of  such  bills  is  a  release  of  the 
stockholders  also.^^ 

§  57  (5)  Liability  with  Respect  to  Reports,  Statements,  and 
Representations. — Failure  to  Make  and  Publish  Statements. — Under 
a  statute,  providing  that  if  any  banking  association  neglects  to  make  a  semi- 
annual statement,  within  a  certain  time,  of  the  condition  of  the  bank  to 
the  state  treasurer,  "the  directors  shall  be  personally  liable  for  all  debts  of 
said  association  contracted  previous  to  and  during  the  period  of  such  neg- 
lect," the  liability  of  the  directors  is  primarily  and  directly  imposed  on 
faikire  to  comply  with  the  law,  and  may  be  enforced  regardless  of  any  pro- 
ceeding against  the  corporation.-"- 

False  Reports  and  Statements. — If  the  common-law  liability  of  di- 
rectors be  looked  to,  it  is  found  that  actions  for  damages  against  them 
founded  on  a  published  false  report  of  the  bank,  which  they  attested,  are 
actions  for  deceit,  and  they  are  controlled  by  the  law  governing  actions  of 
that  character.2^  In  other  words,  in  order  to  hold  them  to  a  personal  ac- 
countability, it  is  not  necessary  that  they  should  have  known  such  statement 
to  be  false,  nor  even  that  they  should  have  made  it  without  knowledge 
of  its  truth  or  falsity,  yet  believing  it  to  be  true.  They  are  conclusively 
presumed  to  know  the  condition  of  the  bank,  and  it  is  their  duty 
to  know  that  statements  put  forth  under  their  authority  are  true,  and  they 
are  liable  for  damages  sustained  by  any  one  dealing  with  the  corporation 
relying  upon  the  truth  of  such  official  reports.^^     If  this  were  not  so,  the 

charter  of  the  C,  Moultrie  v.   Hoge,  21  U.   S.   56.   35  L.   Ed.   936,   12   S.   Ct.   136; 

Ga.  513.  Hubbard  v.  Weare,  79   Iowa  678,  44  N. 

30.  Fraud  as  a  defense. — White  v  W.  915;  United  Society  7'.  Underwood 
How,  Fed.  Cas.  No.  17,549,  3  McLean  (Ky.),  9  Bush  609,  15  Am.  Rep.  731; 
291.  Huntington   z'.    Attrill,    118    N.    Y.    365, 

31.  Effect  of  release.— Robinson  v.  23  N.  E.  544:  S.  C,  42  Hun.  459,  4  N.  Y. 
Bealle,  20  Ga.  275.  St.   Rep.  869;   Hauser  r.  Tate.  85  N.   C. 


32.      Failure     to    make     and    publish 


81.  39  Am.  Rep.  689;  Townsend  v.  Wil- 


statements.— Larsen   r.   James,    1    Colo.  '•^"^^'  ^^^J^'  ^-  ^^\f^^-  ^-  ^^^'^Sql" 

App.  313.  29  Pac.  183.  o"iO"  "^\^^t^^'  "^  ^-  ^-  ^^i'^^,^  ^Z,  ^• 

,,      17  ,                  ,          J     .  .  't'^S,   54   Am.    St.    Rep.   725;    Caldwell   v. 

33.  False  reports  and  statements.-  ^^^       j^g  n.  C.  323.  24  S.  E.  481;  Shea 
Mason  v.  Moore,  73  O^  St   275,  76  N.  E.  ,,   Mabry,  69  Tenn.   (l   Lea)   319;   Seale 

S  ;  \^\\nh.r-    ?;«'o'\t^^I'"   "■  ^'-    Baker.    70  Tex.    283,  7  S.    W.  742,    8 

State  Bank.  106  W,s.  546,  82  N.  W.  536.  Am.    St.    Rep.    592;    Bolles   Banks.    §   4; 

34.  Duty    to    know    truth    of    state-  Killen  v.   State  Bank,  106  Wis.  546.  83 
ments   put   forth.— Finn  v.   Brown,   142  N.  W.  536. 


5) 


OFFICERS  AND  AGENTS. 


355 


directors  of  a  bank  would  be  privileged  to  be  negligent,  and,  the  more 
ignorant  they  could  manage  to  be  about  its  condition,  the  more  secure  they 
would  be  from  any  liability .-"^^ 

Misrepresentation. — It  is  not  necessary  that  the  false  and  fraudulent 
statements  here  spoken  of  as  rendering  the  directors  personally  liable  should 
be  contained  in  the  formal  published  reports  of  the  bank's  condition.  If 
the  officers  of  a  banking  corporation  misrepresent  its  condition  when  they 
know  or  ought  to  know  the  truth  and  a  person  is  thereby  led  to  deposit 
his  money  therein  and  lose  it,  by  reason  of  the  unsafe  condition  of  such 
bank,  they  are  liable  to  such  depositor  directly  to  make  good  such  loss, 
upon  the  ground  of  deceit.^^ 

False  Statements  Knowingly  Made.^There  is  no  question,  of  course, 
as  to  the  personal  liability  of  the  directors  or  other  officers  who,  for  the 
purpose  of  obtaining  or  retaining  deposits,  or  for  the  purpose  of  collect- 
ing individual  loans  and  securing  unjust  preferences  for  themselves,  make 
statements  as  to  the  bank's  condition  which  they  know  to  be  actually  false. ^'' 


35.  Same.— Tate  v.  Bates,  118  N.  C. 
287.  24   S.   E.   482,   54  Am.   St.   Rep.   719. 

36.  Misrepresentation  in  other  than 
formal  reports  and  statements. — Ste- 
phens V.  Overstolz,  43  Fed.  465;  Ger- 
ner  v.  Mosher.  58  Neb.  135,  78  N.  W. 
384.  46  L.  R.  A.  244;  Tate  v.  Bates.  118 
X.  C.  287,  24  S.  E.  482,  54  Am.  St.  Rep. 
719;  Seale  v.  Baker,  70  Tex.  283,  7  S. 
W.  742,  8  Am.  St.  Rep.  592;  Baker  v. 
.'\she,  80  Tex.  356,  16  S.  W.  36;  Gid- 
dings  r.  Baker.  80  Tex.  308,  16  S.  W. 
33:  Kinkier  z:  Junica,  84  Tex.  116,  19  S. 
W.  359;  Zinn  v.  Mendel,  9  W.  Va.  580; 
Killen  v.  State  Bank,  106  Wis.  546,  82 
X.  W.  536. 

37.  False  statements  knowingly 
made.— Tate  2\  Bates,  118  X.  C.  287,  24 
S.  E.  482.  54  Am.  St.  Rep.  719;  Town- 
send  -•.  Williams,  117  N.  C.  330,  23  S. 
E.  461  :  Miller  7-.  Howard,  95  Tenn. 
407.  32  S.  W.  305;  Seale  f.  Baker,  70 
Tex.  283.  7  S.  W.  742,  8  Am.  St.  Rep. 
592:  Kinkier  7'.  Junica,  84  Tex.  116.  19 
S.  W.  359:  Giddin}??  7'.  Baker,  80  Tex, 
308.  16  S.  W.  33;  Baker  z:  Ashe,  80  Tex. 
356.  16  S.  W.  36. 

Bank  directors  who,  by  false  and 
fraudulent  statements  to  the  state 
treasurer  as  to  the  condition  of  the 
i)ank.  in  order  to  conceal  its  insolvency, 
induce  him  not  only  to  make  new  de- 
posits of  the  state's  money,  but  also 
to  permit  a  portion  of  the  money  de- 
posited by  his  predecessor  in  office  to 
remain,  are  lial)le  to  such  treasurer  for 
any  loss,  either  of  the  old  or  new 
deposits.  Tate  7'.  Bates,  118  N.  C.  287, 
24   S.   E.   482.   54   Am.    St.   Rep.   719. 

A   bank    depositor,   on    rumors   of   its 


insolvency,  went  to  withdraw  his  de- 
posits, but  was  informed  by  the  vice 
president  and  director  that  the  bank 
was  perfectly  solvent,  and  that  "we 
have  got  all  the  money  you  want.  You 
need  never  have  any  fears  of  this 
bank  as  long  as  I  am  in  it."  Such  de- 
positor, relying  on  such  representa- 
tions, permitted  his  deposits  to  remain. 
The  bank  was  in  fact  insolvent  when 
the  representations  were  made.  Held, 
that  such  vice  president  and  director 
was  personally  liable  to  stich  depositor 
for  the  money  lost  by  the  failure  of 
the  bank.  Townsend  7'.  Williams,  117 
N.   C.   330,  23   S.    E.   461. 

Having  heard  a  rumor  that  a  bank 
was  not  sound,  one  of  its  correspond- 
ents told  its  president  that  he  had 
deposits  in  the  bank,  and  wanted  to 
know  its  financial  condition.  The 
president  replied  that  there  was  no 
question  of  the  ability  of  the  bank  to 
meet  all  liabilities,  and  the  correspond- 
ent was  thereby  induced  to  continue 
his  deposits,  which  were  lost  by  rea- 
son of  the  insolvency  of  the  bank. 
Held  that,  though  the  representation 
was  not  made  vv'ith  intent  to  deceive, 
the  president  was  personally  liable,  if. 
liy  the  exercise  of  ordinary  diligence, 
he  could  have  known  that  his  state- 
ment was  not  true.  Giddings  v.  Baker, 
SO  Tex.  308,  16  S.  W.  33. 

Directors  who.  on  the  bank's  suspen- 
sion, issue  a  circular  declaring  the 
solvency  of  the  bank,  and  that  tliey 
hone  to  reopen  within  sixty  days,  and 
autliorize  the  bank  officers  to  receive 
money  on   special   deposit,   and   keep   it 


356  Bz\NKS    AND    BANKING.  §    57    (5) 

False  Representation  by  President. — A  bank  president  does  not  oc- 
cupy the  position  of  an  indifferent  third  person.  He  is  the  principal  offi- 
cer and  manager  of  his  bank.  It  is  his  duty  to  use  reasonable  diligence  to 
acquaint  himself  with  the  affairs  of  the  bank.  If  by  due  diHgence  he  could 
ascertain  the  condition  of  the  bank  and  fails  to  do  so,  he  is  responsible  for 
any  false  representation  in  regard  to  that  condition  acted  upon,  although 
made  in  good  faith.  If,  however,  by  the  use  of  such  diligence  he  had  not 
been  able  to  ascertain  the  true  condition  of  the  bank,  and  so  made  a  state- 
ment as  to  its  condition  which  he  believed  to  be  true  but  which  in  fact  was 
false,  he  would  not  be  personally  liable  for  that  statement.-' ■'' 

Permitting  Bank  to  Be  Held  Out  as  Solvent. — In  jurisdictions  where 
the  doctrine  that  directors  are  trustees  for  depositors  obtains,  it  is  held 
that  they  are  liable  for  losses  resulting  from  their  nonobservance  of  or- 
dinary care  and  diligence  in  permitting  the  bank  to  be  held  out  to  the 
public  as  solvent  when  in  fact  it  is  insolvent.-'^'^  When  the  directors  as- 
certain that  the  bank  is  hopelessly  insolvent,  so  that  individually  they  are 
unwilling  longer  to  aid  it,  their  manifest  duty  is  to  close  the  doors  at  once, 
for  a  continuance  of  business  under  such  circumstances,  especially  the  re- 
ceiving of  deposits,  is  a  fraud  upon  the  public,  and  they  should  not  receive 
any  more  deposits  nor  pay  any  more  checks,  but  should  proceed  to  execute 
their  trust,  either  by  making  a  general  assignment  for  the  benefit  of  cred- 
itors or  by  making  a  pro  rata  payment  of  the  debts.-*"  It  is  a  gross  fraud 
upon  the  public  for  directors  to  keep  a  hopelessly  insolvent  bank  open  and 
receive  deposits  until  they  have  succeeded  in  drawing  out  their  own  funds 
or  deposits.  Such  action  is  an  unlawful  preference  of  themselves,  and 
the  funds  so  withdrawn  may  be  recovered  for  all  the  creditors  by  an  as- 
signee or  receiver.'*  1  It  is  eciually  a  fraud  and  a  breach  of  his  duty  for  a 
director,  having  knowledge  that  the  bank  is  probably  insolvent  and  that 
it  will  not  be  able  to  continue  business  or  pay  its  depositors,  to  obtain 
from  the  cashier,  without  authority  from  the  board  of  directors,  discounted 
bills  and  notes  of  the  bank  ec^ual  to  the  amount  of  his  deposits,  and  thus 
avoid  the  loss  of  his  deposits.-*-  In  other  states  directors  permitting  an 
insolvent  bank  to  continue  business  and  to  be  held  out  to  the  public  as 

in  the  vaults  of  the  bank,  sul:)ject  only  Lamb   v.    Laughlin,    25     W.      Va.      300; 

to  the  check  of  the  depositor,  and  sub-  Lamb  v.  Cecil.  28  W.  Va.  6.53;  Lamb  v. 

sequently,  on  the  appointment  of  a  re-  Pannell,   28   W.   Va.   663. 

ceiver  for  the   bank,  turn   over  to  him  40.     Same — Duty    to    close    insolvent 

deposits    made    pursuant     to      the      cir-  bank. — Lamb    z<.    Laughlin,    25    W.    Va. 

cular,   are   personally   liable   to   the    de-  300. 

positors    for    the    amount    of    such    de-  41.     Same — Withdra-wal    of    deposits 

posits.      Miller    -'.    Ho-ward,    95    Tenn.  by    directors    from     insolvent     bank. — 

407.   32   S.   W.   305.  Lamb  r.  Laughlin,  25  W.  Va.  300.  See, 

38.  False  representation  by  presi-  also.  Lamb  v.  Cecil,  28  W.  Va.  653; 
dent.— Giddings  v.   P.aker,   80  Tex.   308.  Lamb  t'.   Pannell,   28   W.   Va.   663. 

16  S.  W.  33.  42     Same — Directors    obtaining  funds 

39.  Permitting  bank  to  be  held  out  and  securities  in  lieu  of  deposits. — 
as  solvent. — Delano  v.  Case,  121  111.  Lamb  v.  Cecil.  28  W.  Va.  653.  See. 
247,   12   N.   E.   676,   2   Am.    St.   Rep.  81;  also.  Lamb  v.   Pannell,  28   W.   Va.   663. 


§    57    (5)  OFFICERS  AND  AGENTS.  357 

worthy  of  confidence  are  liable  for  the  resulting  losses  only  where  they 
have  been  gviilty  of  gross  negligence  in  that  respect;"*''  while  in  jurisdictions 
where  the  trust  fund  doctrine  does  not  obtain  it  is  held  that  the  mere 
fact  that  a  director,  who  knows  the  bank  is  insolvent,  takes  no  action  to 
close  its  doors,  or  announce  its  insolvency,  does  not  make  him  liable  for 
deceit  to  persons  who  have  extended  credit  after  the  bank  became  insolvent 
on  the  assumption  that  it  was  solvent.'*"* 

Erroneous  Information  as  to  Individual  Accounts. — Xo  action  will 
lie  against  an  officer  of  a  bank  to  recover  for  expenses  incurred  in  conse- 
quence of  erroneous  information  given  by  him  in  good  faith  to  the  plaintiff 
in  regard  to  the  amount  of  money  which  had  been  deposited  to  plaintiff's 
credit  by  a  third  person."*  •'• 

As  to  Credit  and  Standing  of  Third  Persons. — Where  the  cashier 
of  a  bank  is  applied  to  for  information  as  to  the  solvency  of  a  party  and 
gives  that  information  truly,  he  does  not  thereby  undertake  to  watch  over 
the  interests  of  such  party  in  the  future ;  nor  to  be  responsible  if  he  fails 
to  give  notice  of  change  of  circumstances  or  reverses  in  trade  that  may 
befall  the  party  about  whom  he  has  given  information.  The  cashier  may 
assume  that  if  any  future  information  is  wanted  he  will  again  be  applied 
to  under  such  circumstances,  and  if  no  application  is  made  he  may  well 
assume  that  the  party  w^hose  interest  is  at  stake,  like  other  business  men, 
is  able  to  take  care  of  himself  and  is  guarding  his  investment  with  the 
watchfulness  of  one  most  concerned  in  the  result.  A  party  can  not  be  held 
in  such  a  case  to  have  given  a  continuing  guaranty  against  future  con- 
tingencies, nor  to  have  bound  himself  to  notify  the  other  of  what  he  may 
well  be  assumed  to  be  able  to  find  out  for  himself."**^  A  charge  that  if  the 
cashier  "knew  plaintiff  was  buying  T.  &  Co.'s  paper  on  the  faith  of  the 
representations  made  by  him,  and  their  circumstances  had  changed  so 
that,  as  he  says,  'these  representations  had  become  false,'  it  was  the  cash- 
ier's duty  to  have  notified  plaintiff  and  put  him  on  his  guard,  otherwise  he 
would  be  liable,  is  sound  morally,  and  under  some  circumstances  might  be 
sound  law  where  the  party  trusting  to  the  representations  lived  at  a  dif- 
ferent point,  and  might  be  assumed  to  rely  entirely  on  the  statements  of  his 
correspondent,  yet  it  is  very  questionable  whether  the  principal  could  be 
fairly  applied  to  the  case  of  parties  all  residing  in  the  same  town  or  city 
where  the  i)arty  buying  paper  might  be  expected,  as  a  man  engaged  in  such 
business,  to  look  after  his  own  interest,  and  had  equal  means  of  informa- 
tion  or  opportunities   to   acquire   knowledge   witli   any  one   else  as   to   the 

43.  Same — Cases  holding  liable  only       X.    S.,    V.'.H. 

for     gross     negligence. — Solonion      7-.  45.    Erroneous    informations    as     to 

iiates.   118   X.   C.   311,   24   S.    E.   478,   54  individual   accounts.— Herrin   v.    I'rank- 

Am.   St.   Rep.  725.  liii    County    I'.ank.    ."'.2    Vt.    274. 

44.  Same — Directors  held  not  liable  46.  As  to  credit  and  standing  of 
for  inaction.-  11  art  t'.  p-.v-ansr)!!,  14  X.  third  persons. —  ilDrriiian  ?■.  I'irst  .\'at. 
iJak.    ;-,?(),    10.-,    X.    W.    942,   .'i    T..    R.    .\..  I'.ank.   M  Tcnn.    ('.)    Ra.\t.)    1:57. 


358  BANKS   AND   BANKING.  §    57    (6) 

changes  in  the  situation  of  his  debtor."-*" 

Same— Effect  of  Release,  Extension  of  Time,  etc.— When  the  holder 
of  paper  has  given  credit  to  a  third  party  upon  the  recommendation  of  a 
cashier  of  a  bank,  and  the  debtor  is  ready  and  offers  to  pay  the  note  at 
maturity,  and  the  liolder  instructs  the  cashier  to  give  the  debtor  an  ex- 
tension of  time,  which  the  debtor  accepts,  and  then  fails,  the  cashier,  though 
he  had  rendered  himself  liable  by  the  recommendation,  is  discharged  by  the 
release  of  the  holder."*^ 

Judgment  of  Forfeiture  against  Bank  No  Defense  to  Directors.— 
It  is  no  defense  to  an  action  against  directors  under  a  statute  making  them 
personally  liable  for  the  debts  of  the  bank  where  they  have  made  false 
reports  of  its  condition,  that  judgment  of  forfeiture  has  been  pronounced 
against  the  bank.  Such  judgment  does  not  discharge  the  liability  of  the 
directors.-*^ 

§  57  (6)  Receiving  Deposits  after  Insolvency. — See,  also,  ante, 
"Liability  with  Respect  to  Reports,  Statements,  and  Representations,"  §  S7 
(5)  ;   post,  "Receiving  Deposits  after  Knowledge  of  Insolvency,"  §  61  (3b). 

Mere  Fact  of  Deposit  and  Loss  No  Ground  for  Action. — The  mere 
fact  that  a  man  deposits  money  in  an  insolvent  bank,  believing  it  to  be 
solvent,  and  thereby  loses  his  money,  gives  him  no  cause  of  action,  at 
common  law,  against  the  directors.  Aside  from  statutory  provisions,  di- 
rectors are  not  liable  in  an  action  at  law  for  losses  so  sustained,  unless  the 
deposit  was  induced  by  the  fraudulent  conduct  of  the  directors,  officers  or 
agents  of  the  bank.-""'  If  it  was  so  induced,  then  an  action  will  lie  against 
them  personally  upon  the  ground  of  fraud  and  deceit  independently  of 
any  statute. ^•'^ 

What  Constitutes  Fraud  and  Deceit. — As  to  what  constitutes  fraud 
and  deceit  in  such  a  case,  there  can  be  no  question  that  it  is  not  only 
a  gross  breach  of  their  duty  as  trustees  for  creditors,  but  a  fraud  upon  the 
public  rendering  them  personally  liable  for  the  loss  sustained,  for  directors 
to  permit  a  bank  which  they  know  to  be  hopelessly  insolvent  to  continue 

47.  Same — Duty  to  keep  customer  the  treasurer  of  the  corporation,  and 
informed: — Horrigan  v.  First  Nat.  deposited  the  funds  in  bank  as  such 
Bank,   (is   Tenn.    (9   Baxt.)    137.  treasurer.     Sprague  v.  Steam  Nav.  Co., 

48.  Same — Effect   of   release,   exten-  52  Me.  .592. 

sion    of    time,    etc. — Horrigan    v.    First  51.     Same — Liability   for    fraud     and 

Nat.   Bank,   fis   Tenn.    (9   Baxt.)    1.37.  deceit.— Tate   v.    Bates,    118    N.    C.   287, 

49.  Judgment  of  forfeiture  against  24  S.  E.  482,  54  Am.  St.  Rep.  719;  Solo- 
bank  no  defense  to  directors. — Har-  nion  v.  Bates,  118  N.  C.  311,  24  S.  E. 
groves  V.  Chamliers,  30  Ga.  580.  478,   54   Am.   St.    Rep.   725;    Caldwell   v. 

50.  Mere  fact  of  deposit  and  loss  no  Bates,  118  N.  C.  323,  24  S.  E.  481; 
ground  for  action.— Dufify  v.  Byrne,  7  Seale  v.  Baker,  70  Tex.  283,  7  S.  W. 
Mo.  App.  417:  Fusz  7'.  Spaunhorst,  67  742,  8  Am.  St.  Rep.  592;  Giddings  v. 
Mo.  256;  Minton  v.  Stahlman,  96  Tenn  Baker,  80  Tex.  308,  16  S.  W.  33;  Baker 
98.   34   S.   W.   222.  v.    Ashe,    80    Tex.    356,    16    S.    W.    36; 

The   cashier   of  a  bank   in   which   are  Kinkier  v.  Junica,  84  Tex.  116,  19  S.  W. 

deposited    the    funds    of    a    corporation  359;    Zinn    v.    Mendel,    9    W.    Va.    580; 

can    not  j:)e    held    tlierefor    in     his      in-  Killen  v.   State   Bank,   106  Wis.   546,   82 

dividual    capacity,    altliough    he    is    also  N.  W.  536. 


§    ^7    (6)  OFFICERS    AND    AGENTS.  359 

to  do  business  and  receive  money  on  deposit  until  they  have  succeeded  in 
withdrawing  tlieir  own  deposits  and  thus  obtained  a  fraudulent  and  un- 
lawful preference  for  themselves. '^- 

Same — Duty  of  Director  upon  Discovering  Insolvency  of  Bank. — 
The  obtaining  of  some  fraudulent  or  unfair  adv-antage  for  himself,  how- 
ever, is  not  an  essential  element  of  liability.  \M-ien  a  director  discovers 
that  the  bank  is  insolvent  and  fails  to  take  such  steps  as  lie  in  his  power 
to  close  the  bank  for  business,  and  takes  part  in  any  arrangement  which 
permits  the  bank  to  be  kept  open,  and  deposits  to  be  received,  he  is  per- 
sonally liable  for  damages  to  a  depositor  who  is  ignorant  of  the  insolvency, 
and  whose  deposits  were  thereafter  received.  His  plain  duty,  upon  dis- 
covering the  insolvency  of  the  bank,  is  to  call  a  meeting  of  the  board  of 
directors,  or  communicate  with  the  superintendent  of  the  banking  depart- 
ment, or  direct  the  cashier  to  discontinue  the  taking  of  deposits,  or  warn 
individual  depositors  of  such  insolvency,  and  for  a  failure  to  perform  such 
duty,  an  action  will  lie  against  him  personally.^^  And  it  is  no  defense  that 
the  director  has  expressed  an  opinion  that  deposits  should  not  be  received 
and  has  entered  into  an  arrangement  with  other  directors  for  their  receipt 
under  proper  restrictions,  where  such  arrangement  is  subsequentlv  aban- 
doned and  never  carried  into  effect.^"* 

Constitutional  and  Statutory  Provisions. — Provisions  forbidding  the 
receipt  of  deposits  in  banks  after  knowledge  of  their  insolvency  on  the 
part  of  directors  and  officers  are  common  in  the  banking  laws  of  most 
states,  and  it  is  generally  provided  that  the  guilty  officers  or  directors  shall 
be  personally  liable  for  such  deposits:  but  even  where  the  statute  contains 
no  such  provision,  the  applicable  principle  is,  that  where  a  statute  prohibits 
the  doing  of  an  act,  or  imposes  a  duty  on  one  for  the  benefit  and  protec- 
tion of  individuals,  and  the  one  upon  whom  the  duty  is  so  imposed  neglects 
to  perform  the  same,  or  disobeys  the  prohibition,  he  is  liable  to  those  for 
whose  protection  the  statute  was  enacted  for  any  damages  proximately  re- 
sulting from  such  neglect  or  disobedience.^'^ 

52.  What  constitutes  fraud  in  such  liopelcssly  insolvent,  in  keepin<?  it 
case. — Lamb  v.  Laughlin,  25  W.  Va.  open  for  business,  without  notifying 
300;  Lamb  v.  Cecil,  28  W.  Va.  6.).3;  subsequent  depositors  of  the  facts. 
Lamb  V.   Pannell,  28  W.   Va.  W^?>.  Held,    that    defendant    was     guilty      of 

53.  Same — Duty  of  director  upon  fraud,  and  was  liable  for  the  damage 
discovering  insolvency. — Cassidy  v.  thus  inflicted  upon  sulisequent  de- 
Uhbnanii.  170  X.  V.  ."jO.j,  63  X.  E.  5.54,  positors.  Cassidy  v.  Uhlmann.  27  .\pp. 
affirmed  in  54  App.  Div.  205,  66  X.  Y.  l^'v.  80,  50  X^  Y.  S.  318,  judgment  re- 
vS.  670,  affirmed  in  Xathan  v.  Uhlman,  versed,  163  N.  Y.  380,  79  Am.  St.  Rep. 
101     App.    Div.    388,    92    N.    Y.    S.    13;  596,  57  X.   E.  620. 

affirmed    in    184    X.    Y.    606,    77    N.    E.  54.     Same— Same.— Cassidy     v.     Uhl- 

ll^--  mann,  170  X.  Y.  505.  63  X.  E.  554.  judg- 

At   a   critical  period   in   the   affairs  of  ment    affirmed,    54    App.    Div.    205,    66 

a  bank,  two  of  its   directors,   of  whom  X.    ^^   S.   670. 

defendant  was  one,   who  were  in  prac-  55.       Constitutional      and      statutory 

tical  control  during  the  absence  of  the  provisions. —  15ott    i\     Pratt,    3.'!     Minn, 

president,    actively    participated,     with  323,  23  N.  W.  237;  Osborne  v.  McMas- 

full    knowledge     that     the      bank      was  ters,    40    Minn.    103,    41    X.   W.    543,    12 


360 


BANKS  AND   BANKING. 


§  57  (6) 


Same— Bank  Operating  under  Special  Charter— Effect  of  Crim- 
inal Provision,  etc. — The  individual  liability  of  a  director  under  a  gen- 
eral constitutional  or  statutory  provision  of  this  character  is  not  affected 
by  the  fact  that  the  bank  is  operating  under  a  special  charter,^^  nor  by  the 
fact  that  a  preceding  clause  refers  to  such  conduct  as  a  crime,  and  author- 
izes the  legislature  to  prescribe  the  punishment.^' 

Same— Whether  Constitutional  Provision  Self-Executing.— A 
constitutional  provision  making  officers  of  banks  individually  liable  for  re- 
ceiving deposits  after  knowledge  of  the  bank's  insolvency  has  been  held 
to  be  self-executing  in  the  federal  circuit  court  sitting  in  the  state  of 
Washington  i^^  while  the  contrary  has  been  held  with  reference  to  a  some- 
what similar  provision  by  the  supreme  court  of  Missouri.°'J 

When  Bank  Deemed  to  Be  Insolvent. — Under  a  statute,  making  the 
managing  officers  of  a  banking  corporation  individually  liable  to  depositors 
for  money  received  on  deposit,  when  they  knew,  or  had  good  reason  to  be- 
lieve, the  bank  insolvent,  a  bank  is  treated  as  insolvent  when  it  becomes 
unable  to  meet  its  liabilities  as  they  become  due  in  the  ordinary  course  of 
its  business.  It  is  not  insolvent,  within  the  meaning  of  such  a  statute,  so 
long  as  it  is  meeting  its  liabilities  as  they  become  due,  and  there  is  a  reason- 


Am.  St.  Rep.  698;  Baxter  v.  Coughlan, 
70  Minn.   1,  73  N.  W.  797. 

Complaint  held  to  state  a  cause  of 
action,  within  the  rule  stated,  under 
laws  Minn.  1895,  ch.  219.  Baxter  z\ 
Coughlan,   70   Minn.   1,   72  N.  W.  797. 

The  Missouri  Act  April  23,  1877, 
which  provided  that  all  bank  officers 
who  had  assented  to  the  receiving  of 
deposits  after  knowledge  of  its  in- 
solvency might  be  proceeded  against 
severally  or  jointly,  was  held  to  give 
no  right  of  action  to  the  depositor. 
Fischer  v.   Tamm,   13   Mo.    .\pp.   108. 

But  under  the  Act  of  1879,  Rev. 
Stat.  Mo.  1879,  §  918,  providing  that 
no  director  should  assent  to  the  re- 
ception of  deposits  after  he  should 
have  knowledge  that  the  bank  was  in- 
solvent, and  that  every  person  violat- 
ing the  provisions  of  that  section 
should  be  individually  responsible  for 
deposits  so  received,  it  was  held  that 
a  depositor  might  maintain  an  action 
against  a  director  who  assented  to  re- 
ceiving a  deposit  with  knowledge  of 
the  bank's  insolvency.  Cummings  z'. 
Winn,   89   Mo.  51,  14  S.  W.   512. 

56.  Same — Bank  operating  under  spe- 
cial charter. — Cummings  7'.  Spaun- 
horst,   5    Mo.   App.   21. 

57.  Effect  of  criminal  provision  in 
statute. — Cummings  f.  Spaunhorst,  5 
Mo.   App.   21. 

The  provision  of  Const.,  art.  12, 
§  27,  declaring,  in  effect,  that  any  bank 
officer  shall  be  individually  responsible 


for  deposits  received  or  debts  created 
with  his  assent  when  knowing  the 
bank  to  be  insolvent,  held  not  to  be 
self-enforcing.  The  expression  "such 
deposits"  does  not  refer  to  the  clause, 
"it  shall  be  a  crime,  the  nature  and 
punishment  of  which  shall  be  pre- 
scribed by  law."  Fusz  v.  Spaunhorst, 
67    Mo.    256. 

58.  Provision  self-executing. — Mal- 
lon  r.   Hyde,   76   Fed.   388. 

59.  Contra. — Prunty  v.  Spaunhorst, 
6  Mo.  App.  579;  Fusz  v.  Spaunhorst, 
67   Mo.  256. 

Const.  1875,  art.  12,  §  27,  provides 
that  it  shall  be  a  crime,  the  nature  and 
punishment  of  which  shall  be  pre- 
scribed by  law,  for  any  president,  di- 
rector, manager,  cashier,  or  other  of- 
ficer of  any  banking  institution  to  as- 
sent to  the  reception  of  deposits  or 
the  creation  of  debts  by  such  banking 
institution  after  he  shall  have  had 
knowledge  of  the  fact  that  it  is  in- 
solvent or  in  failing  circumstances; 
and  any  such  officer,  agent  or  man- 
ager shall  be  individually  responsible 
for  such  deposits  so  received.  Held, 
that  the  provision  is  not  self-execut- 
ing, notwithstanding  2  Wag.  St.,  p. 
1013,  §  3,  prescribing  what  a  petition 
shall  contain,  and  page  999,  §  1,  de- 
nominating every  action  for  the_  en- 
forcement or  protection  of  private 
rights  or  prevention  of  private  wrongs 
a  "civil  action."'  Prunty  v.  Spaun- 
horst,   6    Mo.    App.    579. 


§    57    (6)  OFFICERS   AND   AGENTS.  361 

able  expectation  on  the  part  of  its  officers  familiar  with  its  business  atTairs 
of  continuing  to  do  so.  \\'hether  the  officers  acted  in  good  faith  and  upon 
a  reasonable  expectation  of  continuing  the  business  must  be  determined 
from  the  consideration  of  all  the  attendant  circumstances. *"'" 

Phrase  "in  Failing  Circumstances"  Construed. — The  phrase  "in  fail- 
ing circumstances,"  when  used  in  a  constitution  or  statute  relating  to  receipt 
of  deposits  when  insolvent,  must  be  taken  to  mean  a  state  of  uncertainty 
whether  the  bank  will  be  able  to  sustain  itself,  depending  on  favor- 
able or  unfavorable  contingencies,  which  in  the  course  of  business  may 
occur,  and  over  which  its  officers  have  no  control.*^ ^ 

Knowledge  of  Insolvency — Actual  Knowledge  Unnecessary. — 
Actual  knowledge  of  insolvency  is  not  essential  to  personal  liability,  unless 
made  so  by  statute.  It  is  the  duty  of  officers  of  a  banking  institution  re- 
ceiving or  assenting  to  the  reception  of  deposits  to  know  the  financial  con- 
dition of  the  bank,  and  the  law  presumes  they  do  know  it,*''^  and  directors 
are  liable  if  they  receive  deposits  when  they  know,  or  with  proper  atten- 
tion may  learn,  that  the  bank  is  insolvent.*'"'  On  the  other  hand,  although 
the  officers  of  a  bank  know  it  to  be  in  embarrassed  circumstances,  yet,  if 
they  believe  honestly,  and  upon  reasonable  grounds,  that  it  will  eventually 
maintain  its  credit,  they  are  not  bound  to  disclose  its  condition  to  would-be 
depositors  before  accepting  deposits,  nor  are  they  liable  to  such  depositors 
should  the  bank  ultimately  fail.'''* 

Same — Statutory  Provisions. — Knowledge  of  insolvency,  under  the 
Missouri  statute,*''^  was  held  to  mean  actual  knowledge,  and  not  innocent, 
bona  fide  ignorance  arising  from  neglect  to  inform  themselves  f^  hence, 
directors  sued  upon  their  personal  liability  under  that  act  were  not  estopped 
to  plead  ignorance  of  insolvency  because  of  their  duty  to  manage  the  bank's 
affairs.""    On  the  other  hand,  under  a  somewhat  similar  statute  in  Kansas,^^ 

60.  When    bank    deemed    to    be    in-  Louis,  etc.,  R.  Co.  t'.  Johnston,  133  U. 
solvent. — Minton   t'.  Stahlman,   9G  Tenn.  S.   506,  33  L.   Kd.  fiS3.   10  S.   Ct.  390. 
98,  34  S.   W.  222;   Marr    v.     Bank,     44  65.    Knowledge  under  statutes— Mis- 
Tenn.   (4  Coldw.)   471;   Eads  z:  Orcutt,  souri    statute. — Rev.    Stats.    Mo.    18S9, 
79   Mo.  .A.pp.  511.  §    2700. 

The    insolvency    of    a    bank    can    not  66.    Same — Same. — Utley  z'.   Hill,  155 

be  assumed  from  the  simple  fact  of  its  Mo.   232,    49    L.    R.   A.   323,   78   Am.    St. 

havinj?  closed  its  doors  for  a  few  days,  Rep.    509,    55    S.    W.    1091;    Union    Nat. 

when   there   have   been   no   steps   taken  Rank   ?-.    Hill,    155    Mo.    279,    55    S.    W. 

to   determine   whether   it   is   solvent   or  1133;   Haas  v.  Garnett.  155   Mo.  568.  55 

insolvent.      Moseby    v.    Williamson,    52  S.    W.    1132;    Boatmen's    Bank   z>.    Gar- 

Tcnn.    ("5    Heisk.)    278.  nett,   155   Mo.   569,   55    S.   W.    1132. 

61.  Phrase  "in  failing  circumstances"  67.  Same— Same— Directors  not  es- 
construed.—Dod  1,-^0  -■.  Mastin,  17  Fed.  topped  to  plead  ignorance.— Utley  r. 
000,  .-,  McCrary  404  "'"■    1"''5    ^lo.   232,   49    L.    R.    A.   323,   78 

62.  Knowledge  of  insolvency-Offi-  ^."^^  ^^^-  ^^P"  ''•%'\^'Z  '""H^  H"'"c" 
cers  presumed  to  know  financial  con-  "tf';,^,^"'^^'-  "'"l  l'^'>  .f^vf.^r  ''l se- 
dition of  bank.-F.ads  r.  Orcutt,  79  ^.V  "'^'V  "^f/,,^'  Gj^''"f "•  V'''  J^"-  •'««• 
Air,      \,,,^     rii  •••>     l^-     W.     1132;     Boatmen  s     Bank    7'. 

63.  Actual    knowledge    unnecessary.  gS.       Same-Knowledge     under     the 

—  Delano  7:   Case,    17    111.    .\pp.   531.  Kansas      statute.— Gen.      Stat.      Kans. 

64.  Knowledge  of  embarrassed  cir-  1901.  §§  471,  472,  Banking  Law, 
cumstances — Belief     in     solvency. — St.  §§  05,  66. 


362  BANKS  AND  BANKING.  §    57    (8) 

making  it  unlawful  for  an  officer  of  the  bank  to  assent  to  the  reception  of 
deposits  or  to  the  creation  of  debts  after  knowledge  of  the  bank's  insolvency, 
and  making  it  the  duty  of  directors  and  officers  to  examine  into  the  affairs 
of  the  bank,  and,  if  possible,  to  know  its  conditions,  it  was  held  that  di- 
rectors were  required  to  examine  into  its  affairs  with  reasonable  frequency 
and  thoroughness,  and  that,  failing  to  do  so,  they  would  be  liable  for  the 
loss  of  deposits  received  after  insolvency  even  though  it  should  appear 
that  such  an  examination  as  the  law  required  would  not  have  revealed  the 
bank's  insolvent  condition.^^  i^i  other  words,  not  having  exercised  the 
diligence  required  by  law,  he  would  not  be  heard  to  say  that  it  would 
have  been  unavailing  to  discover  fraudulent  and  corrupt  practices  of  the 
cashier  or  other  officer  resulting  in  the  insolvency  of  the  bankJ*^ 

Determining  Knowledge  of  Insolvency — Duty  of  Jury. — In  de- 
termining the  question  of  the  knowledge  of  the  insolvency  on  the  part 
of  the  president  or  cashier,  the  jury  should  consider  their  conduct  and  de- 
meanor in  reference  to  the  affairs  of  the  bank,  whether  or  not  they  were 
operating  in  good  faith,  and  whether  or  not  they  had  a  reasonable  expecta- 
tion of  redeeming  all  of  the  deposits.  In  short,  the  jury  should  take  all 
the  circumstances  in  the  case,  weigh  them  fairly  and  impartially,  and  de- 
termine, in  case  they  find  that  the  bank  was  insolvent,  whether  the  presi- 
dent and  cashier  knew  of  such  insolvency,  or  had  good  reason  to  believe 
it  was  insolvent  at  that  time.'''^ 

§  57  (7)  Sale  of  Drafts  of  Insolvent  Bank.— The  fact  that  the  de-' 
fendant  was  the  assistant  cashier  of  a  bank  which  was  insolvent  when  the 
plaintiffs  purchased  certain  drafts  from  it,  would  not  render  such  assistant 
cashier  liable  to  the  plaintiffs  for  a  fraud,  on  the  ground  that  he  was  bound 
to  know  that  the  bank  was  insolvent  and  to  communicate  that  fact  to  the 
plaintiffs. '^2 

§  57  (8)  Liability  with  Respect  to  Special  Deposits. — When 
money  has  been  deposited  with  a  bank,  and  there  has  been  no  contract 
that  a  different  rule  shall  prevail,  the  bank  in  which  the  deposit  is  made, 
ordinarily,  becomes  the  owner  of  the  money  and  consequently  a  debtor  for 
the  amount,  and  under  obligation  to  pay  on  demand,  not  the  identical  money 
received,  but  a  sum  equal  in  legal  value. '''^     This  rule  does  not  apply,  how- 

69.  Same — Same. — Forbes  v.  Mohr,  mercial  Bank,  77  Tenn.  (9  Lea)  728; 
69   Kan.   342.   76   Pac.   827.  Minton  v.  Stahlman,  96  Tenn.  98,  34  S. 

70.  Same — Same. — Forbes   v.     Mohr,       W.   222. 

69   Kan.  342,  76  Pac.   827.  72.    Sale  of  drafts  of  insolvent  bank. 

71.  Determining  knowledge  of  in-  — Dickey  &  Co.  v.  Leonard,  77  Ga.  151, 
solvency — Duty     of     jury. — Minton      v.       152. 

Stahlman,  96  Tenn.  98,  34  S.  W.  222.  73.    General  deposit  becomes  a  debt. 

A   different   rule  prevails  in   suits  by  — Marine  Bank  v.  Fulton  Bank,  2  Wall, 

or    for    the    corporation    brought    in    a  252,    17    L.    Ed.    785;    Keene    v.    Collier 

court    of    equity.      Wallace    7'.    Lincoln  fKy.),  1  Mete.  415;  Downes  v.  Phoenix 

Sav.  Bank,  89  Tenn.  630,  15   S.  W.  448.  Bank    (N.    Y.),    6    Hill    297;    Matter    of 

24   Am.    St.    Rep.   625;    Shea  v.    Mabry,  Patterson  CN.  Y.).  18  Hun  221,  affirmed 

69  Tenn.    (1   Lea)   319;   Hume  v.   Com-  in    78    N.    Y.    608;    Franklin    Fire    Ins. 


§  37  (9a) 


OFFICERS  AND  AGENTS. 


363 


ever,  in  the  case  of  special  deposits  either  of  money  or  commodities,  where 
the  property  in  the  thing  deposited  remains  in  the  depositor  and  the  bank 
becomes  the  simple  bailee.'-*  Directors  of  the  bank  are  personally  re- 
sponsible to  the  depositors  for  the  loss  or  conversion  of  special  deposits 
in  the  bank  whenever  they  knew  of  such  conversion  or  might  have  known 
of  it  by  the  exercise  of  such  care  and  diligence  as  the  law  requires  of 
such  officers  in  supervising  the  affairs  of  the  bank.'-^  They  are  not  mere 
figureheads,  with  no  duties  to  perform,  and  with  the  liberty  of  leaving  mat- 
ters of  this  character  to  their  president  and  cashier,  and  relieving  them- 
selves of  liability  and  duty  by  placing  special  funds,  which  they  are  under 
obligations  to  deliver  to  special  depositors,  in  the  hands  of  third  persons, 
and  then  leaving  it  to  their  depositors  to  litigate  their  claims  and  rights  with 
such  third  persons."^ 

§  57  (9)  Personal  Liability  with  Respect  to  Loans,  Discounts 
and  Investments— §  57  (9a)  At  Common  Law.— Mere  Errors  of 
Judgment. — The  officers  of  an  insolvent  bank  can  not  be  held  ])ersonally 
responsible  to  creditors  for  losses  on  loans  and  discounts  made  by  them  in 
good  faith,  and,vas  they  thought  at  the  time,  for  the  best  interests  of  the 
bank,  merely  because  such  loans  and  discounts  appear  to  have  been  unwise 
and  hazardous  when  looked  back  upon.""  The  customs  and  methods  of 
the  community  in  which  a  banking  business  is  done  are,  for  such  com- 
munity, a  standard  of  prudence  and  diligence  by  which  the  responsibility 
of  the  bank  officers  and  directors  at  common  law  is  to  be  tested;  and  if 
there  has  been  a  reasonable  conformity  to  these,  and  absolute  good  faith 
and  honesty  of  purpose,  it  would  be  unjust  to  hold  them  to  a  personal  ac- 


Co.  z:  Jenkins  (N.  Y.),  3  Wend.  130; 
Commercial  Xat.  Bank  z'.  Henninger, 
105   Pa.   496. 

74.  Bailee   as   to    special     deposit. — 

Marine  Bank  f.  Fulton,  2  Wall.  252,  17 
L.  Ed.  785;  Thompson  v.  Rig-gs,  5 
Wall.  663,  18  L.  Ed.  704;  Bank  v.  Mil- 
lard, 10  Wall.  152,  19  L.  Ed.  897; 
Franklin  Fire  Tns.  Co.  z'.  Jenkins  (X. 
Y.),  3  Wend.  130;  Zinn  ?:  Mendel.  9 
W.  Va.   580. 

75.  Same — Personal  liability  for  loss 
or  conversion. — Savin-s  I'.ank  ::  Caper- 
ton,    87    Ky.    306,    10    Ky.    L.    Rep.    201, 

8  S.  W.  885,  12  Am.  St.  Rep.  488; 
United    Society    z.    Underwood    CKy.), 

9  Bush.  609,  15  Am.  Rep.  731;  Miller  7'. 
Howard,  95  Tenn.  407,  32   S.   W.  305. 

76.  Same — Where  deposit  delivered 
to  third  persons. — Miller  ;■.  Howard, 
95   Tenn.    407.   32    S.   W.    305. 

The  directors  of  a  bank  are  person- 
ally liable  for  a  deposit  made  during 
a  suspension  of  payment  upon  faith  of 
a  circular  issued  by  them  that  such  de- 
posits   would    be    kept,    subject    to    the 


depositor's  orders,  in  the  vaults  of  the 
bank,  where  they  allow  the  receiver  for 
the  bank,  subsequently  appointed,  to 
take  possession  of  the  same.  Miller  v. 
Howard,  95  Tenn.  407,  32  S.  W.  305. 

In  the  case  of  United  Society  7'.  Un- 
derwood (Ky.),  9  Bush.  609,  15  Am.  Rep. 
731,  the  deposit  in  question  was  a  special 
deposit  of  bonds,  and  not  an  ordinary 
deposit  of  money.  The  petition  sub- 
stantially alleged  that  the  defendants 
converted  the  bonds  to  their  own  use. 
Tt  was  held  that  tlie  directors  were  per- 
sonally responsil)lc  to  the  depositors 
for  loss  or  conversion  by  the  bank  of 
special  deposits  in  such  bank  when- 
ever they  knew  of  such  conversion,  or 
might  have  known  of  it  by  the  exer- 
cise of  such  care  and  diligence  as  the 
law  requires  of  such  officers  in  su- 
pervising the  affairs  of  the  bank  and 
tliat  the  directors  must  be  considererl 
as  affected  with  the  knowledge  of 
such  facts  as  appeared  upon  the  Iiooks 
f>f   tlie   bank. 

77.  Liability  for  errors  of  judg- 
ment.—Witters  f.   Sowlcs.  31   Fed.  1. 


364  BANKS  AND  BANKING.  §    57    (9b) 

countability  to  stockholders  for  loans  which  subsequent  events  prove  to 
have  been  unwise."^ 

Excessive  Loans  to  One  Individual. — Whether  the  making  of  an  ex- 
cessive loan  to  an  individual  is,  in  the  absence  of  statute  fixing  a  limit  to 
the  sum  that  may  be  loaned  to  any  one  person,  negligence,  and  what  con- 
stitutes an  excessive  loan,  depends  upon  the  circumstances.  While  the 
lending  of  an  amount  ec]ual  to  about  one-third  of  the  capital  stock  of  a  bank 
to  a  single  person  would  seem  to  be  unwise  and  hazardous,  yet,  where  such 
a  loan  was  made  to  one  of  the  directors,  who  was  the  chief  merchant  of 
the  town,  largely  while  his  business  and  financial  standing  were  good,  and 
afterwards  to  preserve  his  credit,  and  with  an  entirely  honest  purpose  on 
the  part  of  the  bank  officials  to  enable  him  to  continue  business,  in  the 
hope  that  he  would  finally  be  able  to  pay,  it  was  held,  that  this  was  not  suffi- 
cient, at  common  law,  in  the  absence  of  any  trace  of  fraud,  to  render  the 
directors  of  the  bank  personally  liable  to  the  stockholders  (depositors  and 
creditors  having  been  fully  paid)   for  the  resulting  loss."^ 

Loans  to  Officers  and  Stockholders. — In  the  absence  of  statute  pro- 
hibiting it,  loans  to  officers  and  stockholders  of  the  bank  are  not  unlawful 
nor  fraudulent  per  se.**'  But  if  a  bank  allows  its  stockholilers  to  withdraw 
its  funds  to  the  amount  of  their  subscriptions,  and  to  use  them,  without  se- 
curity, in  their  private  business,  such  conduct  is  a  fraud  on  its  creditors, 
which  renders  the  directors  liable  in  equity  for  the  amount  so  withdrawn, 
and  each  agent  who  participated  in  the  fraud  individually  responsible  for 
the  amount  traced  to  his  hands  and  all  profits  made  from  its  use.''^ 

Investments  in  Realty  to  Save  Debt. — The  fact  that  large  amounts 
of  assets  of  a  bank  were  invested  in  realty,  causing  great  losses  from 
depreciation,  will  not  render  the  directors  liable  for  mismanagement  and 
negligence  where  it  appears  that  the  realty  was  bought  under  foreclosure 
of  mortgages  held  by  the  bank,  to  prevent  a  sacrifice. *- 

§  57  (9b)  Loans  and  Investments  in  Violation  of  Statute. — Di- 
rectors render  themselves  personally  liable  for  waste  of  the  corporate  prop- 
erty and  assets  by  doing  acts  forbidden  by  the  charter  or  general  law,  such 
as  lending  the  money  of  the  bank  without  exacting  security  as  required  by 
law,  or  investing  the  money  of  the  bank  in  speculative  enterprises  for- 
bidden by  law.'^-'^     It  is  not  essential  in  such  cases  to  allege  and  prove  that 

78.  Standard   of   diligence   and   care.  82.     Investments    to    save    drbt    and 

— Wheeler     t'.      Aiken       County,      etc.,  prevent    sacrifice. — Wallace    t'.    Lincoln 

Sav.   Bank.  75   Fed.  781.  Sav.   Bank,  89  Tenn.  630,  15   S.  W.  448, 

79.  Excessive    loans    to    individuals.  24  Am.  St.  Rep.  625. 

— Wheeler      f.      Aiken      County,      etc.,  83.     Loans    and    investments    forbid- 

Sav.   Bank,   75   Fed.  781.  den    by    law. — Citizens'    Loan    Ass'n    v. 

80.  Loans  to  officers  and  stockhold-  I<yon,  29  X.  J.  Eq.  110;  Williams  v. 
ers. — Wheeler  v.  Aiken  County,  etc.,  McKay,  40  N.  J.  Eq.  189.  53  Am.  Rep. 
Sav.  Bank,  75  Fed.  781.  775;    Hun    v.    Carey,    82    N.    Y.    65,    59 

8L     Allowing    stockholders   to    with-  How.    Prac.    439.    37    Am.     Rep.      546; 

draw  funds  to  amount  of  subscriptions.  Brinckerhofif  v.  Bostwick,  88  N.  Y.  52; 

— Bank   v.    St.   John,   etc.,    Co.,   25   Ala.  Robinson    v.    Smith    (N.    Y.),    3    Paige 

566.  222,  24  Am.   Dec.  212;   Hodges  v.  New 


§    h7    (9b)  OFFICERS  AND  AGEXTS.  365 

the  director  acted  fraudulently,  or  that  he  derived  any  benefit  from  the 
loan ;  it  is  sufficient  to  show  that  there  was  a  culpable  violation  of  duty  as 
quasi  trustee  of  the  funds  of  the  bank,  by  which  loss  was  sustained.'^'*  How- 
ever, on  the  ground  that  directors  are  not  liable  for  errors  of  judgments 
and  mistakes  of  law  committed  in  good  faith,  it  has  been  decided  that 
where  a  director  acts  in  entire  good  faith  he  is  not  liable  for  making  a  loan 
for  a  greater  amount  than  the  law  allowed  to  be  advanced  on  the  security 
taken. ^'^  He  is  not  chargeable  for  any  mere  error  of  judgment,  or  mistake 
in  estimating  the  value  of  property,  using  reasonable  and  ordinary  care.^*' 

Loans  to  Directors  and  Officers. — Directors  who  knowinglv  partici- 
pate in  or  assent  to  the  making  of  loans  to  one  of  the  members,  in  viola- 
tion of  the  state  banking  laws,  render  themselves  individually  liable  for  all 
damages  which  the  corporation,  its  shareholders  or  any  other  persons  may 
sustain  in  consequence  thereof ;  and  to  recover  such  losses  the  persons 
sustaining  the  same  may  maintain  an  action  at  law  against  the  directors 
individually. •'^'^ 

Responsibility  of  Borrowing  Director. — Under  Rev.  Stat..  U.  S., 
§  5200.  directors  of  a  national  bank,  who  make  or  assent  to  the  making 
of  a  loan  to  any  one  person  of  a  sum  exceeding  one-tenth  of  the  capital 
stock  of  the  bank,  become  personally  and  individually  liable  for  all  losses 
sustained  thereby ;  but  where  the  borrower,  in  such  a  case,  is  also  one  of 
the  directors,  he  is  not  so  liable,  but  simply  as  a  debtor  to  the  bank.^^  A 
state  statute  merely  forbidding  the  directors  and  other  officers  of  a  state 
bank  from  borrowing  any  money  from  the  bank,  on  pain  of  criminal  prose- 
cution, affects  only  the  officer  so  borrowing,  and  does  not  make  other  di- 
rectors personally  liable  to  the  stockholders  for  losses  resulting  there- 
from.^o     In  Ohio,  however,  under  the  "act  to  incorporate  the  State  Rank 

England  Screw  Co..  1  R.  I.  312,  53  Am.  86      Same.— Williams    v.    McDonald, 

Dec.    624;    Moses    v.    Ocoee    Bank,    69  42    N.   J.    Eq.   392    7   Atl.    866. 

Tenn.   (1   Lea)   398.  87     Loans   to   directors   and   officers. 

_,        ,   f      ,              ,                      J-       ^  — Witters  V.  Sowles,  31   Fed.  1;  Camp- 

The    defendant,    who   was    a    direc  or  ,^^„    ^,     Watson.    62    N.   J.    Eq.    396,    50 

and   member   of  the   finance   committee  ^^^               Conant,    etc.,    Co.   v.    Reed,    1 

of    a    savniRS    bank,    which    afterwards  q    g^             Attorney-General  v.  Seneca 

became    insolvent,    and    a    receiver   was  ^^            g^^^_   ^   q     g^    ^^^.    ^,.,^,,,,,   ,, 

appointed,  having  acted  with  the  presi-  \if.\^\    \    q    d^c    347 

dent    in    investing    its    funds    on    mort-  ^,,;^,    directors    of  'an    insolvent    bank 

gaee   on   real  estate  not  worth   at  least  .^^_^    j;^,^,^     ^^^    j^^g^^     occasioned     by 

nou1,le    the    amount    of    the     sum    _in-  ,,^,^,^^    ^^^^^^    ^^    j^^    cashier    on    insuffi- 

vested  above  all  incumbrances,  ai-ainst  ^j^,^,    security  to   make   good  his   over- 

the    prohibition    in    its    charter    (Laws  ^j^^^,^    accounts,    where    the   overdrafts 

\.    J.    1869:    PL.    X.    J.    80,    §    10)..  IS  ^,^^^    continued    after     the      bank      ex- 

charcreal)le    with    the    loss    on    the    in-  ^,^^i,^^^  ,^,^^^  directed  their  attention   to 

vestment.      Williams    v     McDonald.    42  ^^,^,^      obiectionable     practice.      Camp- 

N.   J.   T-ri.   392.   7    Atl.   866.  ,,^„    ^,     Watson,    62    N.    J.    Eq.    396.    50 

84.  i^ame — Necessity   to   show   fraud  \^i    ^o(> 

or    nrofit.     Williams    7'.    McDonald,    42  gg.     Resoonsibility    of   borrowing    di- 

X.    T.    I-.q.   ■V.)2,   7    Atl.   866.  rector.— Witter ^,    f.    Sowles,    31     l"ed.    1. 

85.  Same — Mistakes  and  errors  ^  89.  Same — Liability  of  other  di- 
f»ood  faith — Wilbams  v.  McDonald.  rectors. — Wheeler  7'.  Aiken  County. 
37    X.   J.    l-,q.    409.  etc.,   Sav.   Rank,   75   Fed.   781. 


366  BANKS   AND   BANKING.  §    57    (10) 

of  Ohio  and  other  banking  companies,"  and  providing  that  the  directors 
of  any  bank  incorporated  thereunder  shall  not  be  Hable  to  the  bank  except 
to  such  amount  and  in  such  manner  as  shall  be  prescribed  by  the  by-laws 
of  such  bank,  adopted  by  its  stockholders  to  regulate  its  liabilities,  a  di- 
rector who  borrows  money  from  the  bank  without  the  authority  of  a  by- 
law, and  his  associate  directors  who  consent  to  such  loan,  are  liable  per- 
sonally for  all  damages  which  any  other  person  may  sustain  in  consequence 
of  such  loan.^*^ 

§   57    (9c)   Liability  for  Acts  of  Associates  and  Subordinates.— 

Directors  guilty  of  gross  negligence  in  permitting  the  cashier  to  make  loans 
in  violation  of  statute  and  without  security  are  personally  liable  for  the  loss 
sustained  and  it  is  no  excuse  that  they  had  no  benefit  from  their  neglect  and 
that  their  services  were  gratuitous.^i  But,  before  the  directors  of  a  bank 
can  be  held  liable,  in  case  of  almost  total  inattention  to  its  management,  for 
losses  from  loans  made  by  the  cashier  without  their  knowledge  or  consent, 
it  must  be  shown  that  the  cashier  did  not  exercise  reasonable  skill,  diligence, 
and  prudence  in  making  the  loans. ^^^  It  is  not  negligence  per  se  in  a  cash- 
ier of  a  bank  to  pay  the  overdraft  of  a  responsible  customer  of  character 
and  business  integrity ;  and  therefore  the  directors  can  not  be  made  liable  in 
an  action  against  them  for  negligence  and  mismanagement  on  mere  proof 
that  an  account  was  overdrawn,  and  a  loss  thereby  sustained.^^^  Directors 
of  a  national  bank  can  not  be  held  to  the  common-law  liability  for  inatten- 
tion to  duty  as  directors  in  not  preventing  a  hazardous,  imprudent  and 
disastrous  loan,  if  such  loan  was  made  by  their  associates,  without  their 
knowledge,  connivance,  or  participation.'^'* 

§  57  (10)  Individual  Liability  with  Respect  to  Collections  and 
Payments. — The  mere  failure  to  sue  on  notes  held  by  a  bank,  thus  permit- 
ting them  to  become  barred,  will  not  render  the  directors  liable  for  negli- 
gence and  mismanagement,  unless  it  is  shown  that  the  makers  were  solvent, 
and  that  payment  might  have  been  enforced.^^  Where  a  bank  cashier  who 
has  received  a  note  for  collection,  fails  to  present  it  on  the  proper  day, 
and  to  have  it  protested,  if  not  paid,  so  that  the  indorsee  is  discharged,  he 
will  be  liable  to  the  owner  of  the  note.^^ 

90.  Same— Same.— Attorney-General  93.  Same— Same— What  constitutes. 
z:  Senaca  County  Bank,  5  O.  St.  171;  —Wallace  r.  Lincoln  v^av.  Bank.  S9 
Conant.  etc.,  Co.  r.  Reed.  1  O.  St.  29S;  Tenn.  630,  15  S.  W.  448,  24  Am.  St. 
Arnold  v.  Reid,  1   O.  D.  .347.  Rep.  62.5.                                 _  . 

91.  Liability  for  acts  of  associates  94.  Common-law  liability  for  failure 
and  subordinates. — Union  Nat.  Bank  to  prevent  hazardous  loan.— Witters  :■. 
V.   Hill,   148   Mo.   380.  49   S.  W.   1012.   71  Sowles,    31    Fed.    1. 

Am.    St.   Rep.   615;    S.   C,   155   Mo.  279,  95.    Liability  with   respect  to   collec- 

55   S.  W.   1133.  tions   and   payments. — Wallace   7'.    Lin- 

92.  Same — Necessity  for  negligence  coin  Sav.  Rank,  89  Tenn.  630.  15  S.  W. 
or  fraud  on  part  of  subordinate.— Wal-  448,   24   Am.    St.    Rep.   625. 

lace    :•.    Lincoln    Sav.    Bank,    SO    Tenn.  96.    Same— Failure  to  bind  indorsers, 

630.  15  S.  W.  448,  24  Am.  St.  Rep.  625.       etc.— Hough  r.  Young,   1   O.  504. 


§    57    (12)  OFFICERS   AXD  AGENTS.  367 

Payments. — The  cashier  of  a  bank,  who,  on  purchasing  for  himself 
property  from  a  debtor  of  the  bank,  agrees 'that  the  price  shall  be  apphed 
in  a  certain  manner  on  the  indebtedness  to  a  bank,  acts,  in  making  such 
agreement,  in  his  official  capacity,  and  is  not  individually  liable  for  a  breach 
thereof  ;'•''  and  if  he  volunteers  to  arrange  for  the  application  of  the  price 
to  the  indebtedness  of  the  bank  in  a  particular  manner,  he  is  to  that  extent 
the  agent  of  the  debtor,  and  is  not  individually  liable  if  the  bank  refuses 
to  make  the  arrangement.^^ 

§  57  (11)  Individual  Liability  with  Respect  to  Sale,  Transfer  or 
Purchase  of  Stock. — AMiere  the  directors  of  a  bank  take  notes,  judg- 
ments, and  the  like  in  the  payment  of  subscriptions  to  stock,  it  is  incumbent 
on  them  to  show  that  such  notes,  etc.,  w^ere  of  the  value  for  which  they 
were  transferred,  or  that  they  exercised  ordinary  care  in  ascertaining  their 
value,  and  had  reason  to  believe  them  to  be  worth  the  amounts  for  which 
they  were  taken,  in  order  to  escape  liability  therefor,  as  such  transactions 
are  a  deviation  from  the  usual  course  of  business. "^  For  accepting  such 
unauthorized  securities  in  payment  for  stock  the  directors  may,  in  case  of 
loss,  be  held  personally  liable  for  the  full  amount  of  the  stock  so  paid.i  Di- 
rectors are  not  responsible,  however,  to  one  from  whom,  in  the  name  of 
the  bank,  they  have  made  an  unauthorized  purchase  of  its  stock,  and  which 
the  bank  had  repudiated. 2  And  the  unauthorized  action  of  the  directors  of 
a  bank  in  withholding  assent  to  the  transfer  of  stock  to  a  purchaser  thereof, 
preventing  the  purchaser  from  reselling  the  stock  before  the  insolvency  of 
the  bank,  is  not  in  itself  evidence  of  fraud  on  the  purchaser.^ 

Liability  for  Signing  Invalid  Certificates  of  Stock.— Where  the  offi- 
cers of  the  bank  sign  certificates  of  stock  which  are  invalid  because  the 
steps  necessary  to  validate  their  issue  were  not  taken,  they  will  be  liable  in 
an  action  of  deceit  to  another  bank  which  takes  such  stock  as  collateral, 
the  measure  of  damages  being  the  difference  between  the  face  value  of 
the  stock  and  its  actual  value. "^ 

§  57  (12)  Wrongfully  Declaring  Dividends.— Both  as  to  third  per- 
sons and  stockholders  alike  it  is  a  good  cause  of  action  against  directors 
that  they  declare  dividends  out  of  the  capital  stock  or  deposits  of  the 
bank,  and  not  out  of  its  earnings.-'^     A  general  statute  making  the  directors 

97.  Payments  breach  of  agreement  purchase  of  stock. — Abeles  v.  Cochran, 
as  to  appUcation. — Pease  z'.   Francis,  ;i5       22   Kan.    105,  31    Am.   Rep.  104. 

R.   I.  22r,,  55  .\Ll.  G8f).  3.    LiabiHty   for  refusing   to  transfer 

98.  Same— Same.— Pease  ?'.  Francis,  stock.— Penfold  :•.  Cliarlevoix  Sav 
25  R.  T.  22c,,  r,r,  Atl.  osr,.  Bank,   140   Mich.   ll.'C,    10;!   N    W    572 

99.  Accepting  unauthorized  securi-  4.  Liability  for  signing  invalid  cer- 
t.es  in  payment  of  stock  subscription.  tificate  of  stock.-Lloyd  7'.  Western 
-C  o<i,  ,„,^_to„  :■.  Cana.lay,   157   Ind.  24:;,  Xa,.    p.a„k,    liO    Wkly.    L.    Bull.    165,    11 

'  ,      „   '•   ■  "■  O.    Dec.   851,   alTinned    in   54   O.   St.  fiSl, 

1.  Same.— Moses  v.   Ocoee   Bank,   CO       47  N.  R.  111:;. 

Tcnn.    (1    Lea)    :i08.  5.    Liability  for  wrongfully  declaring 

2.  Responsibility    for    unauthorized       dividends.— SoIohkui    r.    Bates,    118    N. 


368  BANKS   AND   BANKING.  §     "bl    (13) 

of  any  corporation  jointly  and  severally  liable  for  paying  dividends  before 
the  capital  stock  is  fully  paid  in  or  when  the  corporation  is  insolvent  or 
unable  to  pay  dividends  without  impairing  or  diminishing  the  capital,  is 
applicable  to  banking  corporations.*^  Bank  directors  can  not  be  held  per- 
sonally liable,  however,  for  money  paid  out  for  dividends  "to  a  greater 
amount  than  net  profits  after  deducting  losses  and  bad  debts"  (Rev.  Stat. 
U.  S.,  §  5204),  because  there  were  debts  bad  in  fact,  but  supposed  to  be 
good,  when  the  dividends  were  declared  and  paid.  Bad  judgment  on  the 
part  of  the  directors,  as  to  the  condition  of  the  assets,  without  bad  faith, 
does  not  make  them  individually  liable.'^  Nor  can  there  be  any  recovery 
by  or  on  behalf  of  shareholders  for  dividends  improperly  declared  and 
paid  out  to  the  shareholders  themselves.'^  Where  the  stockholders  of  a 
bank,  upon  the  expiration  of  their  charter,  make  dividends  of  their  capital 
stock  among  themselves,  so  that  there  are  not  corporate  funds  left  suffi- 
cient to  redeem  their  outstanding  notes  or  bills,  a  holder  of  such  bills  can 
not  maintain  an  action  at  law  as  for  a  tort  against  an  individual  stock- 
holder who  has  received  his  portion  of  such  dividends,  even  though  the 
declaration  allege  fraud  against  the  defendant.  Whatever  remedy  there 
may  be  in  such  a  case  must  be  in  equity  and  for  the  benefit  of  all  the 
creditors.^ 

§  57  (13)  Officers  of  Fraudulent  and  Illegal  Banks.— The  liability 
of  the  ostensible  president  of  a  spurious  bank  for  debts  contracted  by  his 
assistance  is  not  collateral,  but  direct  and  original ;  and  he  must  respond 
in  damages  to  the  same  extent  as  the  bank,  if  legally  constituted,  would 
have  been  liable.^'*  The  directors  and  stockholders  of  a  bank  organized 
under  an  act  which  is  subsequently  declared  unconstitutional  are  not  liable 
for  the  payment  of  the  bills  or  other  indebtedness  of  the  bank,  neither  as 

C.   311,   24   S.    E.   478,   54   Am.    St.   Rep.  the  law  relating  to  banks,  the  directors 

725;   Dykman  v.   Kecney,   10   App.   Div.  so    offending    shall     be      jointly      and 

GIO,   42    N.    Y.    S.   4S8;    Gaffney   -'.    Col-  severally    individually     liable      to      the 

vill  (N.  Y.),  6  Hill  567;  In  re  Gunkle's  creditors  and  stockholders  for  any  loss 

Appeal,   48   Pa.   13.  or    damage    not    made    good    within    a 

6.  Same — Applicability  of  statute. —  reasonable  time.  Held,  that  where  the 
Williams  v.  Brewster,  117  Wis.  370,  93  directors  of  a  bank  innocently  de- 
N.  W.  479.  clared   a   dividend   while    the   bank   was 

7.  Same — Errors  of  judgment — Ig-  insolvent,  such  directors  were  not  li- 
norance  of  bank's  condition. — Witters  able  under  §  548  for  all  existing  and 
V.   Sowles,   31   Fed.   1.  subsequent  debts  of  the  bank  but  were 

Ky._  St.    1003,   §   548,   declares   that   if  only  liable  under  §  598  for  the  amount 

the   directors   of   any   corporation   shall  of  the   dividend   so   declared.     Franklin 

declare  and  pay  any  dividend  when  the  v.  Caldwell,  123  Ky.  528,  29  Ky.  L.  Rep. 

corporation   is   insolvent,   they  shall   be  935,  nn  S.  W.  fi05. 

individually   liable   for  all   debts   of   the  8.     Liability    to    shareholders. — Wal- 

corporation    existing    or    thereafter    in-  lace    v.    Lincoln    Sav.    Bank,    89    Tenn. 

curred.      Section   596   declares   that   the  630,  15  S.  W.  448.  24  Am    St.  Rep.  625. 

directors  of  a  bank  may  declare  a  divi-  9.     Stockholders    dividing    assets    of 

dend   after   deducting  expen=es,   losses,  suspended    bank   among    themselves. — 

bad   and   suspended   debts,   interest  and  ^^ose  r    Grr-nt.  1."   ^^.^ss.  505. 

taxes._  etc.,   and   §   598  provides   that   if  10.     Liability    of    officers    of    fraudu- 

the    directors    of   a   bank   shall    "know-  lent  and  illegal  banks. — Hanser  r.  Tate, 

ingly"  violate  any  of  the  provisions  of  85   N.    C.   81,   39   Km.   Rep.   689. 


§    ^7    (14)  OFFICERS  AND  AGENTS.  369 

Stockholders  and  directors,  nor  as  partners. ^^  Where  the  statute  provides 
that  the  holders  of  notes  and  bills  issued  by  an  unauthorized  bank  may 
recover  from  those  personally  interested  in  the  company  without  proof 
of  demand  and  notice,  the  payee  and  first  indorser  of  a  bill  drawn  by  such 
company  is  liable  without  demand  upon  the  drawee.^-  Where  the  officers 
and  directors  are  personally  liable  for  the  notes  and  bills  issued  by  an  un- 
authorized banking  association  the  enactment,  in  an  act  to  regulate  judicial 
proceedings,  of  a  provision  declaring  that  such  notes  and  bills  shall  be  taken 
to  be  absolutely  void  in  all  courts  in  proceedings  where  banks  and  bankers 
are  parties,  does  not  render  such  notes  absolutely  void,  but  merely  suspends 
the  remedy  upon  them  so  long  as  it  continues  in  force,  and  upon  its  repeal 
the  officers  of  such  illegal  association  again  become  liable  for  notes  issued 
before  its  repeal. ^•^ 

§  57  (14)  Nominal  Directors  and  Persons  Held  Out  as  Direct- 
ors.— Where  the  owners  of  the  charter  and  stock  of  a  state  bank,  men  of 
good  character  and  having  the  confidence  of  the  community,  published  in 
the  newspapers  of  the  city  in  which  the  bank  was  located,  a  business  card 
of  the  bank,  with  their  own  names  as  officers,  and  with  the  name  of  one 
of  themselves  as  a  director,  and  the  names  of  four  other  persons  as  direct- 
ors, who  were  not  stockholders,  who  had  neven  been  notified  that  they 
were  elected  directors,  nor  accepted  the  office,  nor  acted  as  such,  and  con- 
tinued the  publication  for  over  four  years  with  the  knowledge  of  such 
persons,  but  without  their  active  participation,  the  creditors,  upon  the  failure 
of  the  bank,  had  no  right  of  action,  either  through  or  independent  of  the 
corporation,  against  such  persons  for  failing  to  discharge  the  duties  of 
directors,  it  not  appearing  that  they,  or  either  of  them,  had  done  or  said 
anything  tending  to  lead  any  of  the  creditors  to  believe  that  they  were  di- 
rectors.^'* Neither  were  creditors  entitled  to  sue  such  directors  under  a 
statute  giving  a  right  of  action  where  the  directors  were  shown  to  be  guilty 
of  intentional  fraud  and  willful  mismanagement,  the  testimony  in  the  case 

11.     Where    bank     organized      under  in  an   action  against  directors   of  such 

act    subsequently    declared    unconstitu-  liank  liy  a  creditor,  that  the  word  "as- 

tional. — State  v.   How,   1    Mich.   ;'J12.  socialions,"  used  in  §  21,  has  the  same 

Act  March  5,  18.37,  provides  that  all  effect   as   if   the    word     "corporations" 

such    persons    as    shall    become    stock-  were   used,    and,   such    associations   be- 

hoUlers  of  a  banking  association   shall  ing  illegal,   there   can   be   no   directors, 

constitute  a  body  corporate  in  fact  and  and  therefore  no  right  of  action  exists 

in   name.      Section   21   provides   that,   if  by    virtue    of    said    section.      Brooks   v. 

such   Ijanking  association  shall  become  Tlill,    1    Mich.    ITS. 

insolvent,   the   directors   shall   1)C   liable  12.     Rights     of    bill    holders — Fixing 

in    their    individual     capacity     for      its  liability    of    indorsers,    etc. — Watson    :'. 

debts.      Subsequently    so    much    of    the  I'rown,   11   O.    17:!. 

act   as   purports    to     confer     corporate  13.     Operation    of    statute    declaring 

rights   on   such    association    was     held  notes    void. — Jnlmson    t'.     llentloy,      lO 

by    the    supreme    court    to    be    uncon-  O.   07. 

stitutional.      By    a    prior    law,    associa-  14.    Liability  of  persons  held  out  as 

tions   for  banking  were   prohibited   un-  directors. — llunie    <-•.    Comnurcial  liank, 

less  specially  authorized  by  law.    Held,  77    Tcnn.    (9    Lea)    728. 

1   B  &  B— 24 


370 


BANKS   AND   BANKING. 


58  (1) 


entirely  exonerating  the  defendants  from  all  participation  and  knowledge 
or  even  suspicion  of  the  acts  of  which  plaintiffs  complained.^^  A  secret 
agreement  among  defendants  that  they  would  take  over  a  bank  from  an- 
other whose  sureties  they  were,  upon  his  giving  a  note  signed  by  certain 
persons,  does  not  affect  defendants'  liability  to  plaintiff,  if,  notwithstanding 
such  agreement,  they  took  charge  of  and  operated  the  bank  and  incurred 
the  liability  upon  which  suit  was  brought. ^^ 


58. 


Actions  and  Proceeding's  to  Enforce — §   58    (1)   Time 


to  Sue  and  Limitations. — A  suit  of  this  character,  whether  brought  at 
law  by  the  corporation  itself,  or  in  equity  by  a  creditor  or  shareholder  for 
its  benefit  is  alike  subject  to  the  bar  of  the  statute  of  limitations. i"  Though 
brought  in  ec[uity,  such  suit  is  to  enforce  a  legal  right,  not  for  injury  to  or 
conversion  of  property,  but  upon  the  director's  implied  contract  that  they 
will  exercise  ordinary  diligence  in  the  discharge  of  the  duties  of  their  office ; 
hence,  the  suit  is  barred  only  by  the  lapse  of  time  prescribed  for  actions 
of  the  latter  character,  or  for  suits  in  equity,  and  not  by  the  lapse  of  the 
period  prescribed  for  the  enforcement  of  rights  arising  ex  delicto.^^  Where 
the  action  is  at  law  and  to  enforce  a  statutory  liability,  it  is  ex  contractu, 
ex  delicto,  penal  or  remedial,  according  as  the  statute  may  provide  or  the 
courts,  in  construing  it,  may  hold,  and  will  be  held  subject  to  the  statute 
barring  actions  ex  contractu  or  the  statute  barring  actions  ex  delicto  ac- 
cordingly.^^     \Miere  the  cause    of    action    is    fraudulently  and  effectively 


15.  Same — Statutory  liability. — Hume 
V.  Commercial  Bank,  77  Tenn.  (9 
Lea)    728. 

16.  Where  defendants  had  agreed  to 
take  over  bank  and  operate  same. — 
Curtis  z'.  First  Xat.  Bank  (Tex.  Civ. 
App.),   138   S.   W.   795. 

17.  Applicability  of  statutes  of  limi- 
tation.— Wallace  ?■.  Lincoln  Sav.  Bank, 
89  Tenn.  630,  X5  S.  W.  448.  24  .\m.  St. 
Rep.   62.5. 

18.  Same — Nature  of  suit  as  being 
ex  contractu  or  ex  delicto. — Wallace  v. 
Lincoln  Sav.  Bank,  89  Tenn.  630,  15  S. 
W.  448,  24  Am.  St.  Rep.  625;  Williams 
7'.  Reilly,  41  N.  T.  Eq.  137.  3  Atl.  692; 
Williams  v.  Halliard,  38  N.  J.   Hq.  373. 

Defendant  was  treasurer  and  man- 
ager of  a  bank  which  required  all  its 
ofificers  to  be  members  of  the  board  of 
managers.  Moneys  were  drawn  out 
of  the  bank,  for  illegal  loans,  on  checks 
signed  in  blank  by  the  treasurer,  but 
which  he  says  were  never  authorized 
to  be  used  for  that  purpose  The  re- 
ceiver asks  for  a  decree  holdintr  him 
responsible  therefor.  Defendant  de- 
murs, claiming  that  the  suit  is  barred 
by  the  statute  of  limitations.  Held, 
that  the  liability  being  one  cogni- 
zable   liy  a    court  of    equity  alone,    the 


demurrer  should  be  overruled.  Wil- 
liams c'.  Reilly,  41  N.  J.  Eq.  137,  3  Atl. 
692. 

In  an  action  by  a  receiver  of  an  in- 
solvent bank  against  its  managers  to 
recover  for  losses  by  their  alleged  mis- 
management, defendants  could  set  up 
the  statute  of  limitations  as  to  illegal 
investments  or  overdrafts  by  the 
president,  made  more  than  six  years 
previously.  Williams  t'.  Halliard,  38 
N.   J.   Eq.  373. 

19.  Same — Action  at  law  to  enforce 
statutory  liability. — An  action  imder 
Rev.  St.,  §  301,  to  enforce  against  the 
directors  of  a  bank  liability  for  hav- 
ing furnished  false  statements  of  the 
affairs  of  the  bank  to  the  state  treas- 
urer, is  ex  delicto,  and  prescribed  by 
one  year.  Knoop  v.  Blaffer,  39  La. 
.\nn.  23,   6   So.   9. 

Gen.  St..  §  278.  providing  that  if  any 
banking  association  neglects  to  make 
a  semiannual  statement,  within  a  cer- 
tain time,  of  the  condition  of  tlie  bank 
to  the  state  treasurer,  "the  directors 
shall  be  personally  liable  for  all  debts 
of  said  association  contracted  previous 
to  and  during  the  period  of  ;?uch  neg- 
lect," is  a  penal  statute:  and  a  cause 
of    action    against    a    director    accruing 


§  38  (1) 


OFFICERS   AND   AGENTS. 


371 


concealed  from  the  party  entitled  to  sue  thereon,  the  statute  of  limitations 
does  not  run  during  such  concealment.-"  Hence,  in  an  action  against  a 
delinquent  official  to  recover  for  his  peculations  or  mismanagement,  the 
statute,  as  a  rule,  begins  to  run  only  from  the  discovery  of  his  wrongdoing, 
and  the  bank  is  not  chargeable  with  notice  by  reason  of  the  knowledge  of 
the  president,  director,  or  other  officer  who  is  guilty  of  collusion  with  the 
principal  offender,  either  in  the  commission  or  concealment  of  his  crime. -^ 


under  it  is  barred  in  one  year,  under 
§  2170.  limiting-  to  one  year  "all  actions 
for  any  penalt)^  or  forfeiture  of  any 
penal  statute."  Gregory  v.  German 
Bank.  3  Colo.  332.  25  Am.  Rep.  760; 
Larsen  z:  James,  1  Colo.  App  313  29 
Pac.  183. 

The  charter  of  a  bank,  providing 
that,  when  the  debts  of  such  bank  shall 
e.xceed  three  times  the  amount  of  its 
capital  stock  the  "directors  *  *  * 
shall  be  liable  for  the  same,  *  *  *  and 
may  be  sued"  therefor,  creates  an  obli- 
gation quasi  ex  contractu;  and  there- 
fore the  statute  of  limitations  applying 
to  penal  liability  afifords  no  defense 
in  an  action  against  the  directors. 
Banks  z:  Darden,  18  Ga.  318;  Har- 
groves  z:  Chambers,  30  Ga.  580.  See, 
also,   Xeal  z:    Moultrie,   12   Ga.    104. 

Under  the  statute  in  the  preceding 
paragraph,  it  was  held  that  the  right 
of  action  was  barred  only  after  a 
period  of  twenty  years  Hargroves  z: 
Chambers,  30  Ga.  580. 

An  action  under  La.  Rev.  St.,  §§  300, 
301,  to  enforce  the  liability  of  the  di- 
rectors of  a  banking  corporation  for 
the  debts  of  the  bank,  on  the  ground 
that  they  had  participated  in  or  as- 
sented to  the  bank's  making  loans  and 
discounts  while  in  an  insolvent  condi- 
tion, is  one  ex  quasi  delicto,  and  pre- 
scribed bv  one  vear.  Knoop  r 
BlaflFer,   39    La.   Ann.'  23.   6   So.   9. 

-An  action  by  a  depositor  against  the 
officers  of  an  insolvent  banking  cor- 
poration, who,  it  is  alleged,  received 
a  deposit,  knowing  the  bank  to  l)e  in- 
solvent, brought  under  Gen.  St.  1889. 
par.  40(),  providing  that  it  shall  be  un- 
lawful for  any  officer  of  a  banking  in- 
stitution to  consent  to  the  acceptance 
of  deposits  after  the  bank  is  known  to 
be  insolvent,  and  that  everv  person 
violatintr  the  j\ct  shall  be  individually 
responsible  for  deposits  received  in 
violation  of  it,  is  one  upon  a  statute 
for  a  penalty,  within  paragraph  4005, 
subd.  4,  and  hence  l)nrred  in  one  vear. 
Ashley  z:  Frame.  4  Kan.  .App.  265,  45 
Pac.  927;  Frame  z:  Ashley,  57  Kan. 
177,   53    Pac.    474. 


The  liability  of  directors  of  a  bank, 
under  Hill's  Ann.  Laws  Or.,  §  3231, 
which  makes  such  directors  who  vote 
for  the  declaration  of  a  dividend  when 
the  bank  is  insolvent  "jointly  and 
severally  liable  for  the  debts  of  the 
corporation  then  existing  or  incurred 
while  they  remain  in  office,  '  is  penal 
in  its  nature,  and  the  directors  are  not, 
as  to  such  liability,  "joint  contractors 
or  united  in  interest,"  within  the 
meaning  of  §  14  of  sucl^  Laws,  pro- 
viding that  an  action  shall  be  deemed 
commenced  as  to  each  defendant  when 
the  complaint  is  filed  and  the  sum- 
mons served  on  him  or  on  a  co-defend- 
ant, who  is  a  joint  contractor  or  united 
in  interest  with  him:  hence  an  action  to 
enforce  such  liability  is  not  com- 
menced as  to  a  particular  defendant 
until  the  service  of  summons  on  him. 
Patterson  z\  Thompson,  90  Fed.  6fr. 

20.  Effect  of  concealment  of  cause 
of  action.— Vance  r.  Mottley,  92  Tenn 
310.    21    S.    W.    593. 

21.  Same — Notice  or  knowledge. — 
Vance  :■.  Mnttley,  92  Tenn.  310.  :::i  S. 
W.  593;  Lawrence  z:  Stearns,  79  Fed. 
878;  Lamb  z'.  Cecil.  25  \V.  Va.  288: 
Lamb  z'.  Pannell,  25  VV.  Va.  298; 
Lamb  z\  Laughlin,  25  W.  Va.  300. 

-And,  in  such  case,  the  bank  is  not 
chargealde  with  the  knowledge  of  the 
embezzlement  by  one  of  its  directors 
wlio  colludes  with  the  delinquent  cash- 
ier in  fraudulently  concealing  the  facts 
from  the  officers  and  the  other  di- 
rectors of  the  corporation.  Vance  z: 
Mottley,  92  Tenn.   310,  21    S.   W.   593. 

Tn  a  suit  by  the  receiver  of  a  bank 
to  charge  its  president  with  losses 
arising  from  his  negligent  manage- 
ment, where  it  is  fairly  inferable  from 
the  evidence  that  the  acts  constituting 
such  necrligence  were  not  disclosed  Iiv 
the  president  to  the  directors  until 
long  after  their  occurrence,  and  until 
disclosed  by  the  brin^intr  of  a  suit  l)y 
a  third  partv,  and  the  judgment 
therein,  the  lapse  of  more  than  the 
statutory  period  of  limitation  since  the 
actual  occurrence  of  the  negligence 
can   not  1)e   imputed   to  the   receiver  as 


372 


BANKS    AND    BANKING. 


58  (iy2) 


§  58    (1^)    Nature  and  Form    of    Proceeding. — In  General. — In 

quite  a  number  of  jurisdictions  it  is  held  that,  independently  of  statute, 
no  action  at  law  will  lie  against  the  directors  or  other  officers  of  a  bank, 
in  favor  of  depositors  or  creditors,  for  any  mere  negligence  or  nonfeasance, 
however  gross  such  negligence  or  nonfeasance  may  be,  but  that  such  an 
action  may  be  maintained  for  acts  of  positive  fraud  and  misfeasance  pro- 
vided the  facts  are  sufficient  to  support  an  action  for  fraud  and  deceit; 
that  for  whatever  remedy  there  may  be  aside  from  this,  resort  must  be  had 
to  a  court  of  equity.--  In  other  states  it  is  held  that  for  any  breach  of  duty 
toward  them,  the  depositors  and  creditors  may  sue  the  directors  directly 
either  at  law  or  in  equity,  according  to  the  nature  of  the  injury,  and  that  it 
will  be  no  defense  that  their  principal  is  also  liable.-^  As  to  national  banks, 
this  may  be  otherwise  when  a  receiver  has  been  appointed,  since  the  man- 
ner of  enforcing  the  personal  liability  of  the  directors  is  prescribed  by 
Rev.  Stats.  U.  S.,  §§  5234,  5239.2-*  Where  the  misfeasance  consists  in  the 
conversion  or  misappropriation  of  special  deposits,  directors  may  be  pro- 
ceeded against  personally  by  the  owner  of  the  deposit. ^^ 

Under  Statutes. — Where  the  individual  liability  of  directors  has  been 
made  a  matter  of  statutory  regulation,  the  nature  of  the  proceeding,  if  not 
prescribed  by  the  statute  in  terms,  depends  upon  a  just  construction  of  the 
statute  with  reference  to  the  nature  of  the  liability  charged  upon  the  di- 
rectors and  the  corresponding  rights  conferred  upon  the  creditors  and  de- 
positors. In  Georgia,  under  a  statute  declaring  the  directors  liable  in  their 
private  and  individual  capacities  for  the  excess  of  debts  over  and  above  the 
statutory  limit,  it  was  held  that  their  liability  was  not  penal,  but  remedial; 


laches.  Lawrence  z:  Stearns,  79  Fed. 
878. 

Where  a  director  of  an  insolvent 
banking  corporation,  l^iy  collusion  with 
the  cashier,  receives  discounted  bills 
and  notes  for  his  deposits,  without  the 
authority  of  the  directors,  and  suit  is 
not  brought  therefor  until  nearly  five 
years  after  such  transaction,  the  dec- 
trine  of  laches  does  not  apply.  Lamb 
V.  Cecil.  25  W.  Va.  288;  Lamb  v.  Pan- 
nell,  2.5  W.  Va.  298;  Lamb  v.  Laughlin, 
25  W.   Va.  300. 

22.  Nature  and  form  of  remedy. — 
Allen  :■.  Curtis,  26  Conn.  456;  Savings 
Bank  t'.  Caperton,  87  Ky.  306,  10  Kv. 
L.  Rep.  201,  8  S.  W.  885,  12  Am.  St. 
Rep.  488;  United  Society  t'.  L^^nder- 
wood  (Ky.),  9  Bush  609,  15  Am.  Rep. 
731;  Vose  ;■.  Grant,  15  Mass.  505; 
Smith  7'.  Poor,  40  Me.  415,  63  Am. 
Dec.  672:  Fusz  v.  Spaunhorst.  67  Mo. 
256;  Hart  r.  Evanson,  14  N.  D.  570. 
105  X.  W.  942.  3  L.  R.  A.,  N.  S.,  438; 
Minton  v.  Stahlman,  96  Tenn.  98,  34 
S.  W.  222;  Deaderick  v.  Bank,  100 
Tenn.  457,  45  S.  W.  786:  Zinn  v.  Men- 
del.   9    W.    Va.    580;     Killen     z:      State 


Bank,   106   Wis.   546,   82   N.   W.   536. 

In  Massachusetts  it  is  held,  inde- 
pendently of  statute,  that  no  action  at 
law  will  lie  against  directors  for  ap- 
propriating the  capital  of  the  bank  to 
themselves  in  the  form  of  dividends, 
and  that  the  remedy,  if  any,  must  be 
in  a  court  of  equity  in  which  the  rights 
and  liabilities  of  all  parties  can  be 
adjusted.     Vose  f.  Grant,  15  Mass.  505. 

23.  Same.— DeLano  7-.  Case,  121  111. 
247,  12  N.  E.  676,  2  Am.  St.  Rep.  81; 
Solomon  7'.  Bates,  118  N.  C.  311.  24 
S.  E.  478,  54  Am.  St.  Rep.  725;  Con- 
ant,   etc.,   Co.  V.   Reed,   1   O.   St.   298. 

24.  Same — As  to  national  banks. — 
Bailey  7'.  Mosher,  11  C.  C.  A.  304,  63 
Fed.  488;  Solomon  7'.  Bates,  llS  X.  C. 
311,  24  S.   E.   478,   54  Am.   St.   Rep.  725. 

25.  Remedy  for  conversion  or  mis- 
appropriation of  special  deposits. — 
Savings  Bank  7'.  Caperton.  87  Kv.  306, 
10  Ky.  L.  Rep.  201,  8  S.  W.  885,  12 
Am.  St.  Rep.  488;  United  Society  7'. 
Underwood  (Ky.),  9  Bush  609,  15  Am. 
Reo.  731:  Miller  7'.  Howard,  95  Tenn. 
407,    32    S.    W.    305. 


ft 


§  58  (l/.j 


OFFICERS   AND  AGFNTS. 


373 


joint  and  not  several,  a  statutory  liability  enforceable  at  law.-''  In  Ohio, 
directors  who  knowingly  participate  in  or  assent  to  the  making  of  loans 
to  one  of  their  members,  in  violation  of  the  state's  banking  laws,  render 
themselves  individually  liable  for  all  damages  which  the  corporation,  its 
shareholders  or  any  other  persons  may  sustain  in  consequence  thereof,  and 
to  recover  such  losses,  the  persons  sustaining  the  same  may  maintain  an 
action  at  law  against  the  directors  individually. 2"  In  that  state,  under  a 
charter  provision  making  the  directors  personally  liable,  for  the  excess  of 
debts  over  and  above  the  statutory  limit,  it  was  held  that  the  statute  con- 
templated an  action  of  debt  to  recover  such  amount  as  a  penalty  and  to 
vindicate  a  violation  of  the  law ;  in  other  words,  that  the  remedy  provided 
by  the  charter  was  a  penal  action,  given  to  any  creditor,  but  for  the  benefit 
of  all.-^  Under  the  Massachusetts  statute  no  action  at  law  will  lie  for  a 
creditor  of  a  bank  against  a  stockholder  for  the  official  mismanagement  of 
the  directors,  but  only  a  bill  in  equity. ^9  In  Pennsylvania,  the  remedy  af- 
forded by  statute  was  held  to  be  exclusive,  and  that  no  bill  in  equity  could 
be  maintained.^"  It  was  also  held  in  that  state,  under  an  act  providing  for 
an  investigation  and  report  by  auditors,  and  an  investigation  by  the  court 
of  the  matters  contained  in  the  report  in  case  they  should  report  the  in- 
solvency to  have  been  fraudulent,  that  where  the  report  stated  that  the 
insolvency  was  not  fraudulent  there  could  be  no  further  investigation,  and 
the  whole  proceeding  was  at  an  end.-'^i  In  Tennessee,  upon  the  refusal  of 
the  corporation  or  the  directors  to  sue,  creditors  and  stockholders  may  have 


26.  Proceedings  under  statutes — 
Georgia  statute. — Banks  z:  Darden,  18 
Ga.  318;  Robinson  f.  Bealle,  20  Ga. 
273. 

27.  Same — In  Ohio. — Conant,  etc., 
Co    z:    Reed,    1    O.    St.   208. 

28.  Same — Same — A  penal  action. — 
Stur!.res  v.  Burton,  8  O.  St.  215,  72  Am. 
Dec.  .JH2. 

29.  Bill  in  equity  in  Massachusetts. 
— Harris  :■.  Dorchester,  40  Mass.  (2.1 
Pick.)    112. 

30.  In  Pennsylvania. — In  re  Texter's 
Appeal  (Pa.),  4  Walk.  316  (arising  un- 
der Act  ^^Fay  11,   18.3.">,   P.   L.   632). 

31.  Same — Investigation  upon  re- 
port of  auditors. — W'ri.L^ht  7'.  Daven- 
port,   66   Pa.    148. 

The  act  of  .April  16,  18.50,  provides 
(§  40)  that,  if  the  insolvency  of  a 
liank  be  occasioned  by  the  fraudulent 
conduct  of  its  directors,  they  shall  l)c 
liable  to  the  stockholders  and  credit- 
ors, etc.:  (§  41)  that  the  insolvency  of 
every  bank  hereafter  incorporated 
shall  be  deemed  fraudulent  unless  its 
affairs  shall  appear,  upon  investigation, 
to  have  been  fairly  and  legally  admin- 
istered: (§  42)  tliat  the  term  "insol- 
vency."  used    in    tlic   act.   shall   be   con- 


strued to  apply  to  a  bank  when  it  is 
compelled  to  make  an  assignment  ac- 
cording to  the  provisions  of  the  act, 
and  that  upon  making  such  assign- 
ment the  directors  shall  file  a  full 
statement  of  its  affairs,  etc.;  (§  43)  that 
upon  the  filing  of  such  statement  tiie 
court  shall  appoint  three  auditors  to 
make  an  investigation  of  the  affairs  of 
the  bank,  etc.;  (§  44)  that  the  auditors 
shall  report  to  the  court  the  result  of 
their  investigation,  and,  in  case  they 
report  that  the  insolvency  was  fraudu- 
lent, it  shall  be  their  duty  to  report 
the  amount  due  from  the  several  di- 
rectors, according  to  the  liabilities  im- 
posed by  the  act;  and  (5J  4.5)  that  the 
court  shall  thereupon  proceed  to  an 
investigation  of  tlie  matters  contained 
in  such  report,  and  shall  determine 
whether  the  insolvency  of  such  banic 
was  fraudulent  or  otherwise,  or  it 
may  direct  an  issue  to  try  the  fact  of 
fraudulent  insolvency.  Held,  that  §  1.') 
has  no  application  except  where  the 
auditors  report  a  fraudulent  insolvency, 
and.  where  the  report  is  that  the  in- 
solvency is  not  fraudidcnt,  the  whole 
proceeding  is  at  an  vui\.  Wrir/ht  ?'. 
Davenport.  66  Pa.    118 


374  BANKS   AND    BANKING.  §    58    (1^) 

relief  in  equity  for  leases  resulting  both  from  misfeasance  and  nonfea- 
sance,-'-  and  under  a  charter  providing  that  the  directors  should  be  indi- 
vidually liable  for  any  loss  or  damage  sustained  by  creditors  because  of 
certain  violations  of  the  charter,  it  was  held  that,  under  the  statutes  of 
the  state,  a  court  of  chancery  was  invested  with  jurisdiction  to  inquire  into 
and  determine  whether  there  had  in  fact  been  a  violation  of  the  charter 
rendering  the  directors  liable,  and  that  they  might  be  proceeded  against  by 
original  bill,  or,  to  save  circuity,  they  might  be  brought  in  by  a  supple- 
mental bill  filed  in  a  pending  suit  against  the  corporation  f'^'  but  even  under 
the  statute  no  proceeding  at  law  will  lie  in  favor  of  third  persons  for  mere 
negligence  or  nonfeasance,  but  only  for  intentional  fraud  or  willful  mis- 
management.-'^'* 

As  Ex  Contractu  or  Ex  Delicto — Penal,  etc. — A  breach  of  a  duty 
imposed  by  statute  or  by  express  contract  is  ex  contractu,  but  the  breach 
of  a  duty  imposed  by  law  arising  upon  a  given  state  of  facts  is  a  tort.^^ 
An  action  for  damages  for  breach  of  duty  in  the  latter  case  is  an  action 
for  a  tort.^*''  A  cause  of  action  against  directors  for  the  loss  of  a  deposit, 
caused  by  their  neglect  and  mismanagement,  for  example,  is  in  tort,  not 
in  contract,  the  contract  of  deposit  being  with  the  corporation  and  not  with 
the  directors  f~  and  even  if  there  had  been  a  special  contract  or  a  statu- 
tory provision,  the  plaintifif  might  sue  for  the  negligence  in  tort.-"'^  Where 
the  directors  transfer  stock  of  the  bank  to  the  cashier,  to  the  end  that  he 
may  borrow  money  thereon,  ostensibly  for  himself  but  in  reality  for  the 
bank,  and  agree  to  protect  him  and  save  him  harmless  in  the  transaction, 
and  the  money  so  borrowed  is  turned  over  to  the  bank,  the  remedy,  if  any, 
of  the  persons  lending  money  on  the  stock  without  knowing  that  the  loan 
was  for  the  benefit  of  the  bank,  is  against  the  directors  by  individual  suit 
for  tort,  and  their  claim  can  not  be  joined  with  a  suit  by  stockholders  to 

32.  Tennessee — Refusal    of    corpora-  917;   Solomon  v.   Bates,   118   N.   C.  311, 

tion    or    directors    to    sue. — Wallace    v.  24   S.    E.   478,   54  Am    St.   Rep.   725. 

Lincoln    Sav.    Bank,    89    Tenn.    630,    15  36.     Same.— Williamson    v.     Dickens, 

S.  W.  448,  34  Am.   St.   Rep.  625;   Dead-  07   x.   C.  259;   Bond  v.  Hilton,  44   X.   C. 

erick  V.  Bank.  100  Tenn.  457,  45   S.  W.  308.    59    Am.    Dec.     552;      Solomon      v. 

786;   Shea  v.  KnoxviUe,  etc.,  R.  Co.,  65  Bates,   118    X.   C.   311,   24   S.    E.   478,   54 

Tenn.    (6    Baxt.)    277;    JMoses   r.    Ocoee  Am    St    Rep    725 

Bank.   69  Tenn.    (1   Lea)   398;  Hume  v.  '    „"      c"           '  f,"  '■         r       ,            r        ^ 

r^                •   ,    T3      1      r-r-    a^  {n    T      \  37.    Same — Action   for  loss   of   a   de- 

Commercial     Hank,    77     lenn.  (9    Lea)  ^^^i,.      or                     d   .^         -■ -,  o     x"     /-< 

^,,„  posit. — Solomon    7'.    Bates,    118     A.     C. 

'  ^              „              T.         •           T    ,  311-  24   S.   E.  478,  54  Am.   St.   Rep.  725; 

33.  Same— Same— Practice.— John-  Caldwell  v.  Bates,  118  N.  C.  323,  24  S. 
son  V.  Lhurchwell,  38  lenn.  (l  Head)  £.  ^^^.  followed  Tate  z:  Bates  118  N. 
l-^^'-  C.    287.    24    S.    E.    482,    54   Am.    St.    Rep. 

34.  Same — Remedy    at    law. — Hume       719. 

V.  Commercial  Bank    77  Tenn^  (9  Lea)  33.      Same— Effect     of     contract     or 

728;   Mmton  v.   Stahlman,   96  Tenn.   98,  statutory        provision.— Robinson         v. 

34   S.   W.   222;    Deadenck   v.   Bank,    100  Threadoill.    35    N.    C.    39;     Purcell      v. 

Tenn.    457,    45    S.    W.    786.  Riclimond.   etc.,    R.    Co..   108   N.    C.   414, 

35.  Nature  of  action  as  ex  contractu  ir?  S.  K  954;  Solomon  v.  Bates,  118  N. 
or  ex  delicto. — Hodges  v.  Wilminaton,  C.  311,  24  S.  E.  478,  54  Am.  St  Rep. 
etc.,    R.    Co.,    105    N.    C.    170,    10    S.    E.  725. 


§    58    (1>4)  OFFICERS   AND   AGENTS.  375 

settle  the  assets  of  the  bank,  or  by  creditors  to  enforce  their  contracts.^^ 
In  Georgia,  the  action  given  by  statute  against  directors  for  incurring  an 
indebtedness  beyond  the  statutory  Hmit  has  been  held  to  be  not  penal,  but 
remedial  ;^"  while  under  a  somewhat  similar  provision  in  Ohio  it  was  held 
that  the  statute  was  penal  in  character  and  that  the  creditors  and  depositors, 
or  any  of  them,  suing  to  reco\er  such  penalty,  must  bring  an  action  of 
debt  for  the  recovery  of  the  penalty.-* ^  It  has  also  been  held  in  the  federal 
courts  that  debt  lies  in  favor  of  a  holder  of  a  dishonored  bank  note, 
against  a  stockholder  in  the  bank,  to  recover  the  amount  of  the  note,  under 
the  provisions  of  a  bank  charter  making  the  stockholders  personally  liable 
in  such  cases. ■*- 

Same — Whether  Action   for  Individual   or   Collective   Benefit. — A 

depositor  or  creditor  who  has  sustained  individual  loss  through  the  mis- 
representations and  fraud  of  a  director  or  directors  may,  independently 
of  statute,  maintain  in  his  own  behalf  alone  an  action  of  fraud  and  deceit 
just  as  any  person  may  sue  another  for  actionable  fraud  and  deceit  when- 
ever the  facts  are  sufficient  to  support  an  action  of  that  character.  That 
the  defendants  happened  to  be  directors  of  a  bank  and  committed  the  fraud 
in  their  official  or  representative  capacity  does  not  alter  the  case,  since  an 
agent  can  not  plead  his  representative  capacity  or  the  liability  of  his  prin- 
cipal as  a  defense  to  his  individual  liability  for  his  torts.-* ^  Thus  a  single 
depositor  may  maintain  in  his  own  behalf  alone  an  action  against  the  di- 
rectors of  a  bank  for  the  loss  of  a  special  deposit  caused  by  their  fraud, 
neglect  and  mismanagement.-*-'  Where  the  suit  is  under  the  authority  of 
some  statute  the  construction  of  the  statute  must  control.  Thus,  it  has 
been  seen  that  under  a  statute  making  directors  personally  liable  for  the 
excess  of  debts  over  and  above  the  statutory  limit  and  giving  a  right  of 
action  to  any  creditor,  that  it  was  held  that  it  was  given  for  the  benefit  of 
all  and  to  create  a  fund  for  the  indemnity  of  all.-*^ 

Equitable  Proceedings— Right  to  Proceed  in  Equity.— A  proceeding 
to  recover  damages  against  the  directors  of  a  bank  may  be  brought  in  equity 
only  when  some  equitable  relief  is  sought,  as  an  accounting  or  a  discovery, 
or  when  there  exists   some  ground   of  equitable  jurisdiction,  as   fraud  or 

39.  Action  for  transferring  stock  to  43.  Action  for  individual  or  collect- 
cashier  to  enable  him  to  obtain  loan,  ive  benefit. — United  w^ocioty  r.  Un- 
ostensibly  for  himself,  but  in  reality  dervvood  (Ky.),  9  Bush.  G09,  1.^j  Am. 
for  the  bank.— Jones  v.  Johnson,  SO  Rep.  73\\  Hart  r.  Hanson,  14  N.  Dak. 
Ky.  r,:u).  (i  S.  W.  .VS2,  <)  Ky.  L.  Rep.  .'TO,  -105.  N.  W.  94;^;  Killen  z:  State 
"«•*•  lUuik,    106    Wis.    54G,    82     N.     W.    536; 

40.  Penal  or  remedial — Georgia  stat-       Zinn  :•.  Mendel.  9  W.  Va.  "jS^O. 

ute.— Ranks    <■.    Darden.     18      Ga.      .318;  44.     Same.— United    Society    r.      Un- 

Kohinson   7:    P.calle.   20    Ga.   27.J.  dervvood    (Ky.).    9    Bush    009,    15    .\m. 

41.  Same — Ohio  statute.— Sturj?es  Rep.  73\;  Tate  f.  Bates.  IIS  X.  C.  287, 
V.    Burton,    8    C).    St.    21.-..    72    .\ni.    Dec.  24   S.   K.  482.  54  .\m.  St.   Rep.  719. 

'^^n     _,,,,,.         ,    ,.  45.   Same — Proceeding  under  statute. 

42.  Kemedy  of  holder  of  dishonored       Stur-es    -     P.urton     H    O     St     ''15    72 

bank  notes.— B.ullard  7.:   Bell.   I-ed.  Cas.        .\,ii     Dec    58*> 

N'o.   2,121.    1    Mason    243. 


Z7(i 


BANKS   AND   BANKING. 


58  (I/2) 


breach  of  trust. •^'^ 

Same— Individual  or  Collective  Benefit— Demand  of  Suit  as  a  Con- 
dition   Precedent. — In    those    jurisdictions    where    it    is    held    that    the 


46.    Right   to   proceed    in     equity.— 

Higgins  V.  Tefft,  4  App.  Div.  62,  38 
N.  Y.  716,  74  N.  Y.  St.  Rep.  100;  Dyk- 
nian  v.  Keeney,  154  N.  Y.  483,  48  N. 
E.  894,  reversing  21  App.  Div.  114,  47 
N.  Y.  S.  352;  Bridgens  v.  Dollar  Sav. 
Bank,  66  Fed.  9;  Merchants',  etc.,  Nat. 
Bank  v.   Masonic   Hall,   65   Ga.   603. 

In  an  action  by  a  receiver  against 
the  directors  and  personal  representa- 
tives of  deceased  directors  of  a  bank 
for  misfeasance,  where  none  of  the 
allegations  of  the  complaint  shows  rea- 
son for  interposition  of  a  court  of 
equity,  a  prayer  demanding  judgment 
that  the  damages  which  the  bank,  its 
depositors,  stockholders,  and  other 
creditors,  had  sustained  by  reason  of 
the  matters  and  things  before  stated 
and  set  forth,  may  be  ascertained  and 
determined;  that  defendants,  as  the 
representatives  of  those  who  were  di- 
rectors of  such  bank,  may  be  adjudged 
to  pay  such  damages;  and  that  plain- 
tiff may  recover  the  amount  so  ascer- 
tained, for  the  benefit  of  the  creditors 
and  stockholders  of  the  bank — can  not 
be  said  to  claim  any  relief  which  would 
require  a  resort  to  such  court.  Higgins 
7'.  Tefft.  4  App.  Div.  62,  38  N.  Y.  S. 
716,  74  N.  Y.  St.  Rep.  100. 

Where  a  receiver  is  appointed  in  a 
proceeding  for  dissolution  of  the  bank, 
in  which  a  final  judgment  has  been 
entered,  dissolving  the  bank  and  ap- 
pointing him  permanent  receiver  of  its 
property  and  effects,  in  an  action  by 
him  against  certain  persons  to  recover 
damages  for  the  misfeasance  or  non- 
feasance of  defendants  as  directors  of 
such  bank,  a  petition  which  is  other- 
wise insufficient  does  not  entitle  plain- 
tiff to  equitable  relief,  and  constitute 
the  action  one  in  equity,  because  it 
alleges  that  plaintiff  has,  since  his  ap- 
pointment, disposed  of  and  realized 
on  the  assets  of  the  bank,  paid  sixty 
per  cent  of  the  claims  of  creditors, 
and  realized  all  that  can  be  realized 
from  its  assets;  that  the  deficiency  of 
assets  to  pay  such  creditors  arises 
from  the  nec;liycnce  and  improper  con- 
duct of  defendants  and  others  named, 
directors  and  trustees  of  the  bank; 
that  plaintiff"  has  been  authorized  by 
the  court  to  bring  such  action;  and 
that  some  of  ihe  creditors  have  re- 
quested plaintiff  to  commence  an  ac- 
tion against  the  directors  and  trustees 
of    the    bank    to    hold    them    liable    for 


their  negligence  and  improper  conduct 
as  directors.  Higgins  v.  Teft't,  4  App. 
Div.  62,  38  N.  Y.  S.  716,  74  N.  Y.  St. 
Rep.  100. 

The  receiver  of  an  insolvent  bank 
brought  an  action  against  several  per- 
sons who  had  been  directors  of  the 
bank  for  various  lengths  of  time, 
within  a  period  of  years,  alleging  that 
the  defendants,  as  directors,  had  been 
negligent  and  wasteful,  and  that 
various  irregular  and  unlawful  prac- 
tices had  been  pursued  by  the  bank 
under  their  management,  in  conse- 
quence of  which  the  bank  had  been 
ruined;  that  the  plaintiff  could  not 
prove  the  acts  complained  of  without 
a  discovery  and  account  by  the  de- 
fendants; that  without  relief  in  the  ac- 
tion a  multiplicity  of  suits  would  be 
necessary;  and  there  was  no  adequate 
remedy  at  law — and  demanded  judg- 
ment that  an  account  be  taken  and  dis- 
covery required  from  the  defendants, 
and  that,  upon  the  accounting,  the 
amounts  due  be  ascertained,  and  judg- 
ment given  for  the  plaintiff  therefor. 
Held,  that  this  complaint  did  not  state 
a  cause  of  action  in  equity,  but  only 
several  causes  of  action  at  law  for 
damages  against  the  directors.  Judg- 
ment (1897),  47  N.  Y.  S.  352.  21  App. 
Div.  114,  reversed.  Dykman  v.  Kee- 
ney, 154  N.  Y.  483,  48  N.  E.  894. 

Where  a  creditor  has  obtained  ex- 
ecution against  a  bank  which  has  been 
returned  unsatisfied,  an  amendment  to 
a  pending  bill  against  the  bank  to 
reach  equitable  assets,  which  sought 
to  require  the  president  to  account  for 
assets  in  his  hands  so  far  as  to  pay 
the  debt,  was  not  without  equity,  and 
was  properly  supplemental  to  the 
original  bill  against  the  bank.  Mer- 
chants', etc.,  Nat.  Bank  v.  Masonic 
Hall.  65   Ga.  603. 

The  C.  Bank,  which  was  in  failing 
circumstances,*  had  money  on  deposit 
in  the  D.  Bank,  which  owned  a  laree 
amount  of  the  C.  Bank's  stock.  K., 
the  managing  director  of  both  banks, 
with  knowledge  of  the  C.  Bank's  in- 
solvency, caused  that  bank  to  purchase 
its  stock  from  the  D.  Bank,  and  to 
pay  for  it  with  the  cash  on  deposit  in 
the  D.  Bank.  Held,  that  this  made  a 
case  of  breach  of  trust  by  the  agent 
of  the  two  corporations,  within  the_  ju- 
risdiction of  a  court  of  equitv.  Bridg- 
ens V.   Dollar  Sav.   Bank.  66   Fed.  9. 


§    58    (1>^)  OFFICERS  AND   AGENTS.  VJ7 

duty  of  the  director  is  to  the  corporation  and  not  to  the  depositor  or 
creditor,  it  is  held  that  such  a  bill  can  not  be  maintained  by  complainant  for 
his  peculiar  and  personal  benefit ;  that  the  wrongs  complained  of  do  not  es- 
pecially affect  his  stock  or  his  demands  as  a  creditor;  that  the  negligence  of 
the  defendants  is  in  the  discharge  of  duties  to  the  corporation  as  such,  and 
that  the  corporation,  for  such  negligence,  has  a  right  of  action.  Primarily, 
therefore,  such  suit  should  be  brought  by  the  corporation  in  its  corporate 
name,  and  only  under  peculiar  circumstances  will  a  creditor  or  stockholder 
be  permitted,  by  courts  of  equity,  to  bring  the  suit  which  the  corporation 
has  failed  to  bring.  But  where  the  corporation  is  disabled  from  suing,  as 
where  the  managing  agents  of  the  corporation  (its  officers  and  directors) 
are  themselves  to  be  the  defendants,  or  where  the  corporation  wrongfully 
and  willfully  refuses  to  sue,  then,  in  either  case,  a  court  of  equity  will 
entertain  a  suit  by  a  creditor  or  shareholder,  substituting  him  to  the  collective 
or  corporate  right  of  action.  In  either  case,  the  recovery  must  be  for  the 
benefit  of  the  corporation,  and  all  its  creditors  and  shareholders. 4"  This 
right  of  action  in  the  corporation  passes  to  an  assignee  or  receiver,  and  after 
the  appointment  of  such  assignee  or  receiver,  the  suit  should  be  brought  in 
his  name,  and  only  in  the  name  of  a  depositor  or  creditor  where  the  assignee 
or  receiver  refuses  to  bring  suit  after  demand  that  he  do  so.'is  In  other 
jurisdictions  the  principle  embodied  in  the  old  ninety-fourth  equity  rule 
fnow  the  twenty-seventh),  that  a  demand  upon  the  corporation  and  a 
refusal  must  first  be  had,  is  held  to  apply  only  to  stockholders  and  not 
to  depositors  and  creditors,  and  that  the  latter  may  maintain  a  suit  directly 
against  the  bank  and  the  guilty  directors  without  such  precedent  demand 
and  refusal  ;4»  and  under  the  practice  prevailing  in  some  jurisdictions,  the 
requirement  of  a  precedent  demand  and  refusal  is  held  to  be  unnecessary 
even  in  the  case  of  stockholders. ^° 

47.  Same— Individual  or  collective  Williams  v.  Halliard,  38  N.  J.  Eq.  37,3; 
benefit— Demand  of  suit  as  condition  Brinckerhoff  v.  Bostwick,  88  N.  Y.  52; 
precedent.— Savings  Bank  v.  Caper-  Ro])inson  v.  Smitii  (N.  Y.),  3  Paio-e 
ton,  87  Ky.  30(i.  10  Ky.  L.  Rep.  201,  222.  24  Am.  Dec.  212;  Wallace  v.  Lin- 
8  S.  W.  885,  12  Am.  St.  Rep.  488;  coin  Sav.  Bank,  89  Tenn.  630,  15  S.  W. 
Cunnmffham  v.  Pell  (N.  Y.),  5  Paige  448,  24  Am.  St.  Rep.  625;  Hume  v. 
607;  Wallace  v.  Lincoln  Sav.  Bank,  89  Commercial  Bank,  77  Tenn.  (9  Lea) 
Tenn.    630.    15    S.    W.    448.    24    Am.    St.  728. 

Rep.  625;  Deaderick  v.  Bank,  100  Tenn.  49.     Ninety-fourth    equity    rule    held 

457,   45   S.   W.   786;    Shea   v.    Knoxville,  not   to   apply   to   creditors   and   deposi- 

etc,    R.    Co.,    65    Tenn.    (6    Baxt.)    277;  tors.— Marshall   v.    Farmers',   etc.,    Sav. 

Shea  V.  Mabry,  69  Tenn.    (l   Lea)   319;  I'.ank.   85  Va.  676.  8   S.   E.   586.   2  L.   R. 

Moses  V.  Ocoee  Bank.  69  Tenn.  (1  Lea)  .\.   534,   17   Am.   St.    Rep.   84;    Foster  7'. 

-98;    Hume    v.    Commercial    Bank,    77  Bank,  88   Fed.  604. 

Tenn.    (9    Lea)    728;    Killcn    v.    State  50.     Nor    to    stockholders     in      some 

I'.ank,    106   Wis.    546,    82    N.   W.    536.  cases.— Solomon    :■.     Bales.     IIS     N.     C. 

48.  Right  passes  to  assignee  or  re-  311.  24  S.  E.  478,  54  .Am.  St.  Rep.  725; 
ceiver— Refusal  of  assignee  to  sue. —  Caldwell  v.  Bates,  118  N.  C.  323,  24 
Jones  ::   Jolmson,   86   Ky.   530,   6   S.   W.  S.    E.    481. 

582.   9   Ky.    L.    Rep.   789;    Savings    Bank  While  it  is  qnile  well  settle(I   th;it   an 

V.  Caperton.  87  Ky.  306,  10  Ky.  L.  Rep.  action   can   \w  brought  against   the     di- 

201.  8  S.  W.  885,   12  km.  St.  Rep.   488;  rectors    by    the    depositors     and     other 

Ackcrman  v.  Halsey,  37  N.  J.  Eq.  356;  creditors  for  damages  caused  by  their 


378 


BANKS   AND   BANKING. 


58  (I/2) 


Same — Duty  to  Exhaust  Remedies  against  Corporation. — In  order 
to  charge  the  directors  personally  in  accordance  with  a  charter  provision  in 
case  of  certain  violations  of  said  charter,  "voted  for,"  or  "sanctioned"  by 
them,  it  is  indispensable — First,  that  such  violations  should  be  established 
in  a  direct  proceeding  in  a  court  of  record  against  the  corporation,  though 
it  is  not  necessary  that  a  forfeiture  should  have  been  first  actually  declared ; 
and,  secondly,  that  the  assets  legal  and  equitable  of  the  bank  should  have 
been  exhausted. ^^  But  where  it  is  admitted  by  demurrer  or  otherwise  that 
the  corporation  is  insolvent,  it  is  not  necessary  to  exhaust  remedies  against 
it  before  suing  the  directors  for  wrongs  caused  by  their  negligence,  fraud, 
or  deceit.^- 

Previous  Recovery  at  Law. — An  action  by  a  bank  receiver  against 
directors,  for  losses  alleged  to  have  been  caused  by  their  negligence,  is  not 
premature  because  the  total  losses  have  not  been  ascertained  and  the  exact 
limit  of  the  directors'  liability  fixed. ^^ 

Rescission  of  Fraudulent  "Contract  or  Transaction. — In  an  action  by 
assignees  of  an  insolvent  bank  against  a  director  for  fraudulently  selling  to 
the  bank  a  portion  of  its  own  stock,  where  recovery  is  sought  merely  for  the 
loss  suffered,  no  rescission  of  the  sale  is  necessary. ^^^ 

Effect  of  Pending  Proceeding  to  Close  Bank. — A  proceeding  by  state 
bank  commissioners  to  close  the  aft'airs  of  an  insolvent  bank  is  no  bar  to  an 


gross  mismanagement,  neglect,  and 
false  representations,  and  this  without 
first  applying  to  the  corporation  it- 
self, or  to  the  receiver  to  bring  such 
action,  there  have  l^een  authorities 
that  a  stockholder  could  not  maintain 
such  action  without  such  prior  demand 
and  refusal;  but  it  is  made  clear  that 
tliis  was  only  at  law,  and  that  in 
equity,  upon  proper  allegations,  a 
stockholder,  as  well  as  a  creditor,  may 
now  maintain  the  action  directly,  and, 
in  the  first  instance,  against  the  di- 
rectors. Solomon  z'.  Bates,  118  N.  C. 
311,  24   S.   E.   478.   54   Am.   St.   Rep.   72.5. 

51.  Exhausting  remedies  against 
corporation. — Johnson  i'.  Churchwell, 
.'^;8   Tenn.   (1    Head)   14fi. 

52.  Same — Where  corporation  in- 
solvent.— Solomon  r.  Bates,  118  N.  C. 
?,U.  24  S.  E.  478,  54  Am.  St.  Rep.  725; 
Caldwell  V.  Bates,  118  N.  C.  323,  24  S. 
E.    481. 

Tf  a  bank,  on  the  eve  of  insolvency, 
having  notes  out  which  it  can  not  re- 
deem, and  a  large  claim  on  a  solvent 
stockholder  for  money  lent,  extends 
his  debt  by  taking  his  notes,  payable 
at  two  and  three  years,  with  its  presi- 
dent as  sole  surety,  this  is  a  fraud  on 
its  creditors,  and  they  may  proceed  in 
equity  directly  against  such  debtor, 
without   a  judgment   at   law   or  process 


of  garnishment.     Bank  z'.  St.  John,  etc., 
Co.,  25  Ala.  566. 

While  the  liability  of  the  officers  and 
directors  of  a  bank,  under  paragraph 
406,  Gen.  St.  1889,  for  receiving  de- 
posits or  contracting  debts  while  the 
bank  is  insolvent,  is  in  the  nature  of  a 
penalty,  and  may  be  immediately  en- 
forced against  such  bank  officers  with- 
out first  proceeding  against  the  bank 
itself,  it  does  not  authorize  an  attach- 
ment action  against  a  director  on  a 
contingent  liability  of  the  bank  grow- 
ing out  of  its  having  indorsed  and 
.Guarantied  the  payment  of  notes  of  a 
third  party  which  have  not  yet  ma- 
tured, notwithstanding  an  allegation  in 
the  petition  that  the  maker  of  the  note 
"is  insolvent,"  and  that  the  bank  was 
insolvent,  and  known  to  the  director 
who  is  sued  to  have  been  insolvent, 
when  the  notes  were  so  indorsed  and 
euar?ntied.  and  the  money  for  them  paid 
bv  plaintiff  to  the  indorser.  Wichita 
Nat.   Bank  z:  Weeks,   5   Kan.   App.   694, 

49  Pac.    105. 

53.  Previous  recovery  at  law. — 
CamobeM  -•.  Watson,  62  N.  J.   Eq.  396, 

50  Atl.   120. 

54.  Rescission  of  fraudulent  contract 
or  transaction. — Shultz  z'.  Christman,  6 
Mo.  App.  338. 


§  58  (3a)  OFFICERS  and  agents.  379 

action  by  a  creditor  against  its  directors  to  enforce  their  personal  liability 
for  its  debts,  as  provided  by  a  statute  forbidding  that  they  shall  exceed  three 
times  its  paid-up  capital,  since,  in  the  proceeding  by  the  commissioners,  all 
that  the  creditors  could  claim  would  be  their  pro  rata  share  of  the  bank's 
assets. ^^ 

Concurrent  Remedies. — The  fact  that  the  depositor  has  proved  up  his 
claim  before  the  assignee  of  an  insolvent  bank  will  not  preclude  his  pursuing 
the  offending  officer  with  an  action  under  the  statute  making  the  officers  of 
the  bank  personally  liable  for  deposits  received  when  the  bank  was  insolvent 
(Rev.  St.  1889,  §  2760).  The  two  remedies,  not  being  inconsistent,  may  be 
pursued  at  the  same  time;   but  plaintiff  can  have  but  one  satisfaction.^*^ 

§  58  (2)  Set-Off. — A  director  of  a  bank  can  not  so  buy  up  claims 
against  it  at  a  discount  as  to  entitle  himself  to  credit  therefor  at  full  face 
value,  in  settlement  with  creditors  on  his  personal  liability  as  stockholder, 
and  thus  defeat  the  suit  of  a  creditor  who  commenced  his  action  before  the 
bought-up  claims  were  actually  so  applied. 5"  But  w^here,  before  the  improper 
declarations  of  a  dividend  by  the  defendants,  and  after  consultation  with  the 
superintendent  of  the  banking  department,  they  deliver  to  the  bank  their 
individual  notes,  together  with  a  memorandum  reciting  that  the  notes  are 
given  for  the  purpose  of  removing  a  doubt  as  to  the  character  of  some  of 
the  receivables  of  the  bank,  and  to  make  said  bank  unquestionably  solvent, 
and  these  notes  are  paid  to  the  receiver  after  the  failure  of  the  bank,  the 
defendants  are  entitled  to  have  the  money  so  paid,  in  excess  of  the  amount 
necessary  to  make  good  the  impairment  of  the  capital,  existing  when  the 
notes  were  given,  applied  on  their  liability  arising  out  of  the  improper  decla- 
ration of  the  dividend. ^'"^ 

§  58  (3)  Parties — §  58  (3a)  In  General. — As  has  been  seen,  it  is 
held  in  some  states,  following  the  strict  ecjuity  practice,  that  the  right  of  action 
is  in  the  corporation,  its  assignee  or  receiver,  and  that  creditors  and  depos- 
itors can  maintain  a  bill  in  their  own  name  only  upon  showjng  that  the  cor- 
poration or  its  assignee  has  refused  to  sue.  or  that  owing  to  the  directors 
being  the  guilty  parties,  the  corporation  is  in  no  jiosition  to  sue.-'"'^  If  a  re- 
ceiver has  been  appointed,  the  cause  of  action  is  in  him,  and  he  may  sue 

55.  Effect  of  pending  proceeding  to  in  Ky.  L.  Rep.  201.  8  S.  W.  88."),  12  Am. 
close  bank. — White  v.  How,  Fed.  Cas.  St.  Rep.  488;  Cunninsliam  7:  Pell  (W. 
Xo.    17. .-.lit,    3    McLean    201.  V.),  5  Paige  fiOT;  Shea  t'.  Kno.xville.  etc., 

56.  Concurrent  remedies. — Eads  r.  R.  Co.,  65  Tenn.  (6  Eaxt.)  227;  Shea 
Orriitt,    :'.)    Mo.    .X,.]).    .-,11.  I'.  Mabry,  69  Tenn.  (1  Lea)  .319;  Mo.ses 

57.  Set-Off  Buying  up  claims. —  z:  Ocoee  Rank,  G9  Tenn.  d  Lea")  398; 
llolhiiul  7'.   llcvni.-in  i^  ['.ro,,  GO  Ga.  174.  Tiuine    2:    Commercial    Bank.    77   Tenn. 

58.  Same — Setting  off  excess  of  pay-  (!)  Lea)  728;  Wallace  7'.  Lincoln  Sav. 
ments.— I)ykni;m  7-.  Kccncy,  l<;o  X.  ^'.  Bank,  89  Tenn.  630,  15  S.  W.  448,  24 
f'77.  .->t  X.  K.  1090,  affirming  10  \pp-  Am.  St.  Rep.  625;  Deaderick  r-  Bank 
Div.    610,    42    X.    Y.    S.    188.  100  Tenn.   457,   45   S.   W.   786;    Killon   r'. 

59.  Parties  plaintiff — Generally. —  Slate  Bank.  106  Wis.  546,  82  X^  W. 
Savint?s   Bank  v.   Capc-rton,   87    Ky.   306.        536. 


380 


BANKS   AND   BANKING. 


58   (3a) 


either  in  his  own  or  the  corporate  name,'^"  and  stockholders  and  creditors 
can  not  demand  that  they  be  made  parties  plaintiff,  as  of  right  ;*''i  though  if 
the  receiver  refuses  to  bring  suit,  a  creditor  and  stockholder  thereof  may,  for 
the  benefit  of  himself  and  such  other  creditors  and  stockholders  as  elect  to 
join  him,  maintain  a  suit  against  the  president  and  directors  for  gross  official 
neglect  and  mismanagement,  whereby  the  bank  was  financially  ruined.^-  As 
the  officers  sustain  a  fiduciary  relation  toward  the  corporation,  such  liability 
survives  as  a  part  of  the  assets  of  the  corporation  and  is  assignable,  and  the 
result  of  that  doctrine  is  that  all  such  liabilities  pass  to  an  assignee  for  the 
benefit  of  creditors  by  a  general  assignment  of  its  property  for  that  purpose, 
and  such  assignee  may  sue  thereon.*^^     jj^  these  jurisdictions  it  is  held  that 


60.  Where  receiver  has  been  ap- 
pointed.— Van  Dyck  v.  AIcQuade,  57 
How.  Prac.  52,  45  N.  Y.  Super.  Ct.  620; 
Bank  v.  Johnson  (N.  Y.),  8  Wend. 
645. 

1  Rev.  St.,  p.  601,  tit.  4,  §  2,  makes 
it  unlawful  for  the  directors  of  an  in- 
corporated company  to  make  divi- 
dends except  from  surplus  profits,  and 
provides  that  in  case  of  violation  of 
such  provisions  the  directors,  except 
those  who  may  cause  their  dissent  to 
be  entered  on  the  minutes  of  the  di- 
rectors at  the  time,  or  who  were  not 
present,  shall,  in  their  individual  and 
private  capacities,  be  liable  "to  the 
said  corporation,  and  to  the  creditors 
thereof,  in  the  event  of  its  dissolution," 
to  the  amount  of  capital  stock  of  such 
company,  so  divided,  etc.  Act  May  17, 
1875  (Laws  1875,  c.  371),  §  34,  makes 
the  directors  liable  in  such  case  "to 
the  corporation,"  etc.  Held,  that  both 
under  the  Revised  Statutes  and  the 
Act  of  1875,  the  receiver  of  such  cor- 
poration is  vested  with  the  right  of 
action  on  the  liability  of  a  director  un- 
der such  statute.  Van  Dyck  v.  Mc- 
Quade,  57  How.  Prac.  62,  45  N.  Y. 
Super.   Ct.   620. 

An  action  by  a  receiver  against  the 
director  of  a  bank  to  recover  the  pen- 
alty provided  by  Act  April  21,  1825, 
for  paying  a  portion  of  the  capital  stock 
to  a  stockholder,  may  be  brought  in 
the  name  of  the  corporation,  although 
the  statute  declares  that  any  company 
violating  its  provisions  shall  be 
deemed  and  adjudged  to  have  surren- 
dered its  rights,  and  to  be  dissolved; 
as  such  dissolution  is  but  quasi,  and 
not  absolute.  Rank  v.  Johnson  (N 
Y.),  8  Wend.   645. 

61.  Same— Right  of  stockholders 
and    creditors    to    be    made    parties. — 

Kim1)all   v.    Tves    (X.    Y.),    .TO   Hun   568. 

62.  Same — Where     receiver     refuses 


to  sue. — Ackerman  v.   Halsey,  37  N.  J. 
Eq.  356. 

63.  Same — Survival  of  action — Rights 
of  assignee. — Alovius  v.  Lee,  30  Fed. 
298;  Howe  v.  Barney,  45  Fed.  668; 
Jones  t'.  Johnson,  86  Ky.  530,  6  S.  W. 
582,  9  Ky.  L.  Rep.  789;  Savings  Bank 
V.  Caperton,  87  Ky.  306,  10  Ky.  L.  Rep. 
201,  S  S.  W.  885,  12  Am.  St.  Rep.  488; 
Ackerman  v.  Halsey,  37  N.  J.  Eq.  356; 
Williams  v.  Halliard,  38  N.  J.  Eq.  373; 
Campbell  v.  Watson,  62  N.  J.  Eq.  396, 
50  Atl.  120:  Brinckerhofif  v.  Bostwick, 
88  N.  Y.  52;  Robinson  v.  Smith  (N. 
Y.).  3  Paige  222,  24  Am.  Dec.  212; 
Wallace  v.  Lincoln  Sav.  Bank,  89  Tenn' 
630,  15  S.  W.  448,  24  Am.  St.  Rep.  625; 
Hume  V.  Commercial  Bank,  77  Tenn 
(9  Lea)  728;  Killen  v.  State  Bank,  106 
Wis.  546,  82  N.  W.  536;  Shultz  v. 
Cbnstman,  6   Mo.  App.  338. 

A  bank's  creditors,  on  its  insol- 
vency, have  a  direct  interest  in  its  af- 
fairs, and  are  the  cestuis  que  trustent 
of  the  receiver,  entitled  to  enforce  all 
the  corporation's  rights,  and  to  collect 
Its  assets,  including  the  right  to  claim 
damages  for  the  directors'  negligence. 
Campbell  v.  Watson,  62  N  J  En  39G 
50   Atl.   120. 

Where  a  bank  has  become  insolvent, 
and.  under  the  general  laws,  it  is 
sought  to  make  the  directors  liable 
for  its  debts,  proceedings  must  be  in 
the  name  of  the  assignee,  and  in  the 
court  of  common  pleas  of  the  county 
in  which  the  bank  is  located.  In  re 
ATpphs'  Apoeal.   85  Pa.  75. 

Right  of  assignee  to  sue  in  foreign 
jurisdiction.— One  who  was  made  as- 
signee of  an  insolvent  hank  in  pur- 
suance of  a  decree  of  an  Illinois  court 
of  equity  of  competent  jurisdiction 
may  intervene  in  an  action  in  Massa- 
chusetts to  claim  funds  of  the  in- 
solvent attached  by  a  creditor  resident 
in  Vermont.  Witters  v.  Globe  Sav. 
Bank,   171    Mass.   425,   50   N.   E.   932. 


§    58    (3b)  OFFICERS  AND  AGENTS.  381 

the  complainant  should  file  his  bill  not  only  in  behalf  of  himself,  but  in  be- 
half of  all  others  in  like  situation  as  himself,  making  the  corporation  it- 
self a  party  defendant,  together  with  all  the  creditors  who  refuse  to  join  in 
the  bill,  to  the  end  that  they  may  all  come  under  the  decree  and  the  rights 
of  all  parties  be  determined  in  the  one  proceeding.^^-*  And  where  an  action  is 
allowed  to  be  brought  by  depositors  to  enforce  the  rights  of  a  bank  against 
its  officers  because  the  proper  officers  thereof  actually  or  virtually  refuse  to 
bring  it,  the  recovery  becomes  part  of  the  assets  of  the  bank,  and  goes  to  its 
assignee,  and  both  he  in  his  official  capacity  and  the  bank  are  indispensable 
parties  defendant,  unless  the  latter  is,  for  all  practical  purposes,  defunct,  in 
which  case  it  need  not  be  a  party /'^  Under  this  view,  if  the  corporation  is 
for  any  reason  estopped  from  suing  the  suit  of  the  stockholder  or  creditor 
is  likewise  afifected.*'*^ 

Demand  of  Suit  Not  Required  in  Some  Jurisdictions.— In  other  ju- 
risdictions the  practice  permits  the  creditor  or  depositor  to  bring  action  or 
suit  directly  in  his  name  and  wdthout  previous  request  to  the  corporation,  its 
assignee  or  receiver  to  sue;^'''  and  under  the  practice  prevailing  in  some  of 
these  jurisdictions,  neither  the  bank  nor  the  receiver  is  a  necessary  party.^'s 

Right  of  Pledgee  of  Stock  to  Sue. — A  pledgee  of  shares  of  stock  in  a 
banking  corporation  has,  merely  by  virtue  of  the  pledge,  no  right  of  action 
against  the  directors  of  the  bank  to  recover  damages  for  the  negligence  and 
mismanagement  of  the  directors,  whereby  the  assets  of  the  corporation  are 
lost  and  the  shares  in  the  same  rendered  valueless-^^^ 

§   58    (3b)   Joinder  of  Parties  and  Causes. — Under  the  charter  of  a 

64.  Same— Joinder  of  others  in  like  676,  8  S.  E.  586,  2  L.  R.  A.  534.  17  Am. 
situation — Corporation    and    others    as       St.  Rep.  84. 

defendants. — Savings    Bank    v.    Caper-  An   action   may   be   maintained   by   a 

ton.  ST   Ky.  306,   10  Ky.   L.   Rep.  201,   8  creditor   against   the   directors   in   their 

S.  W.  885,  12  Am.  St.  Rep.  488:   Ches-  own  name  or  under  the  corporate  name 

ter  V.  Halliard,  36  N.  J.   Eq.  313;   Cun-  on  a  claim  disallowed  by  them.  Arques 

nintrham   ?•.   Pell    CX.   Y.\   5   Paige   607.  r.    Union    Sav.    Bank,    133    Cal.    139,    65 

65.  Assignee  and  bank  indispensable  p^c.   307. 

parties.— Gores  v.   Field.   109  Wis.   408,  ^^    ^j^l^^    of    action    accruing,    under 

84  X    W.  867    8.5  X.  W.  411;  Gores  v.  ^^,^3^    Wash.,   art.   12.   §   12,   against   a 

Murphy.   109   Wis.   408.   84   X    W.   867  ,^^,^1,  Q^f^^er  who  received  deposits  with 

%  ^-   ^\r^\} '   ^"    '■^   Texter  s   Appeal  knowledge    of    the    bank's    insolvency. 

(Pa.).  4   \\  alk    316.                  „,  ,,  does    not    inure    to    the    bank,    nor    Iie- 

66.  Estoppel  to  sue^Wallace  7:  ^^^^^^  ^,^  ^ss^t  of  the  ,,ank  wliich  a  re- 
Lmcoln    Sav.    Bank.    89    Tenn.    630     15  ^^-^^^    j^    entitled    to    control,     but      is 

5  W.  448.  24  Am.  St.  Rep.  62:5.  See,  vested  in  the  depositors  whose  money 
also.    Brannin    v.    Loving,    82    Ky    370,  ^^j^^,,       Mallon   7:    Hyde,   76    Fed. 

6  Ky.   L.   Rep.   328:    Dunn   t'.   Kyle,   77       ggg 

cJper^^n.'87My^^!o6.'?rK^y.  ^'.^l       ,  68.    Sa^e-Bank  and  receiver  as  par 

201.  8   S.  W.   88.'.   12    Am.    St    Rep.   488.       *'«VToo^  .      ^         c.     p  ^^o    %'J. 

67.  Suit   without   demand   upon   cor-       ^-    ^-   ^«2.   54   .\m.   St.   R^p    719:    Solo- 

poration    in    other    jurisdictions -Fos-  '"O"  3;   ?^*^'i,^^?,  ^-  £v^"'  ""^  ^^   ^'• 

1.T   :■.    I'.ank.    88    Fed.    004;    Solomon    7-.  -^^S.    54    Am.    St.    Rep.    <25. 
Bates.   118   X.   C.   311.   24   S.    E.   478,   54  69.     Suit    by     pledgee      of      stock.— 

.^m.    St.    Rep.    725;    Caldwell    v.    Bates.  Barnes  7:  Swift,  26  Wkly.  L.  Bull.  110, 

118   X.   C.   323    24   S     E.   481- .Marshall  11    O.    Dec.    321;    Barnes   ?'.    Pogue.   29 

V.    Farmers',    etc..    Sav.    Bank.    85    Va.  Wkly.  L.   Bull.  382.  11    O.  Dec.  798. 


382 


BANKS    AND    BANKING. 


§  58  (3b) 


bank  providing  that,  when  the  debts  of  such  bank  shall  exceed  three  times 
the  amount  of  its  capital  stock,  the  "directors  under  whose  administration  it 
shall  happen  shall  be  liable  for  the  same  in  their  private  and  individual  car 
pacities,  and  may  be  sued  for  the  same,"  an  action  can  not  be  brought  against 
a  single  director,  but  must  be  against  all  jointly."**  But  in  a  suit  under  such 
statute  by  a  creditor  of  the  bank  against  the  two  surviving  directors,  upon 
the  ground  that  all  the  directors  became  individually  liable  by  violating  the 
charter,  it  is  not  necessary  to  join  the  representatives  of  the  deceased  di- 
rectors,'^ though  it  may  be  done  where,  under  the  law  of  the  state,  the 
cause  of  action  survives  against  the  personal  representative."-  Where  the 
directors  are  jointly  liable  under  a  statute  for  the  debts  of  the  bank,  a 
creditor  need  not  join  in  his  suit  a  director  who,  being  a  citizen  of  another 
state,  is  not  within  the  jurisdiction  of  the  court. '^^  Where  the  object  of  the 
suit  is  to  charge  the  directors  with  liability  for  a  breach  of  trust,  the  rule 
is  well  settled  that  relief  may  be  had  against  any  or  all  those  who  concurred 
in  the  wrong,  the  tort  being  treated  as  several  as  well  as  joint,"'*  and  the 
corporation  itself  may  be  joined  or  not  at  the  election  of  the  plaintiff."^^ 

Joinder  of  Causes. — A  cause  of  action  against  bank  directors  for  the 
loss  of  a  deposit,  caused  by  their  neglect  and  mismanagement,  even  if  ex 
contractu,  may  be  joined  with  a  cause  of  action  for  fraud  and  deceit,  arising 
out  of  the  same  subject  matter.'^''    And  in  an  action  against  the  directors  of 


70.  Joinder  of  parties  and  causes. — 

Banks  z:   Darden,   18   Ga.   318. 

71.  Same — Joinder  of  personal  repre- 
sentatives.— Hargroves  v.  Chambers,  30 
Ga.  580. 

72.  Same — Same. — Wilkinson  v. 
Dodd,   41    X.   J.    Eq.    566,   7    Atl.   337. 

Where  one  of  the  managers  of  a 
bank  died  after  an  alleged  misconduct 
of  himself  and  his  colleagues,  held,  that 
the  receiver  might  malce  his  executors 
parties  to  a  suit  to  enforce  the  man- 
agers' liability,  under  Revision,  p.  396, 
§  5,  relating  to  the  survival  of  actions 
against  personal  representatives.  Wilk- 
inson V.  Dodd,  41  N.  J.  Eq.  566,  7  Atl. 
337. 

73.  Joinder  of  defendant  residing  in 
another  state. — White  z:  How,  Fed. 
Cas.    No.    17,548,    3    McLean    111. 

74.  Torts  joint  and  several. — Solo- 
mon V.  Bates,  118  N.  C.  311,  24  S.  E. 
478,  54  Am.  St.  Rep.  725;  Caldwell  ?\ 
Bates,    118  _N.    C.    323,   24    S.    E.    481. 

Where  directors  of  a  bank  have  been 
negligent  in  its  management,  in  a  suit 
by  a  receiver  appointed  for  such  bank 
to  recover  damages  resulting  from 
such  negligence  it  is  not  necessary  to 
join  all  the  directors,  as  the  action 
arises  ex  delicto.  Coddington  v.  Cana- 
day,    157   Ind.    243,    61    N.    E.    567. 

Recipients    of    moneys      fraudulently 


transferred  by  bank  officers  need  not 
be  made  defendants  in  a  suit  there- 
for. Wilkinson  v.  Dodd,  40  N.  J.  Eq. 
123,  3  Atl.  360. 

75.  Election  as  to  joinder  of  cor- 
poration.— Solomon  v.  Bates,  118  N. 
C.  311,  24  S.  E.  478,  54  Am.  St.  Rep. 
725;  Caldwell  r.  Bates,  118  N.  C.  323, 
24   S.   E.   481. 

76.  Joinder  of  actions. — Tate  v. 
Bates,  118  N.  C.  287,  24  S.  E.  482,  54 
Am.  St.  Rep.  719. 

A  cause  of  action  for  a  tort  arising 
out  of  the  defendant's  failure  to  dis- 
charge the  duties  required  of  them 
by  the  by-laws  is  properly  united  in 
the  same  action  with  a  tort  arising 
out  of  fraud  and  deceit  charged  in  the 
same  complaint.  Salmon  z'.  Richard- 
son, 30  Conn.  360,  79  Am.  Dec.  255; 
Solomon  z:  Bates.  118  N.  C.  311,  24 
S.    E.   478,   54   Am.    St.    Rep.   725. 

It  is  not  a  misjoinder  of  causes  of 
action  to  join  in  the  same  action, 
brought  against  the  bank  directors  in- 
dividually, a  cause  of  action  for  gross 
negligence  in  the  discharge  of  their 
duties,  whereby  the  plaintiff  was  in- 
jured, with  causes  of  action  for  the 
fraud  and  deceii  of  the  directors  in 
making  false  statements  and  misrepre- 
sentations of  the  condition  of  the 
liank,    wliereby    the    plaintiflf    was    in- 


§  58  (4a) 


OFFICERS   AND  AGENTS. 


383 


a  bank  for  damages  arising  from  the  grossly  negligent  management  of  the 
bank's  affairs,  the  various  specifications  of  misconduct  may  properly  be 
combined  in  a  single  paragraph,  as  constituting  a  single  cause  of  action."" 
But  a  cause  of  action  against  the  directors  ex  delicto  can  not  be  joined  with 
a  suit  in  equity  by  the  stockholders."'^ 

Parties  by  Representation.— Where  the  assets  of  an  insolvent  bank 
are  insufficient  to  meet  all  the  claims  of  creditors  and  depositors,  though 
no  preference  is  allowed,  the  allowance  of  preference  to  some  creditors  is 
prejudicial  to  other  creditors  and  depositors  who  have  a  common  interest 
in  defeating  the  preference,  and,  where  they  are  numerous,  a  few  may  ap- 
pear and  defend  for  the  whole,  under  a  statute  providing  that,  when  the 
question  is  one  of  common  interest  to  many  persons,  one  or  more  may  de- 
fend for  the  benefit  of  the  whole;  and  those  appearing  in  the  trial  court, 
contesting  the  right  to  a  preference,  are  proper  parties  to  the  proceedings, 
and  may  appeal  from  a  judgment  awarding  a  preference."^ 

§  58  (4)  Pleading— §  58  (4a)  General  Rules  and  Observations. 
—Justice  of  Claim;  Disallowance.— Where  a  creditor  seeks  to  re- 
cover a  personal  judgment  against  the  directors,  either  in  their  individual 
names  or  under  the  corporate  name,  on  a  claim  alleged  to  have  been  wrong- 
fully disallowed  by  them,  it  is  essential  to  the  sufficiency  of  the  complaint 
that  they  should  allege  specifically  that  the  claim  is  just  and  the  fact  of  its 
presentation  and  disallowance.'^" 

Matters  Required  to  Be  Established  by  Judgment. — \\  here  it  is  re- 
quired that  the  violation  of  the  charter  shall  be  first  established  at  law,  it 
is  necessary  that  such  fact  should  be  alleged  and  shown. ^i 


duced  to  deposit  his  money  in  the 
care  of  the  bank.  Solomon  z:  Bates, 
118  X.  C.  311.  24  S.  E.  478.  54  Am.  St. 
Rep.  725;  Caldwell  v.  Bates,  118  X.  C. 
323,  24   S.   E.  481. 

A  bill  by  depositors  against  the  di- 
rectors of  a  bank  for  negligence  in  the 
discharge  of  their  duties  resulting  in 
injury  to  plaintiffs  and  other  deposi- 
tors is  not  rendered  bad  for  misjoinder 
of  causes  of  action  by  a  further  alle- 
gation that  the  president  of  the  bank, 
by  fraudulent  representations,  induced 
plaintiff  to  deposit  monev  therein.  Fos- 
ter  c\   Bank,   88   Fed.   604. 

77.  Same. — Coddington  ?•.  Canadav. 
157   Ind.  243,  61   X.   F.  .-)f,7. 

78.  Action  ex  delicto  not  to  be 
joined  with  suit  in  equity. — Jones  v. 
Johnson,  86  Ky.  530,  6  S.  W.  582,  0 
Ky.  L.   Rep.  780. 

Certain  persons  loaned  money  to  a 
cashier  on  his  notes,  with  stock  of 
the  bank  as  security,  not  knowing  that 
tlic  loan  was  for  the  benefit  of  the 
l»ank.  The  i)ank  records  showed  that 
the    stock   was    sold   to   the   cashier   to 


raise  money  for  the  bank,  which 
agreed  to  protect  him.  He  deposited 
the  money  when  obtained  with  the 
bank.  Held,  that  the  remedy  of  the 
lenders,  if  any,  was  against  the  di- 
rectors by  individual  suits  for  tort, 
and  their  claim  could  not  be  joined  in 
a  suit  by  stockholders  to  settle  the  as- 
sets of  the  insolvent  bank,  or  by 
creditors  to  enforce  their  contract. 
Jones  V.  Johnson,  86  Ky.  530,  6  S.  W. 
582,    91    Ky.    L.    Rep.    780. 

79.  Parties  by  representation. — Stil- 
son  z'.  First  State  I'.ank  (Iowa),  129 
X.   W.    70. 

80.  Justice  and  disallowance  of 
claim. — .\rques  z\  Union  Sav.  Bank, 
i:-i::   Cal.   139,  65  Pac.  307. 

81.  Matters  required  to  be  estab- 
lished by  judgment. — Johnson  z: 
Churchwcll,   38   Tenn.    (1    Head)    146. 

-An  allegation  in  the  complaint,  in 
an  action  to  recover  of  bank  officers 
moneys  of  the  bank  negligently  dissi- 
pated, "that  the  legal  lial)ility  oif  stock- 
holders to  contril)Ute  to  the  loss  of 
said    corporation,    as   plaintiffs    are    ad- 


384 


BANKS   AND   BANKING. 


58   (4a) 


Negativing  Matters  of  Defense. — Matters  of  defense  should  generally 
be  left  to  the  defendants  to  set  up  in  their  plea  or  answer,  and  need  not 
be  negatived  in  the  declaration  or  compaint.^^ 

Certainty  of  Allegations. — Where  the  action  is  to  recover  against  the 
directors  personally  for  losses  resulting  from  their  negligence  in  the  man- 
agement of  the  affairs  of  the  bank,  and  it  appears  that  they  permitted  the 
books  and  records  to  be  so  loosely  and  imperfectly  kept  that  the  trans- 
actions complained  of  can  not  be  specifically  described,  a  motion  to  make 
the  complainant  more  certain  is  properly  overruled. ^3 

Complaint  Bad  on  Its  Face. — A  complaint  apparently  bad  on  its  face 
as  showing  matter  going  to  defeat  the  cause  of  action  set  forth  therein  will 
not  be  held  subject  to  demurrer  where  it  appears  that  the  objectionable 
matter  is  the  result  of  a  mistake  or  clerical  error,  and  that  upon  a  just  con- 
struction of  the  whole  pleading  it  is  not  open  to  valid  objection  upon  the 
ground  stated  in  the  demurrer.^'* 

Duplicity  and  Misjoinder. — A  complaint  to  recover  of  bank  officers 
moneys  of  the  bank  negligently  dissipated  does  not  also  join  a  cause  of 
action  for  damages  suft'ered  by  a  depositor  who  was  induced  to  deposit  by 
deceitful  representations  as  to  solvency,  be^rause  it  alleges  that  false  state- 
ments as  to  solvency  were  given  out  and  published  by  defendants,  and  that 
plaintiffs  relied  thereon  in  making  deposits,  if.  viewing  the  complaint  as  a 
whole,  the  allegations  appear  to  be  historical  in  their  nature,  and  intended 
merely  to  fully  state  the  acts  of  defendants  in  their  mismanagement  of  the 
bank's  affairs. ^^ 


vised  and  believed,  has  been  enforced 
and  paid,"  does  not  imply  that  any 
action  to  enforce  the  liability  of  s^-ock- 
holders  was  ever  brought.  Gores  z\ 
Field.  109  Wis.  408,  84  N.  W.  867.  85 
N.  W.  411. 

82.  Negativing  matters  of  defense. 
— Coddington  z\  Canaday,  157  Ind. 
243,    61    N.    E.    567. 

A  complaint  in  an  action  by  a  re- 
ceiver of  a  bank  against  the  directors 
thereof  for  damages  resulting  from 
their  gross  negligence  in  management 
is  not  bad  for  want  of  an  averment 
that  the  receiver  and  parties  repre- 
sented by  him  were  without  fault,  as 
in  such  case  facts  showing  fault  on 
their  part  should  be  set  up  in  the  an- 
swer. Coddington  z\  Canaday,  157 
Ind.   24.3.   61    N.    E.    567. 

83.  Certainty  of  allegations. — Cod- 
dington V.  Canaday,  157  Ind.  243.  61 
N.   E.   567. 

84.  Complaint  bad  on  its  face. — 
Gores  V.  Field,  109  Wis.  408,  84  N.  W. 
867.  85  X.  W.  411. 

The  complaint  in  an  action  by  a 
depositor  against  a  bank  director  for 
mismanagement  alleged  that  defend- 
ant  ceased   to   be   a   director   February 


23,  1893.  and  that  plaintiff  did  not 
know  the  facts  till  the  inventory  of 
the  bank  was  filed  on  June  21,  1899. 
The  verification  of  the  complaint  was 
made  on  May  24,  1899,  and  the  com- 
plaint besides  showed  that  the  assign- 
ment was  made  June  1,  1893,  within 
twenty  days  after  which  date  the  as- 
signor was  required,  by  Rev.  St.  1898, 
§  1697.  to  file  its  inventory,  certified 
by  the  assignee.  Held,  that  the  of- 
ficer's certificate  to  the  verification 
must  be  accepted  as  conclusive  on  de- 
murrer as  to  its  date,  and  that  besides 
the  complaint  on  its  face  shov.-ed  that 
the  date,  June  21,  1899,  therein,  was  a 
clerical  error,  as  it  would  not  be  pre- 
sumed that  the  statutory  duty  was  un- 
performed, there  being  no  allegation  to 
that  effect;  and  hence  a  contention 
that  the  complaint  showed  that  ac- 
tion was  barred  by  the  six-years  limi- 
tation was  unwarranted.  Gores  i'. 
Field.  85  X.  AV.  411,  109  Wis.  408,  84 
N.  W.  867. 

85.  Duplicity  and  misjoinder. — 
Gores  z:  Field.  109  Wis.  408,  84  X.  W. 
867,  85  X^  W-  411.  See,  generally, 
ante,  "Toinder  of  Parties  and  Causes," 
§  58   (3b). 


§  58  (4b) 


OFFICERS    AND    AGENTS. 


385 


or  VeLt^Of^LTL^w''  °?^'r  ^^'^"^  "P°°  Negligence.  Fraud 
or  JJece  t.-Official  Relation  of  Defendants  and  Participation  in  or 
Connection  wth  Wrongful  Acts.-W  here  ,he  cause  of  a^o  ,e.  "^rth 
m  the  co„,pla,„t  ,s  based  upon  the  ground  of  loss  sustained  2olh  he 
defendants  neghgent  and  fraudulent  misn.anagement  of  the  hanl'  fff 
.t  ..us.  be  alleged  as  to  each  defendant  that  he  w  an  offi  e  o  ,  tttk 
when  the  acts  complained  of  occurred,-',  and.  in  addition  U  e  to  h 
par,,c,pat.on   in   or  guilt,   connection    with   the   «rongfu,"::ts"X;,M   Z 

Fal's'ilv    ^,7"'^^^'"='«,<"'=    ^"d    Intent    to    Defraud-Knowledge    of 

tiff,  must  be  averred  or  alleged  in  positive  terms.s«    Thus  a  comnia  nt^l 

>t  does  not  aver  that  the  defendant  knew  that  the  stlk  1  /  u  '" 
i;e  represented  it  to  be.  nor  thatthe  defenda:!  ll^c^  :Z^:^s1^U 
the  nnent  to  mduce  the  plaintiff's  intestate  to  become  a  p.'cha^^^^^^^^^^^^^ 


^Ir:  ^^""l^nt  of  official  relation  or 
agency  of  defendants.— Gores  z'  El- 
liott. 108  Wis.  .1(5.5,  84  N.  W.  86.5.  ' 

87.  Defendants'  participation  in  or 
connection  with  wrongful  acts.-Gores 
r.  t.eld  109  Wis.  408,  84  N.  W.  86? 
8o    .\.    W.    411. 

other  officers  of  an  insolvent  bank  to 
recover    moneys    of    the     bank      neoH 

fe'J'ed^th'?'?<t'''^'u^'^"  complaint  al- 
wfnf  .f  ^^  ?^  ^^"  negligence  and 
nn  i  ordinary  care  and  diligence 
each  of  t^'  "^  '^'  defendants,  and 
tte^.JJ^^"":  ""  d'-^charge  of  their  du- 
said  ILi'^'^^A''  ^"^^  "managers  of  the 
nermin^H'  ""'I  '",^"^"t,on  to  its  affairs, 
permi  ted  and  allowed  the  funds  and 
deposits  therein  and  belonging  then" 

eiufle   the   cashier   as   one   of    the     de- 
\\is.   408.   84    \.   W.    867,   8.5    N.    W.    411 
*r.^^A  t^^^l^  representations  and  intent 

roc^tnrs^" '''^'''''"",  ^^'''\  defendants,  as  di- 
stntom^:nf'f'',  '''"''  permitted-  false 
statements    of    the    condition     of      the 

1   B  &  B_05 


bank  to  be  published,   is  not  sufficient 
ainedtif  ^^.^^"^ants  for  any  loss  sus- 

V    lb!    H-^^'.  statements    were   signed 
La^  u       T'?'^'    °'   purported    to    be 
made    by    their    authority.      Pieratt    - 
^^  mmg.   oo   Ky.    L.    Rep.    1815,   49   i   W. 

.„f/f '"^   :?^^^  .""'^^^     statute.-In      a 

o    anl'^  '  ^'f^/^t^rs  and  stockholders 

imlivdinls  tb.  '"^^''""'  ^"••P^^ation  as 
niunuinas,    the     averment      that     thev 

inllvl"-  -^  "'^^^'^^"tly.  and  know- 
n^ly    failed    to     comply      substantialTy 

^'th    it.s   articles   of   incorporation     and 

deceived  the  public  and  plain  iff  n 
ela  ion  to  its  liabilities,  in  several  par- 
-culars     enumerated,     does     no      state 

a  case  under  a  statute  which  sub  ec  s 
hem  ,     ,•„  .,,.,y  ^^^^^^^^    objects 

from  their  'intentional  fraud  in  failing 
'  ■  comply  substantiallv  with  the  arti- 
ces    of    incorporation    ,,r    in    deceiving 

eir''"h'l'Tt''  .',"*''-'<'"al-^   in  relation   to 
u   r    l,al,il,ty.'      Almton    v.    Stahlman. 
I">    I  '■nil.   !IS,   .'M    S.   \y.  2P? 

nJr'  5^"^^— Knowledge  "and  intent  to 
defraud --.Mabey  .-.  Adams,  16  N  y 
Super.   Ct.  U6. 


386  BANKS    AND    BANKING.  §    58    (4b) 

That  Plaintiif  Relied  Thereon  and  Was  Actually  Deceived. — In  ad- 
dition to  the  foregoing,  plaintiff  should  allege  that  he  relied  and  acted 
upon  the  false  statement  or  representation  and  that  he  was  deceived 
thereby.^'' 

Averment  of  Loss  or  Injury. — The  complaint  must  further  show  that 
the  plaintiff  has  actually  suffered  loss  or  injury  by  reason  of  the  alleged 
acts  of  misfeasance, °^  or  by  reason  of  the  fraudulent  statements  and  repre- 
sentations.^- 

Insuflficiency  of  Assets  to  Pay  Claims. — Where  an  action  is  brought 
by  a  receiver  of  a  bank  against  the  directors  thereof  for  damages  resulting 
from  their  gross  negligence  in  management,  it  is  unnecessary  to  allege  that 
there  are  unpaid  claims  against  the  bank,  and  that  the  assets  in  the  receiver's 
hands  are  insufficient  to  meet  them,  as  the  injury  results  regardless  of  the 
debts  and  assets. ^^  However,  if  an  averment  of  this  kind  could  be  deemed 
necessary,  it  has  been  held  that  a  general  allegation  of  insolvency  by  the  re- 
ceiver  is   a   sufficient   averment   that   there   are   unpaid   claims   against   the 

bank,  and  that  the  assets  in  the  hands  of  the  receiver  are  insufficient  to  pay 
them.94 

Receiving  Deposits  after  Knowledge  of  Insolvency,  Averment  of  In- 
solvency.— The  bill  in  a  suit  against  a  bank  and  its  receiver  to  recover  a 
deposit  accepted  by  the  bank  after  its  insolvency  is  known  to  its  officers, 
must  sufficiently  aver  the  insolvency  of  the  bank.^'^ 

Same — Knowledge  of  Insolvency. — But  a  complaint  charging  bank 
directors  with  fraud  and  deceit  in  making  false  statements  of  the  bank's 
solvency  need  not  allege  that  defendants  knew  or  believed  the  bank  to 
be  insolvent,  such  knowledge  being  conclusively  presumed. ^*^  And  where 
no  false  statements  or  representations,  beyond  the  mere  keeping  the  bank 

90.  That  plaintiff  relied  thereon  and  mitted  the  president  and  cashier  to 
was  deceived  thereby. — Brady  v.  Ev-  borrow  large  sums  "upon  inadequate 
ans,  24  C.  C._A.  236,  78  Fed.  558.  ■  security,"    and   fraudulently   suppressed 

In    an    action    of    deceit    against    the  such  loans  in  making  up  the  official  re- 
directors    for   making    false    statements  ports,   and   that   the   directors   knew   of 
as    to    the    bank's    condition,    whereby  such  conduct,  states  no  cause  of  action; 
the  plaintiff  lost  the  amount  of  his  de-  there  being  no  averment  that  the  loans 
posit,   previously  made,   it  is  not   suffi-  were  lost,  or  could  not  be  collected,  or 
cient    to    allege    that    the    plaintifif   was  that    their    loss     in     any    way    injured 
induced  to   remain   a  depositor   by  the  plaintifif.     Tate  v.  Bates,  118  N.  C.  287, 
statements  so  made,  but  it  must  be  di-  24  S.  E.  482,  54  Am.  St.  Rep.  719. 
rectly  averred  that,  but  for  such  state-  93.     Insufficiency    of    assets    to    pay 
ments.    he    would    have    withdrawn   his  claims.— Coddington    v.    Canaday,     157 
deposits  before  the  failure  of  the  bank.  \^-^^    043    gl  N    E    567 
Brady  v.  Evans.  24  C.  C.  A.  236,  78  Fed.  „.  "c'^         'r-    jj-     \               n        a 
558;   Pieratt  v.   Young,  20   Ky.   L.   Rep.  ,  .?*;    ^™fT^  V    1^"%;^"           Canaday. 
1815,   49  S.  W.   964.  ^ '^ '    I"^-  -^■^-  ^'^  ^-  ^-  ^^'■ 

91.  Averment  of  injury  and  loss.—  95.  Receiving  deposits  after  knowl- 
Butt  r.  Cameron  (N.  Y.),  53  Barb.  642.  edge    of    insolvency— Averment    of    in- 

92.  Same.— Tate  v.  Bates,  118  N.  C.  solvency.— Western  German  Bank  v. 
287,  24  S.  E.  482,  54  Am.  St.  Rep.  719.  Novell,  69  C.  C.  A.  330,  134  Fed.  724. 

In  an  action  by  a  depositor  against  96.    Averment    of    knowledge    of    in- 

the   directors   of  an   insolvent   bank,   an       solvency. — Tate  v.  Bates,  118  N.  C.  287, 
allegation   that   the   vice   president   per-       24  S.  E.  482,  54  Am.  St.  Rep.  719. 


§  58  (4b) 


OFFICERS    AND    AGENTS. 


387 


open  and  receiving  deposits,  are  alleged,  an  allegation  that  the  bank  was 
insolvent  and  made  so  by  the  president  and  directors,  is  a  sufficient  aver- 
ment of  their  knowledge  of  insolvency,  since  such  knowledge  will  be  im- 
plied from  the  allegation  that  the  insolvency  was  caused  by  the  president  and 
directors.-*"  So  an  averment  that,  at  the  time  the  deposit  was  received,  the 
bank  was  insolvent  and  known  to  be  such,  is  sufficient  under  a  statute  mak- 
ing it  a  penal  offense  for  an  officer  of  a  bank  to  receive  deposits  wdien  he 
knows,  or  has  reason  to  know,  that  the  bank  is  unsafe  or  insolvent.^^  But 
an  averment  that  defendants  had  "due  notice  and  knowledge  of  such  facts 
and  circumstances  as,  by  ordinary  diligence  and  business  skill,  would  have 
shown  them"  that  the  bank  w^as  insolvent,  is  insufficient  to  fix  a  liability 
under  a  statute  making  bank  directors  who  are  guilty  of  "any  fraud  or 
willful  mismanagement"  of  the  affairs  of  the  bank  individually  liable  to  its 
creditors  for  loss  occasioned  thereby. ^^ 

Same— Intent  to  Injure  Plaintiff  or  Cause  Loss  of  His  Money.— 
It  is  not  necessary  in  such  an  action  to  allege  that,  "wdien  the  plaintiff'  de- 
posited his  money,  the  directors-  knew  or  believed  he  would  not  get  it  back, 
or  intended  by  deceit  to  get  it  from  him,  or  cause  him  to  lose  it ;"  but  it  is 
sufficient  to  allege  that,  the  bank  being  insolvent,  the  defendants  caused  false 
and  fraudulent  statements  of  the  condition  of  the  bank  to  be  published,  rep- 
resenting it  to  be  solvent  and  with  capital  stock  unimpaired,  and  declaring 
dividends,  with  a  view  to  conceal  its  insolvent  condition  and  procure  de- 
posits, and  that  the  plaintiff  w^as  deceived  thereby  into  making  the  deposit 
which  he  is  seeking  to  recover.^ 

Same— Offer  to  Return  Certificate  of  Deposit.— The  complaint  in  an 
action  of  this  kind  should  offer  to  surrender  the  certificate  of  deposit. ^ 


97.  Same. — Sommcrvilie  f.  Beal,  40 
Fcfl.   7'M). 

98.  Same.— Hyland  t'.  Roe,  111  Wis. 
301.  ST   X.  W.  2.52,  87  Am.  St.  Rep.  87.3. 

Rev.  St.  1898,  §  4541.  makes  it  a  penal 
offense  for  an  officer  of  a  bank  to 
receive  money  on  deposit  when  he 
knows,  or  has  reason  to  know,  that 
the  bank  is  unsafe  or  insolvent.  Held, 
that  where  the  depositor  in  a  bank  that 
had  passed  into  the  hands  of  a  re- 
ceiver presented  a  petition  asking-  for 
an  order  requiring-  the  receiver  to  pay 
over  to  him  the  deposit,  which  alleged 
that  when  the  deposit  was  made  the 
bank  was  insolvent,  and  known  to  l)e 
such  bv  its  president,  the  petition  suf- 
ficientlv  showed  fraud  on  the  Dart  of 
the  bank.  Hyland  ?'.  Roe.  Ill  Wis.  .301, 
87  X.  W    2.''>2.  87  Am.   St.   Ren.  873. 

99.  Same. — Minton  7:  Stahlman.  or, 
Tcnii.  UH,  .'!4  S.  W.  222. 

1.  Same — Intent  to  iniure  plaintiff 
or  cause  loss  of  his  money.— Solomon 
'■.  Rates,  lis  y.  C.  311.  24  S  K  4-rs.  .-)4 
Am.    St.    Rep.    72.5;    Caldwell    t'.    Rates, 


118  N.  C.  323.  24  S.  E.  481. 

Under  Laws  1805,  c.  210.  relating  to 
receiving  deposits  in  insolvent  banks, 
a  complaint  which  alleges  that  the  de- 
fendants, as  directors  of  an  insolvent 
bank,  received  from  the  plaintiff  a  de- 
posit of  money  therein,  knowing  the 
bank  to  be  then  insolvent,  of  which 
fact  he  was  ignorant,  whereby  he  lost 
the  deposit,  states  a  cause  of  action. 
Baxter  7'.  Couglilan.  70  Minn.  1,  72  N 
W.  707. 

2.  Same — Offer  to  return  certificate 
of  deposit. — TI viand  :■.  Roe.  Ill  Wis. 
3(il.   87   \.  W.  252.  87   Am.   St.   Rep.  873. 

Wheije  the  payee  of  a  check  depos- 
ited it  in  a  bank,  receiving  in  return  a 
certificate  of  deposit,  and  the  next  dav 
the  bank  si'snended.  o\^•int^  to  insol- 
vency, a  Detition  bv  the  depositor  that 
the  receiver  pay  the  proceeds  of  the 
check  to  him.  but  which  did  not  offer 
to  surrenflf-r  the  certificate  of  deposit, 
wns  insufficient  to  warrant  the  relief 
asked.  IT  viand  7>.  Roe.  in  Wis.  301 
87   X.  W.  252.   87   Am.   St.    Rep.   873. 


388  BANKS    AND    BANKING.  §    58    (5a) 

§  58    (4c)   Matters  of  Defense. — Ratification  and  Estoppel. — The 

fact  that  the  stockholders  of  a  bank  authorized  the  directors  thereof  to 
accept  certain  judgments,  notes,  etc.,  in  payment  of  subscriptions  to  stock, 
will  not  estop  the  receiver  thereof  on  its  insolvency  from  asserting  a  claim 
against  such  directors  on  that  account  on  behalf  of  creditors.-^  Neither  is 
the  trustee  in  a  deed  of  assignment  estopped  to  sue  to  recover  the  amount 
of  discounted  bills,  fraudulently  received  from  the  cashier  without  authority 
by  a  director,  by  reason  of  the  fact  that  he  has  paid  the  director  dividends 
on  the  indebtedness  of  the  bank  to  him  as  represented  by  such  bills.'*  And 
where  the  directors  have  made  fraudulent  transfers  of  the  funds  of  the 
bank  to  third  persons,  the  fact  that  the  receiver  has  made  a  compromise 
with  the  persons  receiving  the  funds  does  not  release  the  guilty  directors 
from  their  liability  nor  estop  the  receiver  from  suing  them  for  their  part 
in  the  transaction. •'^ 

Estoppel  of  Directors  to  Deny  Liability  on  Obligations  Executed 
to  Maintain  Credit  of  Bank.— Where  the  directors  of  a  bank  execute 
and  deliver  their  notes  to  the  bank  to  make  up  an  impairment  of  its  assets, 
in  order  to  satisfy  the  superintendent  of  banking,  and  secure  his  sanction 
to  continue  the  business  of  the  bank,  and  to  give  it  credit  with  the  public 
for  the  receiving  of  deposits  and  doing  its  general  business,  the  makers 
of  the  notes  are  estopped,  as  against  the  receiver,  who  represents  the  cred- 
itors of  the  bank,  from  alleging  want  of  consideration.  They  are  also  estopped 
from  contesting  their  liability,  on  the  ground  of  an  alleged  agreement  be- 
tween them  and  the  cashier  of  the  bank  that  the  notes  were  not  to  be  en- 
forceable until  the  deficiency  upon  the  rejected  securities  should  be 
ascertained.*' 

§  58  (5)  Evidence — §  58  (5a)  Presumption  and  Burden  of 
Proof. — In  an  action  against  the  directors  of  a  bank  to  make  them  per- 
sonally liable  for  the  misappropriation  of  funds  by  the  cashier,  the  burden 
of  proof  is  on  the  plaintifif  to  prove  not  only  the  loss,  but  a  want  of  dili- 
gence on  the  part  of  the  directors  in  discovering  or  preventing  the  defalca- 
tion.' But  where  the  action  is  against  the  bank  it  w'ill  not  be  heard  to  say 
that  its  directors  were  ignorant  of  such  frauds,  for  in  such  case  the  law 
presumes  that  the  directors  know  every  entry  made  by  its  subordinate  ofifi- 

3.  Ratification  and  estoppel— Re-  bility  on  obligations  executed  to  main- 
ceiver  not  estopped  by  acts  of  stock-  t^'"  credit  of  bank.— Sickels  7-.  Herold, 
holders.— Codding-ton  v.  Canaday,  157  '-5  Misc.  Rep.  116,  .36  N.  Y.  S.  488,  af- 
Ind.  24.3,  61  N.  E.  567.  firming  11    Misc.   Rep.   583,   32   N.   Y.   S. 

4.  Estoppel  of  trustee  by  payment  of  «'  -o  4.-  j  ^r  r  „..  r 
J.  .J  J  r  J  1  .L  •  J  U4.  J  7.  Presumption  and  proof  of  negu- 
dividends  on  fraudulent  indebtedness  „„  ,r  f-  ,,.  ,f  ^^„  tt  c  r- 
«f  u  ^u  4.^  A^t^^A  ^4.  T  1  n  -1  gence. — Martin  z:  Webb,  110  U.  b.  7, 
of  bank  to  defendant. — Lamb  v.  Cecil,  oo  t  t:>j  <«  o  c  r<.  loo  m  c  .- 
o-  \AT  M  OQQ  ^^  ^-  E--  ■*^'  "^  -'•  ^^-  ^2^'  Clews  v.  Bar- 
^3  \v.   va.  ..Sh                       ^           ^            ^  ^^^^  3g  P^j    j.^^,.  jj^  j.g  Dunham,  25  Ch. 

5.  Effect  of  compromise  with  third  Div.  725;  Savings  Bank  v.  Caperton, 
persons  to  whom  directors  have  fraud-  S7  Ky.  306,  10  Ky.  L.  Rep.  201,  8  S.  W. 
ulently  transferred  funds.— Wilkinson  ggS,  12  Am.  St.  Rep.  488;  W^allace  v. 
r.  Dodd,  40  X.   T.  Eq.  123.  3  Atl.  360.  Lincoln  Sav.  Bank,  89  Tenn.  630,  15  S. 

6.  Estoppel  of  directors  to  deny  lia-  W.  448,  24  Am.  St.  Rep.  625. 


§  58  (5b) 


OFFICERS    AND    AGFNTS. 


389 


cers  in  the  bank  books,  and  therefore  the  misappropriation  of  funds  by  a 
cashier,  unknown  to  the  directors,  constitutes  no  defense  to  the  bank.* 
Where  the  action  is  against  the  president,  directors,  cashier,  or  agent  of  the 
bank  for  fraud  in  receiving  deposits,  knowing  the  bank  to  be  insolvent  or 
in  faihng  circumstances,  the  plaintiff,  by  making  out  a  prima  facie  case  of 
fraud,  shifts  the  burden  of  explanation  to  the  defendant,''  and  so  far  as 
the  defendant's  knowledge  of  the  insolvency  is  concerned  the  plaintiff  has 
only  to  prove  to  the  satisfaction  of  the  jury  that  the  bank  was  insolvent  in 
order  to  place  upon  the  defendant  the  burden  of  proving  want  of  knowl- 
edge.^^' 

§  58  (5b)  Competency  and  Admissibility  of  Evidence. — Appoint- 
ment of  Receiver  and  Authority  to  Sue. — Where  want  of  jurisdiction 
of  the  subject  or  of  the  parties  in  proceedings  for  the  appointment  of  a  re- 
ceiver for  an  insolvent  bank  is  not  apparent,  entries  of  the  record  therein 
are  competent  evidence  of  the  appointment  of  the  receiver,  and  of  the  order 
of  the  court  authorizing  him  to  sue  in  his  own  name  for  the  debts  of  the 
bank,  in  an  action  against  the  bank  directors  for  damages  arising  from  their 
negligence,  though  defendants  were  not  directors  or  stockholders  when  the 
application  for  a  receiver  was  made.^^ 

Official  Relation  of  Defendants  to  Bank. — Parol  evidence  is  admissible 
to  show  who  were  the  ofificers  of  the  bank  without  requiring  proof  of  their 
legal  appointment.^ - 

Negligence,   Fraud  or  Misfeasance. — The  official  relation  of  the  de- 


8.  Same — Where  action  is  against 
bank. — -Savinj^s  I'ank  z'.  Caperton,  87 
Ky.  306,  10  ky.  L.  Rep.  201,  8  S.  W. 
88.5.  12  Am.  St.  Rep.  488;  Lane  &  Co. 
V.  Bank,  56  Tenn.   (9  Heisk.)  419. 

9.  As  to  fraudulent  insolvency. — 
Cassidy  ?•.  Uhlmann,  170  N.  Y.  .50.').  6.3 
X.  E.  554,  affirming  54  App.  Div.  205, 
66   X,    Y.    S.   670. 

Pennsylvania  statutes. — The  Act  of 
April  16.  1850,  provides  Cg  40)  that  if 
the  in.solvency  of  a  l)ank  be  occasioned 
hy  the  fraudulent  conduct  of  its  direct- 
ors, they  shall  lie  liable  to  the  stock- 
holders and  creditors,  etc.;  (§  41)  that 
the  insolvency  of  every  bank  hereafter 
incorporated  shnll  be  deemed  fraudu- 
lent unless  its  affairs  shall  appear,  upon 
investigation,  to  have  been  fairly  and 
legally  administered;  CS  42)  that  the 
term  "insolvency."  used  in  the  act,  shall 
be  construed  to  apply  to  a  bank  wdien 
It  is  compelled  to  make  an  assignment 
according  to  the  provisions  of  the  act, 
and  that  upon  makinc  such  assignment, 
the  directors  shall  file  a  fnll  statement 
of  its  afifairs.  etc.;  ("§  43)  that  upon  the 
filint'  of  such  statement  the  court  shall 
appoint  three  anditn'-s  U)  make  an  i"- 
vestigation   of   ihe   affairs   of  the   bank, 


etc.;  (§  44)  that  the  auditors  shall  re- 
port to  the  court  the  result  of  their  in- 
vestigation, and,  in  case  they  report 
that  the  insolvency  was  fraudulent,  it 
shall  be  their  duty  to  report  the 
amount  due  from  the  several  directors, 
according  to  the  lialiilities  imposed  by 
the  act;  and  (§  45)  that  the  court  shall 
thereupon  proceed  to  an  investigation 
of  the  matters  contained  in  such  re- 
port, and  shall  determine  whether  the 
insolvency  of  such  bank  was  fraudulent 
or  otherwise,  or  it  may  direct  an  issue 
to  try  the  fact  of  fraudulent  insolvency. 
Held,  that  upon  the  trial  of  such  issue 
the  question  of  fraudulent  insolvency 
is  to  be  tried  without  any  prima  facie 
imputation  of  fraud.  Wright  r'.  Dav- 
enport, 66  Pa.  148. 

10.  Same — Knowledge  of  insolvency. 
— Dodge  7'.  Mast  in,  17  l'"ed.  660.  5  Mc- 
Crary  -tOI. 

11.  Appointment  of  receiver  and  au- 
thority to  sue — Docket  entries. — C(h\- 
dinL't'-.n  7'.  Canadav,  157  Ind  ;M:{.  61  N. 
v..  567. 

12.  Admissibility  of  parol  evidence 
as  to  who  were  officers,  etc. — State  ?'. 
P.onrne,   S6   Minn,   4.'i2,   90   N.  W.   1108. 


390  BANKS    AND    BANKING.  §    58    (5c) 

fendants  to  the  bant;  having  been  established,  evidence  of  their  neghgence 
and  fraud  in  the  management  of  its  afifairs  is  admissible  in  an  action  by  a 
depositor  or  creditor  claiming  to  have  been  damaged  thereby.^^  ^g  bearing 
on  the  issue  of  the  liability  of  directors  for  acts  of  their  associates  done  in 
their  absence,  it  is  competent  to  consider  the  illegal  course  of  conduct  in 
which  such  directors  had  engaged,  when  present,  with  their  associates. ^^ 
And  where  the  issue  is  whether  purported  loans  in  extending  a  depositor's 
paper  and  taking  up  its  overdrafts  were  loans  in  the  regular  course  of  busi- 
ness and  in  good  faith,  evidence  of  the  custom  of  extending  discounts  in 
other  banks  is  inadmissible. ^^ 

Receiving  Deposits  While  Insolvent. — In  an  action  against  the  director 
of  a  bank  for  fraudulently  receiving  deposits,  knowing  the  bank  to  be  insol- 
vent, the  director  may  testify  to  his  belief  as  to  the  solvency  of  the  bank 
after  information  obtained  from  different  sources,  since  his  knowledge 
thereof  is  the  material  issue. ^*''  But  the  record  in  a  suit  by  the  receiver 
of  the  bank  against  its  president  to  set  aside  a  deed  of  trust  made  by  the 
bank  to  secure  the  defendant,  is  not  competent  evidence  against  the  de- 
fendants in  a  suit  to  hold  the  officers  and  directors  personally  responsible 
for  misrepresentations  as  to  the  solvency  of  the  bank  whereby  plaintififs 
were  induced  to  deposit  their  money  therein.^"  Neither  is  it  admissible  in 
such  action  to  prove  the  declarations  of  the  president  of  the  bank,  touch- 
ing its  financial  condition,  made  to  a  third  person  but  never  made  known  to 
the  plaintiff.^ ^  And  notice  by  a  bank  that  it  will  receive  on  deposit  the  de- 
preciated bills  of  another  bank,  is  no  evidence  of  the  insolvency  of  the 
bank  making  such  offer.  ^^ 

Variance. — Where,  in  an  action  by  the  receiver  of  a  bank  against  the  di- 
rectors for  negligence  in  managing  the  bank,  certain  specific  charges  of  neg- 
ligence are  made  in  the  petition,  plaintiff  is  confined  to  them.-'^  But  where, 
in  a  suit  by  the  receiver  against  the  directors,  the  pleadings  allege  that  cer- 
tain overdrafts  were  "negligently"  permitted,  the  allegation  is  sustained  by 
proof  of  illegal  overdrafts.-^ 

§   58    (5c)   Weight     and     Sufficiency    of    Evidence. — Evasion    of 

13.  Evidence  of  negligence  and  fraud.  reversing  27  -A.pp.  Div.  80,  50  N.  Y.  S. 
— Wolf    V.    Simmons,    7.5    Miss.    539,    23       318. 

So.  586.  17.    Record    in    former    suit    against 

14.  Liability  for  acts  of  associates—  president  not  admissible  against  di- 
Previous  course  of  conduct.— Wilkin-  rectors.— Giddings  z:  Baker,  80  Tex. 
son   V.    Dodd,    42    N.    T.    Eq.    234,    7    Atl.  -'"S-  I*''  S.  W.  33. 

327;    Williams   7'.    McDonald,    42    N    J.  18-  Same— Declarations  of  president. 

Eq.  392,  7  .\tl.  866;  Dodd  7-.  Wilkinson,  —Baker    7'.    Ashe,    SO    Tex.    356,    16    S. 

42   N.  J.    Eq.   647,   9  Atl.   685.  "^"^  ■    ^"i-    „               .             .               ,             .         , 

15.  Evidence  of  custom  in  other  ,.},^-  .  ^^"i^-^vf^f'"^  depreciated 
banks.-Dykman  7'.  Keeney,  34  App.  ^'o^^l,^""*^^'"  bank.-Damels  7'.  Kyle, 
Div.  45,  54  X.  \.  S.  ].  ^           ,  .,      .       ,  20.  Variance.— Stone  7'.  Rottman,  183 

16.  Receiving    deposits    while    insol-  ]\jo.  5,52,  82  S.  W.  76. 

vent— Cassiday  7'.  Uhlmann.  163   N.  Y.  2I.     Sam~e.— Stone    7'.     Rottman.     183 

380,  57   N.   E.  620,  79  Am.   St.   Rep.  596,        Mo.  552,  82  S.  W.  76. 


§  58  (5c) 


OFFICERS    AXD    AGENTS. 


391 


Statute   Requiring'   Overdue   Debts   to   Be   Computed   as   Losses. — 

\Miere  the  law  requires  that  all  debts  owing  a  bank  which  have  remained 
overdue  a  year  without  prosecution  or  payment  of  interest  shall  be  com- 
puted as  losses,  and  it  is  shown  that  the  bank,  being  creditor  of  a  depositor 
for  overdrafts,  took  his  notes  for  the  principal  and  interest,  and  marked  the 
overdraft  "Paid,"  and  before  a  year  marked  two  of  the  notes  "Paid,"  and 
charged  the  amount  to  the  depositors  account  as  an  overdraft,  and  that 
this  overdraft  was  marked  "Paid."'  and  taken  up  by  new  notes,  and  that 
there  were  other  transmutations  of  the  form  of  such  indebtedness,  but  that 
no  money  was  ever  paid  on  the  principal  or  interest,  such  evidence  was 
sufficient  to  require  the  court  to  submit  to  the  jury  whether  such  trans- 
actions were  merely  the  taking  up  of  defaulted  .notes,  in  evasion  of  the 
statutes,  or  were  loans  in  the  regular  course  of  business. -- 

Receipt  of  Deposits  with  Knowledge  of  Insolvency. — Generally 
speaking,  evidence  that  the  defendant  director  was  in  the  bank  from  day  to 
day.  that  he  attended  board  meetings  regularly,  examined  statements  show- 
ing the  condition  of  the  bank,  and  discussed  with  other  directors  the  ad- 
visability of  continuing  business  and  receiving  deposits,  is  sufficient  to  show 
knowledge  of  insolvency  at  the  time  the  deposit  was  received  ;-3  but  since 
m  the  nature  of  things  there  is  no  end  to  the  variety  of  circumstances  under 
which  such  cases  may  arise,  each  one  must,  in  the  end.  be  determined  upon 
its  own  facts.     A  few  illustrations  are  given  in  the  notes.-'* 


22.  Evasion  of  statute  requiring  over- 
due debts  to  be  computed  as  losses. — 
Dykman  z\  Keeney,  34  Ann.  Div.  45, 
54  X.  Y.  S.  1. 

23.  Receipt  of  deposits  virith  knowl- 
edge of  insolvency. — Cassidy  r.  UIil- 
niann.  54  App.  Div.  205.  66  X.'  Y.  S.  670, 
affirmed  in  170  X.  Y.  505,  63  N.  E.  554; 
Jernber?  v.  Mix,  100  111.  App.  264;  Hol- 
linpsworth  v.  Howard,  113  Ga.  1099, 
39  S.  E.  465. 

24.  Same — Illustrations. — Proof  in  a 
civil  case  of  ilie  reception  of  deposits 
by  a  banker  when  insolvent,  and  one 
day  before  suspension,  makes  a  prima 
facie  case  of  fraud.  Jernbert?  r.  Mix, 
100  Til.  App.  264. 

\\'here.  at  a  meetine  of  the  direct- 
ors of  a  bank,  the  books  are  examined, 
and  it  is  anparent  that  the  surplus  is 
Rone  and  that  the  capital  is  impaired, 
and,  in  the  lanc-uape  of  a  director  at 
the  time,  that  "the  bank  is  busted,"  it 
is  sufficient  to  establish  knowledp-e  on 
the  part  of  such  director  of  the  insol- 
vencv  of  the  bank,  so  as  to  render  him 
bable  for  deposits  thereafter  received. 
Tudement  66  X.  Y.  S.  670.  54  .\np.  Div. 
205.  affirmed.  Cassidv  7-.  IHilmann,  170 
N.  Y.  505.  63   X    E.  554. 

Where  a  bank  director,  for  a  week 
preredincr  its  failure,  was  at  the  bank 
durinp  business  hours  and  in  the  even- 


ing with  other  directors,  and  caused  a 
statement  of  its  affairs  to  be  made, 
and,  on  examination  of  such  state- 
ment, became  aware  of  the  bank's  in- 
solvency, and.  after  a  discussion  of  the 
propriety  of  receiving  deposits  in  view 
of  the  insolvency,  agreed  on  such 
course,  proof  of  these  facts  was  suffi- 
cient to  warrant  a  finding  that  when 
certain  deposits  were  received  just 
prior  to  the  bank's  failure  such  director 
knew  of  the  insolvency,  and  actually 
look  part  in  directin.g  their  receipt. 
Cassidy  v.  Uhlmann,  54  App.  Div.  205. 
66  X.  Y.  S.  670,  affirmed  in  170  N.  Y. 
505,  63   N.   E.  554. 

In  an  action  for  damages  alle.ged  to 
have  been  sustained  on  account  of 
false  representations  made  by  the  offi- 
cers of  a  banking  corporation  as  to  its 
solvency,  which  induced  plaintiff  to  de- 
posit his  money  in  a  liranch  l)ank  be- 
longin.g  to  such  company,  evidence 
that  the  bank  collapsed  very  soon 
after  the  deposit  was  made,  witli  facts 
warrantin.g  the  inference  that  one  of 
such  officers  knew  the  parent  bank  was 
in  an  insolvent  condition  wlien  he  rep- 
resented to  plaintiff  that  it  was  finan- 
riallv  sound,  is  sufticient  to  sustain  a 
finding  that  sucli  official  knew  the  bank 
was  insolvent.  TTollingsworth  t'.  How- 
ard. 113  Ga.   1099,  39  S.  E.  465. 


392  BANKS    AND    BANKING.  §    58    (6) 

§  58  (6)  Trial. — Instructions— Defining  Insolvency. — Under  a 
statute  which  makes  it  a  felony  to  receive  deposits,  knowing,  or  having 
reason  to  believe,  that  the  bank  is  insolvent,  an  instruction  that  a  bank  is 
not  insolvent  as  long  as  it  is  meeting  its  liabilities  as  they  become  due  in 
the  ordinary  course  of  business,  and  there  is  reasonable  expectation  on  the 
part  of  the  officers  familiar  with  its  affairs  of  continuing  to  do  so,  is 
correct.-^ 

Same— Liability  for  Receiving  Deposits  after  Insolvency. — In  an 
action  against  bank  directors  to  recover  deposits  alleged  to  have  been  re- 
ceived with  knowledge  of  the  bank's  insolvency,  an  instruction  that  plaintifif 
can  not  recover  unless  the  jury  finds  that  defendant  was  guilty  of  bad  faith 
"amounting  to  fraud,"  is  erroneous  where  the  court  refuses  to  further 
charge  that  it  was  a  fraud  for  the  officers  of  the  bank  to  permit  a  deposit 
when  they  knew  that  the  bank  was  insolvent.-*'  And  in  an  action  against 
the  directors  of  an  insolvent  bank  for  false  representations  whereby  plaintiff 
was  induced  to  deposit  his  money  in  said  bank,  which  money  he  lost  by 
reason  of  the  insolvency  of  the  bank,  an  instruction  that  defendants  were 
liable  "if  they  knowingly  made,  with  intent  to  defraud  the  public  generally, 
false  representations  of  the  solvency  of  the  bank,  without  regard  to  whether 
plaintiff  ever  relied  or  acted  upon  such  representations ;"  and  that,  if  de- 
fendants made  representations  of  the  solvency  of  the  bank  while  in  a  posi- 
tion to  know  the  facts  on  which  plaintiff  relied,  they  were  liable,  whether 
such  representations  were  false  or  not,  was  not  a  correct  statement  of  the 
principles  of  the  law  governing  the  defendants'  liability,  and  the  error  in 
such  instruction  was  not  cured  by  a  statement  in  other  instructions  that 
plaintiff  could  not  recover  unless  the  representations  were  false,  and  were 
relied  on  by  plaintiff ;  such  instructions,  taken  as  a  whole,  being  contra- 
dictory.-" 

Defining  Individual  Bankers  as  a  Partnership. — In  an  action  against 
individuals  who  conducted  a  bank,  on  an  indebtedness  arising  from  trans- 
actions with  the  bank,  an  instruction  that  if  defendants  operated  a  bank 
themselves  or  through  officers  or  agents,  and  they  or  their  officers  or  agents, 
in  the  usual  course  of  banking  business,  drew  drafts  against  plaintiff  bank, 
and  plaintiff  paid  the  amounts  thereof,  etc.,  defendants  would  be  liable,  was 
not  objectionable  as  authorizing  recovery  upon  the  theory  of  a  partnership 
among  defendants.-* 

Judgment — Personal  Service  of  Process. — Under  an  act  providing 
that  the  president  and  directors  shall  be  liable  to  every  creditor  of  the  bank, 

25.  Instruction  defining  insolvency. —  27.  Same — Erroneous  instruction  de- 

IMinton  v.  Stahlman,  96  Tenn.  98,  34  S.  fining  liability  not  cured  by  contradict- 

W.  222.  ory     instruction. — Baker     v.     Ashe,     80 

26.  Same — Liability  for  receiving  de-  Tex.  356.  16  S.  W.  36. 

posits     after     insolvency. — Nathan     z'.  28.  Defining  individual  bankers  as  a 

Uhlmann,  101  App.  Div.  388,  92  N.  Y.  partnership. — Curtis      v.       First       Nat. 

S.   13,  affirmed  in  184  N.   Y.   606,  77  N.  Bank  (Civ.  App.).  138  S.  W.  795. 
E.  1192. 


§    60    (1)  OFFICERS    AND    AGENTS.  393 

a  judgment  against  such  officers  individually  is  not  authorized,  unless  proc- 
ess be  issued  against  and  served  upon  them  personally ;  process  sued  out 
against  the  corporation  only  is  not  sufficient.-" 

Damages  and  Amount  of  Recovery. — \\here  the  fact  of  violation  of 
the  charter  has  l)een  previously  established,  the  measure  of  the  liability  of 
the  directors  will  l)e  the  amount  which  the  effects  of  the  corporation  may 
fall  short  of  discharging  its  liabilities,  in  consequence  of  such  violation  of 
the  charter.3^  A  depositor  induced  by  the  misrepresentations  of  officers  of 
an  insolvent  bank  to  deposit  money  with  it,  upon  the  failure  of  the  bank  is 
entitled  to  recover  of  the  officers  so  guilty  the  amount  of  his  deposit  with 
interest  less  the  value  of  his  claim  against  the  bank  after  it  had  failed.^i 
For  example,  where  a  recovery  has  been  had  by  a  depositor  and  he  has 
also  proved  up  his  claim  against  the  bank  and  has  been  paid  a  dividend  by 
the  receiver,  and  other  assets  remain  from  which  further  payments  may 
be  expected,  the  measure  of  damages  is  the  amount  of  the  deposit  less  the 
dividend  paid  and  less  the  value  of  the  claim  against  the  bank  at  the  time 
of  the  action  against  the  directors.  Interest  upon  the  deposits  should  also 
be  allowed. 22 

§  60.  Criminal  Responsibility— §  60  (1)  Constitutional  and 
Statutory  Provisions.— Officers  of  national  banks,  see  post,  "Criminal  Re- 
sponsibility of  Officers  or  of  Persons  Aiding  or  Abetting  Them,"  §  255; 
"Prosecution  and  Punishment,"  §  257.  On  insolvency,  see,  also,  post, 
"Criminal  Responsibility  on  Insolvency."  §  83. 

Constitutionality  of  Statutes.— The  "law  of  the  land."  as  that  term  is 
used  in  a  constitutional  provision  declaring,  that  "no  man  shall  be  taken 
or  imprisoned,  or  disseized  of  his  freehold,  liberties  or  privileges,  or  out- 
lawed, or  exiled,  or  in  any  manner  destroyed  or  deprived  of  his  life,  liberty 
or  property,  but  by  the  judgment  of  his  peers  or  the  law  of  the  land,"  im- 
plies a  rule  embracing  alike  and  affecting  equally  all  persons  in  general,  or  all 
persons  who  exist  or  who  may  come  into  the  like  state  and  circumstances. 
Therefore,  an  act  creating  a  new  felony  in  relation  to  the  officers,  agents 
and  servants  of  a  particular  bank  is  not  a  law  of  the  land  within  the  mean- 
ing of  such  constitutional  provision,  and  is  unconstitutional.  Such  a  law, 
says  the  court,  inserted  as  one  of  the  provisions  in  the  charter  of  a  bank  and 
applicable  solely  to  the  officers,  agents,  and  servants  of  that  bank,  is  of  no 
more  validity  than  a  statute  enacted  with  regard  to  the  clerks,  servants  and 
agents  of  some  private  individual  and  applicable  solely  to  the  clerks,  serv- 
ant- and  agents  of  that  individual.''^ 

29.  Judgment— Personal  service  of  32.  Same.— P.aker  ;■.  Aslic.  80  Tex. 
process.— Ciinninf,diam  7'.   Pell    CM.   Y.).       .!.-)(),   lO  S.  W.  :u\. 

r>  T'aij,^'  f.07.  33.       Constitutionality   of    statutes. — 

30.  Damages— Amount  of  recovery.  V.uM  v.  Stak-.  ;i2  Teiiii.  (:}  Humph.) 
— Jr)linson  "■.  Churcliwell,  ."iS  Tcnn.  fl  18;{.  :u)  i\m.  Dec.  189.  ."^cc  also,  in  this 
Hc-afi)    140.  coniK'Ctioti    Tlazen    7'.    Union    P.nnk.    :v.\ 

31.  Same.— Pakor    7'.    Ashe,    80    Tex.  Teiin.   d    Snced)    w:,. 
3r>f.,  10  S.  W.  30. 


394  BANKS    AND    BANKING.  §    60    (1) 

Construction  of  Statutes. — While  it  is  true  that  care  must  be  taken 
not  to  weaken  the  wholesome  provisions  of  the  statutes  designed  to  protect 
depositors  and  stockholders  against  the  wrongdoing  of  bank  officials, 
it  is  of  equal  importance  that  they  should  not  be  so  construed  as  to  make 
transactions  of  such  officials,  carried  on  with  the  utmost  honesty  and  in  a 
sincere  belief  that  no  wrong  was  being  done,  criminal  offenses,  and  sub- 
ject them  to  the  severe  punishments  which  may  be  imposed  under  those 
statutes.^'i  A  court  can  not  create  a  penalty  by  construction,  but  must 
avoid  it  by  construction,  unless  it  is  brought  within  the  letter  and  the  neces- 
sary meaning  of  the  act  creating  it.  And  where  a  statute  may  be  so  con- 
strued as  to  give  a  penalty,  and  also,  and  as  well  so,  as  to  withhold  the  penalty, 
it  will  be  given  the  latter  construction.^^  If  there  be  any  reasonable  doubt, 
therefore,  as  to  whether  the  offense  charged  be  an  offense  punishable  by 
law,  that  doubt  should  be  resolved  in  favor  of  the  accused.  No  man 
should  be  guessed  or  construed  into  prison. •'^'^ 

Officers  and  Agents  Comprehended  within  Statute. — A  statute 
which  enacts  that  if  any  cashier,  agent,  or  servant  or  any  other  officer  of 
the  corporation  shall  do  particular  things  which  are  by  the  statute  forbidden, 
then  they  shall  be  punished  in  the  manner  prescribed  by  the  statute,  must, 
under  a  reasonable  construction,  be  held  to  include  clerks  employed  by  the 
bank,  notwithstanding  clerks  are  not  mentioned  by  name;  and  there  is  no 
merit  in  a  contention  that  a  clerk  employed  in  the  bank  can  not  be  punished 
under  the  statute  because  not  comprehended  and  described  by  the  terms 
"officers,  servants  or  agents."-^' 

"Incorporated  Banks." — The  words  "incorporated  bank,"  used  in  a 
general  statute,  include  banks  chartered  since  the  passage  of  the  act  as 
well  as  those  then  existing,  and  include  banking  corporations  organized 
under  the  laws  of  the  United  States  and  situated  in  the  state  as  well  as 
like  corporations  created  by  the  laws  of  the  state. ^^     The  same  words  in  a 

34.     Construction    of    statutes.— Pot-  D.   N.   P.  694);   State  r.  Laning.   18   O. 

ter  V.  United  States,   155  U.   S    438,  oO  D.  N.  P.  681. 

L-    Ed.     214,    15    S.    Ct     144;    Spurr   i'.  Violation  of  oath  not  construed  as  a 

United  States,  174  U.  S.  728,  43  L.  Ed.  crime.— Violation    by    a    director  of    a 

"'^^nr'  ^^o             A^'^"                           o  tiust  company  of  his  oath  of  office  pre- 

r^h     r^T^""?-^  ^°   penary.— State   v.  scribed   by    Banking   Law,    §    195,   held 

^oi^^i*^'-   't^-^-  -^-    u,   ^-J,  ^1^'  ^"^o-  not    a  violation    of    Penal    Law,  §    297, 

^■•,  Same— Reasonable    doubt.— State  punishing  directors  of  moneyed  corpo- 

r.   Gibbs   (O.)    7   N.   P.,   N.   S.,  345    360.  rations   willfully  doing  anv   act   forbid- 

Scope    of    the    penal    sectioii    of    the  ^en  bylaw.     People  v.  Knapp  (N.  Y.), 

Ohio  Free  Bankmg  Act. — Section  30  or  99  j^r    £_  84i_ 

the    act    entitled    "An   act    to    authorize  „^  '     r\cc    '             j 

free   banking,"  passed   March  21,   1851,  ,    ^7        Officers     and     agents     compre- 

and  amended  in  76  O.   L.,  72,  enumer-       !l^"^^^  .^^  '^^^^r^'^?,     t'"' A         n 
ating  and  defining  certain  acts   of  offi-       ^e'ln.     (3   Humph.)    483,    39    Am.    Dec. 

cers  and  others  "of  any  banking  com- 
pany," as  penal,  although  worded  in  A  director  of  a  trust  company  is  not 
general  language  is  limited  in  its  op-  ^  "public  officer"  within  Penal  Law,  § 
eration  to  banks  organized  under  that  1857,  punishing  omission  of  pubhc  duty 
act.  State  v.  Gibbs  (O.),  7  N.  P.,  N.  by  a  public  officer.  People  v.  Knapp 
S.,  345  (see  82  O.  St.  456,  457,  462,  7  N.  C^'-  ^-^^  ^9  N.  E.  841. 
P.,  N.  S.,  371,  9  N.  P.,  N.  S.,  129,  18  O.  38.       "Incorporated      banks."— Com- 


§    60    (3)  OFFICERS    AND    AGENTS.  395 

Statute  treating  as  guilty  of  larceny  any  officer  of  an  "incorporated  bank" 
who  does  certain  specified  acts,  applies  to  savings  banks,  and,  therefore, 
under  such  a  statute  an  officer  of  a  savings  bank  may  be  indicted.-^'"* 

Repeal  of  Statutes. — A  special  statute  prescribing  punishment  for  offi- 
cers guilty  of  fraudulently  wrecking  a  bank,  and  iilling  a  place  peculiarly  its 
own,  is  not  repealed  by  implication  by  subsequent  general  legislation.^*^  But 
where  the  later  of  two  acts  covers  the  whole  subject  matter  of  the  earlier 
one,  not  purporting  to  amend  it,  and  plainly  shows  that  it  was  intended  to 
be  a  substitute  for  the  earlier  act,  such  later  act  will  operate  as  a  repeal  of 
the  earlier  one,  though  the  two  are  not  repugnant. ■'^ 

§  60  (2)  Accessories,  Aiders  and  Abettors. — A  section  of  a  gen- 
eral banking  law,  providing  for  the  punishment  of  all  who  knowingly  aid  or 
assist  in  a  violation  of  any  of  its  provisions,  is  designed  to  provide  a  punish- 
ment for  all  offenders,  principals  as  well  as  aiders  and  abettors,  except 
such  as  are  within  other  sections  of  the  act  which  sections  themselves  pre- 
scribe the  punishment  for  specific  offenses.'*^ 

§  60    (3)   Officers  of  De    Facto    Banking    Corporations.— \Miere 

several  persons  associate  themselves  together  with  a  view  of  organizing  a 
bank,  and  duly  file  a  charter  as  a  state  banking  corporation,  the  existence  of 
the  corporation  dates  from  the  filing  of  the  charter ;  and  if  such  bank  is  there- 
after conducted  under  the  supervision  and  control  of  the  bank  commissioner, 
and  is  recognized  and  treated  by  him  as  one  having  authority,  the  mere 
omission  or  neglect  of  the  commissioner  to  formally  issue  a  written  certifi- 
cate of  authority  will  not  exempt  the  officers  of  the  bank  from  an  observance 
of  the  requirements  of  the  banking  law,  or  excuse  them  for  violations  of  the 
same.43  Where  a  state  bank  is  duly  chartered,  and  holds  itself  out  to  the 
public  as  a  banking  institution,  receiving  money  on  deposit,  and  otherwise 
transacting  a  banking  business,  and  where  the  officers,  having  knowledge 
of  the  manner  in  which  the  bank  is  doing  business,  make  reports  to  the  bank 
commissioner  on  demand,  showing  the  character  of  the  business  done,  they 

nionwcahh  v.  Tenney,  97  Mass.  50.  (Acts  1898,  p.  73),  since  it  fills  a  place 
Sec,  also.  Commonwealth  v.  Hall,  97  peculiarly  its  own.  Youmans  v  State 
^lass.  570.  7  Ga.  App.  101,  66  S.   E.  383. 

AT?!;    S'^LT^'r^'l-V   i^'"''"''''    • '■'  41.     Same.-Thornton  z'.  State,  5  Ga. 

Mass.    541,    54    N.    E.    3o3     disapproving  App.   397,  63   S.   E.  301. 

dictum  in  Commonwealth  v.  Pratt,  137  \            ,^^^          ,,.,          ,^„             ... 

Mass.    98.      See,    also,    Commonwealth  ,    '^T''   •      '^'   "■    ^   ^^'   ""■  c^^''   P'"ov'ding 

V.  Shcpard  (Mass.),  1   Allen  575.  ^'?''   ^'^^   incorporation   of  trust   coinpa- 

40.     Repeal  of  statutes.-Youmansr.  l"^"'    "^'""^    expressly    repealed    by    Rev. 

State,  7  G;.     \pp    i(»i     i]i\  S    E    383  ^"'^^■'^   "■""■''•   ''^"^'   ^'^^^  provisions   of  §   11 

Pen.  Code  1895,  §  206,  deeming  every  ^"^^''^   re-enacted   in    Rev.   Laws   1905,   § 

insolvency    of    a    bank,    or    refusal    or  f't^NT   ?lf^^   t'.    Barnes,   108    Minn.   230. 

failure    to   redeem    its   l,ills,    fraudulent,  ll""^-  Y^'  "•  ^^-  ^-  ^'^^  ^^""'-  •'"''•   '■-■- 

l<ut    jjroviding    that    such    presumptir)n  ^'   ^-  ^■'• 

"f  fraud   may  be   repelled   Ijy   showing  42.     Accessories,  aiders  and  abettors. 

that  the  bank  has  been   fairly  adminis-  — People    z'.    Comstock,    115    Mich.    305, 

tcrcd,    was    not  repealed    even    by    im-  '^•^  N.  W.  245. 

plication,    by    Act    Dec.   20,    1893    (.^cts  43.  Officers  of  de  facto  banks.— State 

1^9.'!,    p.    cr,),  or    by  Act    Dec.    15,    1898  v.   Mas(jn,  61    Kan.    K);.',  58   I'ac.  978. 


396  -  BANKS    AND    BANKING.  §    61     (2) 

can  not  deny  that  the  bank  is  duly  organized  and  doing  business  under  the 
laws  of  the  state ;  and  such  officers  become  hable  to  punishment  for  a  vio- 
lation of  any  of  the  penal  provisions  of  the  banking  law,  the  same  as  though 
a  formal  certificate  of  authority  had  been  issued  to  it  by  the  bank  commis- 
sioner^-* 

§  61. Offenses— §  61  (1)  Illegal  and  Unauthorized  Banking. 

■ — Where  an  unauthorized  bank  issues  notes  payable  to  order,  in  similitude 
and  appearance  like  bank  notes,  struck  upon  an  engraved  plate,  signed  by 
the  president  and  secretary  of  the  company,  and  intended,  designed  and  cal- 
culated, by  the  company  and  those  concerned  in  paying  them  out  and  put- 
ting them  in  circulation,  to  circulate  as  money,  under  an  agreement  with 
those  to  whom  the  notes  are  paid  by  the  company  that,  as  soon  as  they 
should  receive  them,  thev  should  indorse  them  and  circulate  them  as  money, 
the  creditors  of  the  company,  to  whom  the  notes  are  paid,  are  as  much  con- 
cerned in  the  transaction  as  the  company  itself,  and  by  indorsing  the  notes 
they,  as  well  as  the  officers  proper  of  the  company,  make  themselves  liable 
for  the  penalty  of  the  law,  under  a  provision  of  the  statute  that  every  per- 
son wdiose  handwriting  shall  appear  on  the  notes,  shall  be  taken  to  be  an 
officer  of  the  bank ;  and  the  fact  that  the  notes  are  not  indorsed  until  after 
they  are  paid  out  by  the  company  will  not  relieve  the  parties  concerned 
from  the  penalty  provided  by  the  act.'*-^ 

§  61  (2)  Criminal  Liability  for  Fraud,  Negligence,  Fraudulent 
Insolvency,  etc. — Statutes  making  directors  and  officers  criminally  re- 
sponsible for  fraud,  negligence,  mismanagement  and  failure  to  comply 
with  the  articles  of  incorporation  are  usually  construed  to  refer  only  to 
active  intentional  fraud  and  willful  mismanagement,  and  not  to  mere  negli- 
gence and  acts  of  omission.'*'^  The  same  construction  has  been  applied  to 
a  statute  making  the  officers  criminally  liable  for  the  fraudulent  insolvency 
of  the  bank.  Under  such  a  statute  the  president  and  directors  are  not 
punishable  merely  for  the  insolvency  of  the  bank,  but  are  criminally  liable 
if  the  insolvency  of  the  bank  has  been  caused  by  their  intentional  fraudu- 
lent acts.  Under  such  a  statute  it  has  been  held  that  it  is  not  mere  mis- 
management, resulting  in  the  insolvency  of  the  bank,  wdiich  is  punishable, 
but   insolvency   which    indicates    intentional    fraud    and    dishonesty   on    the 

44.  Same. — State  ^^  Mason,  61  Kan.  Thus  under  the  Tennessee  statute 
102,  58  Pac.  9T8.                                                   there  is   no  liability  for   negligence   or 

45.  Offenses,  illegal  and  unauthorized  mere  acts  of  omission,  as  where  cer- 
banking. — Bonsai  r.  State,  11  O.  72.  tain  persons  who  owned  no  stock, 
See,  also,  Myers  z'.  Manhatten  Bank,  20  never  accepted  positions  as  directors, 
O.  283;  Lawler  v.  Walker,  18  O.  151;  and  who  took  no  part  in  the  manage- 
Steedman  :■.   State,   11   O.   82.  ment'of  the   bank,   suffered  themselves 

46.  Criminal  responsibility  for  fraud,  to    be    advertised    and    held   out    as    di- 
negligence,     etc. — Hume     z:     Commer-  rectors    of   the    bank.      Hume   z'.    Com- 
cial   Bank,  77  Tenn.   (9  Lea)   728;   Min-  mercial  Bank,  77  Tenn.   (9  Lea)  728. 
ton  V.  Stahlman.  96  Tenn.  98,  34  S.  W. 

222. 


§  61    (3a)  OFFICERS   AND  agfnts.  397 

part  of  those  officers  charged  with  the  management  of  the  bank,  and  wliich 
can  not  otherwise  be  explained  after  full  opportunity  for  explanation  has 
been  given  ;•*"  and  that  the  mere  failure  of  the  bank  to  redeem  its  bills 
is  not  sufficient  to  show  guilt.'^'^  On  the  other  hand,  where  the  insolvency 
is  due  to  the  intentional  fraud  of  an  officer  of  the  bank  the  penalties  pre- 
scribed by  the  statute  may  be  imposed  upon  him  without  regard  to  whether 
the  bank  has  issued  bills  or  not."**^  Such  an  act  is  not  unconstitutional  as 
violating  the  constitutional  prohibition  against  imprisonment  for  debt.  The 
punishment  imposed  for  wrecking  the  bank  is  not  imprisonment  for  debt, 
but  fraudulent  conduct.  The  fact  that,  in  perpetrating  a  fraudulent  practice 
upon  another,  the  perpetrator  may  become  a  debtor,  does  not  bring  him 
within  the  protection  of  the  constitutional  inhibition  and  prevent  the  legisla- 
ture from  prescribing  punishment  for  his  fraudulent  practice ;  and  it  is 
immaterial  that  he  is  at  the  time  a  debtor  to  him  who  was  defrauded.^" 

Presumption  and  Burden  of  Proof. — It  is  entirely  competent  for  the 
legislature,  from  a  constitutional  standpoint,  to  make  the  fact  of  insol- 
vency and  failure  to  redeem  its  bills,  either  or  both,  presumptive  evidence 
of  fraud  sufficient  to  place  upon  the  defendant  the  burden  of  rebutting  the 
presumption  that  the  insolvency  was  due  to  his  fraudulent  conduct. ^^ 

§  61  (3)  Doing  Business  While  Insolvent — Receiving  Deposits, 
etc. — §  61  (3a)  In  General.— While  the  criminal  responsibility  of  bank 
officials  for  keeping  the  bank  open  and  continuing  to  do  business  after  knowl- 
edge of  its  insolvency  generally  arises  under  provisions  relating  to  the  re- 
ceipt of  deposits  after  knowledge  of  insolvency,  such  is  not  always  the  case. 
For  example,  the  statute  may  make  it  a  penal  ofifense  for  any  bank  officer 
to  create  or  assent  to  the  creation  of  any  indebtedness  by  the  bank,  after 
knowledge  of  its  insolvency,^-  and  the  receipt  of  a  deposit  after  knowledge 
of  insolvency  will  be  a  violation  of  such  a  statute. ^-"^  So  the  obtaining  of  a 
deposit  or  loan  by  means  of  false  representations  as  to  the  bank's  solvency 
may  amount  to  the  crime  of  obtaining  money  or  property  under  false  pre- 
tenses under  the  general  criminal  statute  of  the  state  defining  that  ofTense  ;•"'' 

47.  Same — Fraudulent  insolvency. —  53.  Same. — State  r.  Sattley,  1:11  ]\Io. 
Yoiimans   z\    State,   7    Ga.   App.    101.   fifi       -ir,4,  :i:{   S.   \V.  41. 

S.  I"..  ?)H'.',.  54.    False   pretenses — Obtaining   loan 

48.  Mere  failure  to  redeem  bills  not  or  deposit  by  means  of  false  representa- 
sufficient  to  show  guilt. — ^'fnlmans  ;■.  t  i  o  n  s. — Comninnwealth  7\  Scliw  artz, 
State,  7  On.  .\])]>.   101,  CO  S.  K.  :?83.  92   Ky.    .'51 0,   18    S.   W.    775;     People    7'. 

49.  Same — Issuance  of  bills  not  a  Moore,  37  Hun  84,  3  N.  Y.  Cr.  R.  4,')8. 
prerequisite  to  guilt. — Voumans  ?■.  A  hanker  wlio,  after  collectintx 
St;tic.  7   Ca.   A])]).   101,  (W;  S.  K.  383.  money    for     a    customer,     induces     the 

50.  Same  —  Same — Constitutionality  customer,  while  it  is  still  in  his  pos- 
of  statute.— \'(iuiiians  7'.  State,  7  Ga.  session,  to  loan  it  to  the  hank,  hy 
Ap]..   101,  cr,  S.  1'*.  ;i83.  falsely  pretending  that  the  hank  is  sol- 

51.  Same — Same — Presumption  and  vent,  when  he  knows  or  has  reason  to 
burden  of  proof. — Voumans  7'.  State  believe  that  it  is  not,  is  pruiUy  of  "oli- 
7  r,,i.  .\p],.   10),  cc,  S.  K.  383.  tainins"    money   under    false   pretenses, 

52.  Creation  of  indebtedness  after  witliin  the  meaning;-  of  Gen.  St.  art.  13. 
knowledge  of  insolvency,  -Rev.  Stat.  r.  20,  §  2.  since  it  is  only  in  cases  where 
Mo.,    188'.*,  §  3r>Kl.  tlic    (U'livery    of  ])r(>p(Tty    is  necessary 


398 


BANKS    AND    BANKING. 


61    (3b) 


and  selling  a  draft  and  accepting  the  money  therefor  after  knowledge  that 
the  bank  is  hopelessly  insolvent,  and  that  the  amount  standing  to  its  credit 
in  the  bank  upon  which  the  draft  is  drawn  has  been,  or  will  be,  exhausted 
by  prior  drafts  before  the  draft  so  sold  can  be  presented,  may  render  the 
banker  subject  to  arrest  for  fraudulent  practices  under  the  general  laws 
of  the  state. ^^ 

§  61  (3b)  Receiving  Deposits  after  Knowledge  of  Insolvency. — 
General  Purpose  of  Statutes. — The  purpose  of  statutes  making  it  a 
crime  to  receive  deposits  when  a  bank  is  known  to  be  insolvent  is  not  only  to 
protect  innocent  depositors,  but  to  deter  bank  officers  from  so  conducting  a 
bank  as  to  endanger  its  solvency.^*' 

Constitutionality  of  Statutes. — Statutes  making  it  a  criminal  offense  to 
receive  deposits  after  knowledge  of  the  bank's  insolvency  are  not  unconsti- 
tutional, either  as  depriving  persons  engaged  in  the  business  of  banking  of 
any  property  or  vested  right,  liberty  or  privilege  without  due  process  of 
law,^"  or  as  denying  the  equal  protection  of  the  laws.°s     Neither  are  they 


in  order  to  deprive  the  owner  of  it 
that  the  false  pretense  must  relate  to 
such  delivery.  Commonwealth  v. 
Schwartz,   92   Ky.   510,   18   S.   W.   775. 

A  banker  who,  for  the  purpose  of 
securing  a  deposit,  falsely  pretends 
that  his  bank  is  solvent  when  he 
knows  or  has  reason  to  believe  that  it 
was  not,  and  who  represents  to  the 
depositor  that  he  has  a  safe  place  to 
invest  the  money  so  as  to  enable  Mm 
to  pay  the  depositor  six  per  cent  in- 
terest thereon,  is  guilty  of  obtainin;?- 
money  imder  false  pretenses,  though 
he  intended  to  repay  the  money,  within 
Gen.  St.,  art.  13,  c.  29.  §  2,  which  de- 
fines that  ofifense  to  be  the  obtaining 
of  money  or  property  from  another 
by  means  of  any  false  pretense,  state- 
ment, or  token,  with  intent  to  commit 
a  fraud.  Commonwealth  r.  Schwartz, 
13  Ky.  L.  Rep.  929.  18  S.  W.  358;  S.  C, 
19  S.  W.  189. 

A  banker,  by  obtaining  possession  of 
a  draft  in  the  usual  course  of  business, 
without  disclosing  the  fact  of  his  in- 
solvency, does  not  necessarily  render 
himself  criminally  lial)le  for  obtaining 
propertv  on  false  pretenses.  People  :'. 
Moore.  "37  Hun  84.  3  N.  Y.   Cr.   ^    458. 

55.  Sale  of  draft  after  knowledge  of 
insolvency. — Anonymous,  67  N.  Y.  598. 

56.  General  purpose  of  statutes. — 
Ex  parte  Pittman.  31  Nev.  43.  99  Pac. 
700. 

57.  Constitutionality  of  statutes — 
Vested  rights  and  privileges. — In  re 
Koetting,  90  Wis.  166.  62  N.  W.  622; 
Meadowcroft  v.   People,  163   111.  56,  45 


N.  E.  991,  35  L.  R.  A.  176,  54  Am.  St. 
Rep.  447. 

Act  of  Illinois  of  June  4,  1879,  mak- 
ing it  criminal  for  any  person  doing 
a  banking  business,  or  officer  of  any 
bank,  to  receive  deposits,  knowing  that 
the  bank  is  insolvent,  whereby  the  de- 
posit IS  lost  to  the  depositor,  is  not  un- 
constitutional, as  a  deprivation  of 
property  without  due  process  of  law, 
in  that  it  curtails  inherent  right  to 
contract.  INIeadowcroft  v.  People,  163 
111.  56,  45  N.  E.  991.  35  L.  R.  A.  176,  54 
Am.  St.  Rep.  447. 

Rev.  St.  1878,  §  4541,  providing  that 
any  officer  or  agent  of  any  bank  or  in- 
stitution, or  of  any  person,  company, 
or  corporation  engaged  in  whole  or  in 
part  in  banking,  or  any  person  en- 
gaged in  such  business  in  whole  or  in 
part,  who  shall  accept  on  deposit,  or 
for  safe-keeping,  or  to  loan,  any 
money,  or  any  paper  for  collection, 
when  he  knows,  or  has  good  reason 
to  know,  that  such  bank,  company, 
corporation,  or  person  is  unsafe  or  in- 
solvent, shall  be  punished,  etc.,  does 
not  impair  any  banking  right,  and  is 
therefore  within  the  enacting  power  of 
the  legislature,  and  does  not  require 
the  vote  of  the  people  provided  by 
Const.,  art.  11.  §  5.  In  re  Koetting,  90 
Wis.   166.  62   N    W.  622. 

58.  Same — Equal  protection  of  the 
laws.— Baker  v.  State.  .^4  Wis.  368.  12 
N.  W.  12;  Ex  parte  Pittman.  31  Xev. 
43.  99  Pnc.  700. 

Rev.  St.,  §  4541,  inflicting  a  punish- 
ment on  anv  banker  or  employee  of  a 
bank  who  shall  receive  money,  etc.,  on 


§  61   (3b) 


OI'FICERS    AND    AGENTS. 


399 


obnoxious  to  a  constitutional  prohibition  against  imprisonment  for  debt,^^ 
or  to  the  constitutional  guaranty  of  a  jury  trial  because  of  a  provision  mak- 
ing the  failure  of  the  bank  within  thirty  days  from  the  receipt  of  the  deposit 
prima  facie  evidence  or  intent  to  defraud.'^'^  The  existence  of  a  con- 
stitutional provision  imposing  individual  civil  responsibility  upon  bank  offi- 
cers for  receiving  deposits  under  such  circumstances  is  not  an  implied 
prohibition  to  the  legislature  against  making  the  same  act  a  crime/'^  And 
under  a  constitutional  requirement  that  criminal  acts  shall  prescribe  the  na- 
ture and  punishment  of  the  crime  which  they  undertake  to  define,  an  act 
providing  that  any  bank  officer  who  shall  receive  or  assent  to  the  reception 
of  a  deposit,  or  who  shall  create  or  assent  to  the  creation  of  any  indebted- 
ness by  the  bank,  knowing  that  it  is  in  a  failing  condition,  shall  be  guilty 
of  larceny  and  punished,  etc.,  is  sufficient.^- 

Essentials  of  the  Offense.— Under  a  statute  of  this  character,  the  essen- 
tials of  the  offense  defined  thereby  are,  generally  speaking:  a  person,  bank, 
or  other  institution  engaged  in  a  business  answering  to  the  description  of 
the  business  defined  in  the  statute;  second,  actual  insolvency  at  the  time 
the  money  was  received ;  third ;  knowledge  of  insolvency ;  and,  fourth,  the 
receipt  of  money  as  a  deposit  or  the  obtaining  of  a  loan  or  incurring  of 
an  indebtedness  in  violation  of  the  prohibition  contained  in  the  statute. '^^ 

Individual,  Bank,  or  Institution  Coming  within  Condemnation  of 
Statute. — A  trust  company,  though  it  has  and  exercises  some  of  the  func- 
tions of  a  bank,  is  not  a  bank  in  such  sense  as  will  render  its  officers  amen- 
able to  a  statute  of  this  character  where,  under  its  charter,  it  has  no  right 
to  receive  deposits  subject  to  check;  and  the  fact  that  it  has  engaged  in  the 


deposit  when  he  knows  that  he  or  the 
l)ank  is  "unsafe  or  insolvent,"  is  not 
in  conflict  with  Const.  U.  S.  Amend. 
14,  which  declares  that  "no  state  shall 
deny  to  any  person  within  its  jurisdic- 
tion the  equal  protection  of  the  law." 
Raker  7:  State,  .5-1  Wis.  368,  12  N.  W.  12. 
•Act  March  29,  1907  (St.  1907.  p.  414, 
c.  189),  makinj?  it  a  crime  to  receive 
hank  deposits  knowing-  the  hank  to  he 
insolvent,  is  not  unconstitutional,  as 
beins,^  a  special  law  for  the  punishment 
of  offenses.  Ex  parte  Pittman,  31  Xev. 
43.  99   Pac.   700. 

59.  Same — Imprisonment  for  debt. 
— Commonwealth  7'.  Sponslcr,  1  Lack 
Lei/.  X.  f,i. 

Act  May  9.  1889,  provjdinq-  for  the 
punishment  of  bankers  receivintr  money 
from  a  depositor,  knowing  that  the 
bank  is  insolvent,  does  not  violate 
Const.,  art.  1,  §  KJ,  which  provides  that 
a  debtor,  where  there  is  a  strong  pre- 
sumption of  fraud,  shall  not  be  con- 
fined in  prison  after  giving  up  his  es- 
tate to  his  creditors.  Commonwealth 
V.  Sponslcr.  1   Lack.  Lcir.  N.  m. 

60.  Statute  creating  prima  facie  pre- 


sumption not  a  denial  of  right  to  trial 
by  jury. — Meadowcroft  v.  People,  163 
111.  56,  45  N.  E.  991.  35  L.  R.  A.  176,  54 
Am.   St.   Rep.   447. 

61.  Not  forbidden  by  constitutional 
provision  imposing  civil  liability. — 
State  7:  Olcsoii,  'J5  Wash.  149,  76  I'ac. 
686. 

2  Ballinger's  .Ann.  Codes  &  St.,  § 
7121,  making  banking  oflicers  crimi- 
nally liable  for  receiving  deposits  after 
knowledge  of  insolvency  of  the  bank, 
is  not  in  violation  of  Const.,  art.  12.  § 
12,  providing  tliat  any  oflicer  of  a 
iianking  institution  wlio  shall  receive 
or  assent  to  the  reception  of  deposits 
after  he  shall  have  knowledge  of  the 
fact  that  such  banking  institution  is 
insolvent  or  in  failing  circumstances 
.'-hall  l)e  individually  responsible  for 
deposits  so  received.  State  t'.  Oleson, 
35   Wash.   149,  76  Pac.   686. 

62.  Sufficiently  defining  crime. — • 
Stale  7'.  Sat  t  lev,  13  1  Mo.  464,  33  S. 
W.   41. 

63.  Essentials  of  the  offense. — Coin- 
•.nonwealtli  r.  Sn.illi,  4   I'a.  ."^uiJor.  C(.  1. 


400 


BANKS    AND    BANKING. 


§  61   (3b) 


business  of  receiving  such  deposits  in  violation  of  its  charter  does  not  bring 
it  or  the  offending  officials  within  the  purview  of  the  act.'^^  Wliether  such 
a  statute  includes  within  its  purview  private  and  unchartered  banks  and  their 
officers  is  a  question  of  legislative  intent  and  statutory  construction  in  each 
case.^5  A  statute  which  does  include  private  banks  and  bankers  applies 
to  attorneys  at  law,  partners  in  business,  held  forth  to  the  public  by  their 
letter  heads,  notes,  checks,  etc.,  as  the  bank  of  a  certain  county. '^'^  Where 
the  statute  makes  it  a  felony  for  any  one  connected  with  a  banking  concern, 
either  public  or  private,  to  receive  deposits  while  such  institution  is  insolvent, 
it  is  not  material  in  what  capacity  the  interested  or  guilty  party  is  connected 
with  the  bank,  whether  as  an  ostensible  partner,  or  as  a  secret  conspirator 
with  the  actual  operator  of  the  same,  if  any  substantial  aid  is  given  by  him 
tending  to  violate  the  statute ;  and  hence  a  formal  dissolution  of  a  banking 
firm  can  not  exonerate  the  retiring  partner  from  full  accountability  for  sub- 
sequent acts  in  an  unlawful  plan  to  receive  deposits  during  the  insolvency 
of  the  bank.<^' 


64.  Persons  and  institutions  coming 
within  purview  of  statute — Trust  com- 
pany.—State  z:  Reid,  125  Mo.  43.  28  S. 
W.  172. 

65.  Private  and  unchartered  banks. 
— Section  1.350,  Rev.  St.,  of  ^lo.  de- 
claring that  "if  any  president,  director, 
manager,  cashier,  or  other  officer  of 
any  banking  institution,  shall  receive 
a  deposit  after  he  has  knowledge  thai 
the  bank  is  insolvent,  he  shall  be  guilty 
of  larceny,"  was  enacted  to  enforce  § 
27,  art.  12,  Const.  1875,  on  banking  cor- 
porations, and  does  not  apply  to  pri- 
vate banks  and  bankers.  State  7'.  Kel- 
sey,  89  Mo.  623,  1  S.  W.  838;  S.  C,  1 
S.  W.  841. 

The  proviso  in  Rev.  St.  of  Mo.  1899, 
§  1945  (Ann.  St.  1906,  p.  1320),  relat- 
ing to  the  offense  of  receiving  depos- 
its when  insolvent,  stating  that  "the 
failure  of  any  such  bank,  or  banking 
institution,  or  trust  company,  or  insti- 
tution, shall  be  prima  facie  evidence 
of  knowledge  on  the  part  of  any  such 
officer  or  person  that  the  same  was  in- 
solvent, or  in  failing  circumstances 
when  the  money  or  property  was  re- 
ceived on  deposit,"  applies  to  private 
as  well  as  incorporated  banks.  State 
V.  Salmon,  216  Mo.  466.  115  S.  W.  1106. 

Laws  of  Wash.  1893.  c.  Ill,  is  en- 
titled "An  act  punishing  bank  officers 
for  receiving  deposits  knowing  the 
bank  to  be  insolvent."  and  section  1 
makes  anj--  president,  director,  man- 
ager, cashier,  or  other  officer  of  any 
banking  institution  who  shall  receive 
deposits  knowing  the  bank  to  be  in- 
solvent guilty  of  a  felony.  Section  2 
provides  that  "any  person"  violating 
section  1  shall  be  punished,  etc.  Const., 


art.  12,  is  entitled,  "Corporations  other 
than  municipal,"  and  §  12  is  almost 
identical  in  language  with  the  statute, 
which  was  passed  with  reference 
thereto.  Acts  1907,  c.  225,  §  22,  incor- 
porated the  word  "owner"  into  the 
law,  while  Acts  1909,  c.  249,  §  388,  in- 
cluded stockholders  and  employees  as 
well  as  owners,  etc.  Held,  in  view  of 
the  title  of  the  act,  its  language,  and 
the  other  statutes  and  constitutional 
provisions,  that  section  1  did  not  ap- 
ply to  private  individual  bankers.  State 
V.  Youngbluth,  60  Wash.  383,  111  Pac. 
240. 

Acts  of  Va.  1893-94,  c.  210,  making 
it  an  offense  for  any  private  banker  or 
any  employee  of  any  private  banker 
to  accept  a  deposit  with  knowledge 
that  he  or  such  institution  is  insolvent, 
was  not  impliedly  repealed  by  Acts 
1902-3-4,  c.  578  (Va.  Code  1904,  §  1171), 
creating  the  same  offense  with  refer- 
ence to  banks,  and  defining  the  w^ord 
"bank"  to  include  banks  of  deposit  and 
discount,  savings  banks,  savings  so- 
cieties, savings  institutions,  and  trust, 
companies,  or  other  corporation  char- 
tered to  receive  deposits,  or  do  a  bank- 
ing business,  since  repeals  by  implica- 
tion are  not  favored,  and  will  not  be 
presumed  unless  the  repugnancy  is 
such  tliat  both  can  not  be  sustained 
and  construed  together.  Boyenton  z: 
Commonwealth    (Va.),   76  S.   E.  945. 

66.  Attorneys  at  law  operating  un- 
der banking  name. — Commonwealth  v. 
Sponslcr,  1   Lack.  Leg.  N.  61. 

67.  Capacity  in  which  guilty  party 
connected  with  bank. — State  z\  Cle- 
ments, 82   Minn.  434,  85  N.  W.  229. 


§  61   (3b) 


OFFICERS    AND    AGENTS. 


401 


Same — Persons  Engaged  in  Unauthorized  or  Illegal  Banking. — 

Under  an  act,  making  it  unlawful  for  the  officers  of  any  bank,  "or  the 
owner,  agent,  or  manager  of  an\-  private  bank  or  banking  institution,"  to 
receive  deposits  knowing  such  bank  to  be  insolvent,  the  owner  of  a  private 
bank  is  liable,  though  he  had  not  complied  with  the  provisions  of  the  statute 
in  the  organization  of  his  bank,  and  consequently  was  doing  an  unauthorized 
business. ^^  But  the  contrary  has  been  held  with  respect  to  a  trust  company 
which  had  and  exercised  some  of  the  functions  of  a  bank,  but  which  had 
no  authority  under  its  charter  to  receive  deposits  subject  to  check.'^'-^ 

Insolvency — When  Bank  Deemed  Insolvent  or  in  Failing  Circum- 
stances.— There  are  two  doctrines  upon  this  subject.  According  to  one 
line  of  decisions,  a  bank  is  insolvent  within  the  purview  of  a  statute  forbid- 
ding the  receipt  of  deposits  after  knowledge  of  insolvency  when  there  is  a 
present  inability  to  pay  depositors  as  banks  usually  do,  and  meet  all  liabilities 
as  they  become  due.  in  the  ordinary  course  of  business.'^"  According  to  the 
other  line  of  decisions,  the  terms  "unsafe,"  "insolvent."  "in  failing  circum- 
stances," etc.,  do  not  mean  insolvent  in  the  limited  sense  of  inability  to  pay 
depositors  and  creditors  in  the  ordinary  course  of  business,  but  insolvent 
in  the  broad  sense  of  a  deficiency  of  cash  and  assets  convertible  into  cash 
within  a  reasonable  time  to  pay  liabilities."^     Under  this  view,  the  words 


68.  Same — Persons  engaged  in  un- 
authorized or  illegal  banking. — State  v. 
Buck,  108  Mo.  622,  18  S.  W.  1113;  S. 
C,  120  Mo.  479,  25  S.  W.  573.  See, 
also,  ante,  "Officers  of  De  Facto  Bank- 
ing Corporations,"  §  60  (3) ;  "Illegal 
and   Unauthorized    Ranking."   §    61    d). 

69.  Same — Trust  company  receiving 
deposits  in  violation  of  charter. — State 
f.   Reid.   12.".   Mo.  4:'..  28   S.   W.   172. 

70.  Insolvency — When  bank  deemed 
insolvent  or  in  failing  circumstances. — 
State  V.  Stevens,  16  S.  Dak.  309.  92  X. 
W.  420;  State  v.  Cadwell,  79  Iowa  432, 
44  N.  W.  700;  Eads  Z'.  Orcutt.  79  Mo. 
.■\pp.  511. 

71.  Same — Same — Contrary  view. — 
HUis  f.  State,  138  Wis.  513,  119  N.  \V. 
1110,  20  L.  R.  A.,  N.  S.,  444;  Fleming 
7-.  State,  62  Tex.  Cr  .\pp.  653,  139  S. 
W.  508. 

The  term  "insolvencv"  as  used  in 
Ky.  St..  §  507  (Russell's  St.,  §  2186), 
providing  that,  if  any  president  of  a 
l)ank  shall  receive  or  assent  to  the  re- 
ceiving of  deposits  with  knowledge 
that  the  bank  is  insolvent,  he  shall  he 
guilty  of  a  felony,  means  that  all  of 
the  bank's  property  and  assets  arc  not 
stifficicnt  to  satisfy  its  debts,  and  not 
that  it  may  not  have  sufficient  funds 
ill  its  vanlts  to  satisfy  all  its  deposi- 
tftrs.  or  any  considerable  number  of 
them,  on  the  same  day.  or  in  case  of 
a  run.  Parrish  f.  Commonwealth.  136 
1    P.  &  P.— 26 


K)'.   377,   123   S.  W.  339. 

A  bank  is  "unsafe  or  insolvent" 
within  St.  1898,  §  4541,  making  a  bank 
officer  criminally  responsible  who  shall 
receive  a  deposit,  knowing  the  bank 
to  be  unsafe  or  insolvent,  when  the 
cash  value  of  its  assets  rcahzable  in  a 
reasonable  time  in  case  of  liquidation, 
as  ordinarily  prudent  person  would 
close  up  tlieir  business,  is  not  equal  to 
its  liabilities,  exclusive  of  stock  liabil- 
ities. Ellis  z:  State,  138  Wis.  513,  119 
X.  W.  1110,  20  L.  R.  A.,  N.  S.,  444. 

Where  liank  officers  largely  indebted 
to  it  and  possessing  property  interests 
in  a  corporation  to  a  very  significant 
amount  as  compared  with  such  indebt- 
edness convey  such  property  to  the 
liank  on  account  thereof,  pursuant  to 
an  un(K^rstanding,  the  fact  tliat  some 
of  the  officers  equally  interested  in  the 
bank  and  the  outside  property  are  not 
debtors  of  the  liank,  but  have  never- 
theless agreed  with  their  associates  to 
join  in  conveying  such  property  to 
strengthen  the  bank,  which  obligation 
the  other  officers  have  reason  to  sup- 
pose will  he  and  which  in  fact  is  re- 
deemed, does  not  militate  against  tlic 
outside  interests  of  such  n<>ndel)tor 
officers  being  considered  by  the  oth- 
ers, licfore  the  transfer,  on  the  ques- 
tion of  whcllicr  the  liank  is  solvent. 
Fllis  z:  State,  138  Wis.  513,  110  X.  W. 
1110.  20  L.  R.  A..  X.  S..  444. 


402  BANKS    AND    BANKING.  §    61     (3b) 

"unsafe  or  insolvent"  occurring  in  a  statute  are  held  to  be  legal  equivalents.' ^ 
And  in  balancing  the  assets  against  the  liabilities,  the  capital  stock  and  sur- 
plus fund  are  to  be  classed  as  resources, '^^  together  with  all  the  property,  real 
and  personal,  belonging  to  said  bank,  its  bills  receivable,  notes,  obligations 
due  the  bank  of  any  and  every  character,  considering  the  solvency  of  the 
makers,  indorsers,  and  guarantors  thereof,  and  the  value  of  the  securities 
thereon,  if  any,  also  including  all  stocks  and  bonds  held  by  the  bank  as 
its  property.'^  Considering  the  general  purpose  and  policy  of  such  statutes, 
together  with  the  fact  that  no  reasonable  man  would  make  a  general  deposit  in 
a  bank  if  he  knew  that  it  was  not  at  that  time  able  to  pay  depositors  and  cred- 
itors in  the  usual  course  of  business,  and  that  his  only  hope  of  ever  recovering 
it  again  was  dependent  upon  the  assets  of  the  bank  panning  out  a  sufficient 
amount  to  pay  dollar  for  dollar  upon  a  general  liquidation  and  winding  up  of 
its  affairs,  there  is  no  doubt  but  that  the  view  first  stated  is  correct,  and  that 
under  a  proper  construction  of  such  an  act  it  is  the  duty  of  the  officers  to 
close  the  doors  of  the  bank  and  refuse  to  receive  further  deposits  as  soon 
as  they  discover  that  the  bank  is  not  able  to  pay  depositors  checks  and  meet 
obligations  as  they  arise  in  the  ordinary  course  of  business.'''^ 

Uncertainty  as  to  Bank's  Real  Conditions — Reasonable  Belief, 
Good  Faith,  etc. — What  is  here  said,  however,  is  not  intended  to  militate 
against  the  doctrine  that  directors,  knowing  that  the  bank  is  getting  into  deep 
water,  financially,  may  yet  have  reasonable  grounds  to  believe  that  through 
judicious  management,  or  the  assistance  of  outside  capital,  it  will  be  able 
to  tide  over  its  temporary  embarrassment  and  establish  itself  upon  a  firm 
basis,  and  that  so  believing,  they  may  in  all  good  faith,  and  without  subject- 
ing themselves  to  criminal  liability,  keep  it  open  and  continue  to  receive 
deposits  so  long  as  there  is  a  reasonable  ground  for  such  belief  and  ability 
to  pay  obligations  as  they  arise  in  the  ordinary  course  of  business.'*^ 

Liability  as  Affected  by  Cause  and  Extent  of  Insolvency. — On  an 
issue  as  to  whether  a  banker  received  deposits  while  insolvent,  it  is  imma- 
terial whether  the  bank  became  insolvent  by  his  fault  or  by  accident,  and 
whether  the  insolvency  consisted  in  inability  to  pay  depositors  or  other 
creditor,  or  both."''' 

72.      Same— "Unsafe     or     insolvent"  Tenn.    98,    34    S.  W.    222;    Cassiday    v. 

used    synonymously.— Ellis     t-.      State,  Uhlmann,  170  N.  Y.  505,  6,3  N.  E.  554; 

138  Wis.  513.  119  N.  W.  1110,  20  E.  R.  Nathan  v.  Uhlmann,   184   N.   Y.  606,  77 

A.,  N.  S.,  444.  N.   E.   1192.         _ 

73       Same— What   considered   assets  ^^-     Uncertamty  as  to  banks  condi- 

r^'             ^T            - ,   T'        on/-    oo   o     '  tion — Reasonable    belief,     good     faith, 

— State  V.   Myers,   o4  Ivan.  206,  38   Pac.  „.„      c.^     t       ■         ^        o     r>              t   i 

r,„p  etc. — St.    Louis,    etc.,    R.    Lo.    v.    John- 

■^  _  _  -r-,       .  o  ^ton.    133    U.    S.   566,   33    L.    Ed.    6S3,   10 

74.  Same— Same.— Fleming  v.  State,  s.  Ct.  390,  reversing  27  Fed.  243; 
62  Tex.   Cr.  App.   653,   139   S.   W.   598.  Dodge    v.    Mastin,    17    Fed.    660,    5    Mc- 

75.  Same — Better  doctrine. — See  Crary  404;  Fleming  v.  State,  62  Tex. 
State  V.  Stevens,  16  S.  Dak.  309,  92   N.       Cr.  App.  653,   139   S.   W,   598. 

W.  420;  State  v.  Cadwell,  79  Iowa  432,  77.      Liability    as    affected    by    cause 

44  N.  W.  700:  Eads  v.  Orcutt,  79  Mo.  and  extent  of  insolvency. — Carr  v. 
App.      511;     Minton      v.     Stahlman,     06       State,    104    Ala.    4,    16    So.    150. 


§  61   (3b) 


OFFICERS    AND    AGENTS. 


403 


Knowledge  of  Insolvency. — While  practically  all  statutes  concerning 
criminal  liability  for  receipt  of  deposits  after  knowledge  of  insolvency  pro- 
ceed upon  the  same  general  idea  or  principle,  yet  in  their  exact  wording  as 
to  details  they  present  such  a  variety  of  expression  that  it  is  well-nigh  im- 
possible to  formulate  any  general  statement  as  to  the  character  or  degree 
of  knowledge  of  insolvency  necessary  to  guilt.  But  considering  the  dual 
purpose  of  such  statutes,  namely,  to  protect  depositors  from  fraud,  after 
insolvency,  and  to  spur  directors  and  other  officials  of  banking  institutions 
up  to  such  a  degree  of  diligence,  prudence,  and  careful  attention  in  the 
management  of  the  bank's  affairs  as  will  reduce  the  danger  of  insolvency 
to  a  minimum,  the  reasonable  and  common  sense  doctrine  would  seem  to  be 
that  actual  knowledge  of  insolvency  should  not  be  held  essential  to  guilt, 
but  that  directors  and  other  chief  officers  who  are  in  a  position  to  know,  and 
whose  duty  it  is  to  know,  the  condition  of  the  bank  should  be  held  guilty, 
not  only  in  cases  of  actual  knowledge,  but  in  every  case  in  which  their  lack 
of  knowledge  is  due  to  their  own  negligence  and  fault ;  since  under  the  con- 
trary doctrine  the  natural  effect  of  the  statute  w^ould  be,  not  to  encourage 
diligence,  careful  attention,  and  an  intimate  knowledge  of  the  bank's  afifairs, 
but  exactly  the  contrary  course  of  conduct,  for  the  simple  reason  that  the 
more  ignorant  an  official  could  show  himself  to  be  of  the  bank's  condition, 
the  less  danger  there  would  be  of  his  conviction  under  the  statute.  And, 
accordingly,  it  has  been  so  held.""  It  must  be  admitted,  however,  that  the 
majority  of  the  cases  take  the  opposite  view,  and,  giving  the  statutes  a 
strict  construction  in  favor  of  the  accused,  hold  that  actual  knowledge  of 
insolvency  is  essential  to  guilt." ^     On  the  other  hand,  it  has  been  held  in  at 


78.  Knowledge  of  insolvency — Ne- 
cessity for  actual  knowledge. — State  v. 
Cadwalladcr.  \:,\  Ind.  (JOT.  57  N.  E. 
512. 

An  nfHcer  of  a  bank  who  receives  a 
deposit  when  the  bank  is  insolvent, 
in  violation  of  Burns'  Rev.  St.  1894, 
§  20.31,  subjecting  such  officer  to  pun- 
ishment as  for  embezzlement,  is  not 
e.xcusable  for  lack  of  knowledf?e  as 
to  the  insolvency  of  the  bank,  where 
his  ignorance  of  the  insolvency  was 
due  to  his  own  negligence  or  fault. 
State  V.  Cadwallader,  1.54  Ind.  007,  57 
N.    E.    512. 

79.  Same — Cases  holding  actual 
knowledge  essential  to  guilt. — State  v. 
1'innblin,  57  Kan.  S4I,  4,S  Pac.  144; 
State  V.  Dunning,  130  Iowa  678,  107  X. 
W.  927;  Parrish  v.  Commonwealth, 
136  Ky.  377.  123  S.  W.  339;  Stewart  v. 
State,  95  Miss.  027,  49  So.  015. 

.\  person  charged  with  having  re- 
ceived deposits,  as  an  officer  of  a  bank, 
when  it  was  insolvent,  is  not  guilty 
of  a  crime,  under  Laws  1891.  c.  43, 
§    10.    l)ecause    through    his    negligence 


he  does  not  know  its  condition;  but 
he  must  have  received  the  deposits 
knowing  the  bank  to  be  insolvent. 
State  V.  Tomblin,  57  Kan.  841,  48  Pac. 
144. 

One  may  not  be  convicted  under 
Code,  §  1885,  making  it  a  felony  for 
any  banker  to  knowingly  receive  de- 
posits when  insolvent,  unless  actual 
knowledge  of  the  insolvency  is  shown, 
and  the  fact  of  insolvency  at  the  time 
of  receiving  a  deposit,  together  with 
ignorance  of  insolvency  through  negli- 
gence, is  not  sufficient.  State  v.  Dun- 
ning, 130  Iowa  078.   107  N.  W.  .927. 

The  word  "knowledge"  as  used  in 
Ky.  St.,  §  597  (Russell's  St.,  §  2180), 
making  it  a  felony  for  a  bank  presi- 
dent to  receive  deposits  with  knowl- 
edge of  the  bank's  insolvency,  has  no 
technical  meaning,  but  meant  that  the 
officer  Iiad  knowledge  of  the  existing 
condition  by  means  of  his  relation  to 
the  l)ank,  his  association  with  it,  and 
his  control  over  it;  his  direction 
thereof  lieing  such  as  to  give  him  ac- 
tual,   personal    information    concerning 


404 


BANKS    AND    BANKING. 


§  61   (3b) 


least  one  jurisdiction  that  neither  knowledge  of  insolvency  nor  intent  to 
defraud  was  an  essential  element  of  guilt  under  the  statute  in  force  therein; 
or,  in  other  words,  that  the  liability  imposed  by  the  statute  was  absolute. '^"^ 

Receipt  of  Deposits — What  Constitutes  a  Deposit. — A  statute  mak- 
ing a  bank  criminally  responsible  for  receiving  a  dej^osit  knowing  the  bank 
to  be  insolvent,  contemplates  such  a  deposit  as  will  create  the  relation  of 
debtor  and  creditor,  or  bailor  and  bailee,  or  principal  and  agent  ;^^  but 
does  not,  unless  the  statute  is  expressly  so  worded,  include  a  loan  to  the 
bank  while  the  latter  is  insolvent.^-  Incidentally  it  may  be  stated  that  a  cer- 
tificate of  deposit,  signed  by  the  cashier  of  defendants'  bank,  certifying  that 
a  certain  person  had  deposited  therein  a  named  sum,  payable  to  her  own 
order,  in  current  funds,  on  return  of  the  certificate  properly  indorsed,  is 
evidence  of  a  deposit,  within  the  meaning  of  such  statute,  and  not  of  aioan.^^ 
The  deposit  of  a  check  in  a  bank,  it  being  treated  by  the  depositor  and  the 
bank  as  money,  the  former  obtaining  credit  upon  which  he  may  draw 
money,  is  a  deposit  of  money  within  the  purview  of  a  statute  of  this  kind.^* 
and  it  is  immaterial  that  upon  the  presentation  of  the  check  it  was  paid 
partly  in  cash  and  partly  by  a  credit  to  the  payee's  account.-^ 

Same — Money,  Notes,  Bills,  etc.,  within  Purview  of  Statute. — The 
word  "draft,"  as  used  in  an  act,  providing  for  the  punishment  of  a  banker 
who  receives  deposits  of  money,  drafts,  etc.,  when  the  bank  is  known  to  be 
insolvent,  includes  checks.^''     And  under  a  statute  making  it  a  felony  for 


it.  Parrish  v.  Commonwealth,  136  Ky. 
377,  123   S.  W.  339. 

One  may  not  be  convicted,  under 
Code  1906,  §  1169,  making  it  a  crime 
for  an  employee  of  a  bank  to  receive 
a  deposit,  knowing  or  having  good 
reason  to  believe  the  bank  to  be  in- 
solvent, unless  he  actually  knew  or 
had  good  reason  to  believe  the  bank 
was  insolvent;  and  the  fact  that  the 
bank  was  insolvent,  and  accused  was 
ignorant  of  it  through  negligence,  is 
not  sufficient.  Stewart  r.  State,  95 
Miss.  627,  49  So.  615. 

Receipt  of  deposit  by  officers  of  an 
insolvent  bank  does  not  constitute  an 
offense  under  Act  March  13,  1909 
(Laws  N'ev.  1909,  c.  92),  unless  they 
knew  of  such  insolvency.  Eureka 
County  Bank  Habeas  Corpus  Cases 
TNev.),   126  P.   655. 

80.  Same — Liability  held  to  be  abso- 
lute.—Murphy  f.  People,  19  111.  App. 
125;  Lanterman  z'.  Travous,  73  111. 
App.  670,  affirmed  in  174  111.  459.  51 
N.    E.    805. 

The  act  for  the  protection  of  bank 
depositors  (June  4,  1879)  renders 
bankers  liable  to  prosecution  for  re- 
ceiving deposits  when  insolvent, 
whether  they  are  aware  of  their  in- 
solvency   or    not.      Lanterman    t'.    Tra- 


vous,  73    111.   App.   670,   affirmed   in   174 
111.   459.   51    N.   E.   805. 

81.  Receipt  of  deposits — What  con- 
stitutes a  deposit. — Ellis  v.  State,  138 
Wis.  513,  119  N.  W.  1110,  20  L.  R.  A., 
X.   S..   444, 

82.  Same — Loan  not  included. — State 
V.   Cadwell.  79   lov/a  432,  44  N.  W.  700. 

83.  Same — Certificate  of  deposit  evi- 
dence of  deposit  and  not  loan. — State 
V.  Cadwell,  79  Iowa  432,  44  N.  W.  700: 
State  v.  Shove,  96  Wis.  1,  70  N.  W. 
312. 

To  receive  money,  giving  a  certifi- 
cate of  deposit  therefor  payable  at  a 
certain  time,  with  interest,  is  receiv- 
ing it  "on  deposit,"  within  Rev.  St.. 
§  4541,  declaring  it  an  offense  for  an 
officer  of  a  bank,  when  knowing  it  is 
insolvent,  to  receive  money  "on  de- 
posit" or  "for  safe-keeping"  or  "to 
loan"  or  "for  collection."  State  v. 
Shove,   96  Wis.   1,   70   X.   W.   312. 

84.  Same — Deposit  of  check  a  de- 
posit of  money. — Ellis  ■:■.  State,  138 
Wis.  513.  119  X.  W.  1110,  20  L.  R.  .A.., 
X.    S.,    444. 

85.  Same — Check  paid  partly  in  cash 
and  partly  by  giving  credit. — State  z'. 
Salmon,  216  AIo.  466,  115  S.  W.  1106. 

86.  Same — Money,  notes,  bills,  etc., 
within  purview  of  statute. — State  v. 
Warner,    60   Kan.   94,   55    Pac.    342. 


§    61     (3b)  OFFICERS    AXD   AGENTS.  405 

a  bank  cashier  to  receive  on  deposit  bank  bills  or  notes,  United  States  Treas- 
ury notes,  or  "other  notes,  bills,  or  drafts,  circulating  as  money  or  cur- 
rency," the  quoted  phrase  refers  to  notes,  bills,  or  drafts,  other  than  United 
States  Treasury  notes  and  national  bank  notes,  which  pass  from  hand  to 
hand :  that  is.  such  as  are  payable  to  bearer  or  are  properly  indorsed  by  the 
payee  so  that  the  legal  title  may  pass  by  delivery.s^ 

Same— What  Constitutes  "Receiving."— It  is  not  necessary,  to  con- 
stitute a  violation  of  the  statute,  that  the  deposit  must  be  received  in  the 
bank  building  or  rooms,  but  the  receipt  of  money  on  deposit  for  the  bank 
outside  of  its  rooms  is  sufficient. ""* 

Same— When  Offense  Complete.— Under  a  statute,  providing  that,  if 
any  banker  shall  receive  any  deposit  when  insolvent,  whereby  the  deposit 
so  made  "shall"  be  "lost"  to  the  depositor,  said  banker  "so  receiving  said 
deposit"  shall  be  deemed  guilty  of  embezzlement,  and  on  conviction  fined  in 
a  sum  double  the  amount  of  the  "sum  so  embezzled  and  fraudulently  taken," 
the  crime  is  consummated  when  the  insolvent  banker,  having  fraudulently 
received  the  deposit,  by  his  failure,  suspension,  or  involuntary  liquidation 
deprives  the  depositor  of  the  benefit  of  such  part  of  the  deposit  as  remains 
to  his  credit.80  It  is  not  necessary  that  a  demand  be  made  for  the  return 
of  the  deposit,  where  the  day  after  the  deposit  a  receiver  was  appointed  for 
the  banker,  who  was  hopelessly  insolvent.^o  And  where  the  statute  con- 
tains a  provision  making  insolvency  and  failure  of  the  bank  within  thirty 
days  after  the  receipt  of  the  deposit  prima  facie  evidence  of  knowledge  and 
mtent  to  defraud,  the  offense  is  still  complete  whenever  the  deposits  are 
received  by  an  insolvent  bank,  whether  such  receipt  be  within  thirty  davs 
of  the  closing  of  the  bank  or  not.  the  thirty  day  limit  being  merely 'a  rule 
of  evidence  declaring  what  is  prima  facie  evidence  of  an  intent  to  defraud  ^' 

Same-When  Deposit  "Lost"  to  Depositor.-Where  the  statute  de- 
fines the  offense  as  consisting  of  the  fraudulent  receipt  of  deposits  with 
knowledge  of  insolvency,  "whereby  the  deposit  so  made  shall  be  lost  to  the 
depositor,"  the  deposit  is  "lost"  to  the  depositor  when,  by  reason  of  such 
msolvency,  he  is  deprived  of  the  use  of  the  same  or  any  part  thereof."^  And 
this  does  not  mean  such  loss  or  deprivation  as  may  appear  upon  the  ulti- 
mate settlement  of  the  bank's  affairs,  but  simplv  inabilitv  by  reason  of 
insolvency  to  repay  the   same  upon  demand."-^   or  in   the  iisual  course  of 

■\rl^"l^m!^^W^-7-r''''  ''•   ^"'•''^••"  •'.'•      Same-Same     Effect      of      pro- 

R«       qI;!      \i^7u  J               ■              u  '"^•°"    making    failure     within      thirty 

cefvin.''"';;r^.'\^'°?;^T'   T   ''■  ^'^'    P^"'"    ^^^'^     evidence.-Lantcr'^ 

"      "fV\V    ->'-•                  •                ''"''''  ')'''''    '■•    T^^vous.    7,1    Til.    App.    f,70,    af- 

~Rq   "^'^r^^    \xju'        cr                        ,  firmed   in   174   Til.   4,'-)n.   T)!    N.   K.   SOr,. 

89.  bame— When    offense    complete.  ao     c,,^^     \xtu       j         •    i 
-Mcarlowcroft    -.•.    TYoplc.    10.",    Til.    r,C,.  no.Lr      q!^      ^"n^^P,°^'*  ^°^l  *?  *^*'- 

90.  Same — Same — Demand      of    re- 
turn of  deposit  unnecessary. — ATeadow-  ^^-     Same — Same.— State     ?■.     Reacli, 
crr.ft    z:    People,    1G3    111.    .56.    4.'>    N     K  ^'^'^   ^"'^-  "■*•  ■*''   ^^-   I'--  ^t^'  ■*'"'  >■'•   ^-   1 1"), 
^^n.  3.->  I..    R.  A.   176,  54  Am.   St.  Rep.  "'"'  ^-  ^^-    \-  1'-'- 

447. 


406  BANKS    AND    BANKING.  §    61     (3b) 

business  as  required  by  the  implied  contract  arising  out  of  the  offer  and 
acceptance  of  the  deposit  ;-'■*  for  it  is  held  that  the  word  "lost"  includes  the 
loss  of  the  use  of  the  whole  or  a  part  thereof  even  for  a  time,  and  it  is  no  de- 
fense that  the  resources  of  the  bank  are  ultimately  found  sufficient  to  pay 
all  the  debts,'^^  or  that,  pending  the  prosecution,  the  depositor  is  tendered 
the  full  amount  of  his  claim. ^*'' 

Same — Liability  as  Affected  by  Return,  or  Intent  to  Return  De- 
posit.— The  fact  that  a  banker  receiving  money  on  deposit,  knowing  the 
bank  to  be  insolvent,  intended  at  the  time  to  return  the  same  is  immaterial.^" 
It  is  different,  however,  in  the  case  of  a  special  deposit  specifically  set  apart 
with  the  owner's  name  and  kept  separate  from  the  general  funds  of  the  bank, 
and  which  identical  money  or  bonds  or  other  security  is  afterwards  returned 
to  him  unimpaired  by  reason  of  the  bank's  insolvency.^''* 

Same— Ability  to  Follow  Deposit  as  a  Trust  Fund. — It  is  no  defense 
to  a  prosecution  for  knowingly  receiving  a  deposit  as  a  banker  when  insolvent 
that  the  depositor  could  follow  the  money  so  received  as  a  trust   fund.^'-^ 

Same — Receiving  Deposits  from  Persons  Indebted  to  Bank. — Stat- 
utes creating  criminal  liability  for  the  receipt  of  deposits  after  knowledge 
of  insolvency  do  not  contemplate,  as  coming  within  the  condemnation  of 
the  act.  those  transactions  which,  though  they  may  be  deposits  in  form,  are, 
in  practical  effect,  only  the  payment  of  a  present  existing  indebtedness,  then 
due  and  owing,  as  upon  an  overdrawn  account.^  In  order  to  claim  the 
benefit  of  this  exception,  however,  the  indebtedness  must  have  been  such 
that  the  bank  had  the  legal'  right  at  the  time  the  deposit  was  received  to 
apply  it  upon  the  debt,  so  that  the  depositor  would  have  had  no  right  to 
have  the  deposit  repaid  on  demand  ;  in  other  words,  the  debt  must  have 

94.  Same — Same. — State  v.  Beach,  handed  to  him  for  deposit,  placed  it  in 
147  Ind.  74,  43  N.  E.  949,  46  N.  E.  145,  an  envelope  marked  with  its  owner's 
36  L.  R.  A.   179.  name,   to  be  returned  to  him   after  the 

95.  Same — Same. — State  t'.  Krasher,  bank  closed,  and  who  returned  the 
170  Ind.  43,  83  N.  E.  498;  State  v.  identical  $20  to  the  depositor  after  the 
Harter,  170  Ind.  703,  83   N.   E.  1135.  bank's    failure,    was    not    guilty    ot   em- 

96.  Same — Same. — Meadowcroft  v.  bezzlement.  Commonwealth  z'.  Jun- 
People.   163   111.  56,   45   N.   E.   991,  35   L.       kin,    170    Pa.    194.   32    Atl.    617. 

R.  A.  176,  54  Am.  St.  Rep.  447.  99.    Same — Ability  to  follow  deposit 

97.  Same — Liability    as    affected    by  as    a    trust   fund. — State    t.    Eifert,    102 
return    or    intent    to    return    deposit. —  Iowa  ISS,  65  X.  W.  309,  7)    X.  W.  248, 
Commonwealth    7'.     Sponsler,    1     Lack.  38  L.  R.  A.  485.  63  Am.  St.  Rep.  433. 
Les.  X.  61.  1.     Same — Receiving     deposits     from 

98.  Same — Special  deposits — Return  persons  indebted  to  bank. —  Ellis  :■. 
of  identical  money  or  other  thing. —  State,  138  Wis.  513,  119  X.  \\'.  1110,  20 
Commonwealth  r.  Junkin,   170   Pa.   194,  L.   R.  A  ,  X.  S.,  444. 

32  Atl.  617.  A   banker   is   not    guilty   of   receiving" 

Under  Act  May  9,   1889,  §   1,  provid-  deposits  with   knowledge  of  the  bank's 

ing  that  any  officer  of  a  bank  who  shall  insolvency,  within  the   meaning  of  Act 

take   money  from  a  depositor  with  the  May   9,   1889,   making   it   a   criminal   of- 

knovv'ledge    that    the     bank    is    at    the  fense   so  to   do.   when   the   depositor  at 

time    insolvent    shall   be    guilty   of   em-  the  time  owes  the  bank  a  sum  greater 

bezzlement,    an     oi¥lcer      of      a      bank,  than     the      amount      of      the      deposit, 

knowing  the  bank  to  be  insolvent  and  Commonwealth    z'.    Schall.    12    Pa.    Co. 

about    to    close,     who      received      $20,  Ct.    R.   209. 


§    61     (3b)  OFFICERS    AND    AGENTS.  407 

been  then  due  and  owing.-  Where  a  bank  officer  accepts  a  deposit  and 
places  it  to  the  credit  of  a  depositor,  his  status,  as  regards  guilt  under  such 
a  statute,  is  thereby  fixed,  and  is  not  subject  to  change  by  maturity  there- 
after of  an  indebtedness  by  the  depositor  to  the  bank,  before  suspension 
of  the  bank,  absorbing  a  part  or  the  whole  of  the  deposit.-^  And  this  is 
true  even  where  the  statute  contains  an  express  exception  as  to  deposits 
received  from  persons  indebted  to  the  l)ank.-* 

Guilty  Knowledge  or  Participation  in  Receipt  of  Deposits — Lia- 
bility for  Acts  of  Another. — Where  once  it  is  shown  that  the  directors 
or  other  managing  officers  of  the  bank  had  knowledge  of  its  insolvency, 
or  were  chargeable  with  such  knowledge,  in  those  jurisdictions  where  that 
is  held  to  be  sufficient,  it  is  not  necessary,  in  order  to  fix  their  guilt  under 
the  statute,  to  go  further  and  show  that  they  were  the  persons  who  actually 
manually  received  the  deposit,  or  that  they  had  actual  knowledge  nf  its 
receipt,  or  that  they  were  even  present  in  the  bank  or  in  the  town  at  the 
time  it  was  received.^  In  other  words,  the  ofifense  defined  by  the  statute 
may  be  committed  through  agents  and  subordinates,  as  well  as  in  person, 
and  if  the  directors  or  other  chief  officers  having  in  charge  the  manage- 
ment of  the  bank's  affairs  fail  to  take  prompt  steps  to  close  the  bank  upon 
discovering  its  insolvency  and  to  prevent  the  receipt  of  further  deposits, 
they  must  be  held  responsible  for  the  acts  of  their  agents  and  subordinates 
who  do  the  actual  receiving;  and  this,  as  stated,  without  regard  to  their 
actual  knowledge  of  the  receipt  of  any  particular  deposit  or  deposits,  or 
their  personal  presence  in  the  bank,  or  even  in  the  town,  at  the  time  the 
deposit  was  received."   and  without  regard  to  whether  the  teller  or  other 

2.  Same — Same,  debt  must  have  259.  .51  So.  4:  State  v.  Sattlcy,  1.31  Mo. 
been   then    due    and     owing.— Ellis      7'.       464.  33  S.  W.  41. 

Slate.  138  Wis.  .513.  119  X.  W.  1110,  20  Under  the   Act    (Acts   1892-93,  p.   95) 

L.  R.  A..  N.  S..  444.  making-    ijuilty    of    a     misdemeanor      a 

3.  Same — Same — Same. — Ellis  r.  l:>ank  officer  or  asjent  who  shall  re- 
State.  138  Wis.  513.  119  X.  W.  1110,  20  ceive  for  deposit  any  money,  knowint? 
L.  R.  A..   X.  S.,  444.  at  the  time  that  the  bank  is  insolvent. 

4.  Same — Same — Effect  of  express  a  manaafer  who  keeps  his  bank  open 
exception  contained  in  statute. — State  for  business,  knowing  it  to  be  in- 
:••  licnch.  147  Tnd.  74,  43  X.  E.  949.  40  solvent,  is  guilty  in  respect  to  a  de- 
X.  E.  145,  31)  L.  R.  .\.  179;  State  v.  posit  received  by  the  teller  in  the 
Cndwallader.  154  Tnd.  607,  57  X^.  E.  512.  course    of    business,    though    the    man- 

5.  Guilty  knowiedg:e  or  participation  ager  himself  be  not  present,  or  even 
in  receipt  of  deposits  Liability  for  in  town,  and  tlie  teller  liimsclf  have  no 
acts  of  another. — State  r.  Cad  well.  79  !.'uilty  knowledge.  Carr  f.  State,  104 
Towa  432.  44   X.  W.  700;   Carr  t-.   State.  Ala.   4,   16   So.   150. 

H)4    Ma.  4.   16   So.   150;    Baker  t'.   State.  Tn    a    prosecution     against      a      liank 

54  Wis.   368,   12   N^.  W.   12;   McChire   :\  president  for  receiving  or  assenting  to 

Peonle,  27  Colo.  358.  61   Pac.  612;  State  the   reception   of   deposits   with   knowl- 

T.   Mitchell,   on   Miss.  f359,   51    So.   4.  edcre  of  the  bank's  insolvency,  he  need 

6.  Same — Managing;  affairs  respon-  not  be  shown  to  have  assented  to  th.at 
sible  for  acts  of  subordinates. — State  particular  deposit,  since  his  rccogni- 
-  C;ul\vfll.  79  Towa  >:'.'.'.  tl  X.  W.  700:  tion  of  the  eeneral  authority  of  llie 
^':'rr  -■.  S'ate.  104  Ma.  4.  16  So.  150;  teller  to  receive  deposits,  without  tnk- 
T'^ker  t'.  State.  5^  Wis  368.  12  X.  W.  nig  any  steps  to  prevent  such  recei)n. 
■'2:  McChire  7-  Peonlf.  27  Colo.  35.8.  ;ifter  he  knew,  or  in  law  was  charged 
61   Pac.  612:  State  t-.  Mitchell.  96  Miss.  with    kiuiwledgc,    of     the      bank's      in- 


408 


BANKS    AND    BANKING. 


§  61   (3b) 


official  who  actually  received  the  money  knew  that  the  bank  was  then 
insolvent.'^  It  is  their  duty,  under  such  circumstances,  to  at  once  revoke 
the  authority  of  subordinate  employees  in  the  matter  of  receiving  deposits, 
and  failing  to  do  so,  they  are  criminally  liable  for  the  acts  of  those  em- 
ployees with  respect  to  deposits  thereafter  received.^ 

Same— Officer  Who  Assists  or  Advises  Keeping  Bank  Open. — 
Where  an  officer  of  a  bank,  knowing  the  bank  to  be  insolvent,  assists,  ad- 
vises, etc.,  the  keeping  of  the  bank  open  for  the  receipt  of  deposits,  and 
while  it  is  so  kept  open  a  particular  deposit  is  received,  such  officer  is  guilty 
of  a  violation  of  such  statute,  though  the  money  is  actually  received  by 
another.^ 


solvency,  was  an  assent  to  the  recep- 
tion of  a  deposit  by  his  employee. 
McClure  v.  People,  27  Colo.  358,  61 
Pac.   612. 

An  officer  of  a  bank  can  not  relieve 
himself  from  criminal  liability  for  re- 
ceiving deposits  when  the  bank  was 
insolvent  by  intentionally  absenting 
himself  from  the  bank,  and  abstaining 
from  participating  in  its  management,  i 
and  purposely  neglecting  to  avail  him- 
self of  means  of  information  as  to  its 
financial  condition,  or  by  showing  that 
if  he  had  given  his  attention  to  its 
business,  by  reason  of  his  lack  of  fit- 
ness and  ignorance  of  banking  meth- 
ods, he  could  not  have  ascertained  its 
true  condition.  AlcClure  v.  People,  27 
Colo.   358,   61    Pac.  612. 

Acts  18th  Gen.  Assem.,  c.  153,  pro- 
vides that  no  banking  firm  shall  accept 
on  deposit  any  money  when  insolvent, 
and  any  member  of  such  firm,  who  re- 
ceives a  deposit,  knowing  of  such  in- 
solvency, shall  be  guilty  of  a  felony, 
etc.  An  indictment  alleged  that  de- 
fendants, a  firm  engaged  in  banking, 
were,  on  a  date  specified,  insolvent, 
and,  being  so,  that  they  accepted  and 
received  on  deposit  a  certain  sum  of 
rnoney.  Held,  that  evidence  is  admis- 
sible that  the  deposit  was  received  by 
the  cashier  of  defendants'  bank  during 
their  absence;  it  being  immaterial 
whether  they  did  the  act  constituting 
ihe  ofifense  in  person  or  by  an  agent. 
State  V.  Cadwell,  79  Iowa  432,  44  N. 
W.   700. 

Under  Code  1906,  §  1169,  declaring  a 
punishment  if  the  president,  manager, 
cashier,  teller,  assistant.  clerk,  or 
other  employee,  or  agent  of  a  bank 
receive  a  deposit  knowing,  or  having 
good  reason  to  believe,  the  establish- 
ment to  be  insolvent,  without  inform- 
ing the  depositor  of  such  condition, 
there  may  be  a  conviction  of  a  di- 
rector, the  bank  having  been  kept 
open  by  the  directors  with  knowledge 


of  its  status,  though  he  did  not  manu- 
ally receive  the  deposit.  State  v. 
:Mitchell,    96    Miss.    259.    51    So.    4. 

Rev.    St.,    §    4541,    provides    that    any 
emploj^ee  of  a  bank,  "or  of  any  person 


engaged  in  banking, 


or  any  per- 


son engaged  in  such  business,"  who  re- 
ceives money  or  commercial  paper  on 
deposit,  or  for  safe-keeping,  etc.,  when 
he  has  good  reason  to  know  that  he 
is  "unsafe  or  insolvent."  shall  be  pun- 
ished as  therein  prescribed.  Held,  that 
the  banker  himself  may  be  punished 
as  provided  in  that  section,  and  it  is 
not  confined  to  officers,  clerks,  or 
agents  of  corporations,  or  individuals 
engaged  in  such  business.  Baker  if. 
Stated  54  Wis.   368,   12   N.   W.   12. 

7.  Same — Knowledge  of  insolvency 
by  person  actually  receiving  deposit. — 
Carr  v.   State,   104  Ala.  4.   16   So.   150. 

8.  Same — Duty  to  revoke  authority 
of  subordinates  upon  knowledge  of  in- 
solvency.— State  V.  Sattley,  131  Mo. 
464.  33   S.  W.  41. 

If  a  bank  employee,  by  authority  of 
his  superior  officer,  given  before  the 
latter  had  knowledge  that  the  bank 
was  insolvent,  receives  a  deposit  after 
its  insolvency,  such  officer,  unless  he 
revoked  the  authority  after  he  became 
aware  of  the  condition  of  the  bank, 
will  be  liable  to  prosecution  under 
Rev.  St.  1889,  §  3581,  making  it  a  crime 
for  a  bank  officer  to  assent  to  the  re- 
ceipt of  a  deposit,  knowing  that  the 
bank  is  in  failing  circumstances.  State 
V.   Sattley,   131    :\Io.  464,   33   S.   W.   41. 

9.  Same — Officer  who  assists  or  ad- 
vises keeping  bank  open. — State  7'. 
Yetzer,   97   Iowa   423.  66   N.   W.   737. 

One  who  had  complete  and  personal 
charge  of  the  business  of  an  unincor- 
porated bank,  and  knew  of  its  insol- 
vent condition  when  money  was  re- 
ceived on  deposit  by  its  president,  was 
an  accomplice  to  the  crime.  Brown  v. 
State   (Tex.   Cr.  App.),    151   S.  W.  561. 


§    61     (3b)  OFFICERS    AXD    AGENTS.  409 

Same — Officer  Who  Permits  or  Connives  at  Receipt  of  Deposit. — 

An  officer  of  an  insolvent  bank  who.  knowing  of  its  insolvency,  permits 
or  connives  at  the  receiving  of  deposits,  is  guilty  of  the  ofifense  defined  by 
the  statute,  whether  he  is  a  managing  party  or  not.^" 

Same — Liability  for  Acts  of  Subordinates  in  Violation  of  Orders. 
— An  officer  of  an  insolvent  bank,  who  instructs  the  teller  or  other  sub- 
ordinate employee  to  receive  no  further  deposits,  whatever  his  civil  lia- 
bility may  be,  is  not  liable  to  a  criminal  prosecution  for  the  act  of  such 
employee  in  receiving  deposits  in  violation  of  his  orders. ^^  It  is  essential, 
therefore,  and  generally  sufficient,  in  a  prosecution  of  this  kind,  for  the 
state  to  prove  either  the  receipt  of  the  deposit  by  the  defendants,  or  one 
of  them,  a  direction  to  their  subordinates  to  receive  it,  a  participation  in 
its  receipt,  or  a  ratification  thereof  by  the  use  of  that  particular  money 
or  otherwise.^- 

Same — Distinction  between  Receipt  and  Assent  to  Receipt. — In 
Xevada,  under  a  statute  penalizing  every  officer  of  any  bank  who  "receives 
any  deposits"  knowing  the  bank  to  be  insolvent,  the  court  drew  a  distinc- 
tion between  the  receipt  and  the  "assent"  to  the  receipt  of  a  deposit,  hold- 
ing that  the  statute  did  not  penalize  the  act  of  "assent"  to  the  reception 
of  a  deposit,  and  that  where  the  teller  of  an  insolvent  bank  received  a  de- 
posit, the  president,  though  knowing  of  the  insolvency,  could  not  be  pun- 
ished on  the  theory  that  he  assented  to  the  reception  of  the  deposit. ^^  At 
its  next  session,  the  legislature  ^mended  the  act,  evidently  for  the  purpose 
of  meeting  the  distinction  made  by  the  court,  and  made  it  a  crime  either 
to  receive  or  to  assent  to  the  receipt  or  deposits  after  knowledge  of  in- 
solvency.i'*  Under  this  amended  act  the  court  held  that  an  officer  of  an 
incorporated  bank  could  not  be  held  criminally  liable  simply  because  he 
was  such  officer  and  had  knowledge  of  the  bank's  insolvency,  or  because 
deposits  were  being  received  for  the  bank  by  some  other  officer,  but  that 
only  such  officers  as  were  present  at  the  receipt  of  the  deposits,  or  who 
actually  received  the  same,  or  who  had  authority  to  close  the  bank  to  pre- 
vent the  receipt  of  deposits  could  be  guilty  of  the  ofi"ense  of  "assenting" 
to  the  receipt  of  deposits.^^ 

10.  Same — Officer  who  permits  or  15.  Same — Same. — Ex  parte  Smith, 
connives  at  receipt  of  deposit.— State  3.3  Nev.  46r3,  111  Pac.  930;  Ex  parte 
'■.    \<-\7A-r.   u:    [nwa    t:.':'..   CC,    \.   W.    T.'{7.  Griffin.   33    Nev.   490.   Ill    Pac.  939. 

11.  Same— Liability  for  acts  of  sub-  Act  March  13,  1909  (Laws  Nev.  1909, 
ordinates  in  violation  of  orders.— Com-  c.  92),  which  makes  it  an  ofTense  for  a 
monweahh  -■.  Junkin,  170  Pa.  194,  32  '>ank  officer  or  employee  to  receive  a 
Atl.   til".  deposit,   knowing   that   the   hank   is   in- 

12.  Same-Essential  elements  re-  solvent  does  not  make  directors,  who 
quired  to  be  proven.-Cnnunnu  caUh  '^^'■.^,  ^'^'^"*  f""""!  ^^^  ^'^"'^S^  ^i'^^"  ''^- 
V.   Schall,   12   Pa    Co    Ct    R    209  posits   were    received,   pumshalile   on   a 


13.     Same — Distinction     between     re- 


Uare     assumption     that     they    assented 
thereto;  it  heinpr  necessary  to  show  af- 


ceipt  and   assent  to   receipt.— Ex   parte  firmative  assent.     Eureka  County  Bank 

Kickey.   .31    Xcv.   s:.'.   100   Pac.   134.  TIaheas    Corpus    Cases    (Nev.).    120    P. 

14.    Same— Same. — .Acts   Nev.   March  c,r>-}. 

13,    1909,    St.    1009,   c.   92.  A  director  or  ofticcr,  when  !ie  is  not 


410  BANKS    AND    BANKING.  §    61     (4) 

Under  a  Louisiana  statute  making  it  a  crime  for  a  bank  officer  to 
assent  to  the  reception  of  deposits  after  he  knows  that  the  bank  is  insolvent, 
it  was  held  that  the  statute  did  not  require  that  the  officer  should  have 
charter  authority  for  assenting  to  the  deposit,  but  simply  that  he  should 
be  an  officer  and  should  assent ;  and  hence,  in  a  prosecution  of  the  cashier 
of  a  bank,  the  question  was  not  as  to  who  under  the  charter  had  authority, 
but  simply  whether  or  not  as  matter  of  fact  the  defendant  was  cashier,  and 
as  such  assented  to  the  deposit. ^^ 

Same — Joint  Offenses. — Two  or  more  persons,  partners  as  bankers, 
may  jointly  commit  the  crime  of  receiving  deposits  with  knowledge  that 
they  and  the  bank  are  insolvent.^" 

§  61  (4)  Embezzlement,  Misappropriation,  False  Entries,  etc. — 
A  statutory  provision  for  the  protection  of  incorporated  banks,  which 
makes  it  penal  for  a  cashier  to  convert  any  "money,  bank  bill,  or  note" 
does  not  extend  to  promissory  notes  (other  than  bank  notes)  or  commer- 
cial paper.^^  Where  bonds  are  placed  by  the  owner  for  safe-keeping  in 
a  locked  drawer  of  the  bank  safe  of  which  he  carries  the  key,  such  bonds 
are  still  in  the  custody  of  the  owner  and  subject  to  his  immediate  orders, 
and  a  cashier  who  obtains  the  bonds  by  breaking  the  drawer  and  pledges 
them  to  another  bank  as  security  for  a  debt  of  his  bank,  is  not  only  guilty 
of  trespass,  but  of  a  larceny  of  the  bonds. ^^  The  liability  of  a  private 
banker,  for  fraudulently  converting  a  special  deposit  of  money,  under  a 
statute  which  makes  such  conversion  a  crime,-''  is  none  the  less  that  his 
bank,  which  used  the  money,  is  a  partnership,  and  such  case  is  covered  by 
an  allegation  of  conversion  "to  his  own  use.'' 

False  Entries. — Check  books,  on  the  stubs  of  which  false  entries  of 
deposit  are  made,  and  which  were  issued  by  the  bank  and  given  away,  are 
books  of  entry  within  the  meaning  of  an  act  making  it  an  offense  for  the 
officer  of  any  corporation  to  make  a  false  entry  in  any  book  of  the  cor- 
poration with  intent  to  defraud. -^  x\nd  a  cash  book  falsely  stating  the 
amount  of  cash  in  the  bank  at  the  close  of  business  on  the  day  preceding 

specially    authorized    by    the    board    of  16.     Same — Same — Louisiana   statute. 

directors    or    stockholders,    is    not    em-  — State  v.  Hoffman,  120  La.  949,  45  So. 

powered    to    prevent    the    reception    of  951. 

deposits,  or  to  close  a  bank  which  has  17.     Same — Joint    offenses. — State    v. 

long    been    doing   business    and    its    re-  Smith,   62   Minn.   540.   64   N.  W.   1022. 

ceiving  deposits,  merely  because  he   is  18.   Embezzlement,  misappropriation, 

such     officer.      Eureka     County     Bank  etc.,    securities    included     in     statutory 

Habeas    Corpus    Cases    (Nev.),    126    P.  offense. — State     ::'.     Stimson,    24     N.    J. 

655.  L.    9. 

Receipt  in  a  private  bank  of  a  deposit  19.  Bonds  deposited  for  safe-keep- 
by  the  teller  held  a  receipt  by  the  ing. — Truslow  v.  State,  95  Tenn.  189, 
banker;   but  receipt  in  an  incorporated  31   S.  W.  9S7. 

bank    by    the  teller    held    a  receipt    by  20.     Liability    of    individual    member 

the    corporation,    as    affecting    criminal  of    private    banking    partnership. — Carr 

responsiliility  for  receipt  of  the  deposit  z:   State.   104   Ala.   4,   16   So.   150. 

while  the  bank  was  insolvent.     Eureka  21.    False  entries — On  stub  of  check 

County    Bank    Habeas     Corpus    Cases  book. — Commonwealth      t'.       Dewhirst, 

(Nev.),  126  P.   655.  190  Mass.  293,  76  N.   E.  1052. 


§    61     (5)  OFFICERS    AXD    AGENTS.  411 

an  examination  of  the  bank  is  a  false  book,  notwithstanding  the  fact  that 
on  the  day  of  the  examination  the  president  of  the  bank  borrowed  for  a 
few  hours  and  put  into  tlie  bank  sufficient  cash  to  make  up  the  amount 
shown  by  the  cash  book.--  Where  the  ])rosecution  is  for  the  fraudulent 
alteration  of  entries  under  a  statute  declaring  that  persons  committing  such 
ofiFense  with  intent  to  defraud  shall  be  punished  as  for  forgery,  it  is  im- 
material, so  far  as  the  defendant's  guilt  or  innocence  is  concerned,  whether 
or  not  the  bank  directors  consented  to  the  change.-^ 

Constitutionality  of  Statute. — As  heretofore  noticed,  a  charter  pro- 
vision, applicable  solely  to  the  employees  of  that  particular  bank,  and  pro- 
viding that  any  officer,  servant  or  agent  making  false  entries  in  any  of  the 
books  of  the  bank  shall  be  deemed  guilty  of  a  felony  and  punished  as 
therein  prescribed,  has  been  held  to  be  unconstitutional  within  the  purview 
of  the  provision  that  no  man  shall  be  taken,  or  imprisoned,  or  disseized, 
etc.,  except  by  the  judgment  of  his  peers  or  the  law  of  the  land.^'* 

§  61  (5)  False  Reports,  Statements,  and  Returns,  Exhibiting 
False   Books,    etc.— What  Reports,    etc..    Included  in   Statute.— A 

statutory  provision  making  it  a  criminal  offense  for  any  officer  of  a  cor- 
poration to  knowingly  concur  in  making  any  false  report  or  statement  of 
its  pecuniary  condition,  includes  false  reports  made  to  the  state  banking 
department  although  such  reports  are  not  specifically  mentioned  therein.^-"' 
That  the  alleged  false  report  is  incomplete  through  the  failure  to  observe 
some  statutory  requirement  as  to  its  form  or  the  manner  of  its  execution 
is  no  defense,  where  it  is  received  by  the  public  examiner  without  objec- 
tion  on  that  ground.-*^  The  exhibiting  of  a  false  minute  of  an  alleged 
meeting  of  the  board  of  directors  of  a  trust  company  to  an  examiner  ap- 
pointed by  the  banking  department,  with  the  intent  to  deceive  such  ex- 
aminer as  to  the  financial  condition  of  the  company,  is  the  exhibiting  of 
a  false  paper.-'     Likewise  a  ca.sh  book  falsely  stating  the  amount  of  cash 

22.  Obtaining  temporary  loan  to  For  example,  where  a  report  of  the 
conceal  falsity  of  showing  made  by  con(Htion  of  a  bank,  submitted  to  the 
books. — ]\-(<\Ai-  7'.  Ifelmer.  13  App.  piil)lic  examiner  and  alleqed  to  lie 
!)iv.  42G.  _4:j  N.  Y.  S.  642,  12  N.  Y.  Cr.  false,  n-as  received  by  him' without  ob- 
R.  134,  judc^ment  reversed  on  other  jection  on  the  ground  that  it  was  not 
points  in  1.54  X.  Y.  .'")0t>,  40  N.  K.  240.  attested    by    the    signature    of    at    least 

23.  Fraudulent  alterations — Consent  ^wo  of  the  bank's  directors,  as  re- 
of  directors  as  a  defense. — Querter-  quired  by  Laws  1903.  p.  81,  c.  79,  §  2. 
mous  V.  State,  0.')  Ark.  48,  12f  S.  W.  it  _  was  nevertheless  sufficient  (o  sus- 
0.51.  tain  an  information  against  the  officer, 

24.  False  entries-Constitutionality  verifying  the  same  for  making  a  false 
of  charter  provision.-P.iul.l  r.  State,  'fr\\\,  5'*\^''r  ''  ^^'''^'^^'  ^^  S.  Dak. 
:^2  Tenn.   C,    llu.nph.)   483,  39  Am.   Dec.  '''l'^  ^''1  ^-   ^^ :   ''''-       ,  ,        , 

l«f).  *'•    False  mmutes  of  board  meetmg. 

oc      T-  1  T»ri  .  — State    V.    'i'wining,    73    N.  J.    L.  3,    (>2 

rb^H./h        ."??      "^^^f  ^P?'*^   •""         ^"     ^"■2-    affirmed    in    73    N.    J.    L.    (44 
eluded    by   statute.— People    7'.    JlnMon,       y,-  ,    cg;^     f.,4     .\^\     ^^73 

i:i4   App.    Div,   27.".,   lis    \.   Y.    S.   089.  \    p,^,;;,    ,xH,,i,,,,    jo    .,    p,,-son    au- 

26.     Incomplete    or    informal    report.  thorized    to    examine    the    condition    of 

—State  V.   Strul)Ie,    10   S.   Dak.   640,    104  trust    comiianics.     as      the      unrecorded 

N.  W.  40.".  minutes  of  a  meeting  of  directors,  and 


412  BANKS    AND    BANKING.  §    61     (5) 

in  the  bank  at  the  close  of  business  on  the  day  preceding  an  examination 
of  the  bank  is  a  "false  book,"  notwithstanding  that  on  the  day  of  the  ex- 
amination the  bank  president  borrowed  for  a  few  hours  and  put  into  the 
bank  enough  cash  to  make  up  the  amount  shown  in  the  cash  book.^s 

Persons  Included  by  Statute. — A  statute  which  provides  that  every 
ofificer,  agent  or  clerk  of  any  corporation  or  of  any  persons  proposing  to 
organize  a  corporation  or  to  increase  its  capital  stock  who  knowingly  ex- 
hibits any  false,  forged,  or  altered  book,  paper,  voucher,  security  or  other 
instrument  of  evidence,  to  any  public  officer  or  board  authorized  by  law 
to  examine  the  organization  of  such  corporation,  or  to  investigate  its  af- 
fairs, or  to  be  allowed  an  increase  of  its  capital  stock,  with  intent  to  de- 
ceive such  officer  or  board  in  respect  thereto,  is  punishable  by  imprisonment, 
etc.,  is  not  limited  to  one  proposing  to  organize  a  corporation,  or  to  increase 
the  capital  stock  of  any  corporation,  but  extends  to  and  covers  the  case  of 
an  officer  of  a  bank  charged  with  exhibiting  a  false  report  of  the  bank's 
affairs  to  the  bank  commissioners  with  intent  to  deceive  them  with  respect 
thereto.-'* 

When  False. — Where  the  report  is  substantially  true,  and  gives  a  fair 
exhibit  of  the  condition  of  the  bank  at  the  time,  though  not  as  indicated 
by  the  books,  the  cashier  in  swearing  to  such  return  is  not  guilty  of  per- 
jury.^^  But  the  report  to  the  state  examiner  must  agree  with  the  books 
of  the  bank  as  to  the  names  by  which  accounts  are  called ;  hence,  it  is  a 
false  report  to  report  overdrafts  as  loans.-'^^ 

Exhibiting — What  Constitutes. — It  is  a  question  of  fact  as  to  what 
constitutes  the  exhibiting  of  the  books  of  the  bank  to  an  examiner,  and 
it  is  reversible  error  for  the  court  to  instruct  or  intimate  that  the  president 
"exhibits"  the  books  so  as  to  be  liable  for  knowingly  exhibiting  false  books, 
where  he  is  in  the  bank  when  the  examiner  calls  to  examine  the  books,  and 
knows  the  object  of  his  visit,  although  he  does  not  personally  show  the 
books.22  But  where  one  of 'two  officers  of  a  trust  company  produces  a  false 
minute  to  the  examiner,  in  the  presence  of  the  other,  who  by  his  silence 
acquiesces   in   such   exhibition   although  he  knows  of  its   falsity,  both  are 

containing    a    resolution    for    the    pur-  other   pcints    in    154    N.    Y.    596,    49    N. 

chase  of  shares  of  stock  which  the  ex-  E.  249. 

aminer  had  found  among  the  assets  of  29.    Persons  included    by     statute. — 

the    company,   is   a   "paper"   within    the  People   z'.    Nash,   15   Cal.   App.   320,   114 

meaning  of  Trust   Companies   .A.ct  1899  Pac.    784. 

(P.   L.  1899,  p.  461),  §  17,  and  if  false  30.        Report      substantially      true — 

and  exhibited  to  the  examiner  with  in-  Cashier  not  guilty    of    perjury. — Com- 

tent    to    deceive    him,    the    officers    ex-  monwealth  7'.  Dunham  (Mass.),  Thacher 

hibiting  it  were  guilty  of  a  crime  under  Cr.  Cas.  538. 

that    section.      Judgment    (Sup.    1905),  31.    Reporting  overdrafts  as  loans.— 

63   \tl.  402,  affirmed.     State  v.  Twining,  State  7'.  Jackson,  21  S.  Dak.  494,  113  N. 

73   N.   J.   L.    (44  Vr.)    683,   64   Atl.    1073,  W.    880. 

1135.  32.     "Exhibiting" — What    constitutes 

28.    Temporary  loan  to   conceal  fal-  — Province  of  court  and  jury. — People 

sity  of   cash  book. — People   7-.   Helmer,  r.  Helmer,  154  N.  Y.  596,  49  N.  E.  249, 

13    App.    Div.    426.    43    N.    Y.    S.    642.    12  reversing    13    App.    Div.    426,    12    N.    Y. 

N.  Y.  Cr.  R.  134,  judgment  reversed  on  Cr.  R.  134,  43  N.  Y.  S.  642. 


§    61     (6)  OFFICERS    AND    AGENTS.  413 

guilty  of  making  a  false  exhibit.^s 

Motive  or  Intent.— Where  the  statute  prescribes  that  every  officer, 
agent,  or  clerk  of  any  bank,  who  makes  any  false  statements  or  entries 
in  its  books,  or  subscribes  or  exhibits  any  false  paper,  with  the  intent  to 
deceive  any  person  authorized  to  examine  as  to  the  condition  of  such  in- 
stitution, or  subscribes  or  makes  false  reports,  shall  be  subject  to  imprison- 
ment, etc.,  the  prosecution  is  not  obliged  to  show  what  particular  motive 
prompted  the  accused  to  make  the  report  made  by  him  to  the  bank  ex- 
aminer, but  proof  of  its  intentional  falsity  is  essential  to  a  conviction.^'* 
On  the  other  hand,  where  a  report  or  statement  of  the  condition  of  a  bank 
is  false,  and  known  to  be  such,  and  is  made  with  intent  to  deceive  the  bank 
commissioner  or  other  persons  as  to  the  financial  condition  of  the  bank, 
the  person  making  it  is  guilty,  although  he  may  not  have  intended  to  injure 
the  bank  or  defraud  its  depositors. ^-^ 

§  61    (6)   With  Respect  to  Loans,  Discounts,  and  Overdrafts.— 

Statutes  making  it  a  penal  offense  for  the  officers  charged  with  the  man- 
agement of  banks  to  violate  charter  or  statutory  provisions  requiring  banks 
to  keep  a  certain  percentage  of  the  capital  stock  on  deposit,  or  forbidding 
them  to  loan  their  funds  in  excess  of  a  prescribed  limit  to  the  officers  of 
the  bank  or  to  third  persons  may  extend  to  all  state  banks  within  the  ju- 
risdiction or  may  be  applicable  only  to  a  certain  class  of  banks,  as,  for  ex- 
ample, banks  of  issue.  In  any  case,  it  is  a  question  of  the  proper  con- 
struction of  the  statutes  in  force  in  the  particular  jurisdiction.^^ 

Loans  to  Firm  of  Which  Director  Is  Member.— .\  state  banking  law 
prohibiting  loans  in  excess  of  a  certain  amount  to  any  director  prohibits  a 
loan  to  a  firm  of  which  a  director  is  a  member  within  the  penal  laws  of  the 
state  punishing  a  director  violating  his  statutory  duty .•■"'' 

Overdrafts. — A  bank  president,  not  acting  in  good  faith,  has  no  right 
to  permit  overdrafts  when  he  does  not  believe  and  has  no  reasonable  ground 
to  believe  that  the  moneys  can  be  repaid.  And  if,  coupled  with  such  wrong- 
ful act.  the  proof  establishes  that  he  intended  by  the  transaction  to  injure 

33.  Liability  of  one  officer  for  acts  §  I'J.U,  requirin<?  one-half  of  the  cash 
of  associate  done  in  his  presence  and  paid  in  on  the  capital  stock  to  be  kept 
with  his  knowledge  and  acquiescence.  on  deposit,  or  §  1948.  making  it  iinlaw- 
— State  7'.  Twinms,  T3  X.  J.  L.  3,  r,2  ftil  for  a  bank  to  loan  more  than  25 
Atl.    402,    aftirmed    in    73    X.    J.    L.    (44  per   cent   of   the    amount   of   its    capital 

oJ    '''^'-    '''i    -^l^-  }^~^'-  stock    to    the     officers      and      directors 

34.  Proof  of  intentional  falsity—  thereof,  of  §  194!).  makinq-  it  unlawful 
ipecihc  motive  or  intent.— State  r:  for  a  bank  to  loan  its  funds  to  any 
Jackson.    20    S.    Dak.    30.-.,    lor,    X.    W.  person    on    the    indorsement    of   its   of- 

"■        _  ficers    or    directors,    is    applicalile    only 

Ja.     bame— Same.— State    z:    Mason.       to    officers,    agents,    and    directors    of 

9c  '^'ir  ^"•''  '"'^   ^''^-  ^"^-  ''^"^^    "f    '^S""-'-    provisions    for    which 

J6.     li.xtent   of   statutes.— Thornton  z'.  are    made   by   Civ.    Code    1895,   §§    1929. 

State.  .-,  r,a.  .\pp.  ;'.97.  03   S.   K.  301.  19r,2.      Thornton    t'.    State,    .'i    Ga.    .\pp. 

1  en.  Code  189.",.  §  214.  providing  that  397.  G3   S.   K.  301. 

any  officer,  atjent,  or  director  of  a  bank  36a.     Loans  to  firm  of  which  director 


.shall  be  punished  as  therein  prescril.erl 
for      violation      of      Civ.      Code      189."), 


IS  member. — Peoi)!e  7:   Kn.ipp   (X.  Y.), 

99    X.    E.    H41. 


414  BANKS    AND    BANKING.  §    61     (8) 

and  defraud  the  bank,  the  wrongful  act  becomes  a  crime.-^'  But  merely 
overdrawing  an  account  knowingly  does  not  constitute  the  oiTense  within 
the  meaning  of  a  statute  making  it  a  misdemeanor  for  an  officer  of  a  bank 
to  knowingly  overdraw  his  account  and  thereby  wrongfully  obtain  the 
money  or  funds  of  the  bank.  It  must  appear  that  the  money  was  wrong- 
fully obtained,  and  the  transaction  by  which  the  overdraft  was  made  must 
be  shown.  It  is  not  enough  to  show  merely  the  bank's  possession  of  the 
officer's  check. ^■''  But  where  upon  an  examination  of  the  whole  statute 
it  appears  that  the  mischief  aimed  at  was  the  practice  of  bank  officers  to 
knowingly  overdraw^  their  accounts,  w'ithout  regard  to  their  intention  in 
so  doing,  the  fraudulent  intent  constitutes  no  part  of  the  ofifense,  and  need 
not  be  charged  in  the  indictment.^^ 

§  61  (7)  Purchase,  Sale  or  Transfer  of  Stock. — In  some  jurisdic- 
tions banks  are  prohibited  by  law  from  using  any  part  of  the  capital  stock 
in  the  purchase  of  their  own  shares,  and  a  president  or  director  so  using 
the  capital  is  indictable  for  felony.'*^ 

§  61  (8)  Illegal  Dividends. — In  the  absence  of  statute  prohibiting 
it,  it  is  not  a  crime  for  the  president  and  directors  of  a  bank  to  declare 
dividends  from  funds  other  than  the  profits  of  the  bank;'*^  and  where  such 
action  on  the  part  of  the  president  and  directors  is  declared  to  be  a  felony, 
it  is  purely  statutory  and  does  not  involve  moral  turpitude.'*-  Such  a  stat- 
ute may  forbid  the  declaration  of  such  dividends  by  banks  of  issue,  or  it 
may  extend  the  prohibition  to  all  the  state  banks  within  the  jurisdiction. 
It  is  a  question  of  construction  in  each  case.^-*^  Under  such  a  statute,  the 
president  is  guilty  without  respect  to  his  motives  where  the  evidence  shows 
that  during  his  incumbrance  as  president  of  the  bank  it  sufifered  loss 
through  taking  papers  that  proved  worthless,  and  that  these  bad  debts  and 
worthless  paper  were  not  charged  off,  but  were  allowed  to  accumulate  unti' 
they  were  sufficient  not  only  to  offset  all  surplus  and  undivided  profits,  but 

37.  Permitting  overdraft  as  crime.—  State,  8  Ga.  App.  129,  68  S.  E.  849. 
Coffin  7'.   United   States,   162   U.   S.   664,  The   action   of   the   president   and   di- 
683.  40  L.  Ed.  1109,  16  S.  Ct.  94.3.  rectors   of  a   bank   in   declaring   a   divi- 

38.  Proof  of  wrongful  overdraft. —  dend  from  funds  other  than  profits 
Peoole  7'.  Clements,  42  Hun  286.  5  N.  would  be  criminal,  whether  the  bank 
Y.   Cr.  R.  277,  3  N.   Y.   St.   R.   700.  in  question  be  a  bank  of  issue  or  not, 

39.  When  fraudulent  intent  not  either  under  Pen.  Code  1895,  §  210, 
necessary  to  completion  of  offense. —  providina:  that  if  any  president  and  di- 
State  7'.   Stimson,  24  X.  J.   L.   478.  rectors    shall    declare    or    pay    a    divi- 

40.  Purchase,  sale  or  transfer  of  dend  from  funds  of  the  bank  other 
stock. — See  Crawford  t'.  Roney,  126  than  net  profits  they  shall  be  punished 
Ga.  763,  55  S.  E.  499;  Robison  r.  by  confinement  in  the  penitentiary,  or 
Beall,  26  Ga.  17.  under   §   691    providins:   that   any   oresi- 

41.  Wrongful  dividend  as  a  crime. —  dent,  director,  or  other  officer  of  any 
Cabaness  v.  State,  8  Ga.  App.  129,  68  'oint  stock  company  or  other  associa- 
S.  E.  849.  tion   who   shall   declare   a   dividend   out 

42.  Statutory  crime — Moral  turpi-  of  funds  not  the  legitimate  proceeds  of 
tude. — Cabaness  t'.  State,  8  Ga.  App.  its  investments  shall  be  guilty  of  a  mis- 
129.   68    S.    E.   849.  demeanor.      Cabaness    ?•.    State,    8    Ga. 

43.  Scope   of   statutes.— Cabaness    v.  App.  129,  68  S.  E.  849. 


§    62    (lb)  OFFICERS    AXD    AGENTS.  •  415 

also  to  seriously  impair  the  original  cajMtal  of  the  l)ank.  and  that  while 
this  state  of  affairs  existed,  and  at  a  time  when  the  defendant  in  all  human 
probability  knew  it  existed,  he  joined  with  the  board  of  directors  in  de- 
claring a  dividend.^'* 

§   62.   Prosecution   and   Punishment — §    62    (1)    Indictment 

or  Information — §  62  (la)  Following-  Words  of  Statute. — A  differ- 
ence exists  as  between  common-law  crimes  and  statutory  oft'enses  in  the 
necessity  for  fullness  of  statement  in  the  accusation.  Many  statutory 
crimes  may  be  sufficiently  charged  in  the  language  of  the  statute;  while 
as  to  many  common-law  offenses,  a  description  of  what  the  defendant 
actually  did  is  necessary  to  make  the  charge  plain  and  legally  complete. 
Where  the  offense  is  purely  statutory,  having  no  relation  to  the  common 
law.  it  is,  as  a  general  rule,  sufffcient  to  charge  the  defendant  with  acts 
coming  fully  within  the  statutory  description,  in  the  substantial  words  of 
the  statute,  without  any  further  expansion  of  the  matter,  with  this  funda- 
mental qualification,  that  the  accused  must  be  apprised  with  reasonable 
certainty  of  the  nature  of  the  accusation  against  him,  and  that  an  indict- 
ment not  thus  framed  is  defective,  even  though  it  follow  the  language  of 
the  statute.'* •'^  In  order  to  charge  the  crime  defined  by  the  statute,  an  in- 
dictment for  a  statutory  offense  should  follow  the  terms  of  the  statute, 
or  use  terms  which  show  conclusively,  or  beyond  a  reasonable  doubt,  that 
the  accused  is  guilty  of  the  offense  described  in  the  statute.'*'''  It  is  not 
necessary  that  the  indictment  should  literally  pursue  the  terms  of  the  stat- 
ute on  which  it  is  based,  and  it  will  be  good  if  it  use  words  fully  equiva- 
lent in  meaning  to  those  of  the  statute,  or  more  comprehensive."*'^  It  should 
be  sufficiently  full  and  definite  in  its  statement  to  inform  the  defendant 
of  the  offense  with  which  he  is  charged,  and  exact  enough  to  protect  him 
from  a  second  jeopardy.'*'* 

§  62  (lb)  Existence  and  Operation  of  Bank — Defendant's  Of- 
ficial Relation. — Where  the  defendant  is  indicted  under  a  statute  appli- 
cable solely  to  banking  institutions  and  their  officers  and  agents,  an 
indictment  under  such  statute  should  allege  the  existence  and  operation  of 

44.  Intent  or  motive  in  declaring  ant,  as  president  of  a  hank,  knowingly 
dividend. — Cal)aness  v.  State,  8  Ga.  exhilMted  its  cash  hook  to  an  officer 
App.   129.   fig   vS.   E.   849.  duly   authorized    to   investigate    the   af- 

45.  Following  words  of  statute —  fairs  of  the  hank,  with  intent  to  de- 
Common  law  and  statutory  offenses. — -  ceive  sucli  officer,  contrary  to  (he 
United  vStates  ?■.  Simmons,  9()  U.  S.  form  of  the  statute,  etc.,  is  suffiicient, 
^;00.  24  L.  Ed.  819;  Youmans  T'.  State,  though  it  omits  the  words  "in  respect 
7   r,a.    App.    101,    or.    S.    E.   38:?.  thereto,"    used    in    the    statute.      JucIl;- 

46.  Necessity  for  following  words  of  mcnt,  1.1  App.  Div.  426,  43  N.  Y.  S. 
statute.— I'.oycnton  ?'.  Cnmnioiuvfalth  042,  12  N.  Y.  Cr.  Rep.  134,  reversed. 
(Va.),  76  S.   E.  945.  People  7'.  llelnier,   l.'-.4  N.  Y.  .')96,  49  N. 

47.  Rudd    V.     State.      22      Tcnn.      (3       E.    249. 

Humph)  483,  39  Am.  Dec.  189.  48.     Certainty   and   fullness   required. 

An    indictment    for     knowinfjly      ex-  — Youmans    :■.    Slate,    7    Ca.    App.    101, 

hihitinp  a  false  book,  under  Pen.  Code,  m    S.    E.   383;    Slate    r.    Stinison,   24    N. 

§   r>92,   which    alleges    that    the    defend-  J.   L.   9. 


416 


BANKS    AND    BANKING. 


62   (lb) 


the  bank  and  the  defendant's  relation  thereto  as  an  officer  or  agent,  describ- 
ing and  setting  out  the  same."*^  Where  the  statute  is  not  appHcable  to  all 
banks  or  to  all  officials,  but  makes  classifications  and  distinctions,  the  in- 
dictment must,  of  course,  describe,  distinguish  and  identify  the  accused  and 
the  offense  accordingly,  and  must  contain  averments  bringing  the  bank  by, 
against  or  with  respect  to  which  th^  oft'ense  was  committed,  within  the  class 
to  which  the  statute  applies. °**  Where  the  statute  distinguishes  between 
private  and  incorporated  banks,  an  indictment  charging  an  offense  against 
the  officers  of  a  private  bank  should  allege  the  fact  that  it  was  a  private 
institution  and  the  names  of  the  owners  thereof  ;^^  and  where  the  business 
is  owned  and  conducted  by  a  partnership  the  names  of  the  individual  part- 
ners should  be  given,  even  though  it  is  conducted  under  a  name  that  does 
not  disclose  that  it  is  a  private  bank  or  a  partnership.'^- 

Averment   of   Official   Relation. — Where   the   statute  affects   persons 


49.  Existence  and  operation  of  bank 
— Defendant's  offtcial  relation. — Quer- 
termous  ^^  State,  95  Ark.  48,  127  S.  W. 
951;  State  v.  Piper,  73  N.  H.  226,  60 
Atl.    742. 

An  indictment,  charging  that  defend- 
ant was  the  cashier  of  the  Bank  of  H., 
a  corporation  organized  and  incor- 
porated under  the  laws  of  Arkansas, 
etc.,  and  that  as  cashier  aforesaid,  and 
having  in  his  custody  the  book  ac- 
counts of  said  bank,  etc.,  he  did  felo- 
niously alter  the  books  of  account  of 
said  bank  kept  by  said  corporation, 
sufficiently  alleged  that  the  bank  was 
a  banking  corporation.  Querternious 
V.   State,  95  Ark.  48,  127   S.  W.  951. 

An  indictment  under  such  act  alleg- 
ing that  accused,  "being  persons  then 
and  there  doing  a  banking  business, 
*  *  *  did  receive"  from  one  D.  certain 
moneys,  of  the  property  of  said  D., 
the  said  D.  then  and  there  not  being 
indebted  to  accused,  sufficiently  al- 
leges that  accused  was  doing  a  banking 
business,  and  that  the  moneys  were  re- 
ceived as  a  general  deposit.  Meadow- 
croft  V.  People,  163  111.  56,  45  N.  E. 
991,  35  L.  R.  A.  176,  54  Am.  St.  Rep. 
447. 

An  indictment  under  Act  May  9, 
1891,  relating  to  receiving  deposits  by 
insolvent  bankers,  charging  that  de- 
fendants "were  engaged  in  the  business 
of  carrying  on  a  private  bank,"  does 
not  sufficiently  allege  that  defendants 
are  "bankers."  within  the  meaning  of 
the  statute.  Commonwealth  v.  Delama- 
ter  (Quart.  Sess.)  2  Pa.  Dist.  R.  118. 

50.  Where  statute  makes  distinctions 
and  classifications. — Boyenton  r.  Com- 
monwealth (Va.),  76  S.  E.  946;  Davey 
7'.  State,  99  Ark.  547,  139  S.  W.  629: 
Thornton  v.   State,   5   Ga.   App.   397,  63 


S.  E.  301;  State  v.  Piper,  73  N.  H.  226, 
60  Atl.  742;  Roby  v.  State,  41  Tex.  Cr, 
App.    152,    51    S.   W.    1114. 

A  special  presentment  charging  of- 
ficers of  a  state  bank  with  a  violation 
of  Civ.  Code  1895,  §  1948,  making  it 
unlawful  for  a  bank  to  loan  more  than 
25  per  cent  of  the  amount  of  its  capi- 
tal stock  to  the  officers  and  directors 
thereof,  is  fatally  defective  where  it 
fails  to  allege  that  such  bank  was  a 
bank  of  issue.  Thornton  r.  State,  5 
Ga.   App.  397.  63   S.   E.  301. 

Under  Kirby's  Dig.,  §§  1813,  1814, 
punishing  every  officer  of  any  bank 
organized  or  doing  business  under  the 
law  of  the  state  who  makes  false  re- 
ports or  who  receives  a  deposit  when 
lie  knows  that  the  bank  i^;  insolvent, 
an  indictment  alleging  that  an  officer 
of  a  bank  received  a  deposit  after  he 
knew  that  the  bank  was  insolvent,  and 
that  the  bank  was  a  corporation  doing 
business  under  the  laws  of  the  state, 
need  not  allege  that  it  was  a  domestic 
banking  corporation,  sinc^,  under  the 
law.  foreign  corporation  may  do 
business  in  ihe  state  under  specified 
restrict!'~>n5.  Davey  v.  State,  09  Ark. 
547,   139   S.  W.  629. 

\n  indictment  need  not  allege  that 
a  bank  was  not  a  national  bank,  since 
the  inapplicability  of  the  statute  to  na- 
tional banks  is  a  matter  of  defense. 
Davey  v.  State,  99  Ark.  517,  139  S.  W. 
629. 

51.  Names  of  owners  of  private 
bank  to  be  alleged. — Roby  v.  State,  41 
Tex.  Cr.  App.  152,  51  S.  W.  1114; 
Boventon  v.  Commonwealth  (Va.),  76 
S.   E.   945. 

52.  Same — Where  business  con- 
ducted by  partnership. — Roby  :'.  State, 
41  Tex.   Cr.  App.  152,  51   S.  W.  1114. 


§    (yl    (Ic)  OFFICERS  AXD  AGENTS.  417 

according  to  their  particular  office  or  relation  to  the  bank  the  indictment 
should  specify  just  what  office  the  accused  held  or  what  relation  he  sus- 
tained to  the  bank/'^  And  although  it  is  not  necessar}-  that  an  indictment 
should  literally  pursue  the  terms  of  the  statute  on  which  it  is  based,  and 
although  the  indictment  will  be  good  if  it  use  words  fully  equivalent  in 
meaning  to  those  of  the  statute,  or  more  comprehensive,  yet  this  principle 
will  not  apply  to  a  case  where  a  statute  affects  persons  as  connected  with 
specified  offices ;  and,  therefore,  an  indictment  against  a  person  as  "clerk 
of  the  individual  ledger"  of  a  bank  is  not  sufficient  under  a  statute  which 
authorizes  the  indictment,  for  the  particular  ofifense,  of  "any  of  the  officers, 
agents,  or  servants"  of  said  bank,  since  the  term  clerk  is  of  such  varied 
import  that  it  can  not  be  assumed  that  "clerk,"  especially  "clerk  of  the  in- 
dividual ledger,"  is  equivalent  to  officer,  agent  or  servant,  but  the  facts  in 
that  respect  together  with  the  fact  of  his  employment  by  the  bank  must  be 
alleged.^'* 

§  62  (Ic)  Intent — Willful  or  Intentional. — Where  the  statute  pen- 
alizes the  act  only  when  done  with  the  intent  to  deceive,  the  intent  to  de- 
fraud, etc.,  it  is  necessary  that  the  indictment  should  charge  that  it  was 
done  with  such  intent ;  but  otherwise  where  intent  is  not  made  an  element 
of  the  ofifense.^^  xA.nd  where  the  statute  provides  that  proof  of  certain  facts 
shall  be  prima  facie  evidence  of  intent,  as  that  the  failure  of  the  bank  within 
a  certain  time  after  the  receipt  of  a  deposit  shall  be  prima  facie  evidence  of 
an  intent  to  defraud,  an  indictment  is  sufficient  without  specifically  alleging 
that  the  deposit  was  received  with  intent  to  defraud.^"  Where  the  indict- 
ment is  for  exhibiting  false  books  to  the  public  examiner,  an  allegation  that 
the  exhibition  was  made  "with  intent  to  deceive  him"  is  sufficient  without 
the  addition  of  the  words  of  the  statute  "in  regard  thereto."^" 

53.  Averment    of    official    relation. —  Humph.)    48;{,   39   Am.   Dec.   189;    State 
Commonwealth    v.    Loving,    29    Ky.    L.  v.  McElroy,  50  Tenn.   (3  Heisk.)   69. 
Rep.  17.5.  92  S.  W.  57.5;  Budd  v.  State,  55.     Averment    of     intent.— State      v. 
22  Tenn.  (3  Humph.)  483,  39  Am.  Dec.  Stimson,    24    N.    J.    L.     9;      People      v. 
^^^;             _  Helmer,    154    N.    Y.    596,    49    N.    E.    249, 

Lnder  Cr.  Code  Prac,  §  12?,  requir-  reversing  13  App.  Div.  426,  43  N.  Y.  S. 

Hip  an   indictment   to   contain   a   state-  042^    53    >j_    Y.    Cr.    Rep.    134;    State    :•. 

ment     of    the      acts      constituting     the  Piper,  73   N.   H.  226,  60  Atl.   742. 
offense    in    ordinary    and    concise    Ian-  t  •    j-   1.         i.        j        o         c 

,.,,^„  •    J-  ^       ^     u        •  •   t  In   an   indictment  under   Rev.    St.,   p. 

f;uage,  an  indictment  charging  a  viola-  ,„.     o    1  •      ,  ,  •  c        1       1 

t;,,,    ^f   ^r       c*.     mrvo     e    0000  1  '•-■>•    s    1.    against   a   cashier   of   a   liank 

tion    ot    Kv.    St.    1903,    §    2223a,    subsec.  c  ■  c    •..      r       1       v    • 

11     ^   ,  •     •    .,  •    i  L  lor    conversion    of   its    funds,    it    is    not 

11.   making   it   a   misdemeanor   for   any  „  .        ,  11,. 

^n-,„„  ^     z         •  ^         ^  necessary  to  charee   an   embezzlement, 

oMicer  or  agent  of  an  investment  com-  ^  •   ;     ..  ,      if       a  ^x      \      1      c  4. 

^^„         ,  •  V    1  1-  .      .  .  or  an  intent  to  defraud  the  bank.    State 

panv  which   has  no  license  to  transact  ,,    o.-   ,^         o  1    \t    t    t      n 

business    for   it,    is    defective,    where    it  '"  >  t'"]^-^""-   '\^-  J-   L.  0. 
fails  to  allege  what  office  the  accused  .56-    Same— Where  statute  makes  cer- 

hcld,   or   v.'hether   he   was   an    ordinary  ^a'"   facts   prima   facie   evidence   of  m- 

agent  of  the  company.   Commonwealth  tent.Mcadr.wcroft    v.    I'M.plo.    ic,;!    Til. 

V.    LovinL^    20    Kv     T.     Rep.    175,    92    S.  '''••  ^'^  ^-  ''-  ''''I'  •'■''  ^-  ^^    -^^   '~''-  •"''  ■^'"■ 

W.  575.  '  i^t.  Rep.  447. 

54.  Same  Where  offense  defined  57.  Same — Following  language  of 
with  reference  to  certain  specified  of-  statute. — People  7'.  Helmer,  15  1  N.  Y. 
ficers.      I'.iuld    :■.    State,     22     Tenn.       ("3        5'.)(;,    49    N.    E.    249,    reverMiM     13    App. 

1   P,  &  P.— 27 


418  BANKS  AND  BANKINX.  §    62    (Id) 

Intent  of  Person  Aiding  and  Abetting. — An  indictment  for  aiding  an 
officer  of  a  bank  in  making  false  entries,  etc.,  is  not  defective  because  it 
charges  the  principal  with  having  made  the  entries  with  intent  to  defraud 
the  bank,  and  also  with  intent  to  deceive  examining  agents,  whereas  it 
merely  charges  the  aider  with  an  intent  to  deceive  such  agents ;  for  it  is 
immaterial  that  the  principal  may  have  had  several  intents,  if  both  principal 
and  aider  were  actuated  by  the  criminal  intent  to  deceive  such  agents. ^'^ 

"Willful  or  Intentional." — Where  the  penalty  is  prescribed  only  for 
acts  of  willful  and  intentional  fraud  and  mismanagement,  and  not  for  mere 
negligence  and  acts  of  omission,  the  indictment  should  allege  such  willful 
and  fraudulent  intent  as  will  bring  the  case  within  the  statute. ^^ 

§  62  (Id)  Joinder  of  Parties  and  Offenses. — The  president  and 
directors  of  a  bank  may  be  joined  in  an  indictment  for  making  a  false 
return. ^*^  But  under  statutes  making  it  unlawful  and  punishable  as  a 
crime  for  the  president  or  directors  to  declare  or  pay  over  dividends  except 
out  of  the  net  profits  of  the  bank,  or  for  any  corporation  or  association 
to  declare  a  dividend  which  is  not  the  legitimate  proceeds  of  its  invest- 
ments, and  makes  such  act  by  a  president,  director  or  other  officer  punish- 
able as  a  misdemeanor,  the  offense  is  several  rather  than  joint,  and  in  an 
indictment  against  the  president  or  one  of  the  directors  it  is  not  necessary 
to  set  out  the  names  of  other  directors  not  indicted  though  they  may  have 
participated  in  the  declaration  of  the  dividend.'^' ^  Where  the  statute  makes 
it  an  offense  for  any  banker,  officer,  or  employee  of  any  bank  willfully  and 
knowingly  to  subscribe  to  or  make  any  false  statement  or  false  entry  in  the 
books  of  any  bank  or  to  make  any  false  report  or  statement  of  such  bank, 
counts  charging  a  bank  cashier  (1)  with  making  false  entries  in  the  cer- 
tificate register  of  the  bank,  (2)  with  making  false  entries  in  a  ledger  of 
the  amount  due  the  bank  from  another  bank,  and  (3)  with  making  false 
entries  in  the  report  of  the  bank  to  the  state  commissioner  of  banking, 
as  to  the  amount  due  from  banks,  and  the  amount  due  on  time  certificates 
of  deposit,  are  properly  joined  in  one  information,  such  matters  all  arising 
out  of  acts  of  the  accused  in  his  administration  of  the  bank's  business,  and 

Div.  426,  43   N.  Y.  S.  642,  12  X.  Y.   Cr.  making  a  false  return  of  the  condition 

Rep.  134.  of   a   bank,   must   allege   that   the    false 

58.  Intent  of  aider  and  abettor. —  return  was  made  by  them  willfully; 
Coffin  r.  United  States,  162  U.  S.  664,  otherwise,  the  indictment  will  be 
40  L.   Ed.   1109,   16   S.   Ct.   94?..  quashed,    as    setting    forth    no    offense 

KQ        \x7;iu„i '    ^^      ;«*.^«*.;^«oi      \'^  ,         constituting    a   misdemeanor    at      com- 

59.  Williul     or     intentional. —  \  ou-  ,         '^^  i,i  t^      i 

^   ^r.        Q*^*^    -  r^     A^^    ini    ar   c    XT  mou   law.      Commonwealth   t'.    Dunham 

mans  v.  State,   t   Ga.  App.  101,  66  S.  E.  /Ar„„  %     Tb;,rhpr    Cr     Pa^     =;^s 

383;        Commonwealth        f.        Dunham  (^^iass.).     Ihacher    L  r.    Las.    .d.^S. 

(Mass),  Thacher  Cr.  Cas.  .538;  Hume  z:  60.   Joining  defendants  in  indictment. 

Commercial    Bank,    77    Tenn.    (9    Lea)  —Commonwealth   v.   Dunham    (Mass.), 

728:   Minton  f.  Stahlman.  96  Tenn.  98,  Thacher    Cr.    Cas.    538. 

34  S.  W.  222.  61.      Several      offense — Setting      out 

Ah     indictment      against      bank      di-  names    of    other    officers. — Cabaness    v. 

rectors,  under  Rev.   St.,  c.  36,  §  65,  for  State,   8   Ga.  App.   129,  6S  S.   E.  849. 


§    62    (leb)  OFFICERS  AND  AGENTS.  419 

hence  a  motion  to  require  the  prosecuting  attorney  to  elect  on  which  count 
he  will  prosecute  is  properly  refused. '''- 

§  62  (le)  Indictments  for  Particular  Offenses  Considered — 
§  62  (lea)  Illegal  and  Unauthorized  Banking. — Under  a  statute  "to 
prohibit  the  issuing  and  circulating  unauthorized  bank  paper,"  it  is  suffi- 
cient to  charge  in  the  indictment,  in  general  terms,  that  the  defendant  acted 
as  an  officer  of  a  bank  not  incorporated  by  law.^^  And  it  is  no  objection  to 
an  information  against  the  officers  of  an  organized  banking  association, 
under  the  act  to  suppress  illegal  banking  associations,  that  it  does  not  in 
terms  allege  them  to  be  such  association,  if  it  is  apparent  that  they  were 
thus  associated  with  a  common  interest,  purpose,  and  action.'''* 

§  62  (leb)  False  Entries. — Under  a  statute  providing  that  every 
person  who  with  intent  to  defraud  shall  make  any  false  entry  or  shall  falsely 
alter  any  entry  made  in  any  book  of  account  kept  by  any  banking  corpora- 
tion within  the  state  by  which  any  pecuniary  obligation,  claim,  or  credit 
shall  be,  or  purport  to  be,  discharged,  diminished,  etc.,  or  in  any  manner 
affected,  shall  be  punished  as  for  forgery,  an  indictment  alleging  that  there 
was  a  certain  sum  on  deposit  and  entry  thereof  on  the  bank's  books,  and 
that  said  entry  had  been  falsely  altered  and  changed  so  as  to  purport  to 
diminish  and  discharge  the  creditor,  was  sufficient ;  being  equivalent  to  a 
direct  allegation  that  the  credit  had  not  in  fact  been  diminished  or  dis- 
charged.*^" But  where  the  statute  provided  that  if  any  officer  of  a  banking 
company  should  make  any  false  entry  in  any  book  of  the  institution,  with 
intent  to  deceive  any  officer  of  the  institution  or  the  bank  commissioners, 
he  should  be  fined,  etc.,  it  was  held  that  an  indictment  for  violating  such 
section  should  allege  that  defendant  was  an  officer  (describing  his  office)  of 
a  loan  and  banking  company,  organized  under  the  laws  of  that  state  and 
engaged  in  the  banking  and  loan  business  (describing  the  company  and  its 
place  of  business  in  the  state)  ;  that,  being  such  officer,  he  made,  in  a  book 
described,  owned  by  the  institution,  and  entry  described ;  that  the  entry 
was  false  (setting  out  the  facts  to  establish  its  falsity)  ;  that  it  was  made 
with  intent  to  deceive  the  officers  of  the  institution  (describing  them)  or  the 
bank  officers  (naming  them) — and  should  contain  averments  of  time  and 
place.'^*^ 

62.  Joinder  of  offenses — Election  of  An  indictment  against  a  bank  of- 
counts. —  l\iith  r.  State,  140  Wis.  37:!,  ficer  alleged  that  on  a  specified  day 
l:i:.'   X.   W.   i.i.'i.  lie    made    a    certain    false    entry    in    re- 

63.  Illegal  and  unauthorized  bank-  eard  to  the  amount  of  money  paid  out 
ing. — Lougee  z\  State,  11  O.  (iS;  P.onsal  from  the  funds  of  the  hank,  etc.,  as 
-'.  State,  11  O.  72;  Stecdman  f.  State,  follows,  to  wit:  "Thursday,  Aug.  27. 
11   O.  82.  1  !)().•{.      Checks,   .')200;"   meaning  and   in- 

64.  Same. — Williams  -'.  State,  2.'5  Tex.  tending  to  be  understood  that  he  (de- 
204.  fendant),    in    his    capacity    as    assistant 

65.  False  entries. — Quertermous  zk  cashier,  had  on  that  date  paid  from 
State.   !).".   .\rk.   48,   127   S.   W.   0.")1.  the     bank's     funds     checks     of    deposi- 

66.  Same. — State  v.  Piper,  7.'}  X.  II.  tors  to  llu'  sum  of  $.').200,  whereas  in 
22«,  00  At).   742.  truth,    (kfnid.int,    in   his    said    capacity, 


420 


BANKS  AND  BANKING. 


§  62   (lee) 


§  62  (lee)  False  Reports  and  Statements. — An  indictment  under 
a  statute,  fixing  a  punishment  for  any  officer  or  employee  of  a  bank  who 
shall  knowingly  subscribe  or  make  any  false  statements  with  intent  to  de- 
ceive any  person  authorized  to  examine  its  condition,  should  describe  the 
statement  mentioned  in  the  statute  and  the  person  to  whom  made  with  such 
particularity  as  to  individuate  the  offense  charged  and  enable  the  defendant 
to  know  what  is  intended.*^"  It  should  specifically  point  out  wherein  the  al- 
leged statement  was  false  f'^  and  that  it  was  made  to  the  commissioners, 
examiners,  or  other  official  to  whom  by  law  it  is  required  to  be  made,  for 
if  made  to  other  persons,  it  is  not  a  violation  of  the  statute  and  an  indict- 
ment charging  that  it  was  made  to  such  other  person  or  persons  does  not 
state  an  offense  under  the  statute.*^^     Where  the  statute  denounces  a  pen- 


did  not  pay  such  sum,  or  any  part 
thereof,  as  in  the  entry  was  falsely  al- 
leged and  stated,  etc.  Held,  that  the 
allegation  that  defendant,  as  assistant 
cashier,  had  not  paid  out  the  money, 
did  not  negative  the  truth  of  the  en- 
try, as  not  showing  that  the  money 
had  not  been  paid  out  by  the  bank, 
and  that  the  indictment  was  therefore 
insufficient.  State  z'.  Piper,  73  N.  H. 
226.  60  Atl.  742. 

Where  an  indictment  charged  that 
defendant  made  a  false  entry  in  the 
books  of  a  bank  in  regard  to  the 
amount  of  money  then  and  there  with- 
drawn from  the  bank  by  one  D.,  a  de- 
positor, and  that  D.  did  not  withdraw 
$500  on  the  day  specified  according  to 
the  entry,  such  allegation  sufficiently 
charged  that  the  money  was  not  with- 
drawn from  D.'s  account  either  by  him 
or  on  his  order.  State  v.  Piper,  73  N. 
H.   230,    60   Atl.   432. 

67.  False  reports  and  statements. — 
State  V.  Henderson,  13.5  Iowa  499,  113 
N.   W.   328. 

68.  Same — Pointing  out  falsity. — 
State  V.  Henderson,  135  Iowa  499,  113 
N.  W.   328. 

An  indictment  under  Code,  §  1887, 
fi.xing  a  punishment  for  any  officer  or 
employee  of  a  bank  who  shall  know- 
ingly subscribe  or  make  any  false 
statements  with  intent  to  deceive  any 
person  authorized  to  examine  its  con- 
dition, charging  defendant  and  an  of- 
ficer of  the  bank  with  making  false 
staternents  of  its  financial  condition, 
in  which  he  reported  the  overdrafts  of 
individuals  to  be  only  $466.28,  while  in 
fact  they  exceeded  $1,500.  and  that 
there  was  due  from  other  banks  a  cer- 
tain sum  which  was  $1,500  more  than 
the  true  amount  so  due.  sufficiently 
pointed  out  wherein  the  alleo-ed  state- 
ment was  false.  State  v.  Henderson, 
135   Iowa   499,   113   N.   W.   328. 


St.  1903,  c.  266,  required  the  officers 
of  a  bank  whenever  so  required  by  the 
bank  commissioners  to  make  a  written 
verified  report  showing  the  bank's  ac- 
tual financial  condition  at  the  close  of 
any  past  day  specified  by  the  com- 
missioners by  stating,  among  other 
things,  the  total  amount  actually  paid 
"in  money"  by  stockholders  for  capi- 
tal stock;  and  Pen.  Code,  §  558,  de- 
clares that  every  officer  of  a  corpora- 
tion who  knowingly  exhibits  a  false 
statement  to  any  officer  or  board  au- 
thorized to  examine  the  corporation 
with  intent  to  deceive  shall  be  pun- 
ishable, etc.  Held,  that  an  indictment 
of  a  bank  officer  alleging  that  he  ex- 
hibited to  the  bank  commissioners  a 
report  which  was  false,  in  that  it 
showed  that  the  amount  of  capital  of 
the  bank  actually  paid  "in  coin" 
amounted  to  $102,245,  when  in  truth 
tl:e  amount  of  capital  of  the  bank- 
theretofore  paid  "in  coin"'  did  not 
amount  to  more  than  $50,000,  and  that 
it  was  necessary  and  material  for  the 
bank  commissioners  to  know  from 
such  report  what  amount  of  the  capi- 
tal stock  of  the  bank  had  been  paid 
"in  coin,"  was  not  fatally  defective  in 
that  the  report  stated  the  amount  paid 
in  coin  instead  of  the  amount  paid  "in 
money,"  since  a  statement  that  a  cer- 
tain amount  had  been  paid  "in  coin" 
was  in  effect  a  statement  that  at  leasL 
that  amount  had  been  p?id  in  money. 
People  V.  Nash,  15  Cal.  .\pp.  320,  114 
Pac.  784. 

69.  Persons  to  whom  made. — State 
7'.  Henderson.  135  Iowa  499,  113  X.  W. 
328. 

Code.  §  1845,  relating  to  savings 
banks,  authorizes  a  directorate  of  not 
less  than  five  nor  more  than  nine  per- 
sons. Section  1871  requires  the  board 
of  directors  to  appoint  from  its  num- 
ber   an    exam.inmg    committee     to      ex- 


62  (led) 


OFFICERS  AND  AGENTS. 


421 


alty  for  exhibiting  a  false  book  or  report  to  an  officer  duly  authorized  to 
investigate  the  affairs  of  the  bank,  an  indictment  which  charges  the  de- 
fendant with  having  exhibited  a  false  book  to  such  an  officer  with  the  intent 
to  deceive  him.  contrary  to  the  form  of  the  statute,  is  sufficient  though  it 
omits  the  words  "in  respect  thereto,"  used  in  the  statute."" 

§  62  (led)  Conversion  and  Misappropriation  of  Funds. — Upon 
an  indictment  for  the  conversion  or  misappropriation  of  the  funds  of  the 
bank  by  the  cashier,  it  is  not  necessary  to  allege  that  he  did  it  in  his  official 
or  fiduciary  capacity  or  that  the  funds  were  intrusted  to  him  in  such  capacity, 
unless  the  statute  makes  these  facts  an  essential  element  of  the  offense.'^ 
But  an  indictment  under  a  statute  which  treats  as  guilty  of  larceny  any  of- 
ficer of  an  incorporated  bank  who  fraudulently  converts  to  his  own  use  any 
bullion,  money,  note,  bill,  or  other  security  for  money  belonging  to  and  in 
possession  of  such  bank,  whether  intrusted  with  the  custody  thereof  or  not, 
etc.,  rightly  contains  an  averment  that  the  money  was  in  the  possession  of 
the  bank.'-  Generally  it  is  sufficient  in  such  case  to  charge  the  offense  in 
the  words  of  the  statute.'''     And   an   indictment  against  a  cashier  which 


amine  the  bank.  Section  1873  empow- 
ers the  state  auditor  to  direct  an  ex- 
amination of  a  savings  bank  at  any- 
time, and  under  §  1875  he  may  appoint 
bank  examiners  for  this  purpose.  Held, 
that  an  indictment  under  Code,  §  1887, 
fixing  a  punishment  for  any  officers  or 
employees  of  such  a  bank  who  shall 
knowingly  subscribe  or  make  any  false 
statements  with  intent  to  deceive  any 
person  authorized  to  examine  its  con- 
dition, which  charged  generally  that 
a  false  statement  was  made  to  the  di- 
rectors of  the  bank,  was  demurrable, 
since  the  directors  are  not  among  the 
persons  authorized  by  statute  to  ex- 
amine the  bank's  condition.  State  z'. 
Henderson,  13.5  Iowa  409,  113  N.  W. 
328. 

Oral  or  in  writing. — Such  an  indict- 
ment is  not  demurrable,  however,  be- 
cause omitting  to  allege  whether  the 
false  statement  was  in  writing  or  oral. 
State  V.  Henderson.  I.''^.")  Towa  400,  113 
N.   W.   328. 

70.  Following  language  of  statute. 
—People  z:  Helmer,  154  X.  Y.  596,  49 
N.  E.  249,  reversing  13  Apn.  Div.  426, 
43  N.  Y.  S.  642,  12  N.  Y.  Cr.  Rep. 
134. 

71.  Conversion  and  misappropria- 
tion of  funds — In  official  capacity. — 
State  T.  Stimson,  24  N.  J.  L.  0. 

Where  the  statute  provides,  "tliat  if 
any  director  of  any  incorporated  bank 
in  this  state,  or  any  cashier,  l)ook- 
keeper,  or  riiher  officer  r>r  agent  of  any 


such  bank,  shall  knowingly  overdraw 
his  account  with  the  bank  of  which 
he  shall  be  director,  cashier,  book- 
keeper, officer,  or  agent,  for  his  own 
private  use  or  benefit,  or  shall  pur- 
loin, embezzle,  or  convert  to  his  own 
use  any  money,  bank  bill  or  note  the 
property  of  the  said  corporation,  with 
intent  to  defraud  the  said  corporation, 
or  wrongfully  to  make  use  of  the  same, 
in  every  such  case  the  person  so  of- 
fending shall  be  judged  guilty  of  a 
high  misdemeanor,"  it  is  not  neces- 
sary that  the  indictment  should  charge 
that  defendant  committed  the  act  "as 
cashier,"'  or  that  the  funds  were  en- 
trusted to  him  in  such  capacitj',  since 
the  commission  of  the  act  in  his 
fiduciary  capacity  is  not  made  essen- 
tial to  the  completion  of  the  crime. 
State  z'.  Stimpf.n,  24  \.  J.   L.  9. 

72.  That  money  or  funds  in  pos- 
session of  bank. — Commonwealth  z: 
Warner,  173  Mass.  541,  54  N.  K.  353. 

73.  Words  of  statute  sufficient. — 
State  r'.    Stimson,  24    X.   J.    L.   0. 

.An  indictment  charginer  that  ac- 
cused, as  president  and  director  of  a 
trust  company  or^ianized  under  Laws 
1883.  p.  133,  c.  107.  and  the  laws  amend- 
atory thereof  (Laws  1885,  p.  123,  c. 
74),  did  feloniouslv  become  indebted 
in  the  sum  named,  which  he  appro- 
priatefl  to  liis  own  use  states  a  cause 
of  action  under  Rev.  Laws  1005, 
§  3045.  State  7'.  Rnrnes.  108  Afinn. 
;>30.  122  X.  W.  11:  S.  C,  108  Minn.  527. 
122  N.  W.  12. 


422  BANKS  AND  BANKING.  §    62    (lee) 

charges  that  defendant  "converted  the  property  of  the  bank,"  with  intent 
wrongfully  to  make  use  of  it,  is  sufficients^  Some  degree  of  certainty  and 
individuality,  however,  must  be  given  to  the  offense  with  which  the  defend- 
ant is  charged.  It  is  difficult  to  state  with  precision  just  how  far  the  indict- 
ment should  go  in  this  respect,  but  it  may  be  stated  that  the  certainty  should 
be  such  as  to  identify  the  offense,  so  that  the  defendant  may  know  what 
crime  he  is  called  upon  to  answer,  and  may  be  able  to  plead  the  conviction 
or  acquittal  as  a  bar  to  a  future  indictment  for  the  same  offense ;  but  the 
particularity  required  is  not  such  to  screen  him  from  conviction,  or  to  em- 
barrass the  prosecution  with  useless  technicalities."^  It  will  not  be  suffi- 
cient, for  instance,  for  such  an  indictment  to  charge,  in  the  words  of  the 
statute,  that  the  defendant  converted  to  his  own  use  money  and  bank  notes 
the  property  of  the  bank.  There  must  be  some  description  either  of  number 
or  denomination  or  value  by  which  the  particular  offense  may  be  to  some 
extent  at  least  identified.'''^  Where  the  charge  is  that  the  defendant  em- 
bezzled or  misappropriated  so  many  dollars  in  coin  or  money,  it  is  not  nec- 
essary to  allege  the  value  thereof,  since  the  statement  of  the  number  or 
amount  of  such  coin  is  equivalent  to  an  allegation  of  its  value ;  but  where 
the  averment  is  that  the  property  converted  consisted  of  notes  or  secu- 
rities which  may  be  worth  more  or  less  than  their  face  value,  the  indictment 
should  state  what  that  value  is.'''' 

§  62  (lee)  Indictment  for  Aiding  and  Abetting. — Under  the  Re- 
vised Statutes  of  the  United  States,  §  5209,  a  third  person,  unconnected 
with  the  bank  in  any  official  capacity,  can  not  commit  a  violation  of  its  pro- 
visions without  the  concurring  act  of  an  officer  or  agent  of  the  bank,  and 
under  the  statute  the  officer  or  agent  must  be  prosecuted  as  the  principal 
and  the  outsider  as  an  aider  and  abettor.  The  indictment  in  such  case  must 
connect  the  acts  charged  against  the  aider  and  abettor  with  the  offense 
stated  against  the  principal  offender,  and  this  is  sufficiently  done  where  the 
indictment  charges  the  principal  offender  with  misappropriating  or  mis- 
applying a  specific  sum  in  a  certain  manner,  and  then  alleging  that  the  de- 
fendant charged  with  aiding  and  abetting  did  aid  and  abet  the  principal 
offender,  "as  aforesaid,"  to  misappropriate  and  misapply  the  funds  of  the 
bank  in  a  specific  sum,  identical  in  amount  with  that  charged  to  have  been 
misapplied  by  the  principal  offender.'^^ 

74.  Averment  of  conversion  with  under  Rev.  St.,  p.  12.5,  §  1,  against  the 
wrongful  intent  sufficient. — State  7'.  cashier  of  a  bank  for  converting  its 
Stimson,  24  N.  J.  L.  0.  funds,    which    charges    a   conversion    of 

75.  Degree  of  certainty  and  pre-  "$19,000  of  ^noney  and  $19,000  of  bank 
cision  in  describing  offense. — State  i'.  notes,"  is  bad  for  uncertainty.  State 
Stimson,   24    X.   J.   L.    '.'.  r.  Stimson,  24  X.  J.  L.  9. 

76.  Description  of  money  or  funds  78.  Indictment  for  aiding  and  abet- 
converted. — State  :■.  Stimson,  24  X.  J.  ting. — Coffin  r.  United  States,  162  U. 
L.   9,  S.   664,   40   L.    Ed.   1109,    16   S.    Ct.   943. 

77.  Averment  of  value. — State  v.  An  indictment  for  aiding  and  abet- 
Stimson,   24   X.  J.   L.   9.  ting   one    H..   the   president   of   a   bank, 

A    count    in    an    indictment    brought       in    the    criminal    misapplication    of    its 


§  62  (leh) 


OFFICERS  AND  AGENTS. 


423 


§  62  (lef)  Overdrawing  Account. — Where  the  statute  makes  it  a 
criminal  offense  for  a  cashier,  director  or  officer  knowingly  to  overdraw  his 
account  with  the  bank  of  which  he  is  such  officer,  an  indictment  which  states 
that  the  defendant  was  the  cashier  of  an  incorporated  bank ;  that  he  kept 
an  account  of  his  dealings  with  the  bank ;  that  at  a  certain  day  there  was 
no  money  due  him  from  the  bank,  and  that  knowing  the  premises,  he  know- 
ingly drew  from  the  bank  a  certain  sum  of  money  for  his  own  benefit,  and 
thereby  overdrew  his  account,  sufficiently  describes  the  oft'ense  against  the 
statute :  it  is  not  necessary  to  state  the  manner,  or  by  whose  checks,  or  in 
how  many  checks  he  overdrew  his  account ;  nor  is  it  necessary  to  state  in 
what  funds  the  overdraft  was  made.'^ 

§  62  (leg-)  Fraudulent  Insolvency.— Upon  an  indictment  for  the 
statutory  oft"ense  of  having  brought  about  the  fraudulent  insolvency  of  the 
bank,  the  material  facts  and  circumstances  embraced  in  the  statutory  defini- 
tion of  the  offense  must  be  stated,  or  the  indictment  will  be  defective,  the' 
chief  of  said  facts  being  that  the  insolvency  was  brought  about  by  the 
fraudulent  acts  and  practices  of  the  defendant,  since  it  is  only  fraudulent 
insolvency  that  is  made  criminal.'"* 

§  62  (leh)  Receiving  Deposits  after  Knowledge  of  Insolvency. — 
Averment  of  Insolvency. — As  there  can  be  no  oft'ense  under  a  statute  of 
this  kind  unless  the  bank  was  insolvent  at  the  time  the  deposit  was  received, 
it  is  essential  that  the  fact  of  insolvency  should  be  specifically  and  affirm- 
atively alleged;'*^    and  if  the  indictment  is  wanting  in  an  averment  of  this 


funds,  charged  that,  on  a  specified 
date,  the  said  H.  misapplied  a  named 
sum,  by  causing  the  same  to  be  paid 
out  on  the  checks  of  a  company  hav- 
ing no  moneys  in  the  bank.  The  aid- 
ing and  abetting  clause  charged  that 
the  accused  did  "on  [specifying  the 
same  dale]  aid  and  abet  said  H.,  as 
aforesaid,  to  wrongfully,"  etc.,  mis- 
apply the  moneys  of  the  bank,  "to 
wit.''  specifying  an  identical  sum. 
Held,  that  the  language  sufficiently 
connected  the  acts  charged  against  ac- 
cused with  the  offense  against  H. 
Coffin  V.  United  States,  162  U.  S.  r,f.4. 
40   L.    Ed.    1109,    If)    S.    Ct.    94:i. 

79.  Indictment  for  overdrawing  ac- 
count.— State  f.  Stimson,  :24  X.  J.  L. 
478. 

80.  Indictment  for  fraudulent  in- 
solvency.— "N'oumans  z'.  State,  7  Ga. 
.App.    101.   (•)()   S.    E.   383. 

.'\n  indictment  charging  that  de- 
fendant being  the  president  of  a  l)ank, 
and  as  such  charged  with  the  fair  ad- 
ministration of  its  affairs,  such  bank 
did  then  and  there  become  fraudu- 
lently   insolvent,    was    sufliciently    defi- 


nite to  inform  defendant  of  tlie  offense 
with  which  charged,  and  exact  enough 
to  protect  him  from  second  jeopardy. 
Youmans  v.  State,  7  Ga.  App.  101,  66 
S.   E.  383. 

81.  Averment  of  insolvency. — Elcm- 
ing  7'.  State,  62  Tex.  Cr.  App.  6,53.  139 
S.  W.  598;  State  r.  Bardwell.  72  Miss. 
.53,5,  18  So.  377;  Murphy  z:  People,  19 
111.  App.  125;  Boyenton  z:  Common- 
wealth   (Va.),   76   S.    E.    045. 

.■\n  indictment,  alleging  that  accused 
was  the  president  of  a  bank,  that  as 
president  he  received  as  a  deposit  a 
bank  check  on  another  bank,  payable 
to  the  order  of  a  third  person,  that  the 
check  was  deposited  by  the  third  per- 
son, that  the  president  received  the  de- 
posit after  he  knew  that  the  bank  was 
in  failing  circumstances  and  in- 
solvent, does  not  charge  the  offense 
denounced  by  Acts  25tli  Leg.,  c.  100, 
punishing  any  officer  of  any  bank  wlio 
receives  a  deposit  with  knowledge  that 
the  bank  is  insolvent,  because  it  docs 
not  allege  affirmatively  the  insolvency 
of  the  bank  at  tlie  time  of  the  deposit, 
and  l)ecause  it  does  not  show  tliat  the 


424 


BANKS  AND  BANKING. 


§  62   (leh) 


fact,  it  is  insufficient,  even  though  it  charge  the  offense  in  the  words  of  the 
statute.^-  Where  the  bank  was  a  private  institution  owned  and  operated 
either  by  individuals  or  by  a  copartnership,  the  indictment  should  aver  the 
ownership  or  agency  and  the  insolvency  of  the  individuals,  especially  the 
insolvency  of  the  individuals  composing  a  copartnership,  the  partnership 
itself  not  being  a  legal  entity  independent  of  the  individuals  composing  it.^-^ 


check  was  transferred  as  a  deposit  to 
the  bank.  Fleming  i'.  State,  62  Tex. 
Cr.  App.  653,  139  S.  W.  598. 

Act  1879,  "for  the  protection  of 
bank  depositors,"  makes  it  a  criminal 
offense  for  a  person  doing  a  banking- 
business,  when  insolvent,  to  receive 
a  deposit,  which  is  lost  by  reason  of 
Ihe  insolvency.  Held,  that  as  knov^^l- 
edge  of  the  fact  of  insolvency  and  a 
fraudulent  intent  are  not  made  ele- 
ments of  the  offense,  they  need  neither 
be  alleged  nor  proved,  but  that  alle- 
gation and  proof  of  insolvency  are  es- 
sential. Murphy  v.  People,  19  111. 
App.    125. 

Act  Feb.  12,  1894  (Acts  1893-94,  c. 
210),  makes  it  an  offense  for  any  pri- 
vate banker  or  his  employee  to  re- 
ceive money  from  a  depositor  with 
knowledge  that  such  banker  was  in- 
solvent. Held,  that  an  indictment 
against  accused  as  a  private  banker, 
charging  that  the  "Bank  of  Upper- 
ville"  was  a  private  bank  of  which  ac- 
cused was  cashier,  and  that  he,  know- 
ing that  the  "bank"  was  insolvent, 
feloniously  accepted  a  deposit,  etc.,  but 
failing  to  allege  the  owner  or  owners 
of  the  bank,  or  that  accused  was  a 
private  banker,  or  an  employee  of  a 
private  banker,  or  to  charge  that  "ac- 
cused" was  insolvent  when  he  received 
the  deposit,  or  that  the  owner  or  own- 
ers of  the  bank,  or  the  private  banker 
or  bankers,  were  then  insolvent,  was 
fatally  defective.  Boyenton  z'.  Com- 
monwealth  fVa.),  76  S!  E.  945. 

82.  Same — Charging  offense  in 
words  of  statute.— State  i'.  Bardwell, 
72    Miss.    535,    18    So.    377. 

An  indictment  under  a  statute  de- 
claring it  an  offense  if  an  officer  of  a 
bank  shall  receive  a  deposit,  "know- 
ing, or  having  good  reason  to  believe, 
the  establishment  to  be  insolvent."  is 
not  sufficient  where  it  does  not  allege 
the  insolvency,  but  merely  follows  the 
words  of  the  statute,  as  there  would 
be  no  offense  if  the  bank  was  not  in- 
solvent, though  the  officer  believed  it 
was  State  7'.  Bardwell,  72  Miss.  535, 
18  So.  377. 

83.  Same — Insolvency  of  members 
of  copartnership. — State  ?'.  Krasher, 
170  Ind.  43,  83  N.  E.  498;  Boyenton  v. 


Commonwealth  (Va.),  76  S.  E.  945; 
Meadowcroft  v.  People,  163  111.  56,  45 
N.  E.  991,  35  L.  R.  A.  176,  54  Am.  St. 
Rep.  447;  Brown  z'.  State  (Tex.  Cr. 
App.),   151    S.   W.   561. 

An  indictment  under  such  an  act 
alleging  that  accused  were  doing  a 
banking  business  under  the  name  of 
"Meadowcroft  Bros.,"  and  that  they 
were  insolvent  at  the  time  they  re- 
ceived the  deposit,  is  sufKcient,  with- 
out alleging  that  the  partnership  of 
Meadowcroft  Bros,  was  insolvent,  as 
a  partnership  is  not  a  legal  entity,  in- 
dependent of  the  persons  composing 
it.  Meadowcroft  r.  People,  163  111. 
56,  45  N.  E.  991,  35  L.  R.  A.  176,  54 
Am.  St.  Rep.  447. 

Burns'  Ann.  St.  1901,  §  2031,  pro- 
vides that,  if  any  banker  or  any  officer 
of  a  banking  company  shall  fraudu- 
lently receive  from  any  person  not  in- 
debted to  it  any  money  on  deposit, 
when  at  the  time  of  receiving  such  de- 
posit the  banker  or  banking  company 
is  insolvent,  whereby  the  deposit  shall 
be  lost  to  the  depositor,  the  banker  or 
officer  so  receiving  the  deposit  shall 
be  guilty  of  embezzlement.  Held 
that,  where  an  indictment  for  violat- 
ing such  section  alleged  that  defend- 
ants who  were  doing  a  banking  busi- 
ness as  president  and  cashier  of  a 
banking  company  organized  as  a  co- 
partnership, etc.,  fraudulently  received 
a  deposit  of  money  from  prosecutor, 
who  was  not  indebted  to  the  bank,  its 
president,  or  cashier,  or  any  member 
thereof,  at  a  time  when  defendants 
were  insolvent,  etc.,  it  was  fatally  de- 
fective for  failure  to  allege  the  names 
of  the  persons  who  composed  the 
partnership;  the  condition  of  insol- 
vency referred  to  in  the  statute  as  ap- 
plied to  a  partnership  bank  being 
referable  to  the  insolvency  of  the  in- 
dividual partners,  which  must  be  al- 
leged and  proved.  State  v.  Krasher, 
170    Ind.    43,   83    N.    E.    498. 

Counts  of  an  indictment  charged 
that  accused  and  J.  B.  were  partners 
and  carried  on  a  private  banking  busi- 
ness under  the  style  of  the  "Bank  of 
U.,''  that  accused  took  and  received 
money  from  a  depositor  named  with 
actual   knowledge   that   the   firm   doing 


§  62  ( leh) 


OFFICERS  AND  AGENTS. 


425 


Knowledge  of  Insolvency. — Knowledge  of  insolvency  neei.1  not  be  al- 
leged or  proved  where  not  made  an  element  of  the  oltense.*'-*  And  this  is 
true  even  though,  in  such  case,  want  of  knowledge  is  a  defense  upon  the 
issue  of  fraudulent  intent. ^'^^ 

Receipt  of  Money  or  Other  Thing  as  a  Deposit. — As  it  is  the  receipt 
of  deposits  which  is  forbidden  by  the  statute,  the  indictment  should  allege 
that  the  money  or  other  thing  was  received  as  a  deposit.'*'^  For  example, 
where  the  thing  received  is  a  check,  the  indictment  should  state  that  it  was 
transferred  to  the  bank  as  a  deposit.^" 

Receipt  of  Deposit  in  Official  Capacity,  by  Virtue  of  Office,  etc. — 
Under  a  statute  imposing  criminal  liability  upon  bank  officers  who  shall 
receive  deposits  with  knowledge  of  the  bank's  insolvency,  an  indictment 
stating  that  the  money,  check,  or  other  thing,  was  received  for  the  bank  by 
its  president,  naming  him,  and  accepted  on  deposit,  sufificiently  alleges  the 
receipt  of  the  deposit  by  an  ofificer  of  the  bank  in  his  capacity  as  such.^s 
Where  the  receipt  of  deposits  under  such  conditions  is  declared  by  the 
statute  to  constitute  embezzlement,  the  fact  that  it  came  into  the  defendant's 
possession  by  virtue  of  his  office  and  was  received  by  him  in  his  official 
capacity  should  ordinarily  be  alleged  ;^^    but  it  is  otherwise  where,  under 


business  as  the  Bank  of  U.  was  in- 
solvent, also  that  accused  permitted 
such  depositor  to  deposit  a  specified 
sum  with  actual  knowledge  that  the 
firm  trading  as  the  Bank  of  U.  was 
insolvent.  Held,  that  such  counts 
were  fatally  defective  for  failure  to 
charge  that  accused  at  the  time  of  re- 
ceiving the  deposit  had  actual  knowl- 
edge that  he  and  his  partner,  or  either 
of  them,  was  insolvent;  the  insolvency 
of  the  partnership  being  insufficient  to 
render  accused  guilty  of  a  violation  of 
the  act.  Boyenton  z'.  Commonwealth 
(Va.),  76   S.   E.  945. 

.\n  indictment  alleging  that  accused 
unlawfully  received  a  deposit  in  the 
"unincorporated"  bank  named,  of  which 
he  was  president,  while  it  was  insol- 
vent to  his  knowledge,  charged  that 
the  hank  was  a  private  bank,  and  was 
had  under  Pen.  Code  1911,  art.  032 
(Acts  25th  Leg.  c.  100),  for  not  alleging 
that  accused  was  its  owner,  agent,  or 
manager,  or  the  names  of  the  owners, 
and  that  they  were  insolvent.  Brown 
7'.  State  (Tex.  Cr.  .\pp.),  151   S.  W.  501. 

84.  Knowledge  of  insolvency. — Mur- 
phy  :•.    I'eople,    19    111.    App.    125. 

85.  Same.— State  v.  Cadwallader,  154 
Ind.   GOT.   57    N.    E.   512. 

Under  Burns'  Rev.  St.  1804,  §  2031, 
proliil)iting  the  receipt  by  an  in.solvent 
hank  of  a  deposit,  whereby  such  de- 
posit is  lost  to  the  depositor,  but 
which  does  not  make  knowledge  of  in- 


solvency an  element  of  the  oflfense. 
the  prosecution  need  not  aver  and 
prove  that  the  officer  receiving  the  de- 
posit knew  that  the  bank  was  insolvent, 
as  want  of  such  knowledge  is  matter 
of  defense,  which  accused  may  show 
to  justify  his  act  in  receiving  the  de- 
posit. State  V.  Cadwallader,  154  Ind. 
GOT,    5T    N.    E.    512. 

86.  Receipt  of  money  or  other  thing 
as  a  deposit. — Fleming  :■.  State,  62 
Tex.    Cr.    App.    653,    139    S.    W.    598. 

An  indictment  under  such  act  alleg- 
ing that  accused,  "being  persons  then 
and  there  doing  a  banking  business, 
*  *  *  did  receive"  from  one.D.  certain 
moneys,  of  the  property  of  said  D., 
the  said  D.  then  and  there  not  being 
indebted  to  accused,  sufficiently  al- 
leges that  accused  was  doing  a  bank- 
ing business,  and  that  the  moneys 
were  received  as  a  general  deposit. 
iMeadowcroft  7'.  People,  163  111.  56,  45 
X.  E.  901,  35  L.  R.  A.  1T6,  54  .A.m.  St. 
Rep.   4)T. 

87.  Same.— FK'mimr  ::  State,  62  Tex. 
Cr.  App.  653.  130  S.  W.  59S. 

88.  Receipt  of  deposit  in  official  ca- 
pacity, by  virtue  of  office,  etc. — Ellis 
7:  State.  138  Wis.  513,  110  X.  W.  1110. 
20   L.    R.    A..   X.    S.,    444. 

89.  Same — Where  receipt  of  deposit 
declared  to  constitute  embezzlement. 
—  State  f.  Winstandley.  l.">4  I  ml.  4  13. 
5T    N.    E.    109. 

Defendants      were      indicted       under 


426 


BANKS   AND   BANKING. 


§  62  (leh) 


the  statute,  the  offense  is  complete  without  regard  to  whether  the  money 
came  rightfully  into  the  defendant's  possession  by  virtue  of  his  office,  and 
was  then  fraudulently  converted,  or  whether  it  was  feloniously  taken  from 
the  vault  of  the  bank  for  no  other  purpose  than  to  steal  it.^^  It  is  not  a 
material  error  in  the  latter  case,  however,  to  allege  that  the  defendant,  did 
"have,  receive,  and  take  into  possession."  a  great  quantity  of  money,  etc., 
"by  virtue  of  his  office"  as  president,  cashier,  or  treasurer,  as  the  case  may 
be,  since  such  averment  may  be  rejected  as  surplusage. '^^  Of  course,  it  is 
essential  in  every  case  to  show  either  that  the  accused  was  the  person  who 
received  the  deposit,  or  such  guilty  knowledge,  participation  or  assent  as 
will  bring  him  within  the  condemnation  of  the  statute.^-  Thus  where  the 
statute  provides  that  any  officer  having  authority  to  close  the  bank  or  to 
prevent  the  receipt  of  deposits,  and  who  fails  to  exercise  such  authority, 
when  he  knows  that  the  bank  is  insolvent,  shall  be  deemed  to  have  assented 
to  the  receipt  of  deposits,  an  indictment  seeking  to  hold  the  defendant 
liable  on  such  ground  should  allege  his  authority  to  close  the  bank  or  to 
prevent  the  receipt  of  deposits. ^^     But  it  is  not  essential,  in  such  case,  to 


Burns'  Rev.  St.  1894,  §  2031  (Horner's 
Rev.  St.  1897,  §  6598),  declaring  of- 
ficers of  incorporated  banks,  who 
fraudulently  received  money  from  per- 
sons not  indebted  thereto,  when  the 
bank  was  insolvent,  so  that  the  money 
was  lost  to  the  depositors,  guiltj^  of 
embezzlement.  The  indictment  stated 
that  defendants  were  president  and 
cashier  of  a  bank,  that  the  bank  was 
insolvent,  and  that  defendants,  know- 
ing of  such  insolvency,  fraudulently 
received  moneys  from  a  person  not  in- 
debted to  the  bank,  whereby  such 
moneys  were  lost  to  such  depositor. 
Held,  that  the  indictment  was  insuffi- 
cient, since  it  failed  to  aver  that  the 
money  was  received  by  defendants  in 
their  official  capacity,  and  contained 
no  allegation  from  which  such  fact, 
or  the  receipt  of  the  money  by  the 
bank,  would  inevitably  follow.  State 
V.  Winstandley.  154  Iiid.  443,  57  N.  E. 
109. 

90.  Same — Same. — Commonwealth  v. 
Warner.  173   Mass.  541,  54  N.   E.  353. 

91.  Same — Same,  surplusage.— Com- 
monwealth V.  Warner,  173  Mass.  541, 
54   X.   E.   353. 

92.  Same — Necessity  for  showing 
individual  guilt. — Ex  parte  Rickev,  31 
Nev.  82,  100  Pac.  134. 

An  indictment  alleging  that  accused 
was  the  president  of  a  bank,  and  that 
he  feloniously,  through  the  receiving 
teller,  received  a  deposit  knowing  the 
bank  was  insolvent,  does  not  charge 
accused  with  receiving:  the  deposit 
within  Act  March  29,  1907   (St.  1907,  p. 


414.  c.  189),  penalizing  every  officer  of 
any  bank  who  receives  any  deposits 
knowing  that  the  b?nk  is  insolvent; 
and  the  indictment  does  not  charge 
accused  with  the  offense  under  the  doc- 
trine of  agency,  since  the  receipt  in 
law  was  by  the  bank.  Ex  parte  Rickey, 
31    Xev.   82,    100    Pac.    134. 

93.  Same — Same — Authority  to  close 
bank  or  to  prevent  receipt  of  deposits. 
—Ex  parte  Smith,  33  Xev.  466,  111  Pac. 
930;  Ex  parte  Griffin,  33  Xev.  490.  Ill 
Pac.    939. 

An  indictment  charging  the  accused 
with  assenting  to  the  receipt  of  bank 
deposits  was  framed  under  Act  ]March 
13.  1909  (St.  1909,  c.  92"),  which  by 
section  1  makes  it  a  crime  for  a  bank 
officer  to  receive  deposits  or  to  assent 
to  the  receipt  of  deposits  when  the 
bank  is  known  to  be  insolvent,  and  by 
§  2  provides  that  any  officer  of  an  in- 
corporated bank,  having  authority  to 
close  the  bank  or  to  prevent  the  re- 
ceipt of  deposit,  who  shall  not 
exercise  such  authority  when  he 
knows  that  the  bank  is  insolvent,  shall 
be  deemed  to  have  assented  to  the  re- 
ceipt of  deposits.  The  indictment  con- 
tained no  allegations  that  the  accused 
had  any  authority  to  close  the  bank, 
or  to  prevent  the  receipt  of  deposits, 
or  that  the  accused  personally  received 
deposits  knowing  the  bank  to  be  in- 
solvent. Held  that,  under  §  2.  con- 
sidered with  the  direct  definition  of 
§  1  as  to  the  offense  of  assentino:  to 
the  receipt  of  deposits,  the  "assent" 
required    b}'    the    statute    implied    per- 


§  62   (leh) 


OFFICERS   AXD  AGENTS. 


427 


allege  the  name  or  style  of  the  office  in  the  bank  held  by  the  person  who 
actually  received  the  deposit,  since  if  it  was  received  by  the  bank  with  the 
defendant's  knowledge  and  assent,  he  knowing  at  the  time  that  the  bank  was 
insolvent,  the  offense  in  this  particular  is  complete  without  regard  to  the 
name  or  office  held  by  the  person  receiving  it.^-* 

Person  from  Whom  Received. — The  indictment  should  allege  with 
sufficient  certainty  the  person,  corporation,  or  association  from  whom  the 
deposit  was  received. ^^ 

Description  of  Deposit — Amount,  Character,  Items,  etc. — The  in- 
dictment should  describe  and  identify  the  deposit  with  such  certainty  as  will 
apprise  the  accused  of  the  particular  charge  which  he  is  called  upon  to  de- 
fend and  enable  him  to  prepare  his  evidence  accordingly ;  and  if  this  is 
done,  it  is  not  necessary,  unless  made  so  by  the  terms  of  the  statute  pre- 
scribing or  defining  deposits  with  reference  to  some  particular  kinds  of 
money,  notes,  or  bills,  to  give  a  specific  description  of  each  separate  item  of 
which  it  was  composed.'*''     This  implies,  of  course,  that  the  amount  or  value 


mission,  and  presupposed  some  inher- 
ent power  to  withhold  assent.  Ex 
parte   Smith,  .33   Xev.  46().   Ill    Pac.  930. 

94.  Same — Same — When  unneces- 
sary to  aver  name  or  style  of  office  of 
person  actually  receiving  deposit. — ■ 
Parrish  :'.  Commonwealth,  I'.U]  Ky. 
377.    123    S.   W.    339. 

95.  Person  from  whom  received. — 
State  f.  Eifert,  102  Iowa  188,  65  X.  W. 
309,  71  N.  W.  248,  38  L.  R.  A.  485,  63 
Am.  St.  Rep.  433;  State  f.  Smith,  91 
Ark.  1.  120  S.  W.  156:  State  z:  Sattley, 
131    Mo.   464,   33    S.   W.   41. 

An  allegation  that  the  deposit  was 
received  from  Y.  was  a  sufficient  aver- 
ment that  the  deposit  was  made  by  V. 
State  r.  Smith,  91  Ark.  1,  120  S.  W. 
1 56. 

Under  Code  1873.  §  4305.  providing 
that  an  indictment  shall  be  sufficient 
if  it  states  the  act  complained  of  in 
such  manner  as  to  enable  a  person  of 
common  understanding  to  know  what 
is  intended  to  be  charged,  an  indict- 
ment under  .\cts  18th  Gen.  .Xssem..  c. 
153.  §  2.  making  it  a  penal  offense  for 
a  l)anker,  knowing  himself  to  l)e  in- 
solvent, to  receive  a  deposit,  which 
alleges  that  defendant  did  accept  and 
receive  a  deposit  of  money  from  M., 
sufficiently  shows  that  the  money  be- 
longed to  M.  State  v.  Eifert.  102  Iowa 
18H.  65  N.  W.  309,  71  X.  W.  248.  38  L. 
R.   A.    485,   63    Am.    St.    Rep.    433. 

Where,  in  a  prosecution  for  receiv- 
ing money  as  cashier  of  a  bank  whicli 
was  in  failing  circumstances,  the  evi- 
dence discloses  that  the  person  mak- 
ing the  deposit  was  the  president  of 
a  voluntary  charitable   association,  and 


that  the  mone}^  belonged  to  such  as- 
sociation, and  that  she  had  been  in- 
trusted with  the  money  of  such  as- 
sociation, the  indictment  and  instruc- 
tions properly  alleged  the  ownership 
in  her  as  against  all  wrongdoers.  State 
z\   Sat4:ley,   131    Mo    464,   33   S.   W.  41. 

96.  Description  of  deposit — Amount, 
character,  items,  etc. — Parrish  :•.  Com- 
monwealth, 136  Ky.  377,  123  S.  W.  339; 
State  V.  Smith.  91  Ark.  1.  120  S.  W.  156; 
State  z'.  Quackenbush.  98  Minn.  515. 
108    X.   W.   953. 

An  indictment  of  the  president  of  a 
bank  for  receiving  a  deposit  knowing 
the  bank  to  be  insolvent,  which  al- 
leged the  receipt  of  a  deposit  of  the 
value  of  $130,  was  sufficient  to  show 
that  the  deposit  was  in  money, 
checks,  or  drafts  aggregating  the 
amount  specified;  the  word  "deposit" 
being  used  in  its  popular  sense  to  im- 
ply that  the  depositor  had  placed  in 
the  bank  money,  or  evidences  or 
representatives  of  money  such  as  banks 
of  deposit  are  authorized  to,  and  ilo, 
receive;  so  that  the  indictment  was  not 
defective  for  failure  to  accurately  de- 
scribe the  items.  Parrish  z'.  Common- 
wealth,  136   Ky.   377.   123   S.   W.  339. 

An  indictment  for  receiving  a  check 
for  deposit  knowing  the  bank  to  be 
insolvent,  in  violation  of  Kirby's  Dig., 
§  1814.  which  stated  the  names  of  the 
drawee,  the  payee,  and  the  amount  of 
the  check  alleged  to  have  Iicen  re- 
ceived, sufficiently  identified  the  check, 
thoutrli  the  name  i->f  the  drawer  and 
the  date  of  llie  check  were  not  stated. 
State  :■.  Smitli,  91  Ark.  1,  120  S.  W. 
1 56. 

Kirby's    Dig..    §    1814,    making    it    a 


428 


BANKS    AND   BANKING. 


§  62  (leh) 


should  be  stated.^" 

Purpose  or  Intent. — It  is  not  necessary  to  allege  or  prove  a  fraudulent 
intent  in  the  receipt  of  the  deposit  where  such  intent  is  not  made  an  element 
of  the  offense.''*  And  under  a  statute  making  it  criminal  for  any  person 
doing  a  banking  business  to  receive  deposits,  knowing  the  bank  to  be  in- 
solvent, whereby  the  deposit  is  lost  to  the  depositor,  and  providing  that  the 
subsequent  failure  of  the  bank  shall  be  prima  facie  evidence  of  an  intent  to 
defraud,  an  indictment  alleging  that  the  accused  corruptly,  willfully,  fraud- 
ulently, and  feloniously  received  a  deposit,  etc.,  is  sufficient,  without  specific- 
ally alleging  that  the  deposit  was  received  with  intent  to  defraud. "''' 

Loss  of  Deposit. — The  loss  of  the  deposit  need  not  be  alleged  unless 
the  statute  makes  the  loss  thereof  an  element  of  the  oft'ense.^ 

Formal  and  Unnecessary  Matter. — Superfluous  and  unnecessary  mat- 
ter and  formal  conclusions,  where  the  same  are  inappropriate  or  plainly  not 
required,  may,  in  general,  be  treated  as  surplusage,  not  affecting  the  valid- 


felony  for  a  cashier  of  a  bank  to  re- 
ceive on  deposit  money,  bills,  or  drafts 
circulating  as  money  knowing  the  bank 
to  be  insolvent,  makes  no  distinction 
between  general  and  special  deposits, 
and  it  is  sufficient  to  allege  in  the  in- 
dictment for  violation  thereof  that  the 
money,  etc.,  were  deposited,  without 
alleging  the  deposit  to  be  general  or 
special.  State  f.  Smith,  91  Ark.  1,  120 
S.   W.   156. 

An  allegation  that  the  check  was 
accepted  by  accused  in  lieu  of  money 
was  not  equivalent  to  an  allegation 
that  it  was  a  draft  circulating  as 
money.  State  v.  Smith,  91  Ark.  1,  120 
S.   W._156. 

An  indictment  drawn  under  the  sec- 
tion, alleging  the  receiving  of  a  check 
drawn  payable  to  a  certain  person,  but 
not  alleging  either  in  general  terms 
that  the  check  was  a  "note  or  draft 
circulating  as  money  or  currency"  or 
that  the  check  was  indorsed  by  the 
payee  so  that  the  legal  title  might 
pass  by  delivery,  was  insufficient. 
State  V.  Smith,  91  Ark.  1,  120  S.  W. 
156. 

Defendant  was  indicted  for  having 
received  as  a  banker  on  deposit,  know- 
ir.g  himcelf  to  be  insolvent,  certain 
Dionev.  to  wil.  "the  sum  of  one  hun- 
dred "dollars  ($100.00),  the  property  of 
the  said  E.,  good  and  lawful  m'mey, 
and  current  as  such  under  the  laws  of 
the  state  of  Minnesota,  and  of  the 
value  of  one  hundred  dollar^;  ($100.00), 
a  better  description  ot  said  money  is 
to  the  grand  jury  unk'iown."  Field, 
that  the  de^-.cription  of  the  property, 
deposited  was  sufficient.  State  v. 
Quackenbush,  98  Minn.  515,  108  X.  W. 
953. 


97.  Same — Amount  or  value. — Brown 
V.   People,   173   111.   34,   50   X.   E.   106. 

Act  June  4,  1879,  provides:  "That 
if  any  banker  *  =^  *  shall  receive  from 
any  person  *  *  *  not  indebted  to  said 
banker  *  *  *  any  money  *  *  *  when  at 
the  time  of  receiving  such  deposit,  said 
banker  is  insolvent,  where  the  deposit 
so  made  shall  be  lost  to  the  depositor, 
said  banker  *  *  =•=  shall  be  guilty  of  em- 
bezzlement, and  upon  conviction 
thereof,  shall  be  fined  a  sum  double 
the  amount  so  embezzled."  Held,  that 
an  indictment  under  this  statute  must 
state  the  "value"  of  the  money  re- 
ceived, and  an  indictment  charging  a 
receipt  by  the  defendants  as  bankers 
of  $380.50,  without  more,  was  not  a 
sufficient  allegation  of  value  to  sup- 
port a  conviction.  Brown  v.  People, 
173    111.    34,    50    X.    E.    106. 

98.  Purpose  or  intent. — Murphy  v. 
People,   19   111.   App.   125. 

An  indictment  under  Gen.  Laws, 
1895,  p.  504,  c.  219  (Rev.  Laws  1905, 
§  5118),  for  receiving  money  as  a 
banker  while  the  bank  is  insolvent, 
need  not  allege  an  intent  to  defraud. 
State  V.  Quackenbush,  98  Minn.  515, 
108  N.  W.  953. 

99.  Same. — Meadowcroft  v.  People, 
163  111.  56,  45  N.  E.  991,  35  L.  R.  A. 
176.    54    Am.    St.    Rep.    447. 

1.  Loss  of  deposit. — State  i'.  ]\Iyers, 
54   Kan.  206.  38   Pac.  296. 

An  information  under  Laws  1891, 
c.  43,  §  16,  charging  an  officer  of  a 
bank  with  knowingly  accepting  de- 
posits when  his  bank  is  insolvent,  need 
not  allege  that  loss  occurred  to  any 
one  by  reason  of  such  deposit.  State 
V.  Myers,  54  Kan.  206.  38  Pac.  296. 


§  62   (lei)  OFFICERS  and  agexts.  429 

ity  of  the  indictment ;-  such,  for  example,  as  that  the  accused  received  the 
money  in  his  official  capacity  and  was  in  possession  of  it  by  virtue  of  his 
office,  etc.,  where  it  is  immaterial  under  the  statute  whether  he  so  received 
and  was  in  possession  of  it  or  not;^  or  the  concluding  of  each  count  with 
the  words  "did  take,  steal,  and  carry  away."'* 

Joinder  of  Offenses. — In  a  prosecution  of  an  officer  of  a  bank  for 
knowingly  receiving  deposits  when  the  bank  is  insolvent,  the  receipt  of  sep- 
arate deposits  from  different  depositors  may  be  charged  in  separate  counts 
in  one  information ;  and  a  trial  and  conviction  may  be  had  and  sentences 
imposed  on  such  counts  as  the  proof  warrants,  although  each  of  the  counts 
charges  a  separate  and  distinct  felony.-^  And  in  the  prosecution  of  a  bank 
president,  under  a  statute,  providing  that  any  bank  president  who  receives 
or  assents  to  the  reception  of  a  deposit  with  knowledge  of  the  bank's  in- 
solvency is  guilty  of  larceny,  an  information  under  such  statute  is  not  in- 
valid by  reason  of  the  fact  that  it  charges  the  receiving  and  assenting  to 
the  reception  of  a  deposit  in  one  count.''' 

Where  Statute  Declares  Violation  of  Act  to  Be  Embezzlement. — 
The  sufficiency  of  an  indictment  under  a  statute  which  declares  everv  offi- 
cer of  an  incorporated  bank  guilty  of  embezzlement,  who  fraudulently 
receives  money  from  a  person  not  indebted  thereto,  when  the  bank  is  in- 
solvent, so  that  the  money  is  lost  to  the  depositor,  must  be  determined  by 
the  rules  of  pleading  applicable  to  charges  of  official  extortion,  embezzle- 
ment, and  other  abuses  of  official  duties.'''  Under  such  an  act  an  indictment 
which  charges  that  defendant,  being  a  banker,  and  knowing  he  was  insol- 
vent, received  money  from  a  depositor,  is  sufficient.- 

§  62  (lei)  Illegal  Loans,  Discounts  and  Overdrafts.— I'nder  the 
general  provisions  of  the  code  of  the  state  requiring  an  indictment  to  con- 
tain a  plain  statement  of  the  act  constituting  a  crime,  an  indictment  for 
making  an  excessive  or  otherwise  illegal  loan,  which  alleges  that  the  accused, 
as  a  director  of  a  trust  company  permitted  and  ])rocured  such  company  to 
make  an  excessive  loan  to  a  firm  of  which  he  was  a  member  is  sufficient, 
and  need  not  allege  specifically  in  what  mantier  he  permitted  the  prohil)ited 
loan.^* 

2.  Formal  and  unnecessary  matter. —  W'iiistaiuUey,  1,54  Ind.  44."],  57  N.  E. 
State  V.  Sattley,   i:n    .Mo.  464,  33   S.  W.       109. 

41 ;  Conimonwe.-\hh  t.  Warner,  173  8.  Same. — Conimoinvcallh  v.  Rock- 
Mass.  .-.41,  .54  X.  E.  353.  afclldw,  k;::  Pa.  i:!0.  :?9  .\tl.  757. 

3.  Same. — Commonwealth  v.  Warner,  8a.  Illegal  loans,  discounts  and  over- 
173    Mass.   541,   54   \.    E.   353.  drafts.— People    r.    Knapp    (X.    V.V    99 

4.  Same.— State    7'.    Sattley,    131    Mo.       ^'-  F^-  84. 

4f,4    :'/{  j:^    w,^    41  .An    indictment    framed    under    Laws 

s!  Joinder  of  offenses.-State  v.  War-  J^'^^/  \  ^22.  §§  20    30,  alle^nn^  that  de- 

ncr    cfi   k''..-.    (11    --   p.,^    Qio  icndants,  as  directors  and  olticers  or  a 

.  Iiank.    permitted    shareliolders,    includ- 

6.  bame— Jomder  m  same  count.—  j„j^  themselves,  to  become  indebted  to 
.McLhire  v.  iVojdi-,  ;.'7  Colo.  :!5S,  01  it  at  one  time  in  excess  of  50  per  cent. 
'  ''^-  ^''~-  of  its  capital,  held  to  cliar>;e  of  an  of- 

7.  Where  statute  declares  violation  fcnse.  State  v.  McPhcrson  (S.  D.),  139 
of   act    to    be    embezzlement. — State    v.  X^  W.  368. 


430  BANKS  AND  BANKING.  §    62    (2a) 

§  62  (2)  Evidence — §  62  (2a)  Presumption  and  Burden  of 
Proof. — It  is  the  general  rule  that  the  material  averments  in  the  indict- 
ment must  be  proved  by  the  prosecution.''  An  exception  exists  however 
in  the  case  of  matters  of  which  the  court  and  jury  may  take  judicial  knowl- 
edge. For  example,  where  all  banking  institutions  in  the  state  are  char- 
tered by  public  statutes  of  which  the  court  and  jury  must  take  notice,  it  is 
unnecessary,  under  an  indictment  charging  the  defendant  with  having 
engaged  in  unauthorized  banking  and  having  acted  as  an  officer  of  such 
bank,  to  prove  that  the  bank  or  association  was  not  incorporated,  since 
from  their  presumptive  knowledge  of  the  law  as  a  public  law,  it  is  within 
the  legitimate  exercise  of  their  powers  for  the  court  and  jury  to  take  notice 
of  the  fact  that  such  bank  or  association  was  not  incorporated. ^'^  If,  how- 
ever, the  question  arose  in  regard  to  a  foreign  association  for  which  the 
defendant  exercised  his  office,  the  rule  would  not  hold,  since  the  private 
acts  or  statutes  of  other  states  would  not  be  judicially  noticed. ^^  Another 
exception  exists  with  respect  to  matters  peculiarly  within  the  knowledge  of 
the  officers  of  the  bank  and  which  they  must  have  known,  or  which  it  was 
their  duty  to  know.  In  either  case  the  presumption  of  law  is  that  they  did 
know.^-  And  even  where  the  facts  may  not  raise  a  presumption  of  law, 
they  may  still  be  such  as  to  warrant  an  inference  by  the  jury  and  support 
a  verdict  based  thereon,  as  where  the  guilty  intent  of  an  officer  of  a  trust 
company  becoming  indebted  to  it  in  violation  of  statute  is  inferred  from 
the  fact  of  the  debt.^^ 

Presumption  of  Previous  Knowledge  from  Subsequent  Acts. — As 

a  rule,  presumptions  never  go  backward,  but  where  bank  officers  largely 
indebted  to  it  and  possessing  property  interests  in  a  corporation  to  a  very  sig- 
nificant amount  as  compared  with  such  indebtedness  conveyed  such  prop- 

9.  Material  averments  must  be  Where,  on  a  prosecution  for  violat- 
proved. — Brown  f.   State,   11   O.  27r).  ing   Burns'    Rev.    St.   1894,   §   2031,   pro- 

10.  Matters  of  judicial  knowledge —  hibiting  the  receiving  by  an  insolvent 
Nonincorporation  of  bank. — Brown  t.  bank  of  a  deposit,  whereby  it  is  lost 
State,  11   O.  276.  to    the    depositor,    the    officer   receiving 

_  11.    Same — Foreign   banking   associa-  such  deposit  having  been  president  and 

tions. — Brown  :■.  State.  11  O.  276.  director    for    three    years    previous    to 

12.  Matters  peculiarly  within  defend-  the  receipt  of  the  deposit,  and  in  con- 
ant's  knowledge  or  which  he  should  tinuous  control  of  the  bank,  it  will  be 
have  known. — State  v.  Cadwallader,  presumed  that  he  knew  of  its  insol- 
1.54  Tnd.  607,  57  N.  E.  512;  State  7'.  vency,  but  such  presumption  may  be 
Quackenbush,  98  Minn.  515,  108  N.  W.  rebutted  by  proof.  State  v.  Cadwal- 
953;  Parrish  ?'.  Commonwealth,  136  Ky.  lader,  154  Ind.  607,  57  N.  E.  512. 
377,  123   S.  W.  339.  Where  a  bank  remained  ooen  for  the 

The   solvency  of  a   bank   is  a   matter  transaction   of  business  and   the   recep- 

peculiarly  within   the  knowledge   of  its  tion    of    deposits,    the    law    would    pre- 

directors  and   other  managing  officers,  sume    that    the    president    assented    to 

and,  in  a  prosecution  for  accepting  de-  the  reception  of  such  deposits  as  were 

posits  when  the   bank  is  insolvent   and  shown    by    the    bank's    books.      Parrish 

the   insolvency  is  known   to   defendant,  z'.   Commonwealth,   136   Ky.   377,   123   S. 

or   he   has   good   reason   to   know   such  W.  339. 

fact     the    presumption    is    that    he    has  13.   Same— Inferences   of  fact.— State 

such    knowledge.      State    t'Quacken-  .,.  Barnes,  108  Minn.  227,  122  N.  W.  4. 
bush,  98   Mmn.  515,  108   N.  W.  953. 


62  (2a) 


OFFICERS  AXD  AGENTS. 


431 


ertv  to  the  bank  on  account  of  such  indebtedness  pursuant  to  an  understand- 
ing of  long  standing,  it  was  held  that  the  situation  before  the  conveyance 
should  be  regarded  substantially  the  same  as  that  thereafter,  as  regards  the 
knowledge  and  mental  state  of  such  officers  respecting  the  condition  of 
the  bank  as  to  solvency.  In  other  words,  the  fact  of  the  conveyance  had 
an  evidentiary  or  probative  value,  as  tending  to  show,  and  raising  a  pre- 
sumption, that  the  officers  had  knowledge,  previous  to  the  conveyance  of 
their  property,  of  the  bank's  condition,  since,  otherwise,  they  would  not 
have  made  such  a  conveyance.^'* 

Statutes  Shifting  Burden  of  Proof. — It  is  within  the  power  of  the 
legislature  to  formulate  rules  of  evidence,  and  in  so  doing  it  may  reverse 
the  presumption  of  innocence  which  usually  obtains  in  criminal  cases  so 
as  to  place  upon  the  accused  the  burden  of  proving  his  innocence  under  any 
given  state  of  the  facts.  For  example,  under  a  statute  making  it  an  in- 
dictable ofifense  for  the  officers  or  directors  to  bring  about  the  fraudulent 
insolvency  of  a  bank,  it  is  entirely  competent  for  the  legislature  to  enact 
that  the  proof  of  insolvency  shall  of  itself  raise  a  presumption  of  fraud  and 
place  upon  the  defendant  the  burden  of  rebutting  such  presumption.  There 
is  no  hardship  in  such  a  rule,  since  the  facts  are  all  in  possession  of  the 
officers  of  the  bank,  whereas  it  would  often  be  difficult,  if  not  impossible, 
for  the  prosecution  to  prove  that  the  insolvency  w'as  the  result  of  fraud. ^^ 
So  it  is  entirely  competent  for  the  legislature  to  prescribe  that  the 
failure  of  the  bank  within  thirty  days  after  the  receipt  of  a  deposit  shall 
be  prima  facie  evidence  of  knowdedge  of  insolvency  at  the  time  the  de- 
posit was  received. 1*^     Such  a  statute  is  not  unconstitutional,  either  as  an 


14.  Presumption  of  previous  knowl- 
edge from  subsequent  acts. — Ellis  z\ 
State.  138  Wis.  513.  119  X.  W.  1110,  20 
L.  R.  A..  X.  S..  444 

15.  Statutes  shifting  burden  of  proof 
— Constitutionality. — Youmans  z\  State. 
:  r,a.  App.  1(11.  cf,  s.  E.  3ft3. 

16.  Same — Presumption  of  knowl- 
edge of  insolvency. — Ex  parte  Smith, 
33  Xev.  466,  111  Pac.  030;  Ex  parte 
Griffin,  33  Xev.  400,  111  Pac.  939. 

Under  an  indictment  for  assenting  to 
the  receipt  of  deposits  by  an  officer  of 
an  incorporated  bank,  contrary  to  .A.ct 
March  13.  1909  CSt.  1909,  c.  92).  which 
by  section  1  makes  it  a  crime  for  any 
bank  officer  to  receive  or  to  assent  to 
the  receipt  of  deposits  knowing  the 
bank  to  be  insolvent,  and  liy  §  2  pro- 
vides that  any  bank  officer  IiavinR  au- 
thority to  close  the  bank  or  to  pre- 
vent the  receipt  of  deposits,  who  does 
not  exercise  such  authority  when  the 
bank  is  known  to  be  insolvent,  shall  be 
deemed  to  have  assented  to  the  re- 
ceipt of  deposits,  and  makinpr  the  fail- 
ure   of    sucli    bank    williin    thirty    days 


after  the  receipt  of  any  deposits  prima 
facie  evidence  of  such  officer's  knowl- 
edge of  its  insolvency,  tiie  presump- 
tion of  knowledge  of  insolvency  by  its 
terms  applies  only  to  such  officers  as 
have  power  to  close  the  bank  or  to 
prevent  deposits.  Ex  parte  Smith,  33 
Xev.  4fifi.  Ill  Pac.  930;  Ex  parte  Grif- 
fin, 33   Xev.   490,  111    Pac.  939 

The  title  of  Act  March  13.  1909  (St. 
1909,  c.  92),  in  addition  to  referring  to 
the  offenses  declared,  states  that  its 
purpose  is  to  establish  a  rule  of  evi- 
dence in  connection  therewith.  Sec- 
tion 2  makes  the  failure  of  a  bank 
within  thirty  days  after  the  receipt  of 
deposits  prima  facie  evidence  of  the 
officers'  knowledge  of  its  insolvency, 
and  in  a  previous  part  it  is  provided 
that  any  officer  having  authority  to 
close  the  bank  or  to  prevent  the  re- 
ceipt of  deposits,  who  does  not  exer- 
cise such  authority,  shall  be  "deemed" 
to  have  assented  to  the  receipt  of  de- 
posits. TTeld,  that  only  the  part  of  the 
section  relating  to  the  knowledge  im- 
])uted     from     tlie   l)ank's     failure   is    evi- 


432  BANKS   AND  BANKING.  §    62    (2b) 

attempt  to  enforce  imprisonment  for  debt  nor  as  a  legislative  assumption 
of  judicial  functions. ^^  But  a  statute  which  makes  the  fact  of  the  bank's 
failure  prima  facie  evidence  of  knowledge  on  the  part  of  an  officer  or 
agent  of  its  insolvency  when  he  received  a  deposit  is  nugatory  where  the 
title   or   caption   thereof   makes    no   mention   of   any   rule   or   procedure. ^^ 

§  62  (2b)  Admissibility  of  Evidence. — Proof  of  Incorporation, 
Corporate  Name,  etc. — Where  the  indictment  is  for  making  a  false 
entry  in  the  books  of  a  banking  corporation,  it  is  sufficient  to  prove  a  cor- 
poration de  facto,  and  evidence  of  general  reputation  of  its  corporate  ex- 
istence is  competent  to  prove  it  -^^  and  the  name  of  the  corporation  as 
alleged  in  the  indictment  may  be  shown  by  evidence  that  it  was  known 
by  such  name.-''  But  where  the  indictment  is  for  acting  as  an  officer  of 
an  illegal  banking  association,  individual  notes,  intended  to  pass  as  cur- 
rency, or  money,  are  not  competent  evidence  against  the  person  issuing 
them  without  proving  that  there  was  a  company  or  association  of  indi- 
viduals formed  for  the  purpose  of  putting  such  notes  in  circulation. ^^ 
Where  the  prosecution  is  for  the  conversion,  misappropriation,  larceny 
or  embezzlement  of  the  money  or  property  of  the  bank,  records  of  the 
bank,  sufficiently  proved,  written  by  the  defendant,  and  signed  by  him 
as  recording  officer,  are  admissible  to  prove  the  organization  of  the  bank 
and  that  defendant  was  duly  elected,-^  and  the  fact  that  some  of  such 
records  were  signed  by  the  defendant  as  secretary  and  others  as  clerk  is 
immaterial  where,  under  the  banking  law  or  charter,  he  might  properly 
be  called  either  clerk  or  secretary.--^  Where  the  name  of  the  bank  is 
properly  laid  in  the  indictment,  it  is  not  error  to  receive  in  evidence  a 
certificate  of  incorporation  of  a  bank  of  that  same  name  with  the  addition 
of  the  names  of  a  certain  town  and  state,  since  the  latter  words  are  only 
descriptive  of  the  bank's  place  of  location,  and  do  not  constitute  a  variance 
between  the  proof  and  the  name  of  the  bank  as  set  forth  in  the  indictment. -^ 

Competency  of  Witnesses  Whose  Names  Are  Not  on  the  Indict- 
ment.— This  is  a  question  of  general  law,  and  proper  notice  of  the  intention 
to  introduce  such  witnesses  and  of  the  facts  expected  to  be  proved  by  them, 

dential    in    character,    while    the    word  Ark.  136,  104  S.  W.  1095. 
"deemed,"  as  used  in  the  section,  means  20.  Proof  of  corporate  name. — Mears 

"adjudged,"   in    the    sense    of   constitut-  r.   State,  84  Ark.  1.36,  104  S.  W.  1095. 
ing  a  crime,   instead   of  a   rule   of  evi-  21.      Individual      notes      inadmissible 

dence.      Ex   parte    Smith,   33    Nev.    466,  without   proof   of   corporate   existence, 

111  Pac.  930;  Ex  parte  Gnfifin,  33  Nev.  when.— Stcedman  z:   State,   11    O.   82. 

^^?;  ^o^  ^^^'  t?^'  c.  .      r-   n  22.    Records   written   by   the   defend- 

17.  Same. — Youmans  z'.   State,   7    Ga.         „.      r^  ,^,         -^ -.-.r  ^^„ 

App.  101, 66  s.  E.  383.  Mu':r  ,TTsTi\^'^     ""■• 

18.  Same-Title    or    caption    of   stat-       Mass.  541,  54  N.   E.  353. 

ute.— Robv  z'.    State,   41   Tex.   Cr.   App.  ^.23.    Same— Where   records   signed  in 

152    51  S    W    1114.     See,  also,  Fleming  different  capacities. — Commonwealth   r. 

7'.  "state,    62    Tex.    Cr.    App.    653,    139    s''.  Warner.   173   ]\Tass.  541.  54  N.   E.  353. 

W.  598.  24.  Variance  as  to  name  alleged  and 

19.  General  reputation  to  prove  cor-  name  proven. — State  v.  Burlingame,  146 
porate    existence.— Mears    z\    State,    84  Mo.  207,  48   S.  W.  72. 


§    62    (2b)  OFFICERS  AND  AGENTS.  433 

must  be  served  as  required  by  law.-^ 

Illegally  Declaring  Dividend. — In  tbe  prosecution  of  a  bank  presi- 
dent for  illegally  declaring  a  dividend  on  a  certain  date,  evidence  tending 
to  show  that  the  conditions  which  made  the  declarations  of  the  dividend  il- 
legal had  existed  for  some  time  prior  thereto  is  admissible  as  tending  to 
establish  the  condition  of  the  bank's  affairs  on  the  day  in  question,  and  to 
show  the  president's  opportunities  for  knowledge  of  such  conditions ;  and 
proof  of  the  fact  that  while  such  condition  was  in  existence  prior  divi- 
dends had  been  declared,  is  admissible  to  show  that  the  profits  of  the  bank, 
instead  of  having  been  used  to  restore  it  to  the  condition  justifying  a  divi- 
dend, had  been  distributed  to  the  stockholders.-^  It  is  not  error  in  such  a 
case  to  allow  one  witness  to  testify  as  to  the  correctness  of  a  list  of  in- 
solvent papers  carried  among  the  bank's  assets,  though  he  was  ignorant 
of  the  solvency  or  insolvency  of  the  papers,  and  to  allow  another  witness 
who  could  not  swear  to  the  correctness  of  the  list  to  testify  as  to  the  sol- 
vency or  insolvency  of  the  particular  papers  mentioned ;  the  testimonv  of 
the  two  witnesses  taken  together  presenting  a  state  of  facts  supported  by 
their  several  credibility.-'  Solvency  or  insolvency,  in  such  a  case,  is  a 
matter  admitting  of  opinion  evidence  under  the  general  rules  on  that  sub- 
ject.-- 

Exhibiting  False  Books,  etc.— On  the  trial  of  an  indictment  for  know- 
ingly exhibiting  to  a  bank  examiner  a  cash  book  in  which  checks  on  other 
banks  were  falsely  entered  as  cash  on  hand,  evidence  that  other  banks 
ordinarily  carried  such  checks  on  their  books  as  cash  is  inadmissible  on  the 
question  of  intent,  where  it  appears  that  such  was  not  the  practice  of  de- 
fendant's bank.2»  It  is  immaterial  in  such  case  that  the  cash  book  was 
kept  in  the  same  manner  in  which  it  had  been  kept  and  presented  to  bank 
examiners  for  years.-"'" 

25.   Competency   of  witnesses   whose  prove    by   him    on    the    trial.      State    v. 

names    are    not    on    the    indictment. —  Vetzer,  07  Towa  423,  66  N.  W.  737. 

State  c'.  Yetzer,  97  Iowa  423,  60  X.  W.  26.  Proof  of  condition  prior  to  dec- 

737.  laration   of   illegal   dividend. -Cahancss 

In  a  prosecution  for  fraudulent  bank-  :■.   State,   s   Ga.   Ai)p.    12'.»,  (is  S.   K.  S4'.t. 

in^^  a  notice  l>y  the  state  that  it  would  27.    Identification    of    papers    by    one 

on  tlie  trial  introduce  certain  witnesses  witness   and   proof   of   their   worthless- 

whose    names   were   not   on   the   indict-  ness  by  another. — Cal)aness  v.  State,  8 

mcnt  stated  that  it  expected  to  prove  C',a.   Ai)]).   1 :.".),  (iS  S.  K.  849. 

by  such  witnesses  that  a  certain  baiik  28.   Opinion  evidence  as  to  value  of 

was  on  a  certain  day  a  bank  of  deposit,  securities. — Cabaness    v.    State,    s    Ga. 

and    defendant   was   a   stockholder   and  App.  129,  68  S.  K.  849. 

<lirector   and    mana^inp^   party   thereof;  29.  Proof  of  intent — Custom  of  other 

that  it  was  insolvent;  and  that  defend-  banks. — People  v.  Helmer,  13  App.  Div. 

ant   permitted   and   connived   at   the   re-  426,  43  N.  Y.  S.  642,  12  N.  Y.  Cr.   Rep. 

ceivinp    of    deposits,    etc.      Held,    that  134,  judj^^ment  reversed  on  other  points, 

such    notice   complied   with    Code    1873.  154  X.  ^'.  .")96,  49  X.  K.  249. 

§  421.  providimj  that  the  state  shall  not  30.  Proof  that  book  was  always  kept 

use   a   witness    whose    name    is    not    in-  in    same    manner. —  People    7'.    ITelmor, 

dorscd    on    the    indictment    unless    dc-  1 :!  App.  Div.   126,  43  X.  Y.  S.  642,  12  X. 

fondant  is  given  notice  in  writing,  stat-  Y.  Cr.   .App.   134,  judtjment  reversed  on 

intr  the  name,  etc.,  of  the  witness,  and  other   points,   154   N,    Y,   506,   49   X.    E. 

tlic    sul)stance    of    what    it    expects    to  249. 
1  B   &  B— 28 


434  BANKS  AND   BANKING.  §    62    (2b) 

Forgery  and  False  Entries,  Fraudulent  Alterations,  etc. — Upon 
the  trial  of  a  bank  cashier  for  forgery  in  fraudulently  altering  entries  in 
the  bank's  books  so  as  to  make  a  deposit  account  appear  discharged,  evi- 
dence as  to  the  state  of  defendant's  account  and  his  indebtedness  to  the 
bank  on  notes  is  competent  on  the  question  of  intent. ^^ 

Conversion,  Misappropriation,  Larceny  and  Embezzlement. — 
Records  of  the  bank,  sufficiently  proved,  written  by  the  accused  and 
signed  by  him  as  recording  officer  are  competent  evidence  in  a  prosecution 
for  misappropriating  or  embezzling  the  funds  of  the  bank,  as  admissions  of 
the  truth  of  the  facts  therein  stated  -fi-  and  the  fact  that  some  of  such 
records  were  signed  by  the  accused  in  one  capacity  and  some  in  another,  is 
immaterial  where  he  was  entitled  to  act  in  either  capacity. ^^  A  check  and 
evidence  showing  that  the  persons  to  whose  order  it  was  drawn  received 
no  money  thereon,  they  being  the  only  persons  in  the  county  of  that  name, 
is  admissible  in  such  a  case  f^  and  it  was  also  proper  for  the  jury  to  con- 
sider, as  bearing  on  questions  in  the  case,  to  supply  deficiencies  in  the 
proof  as  to  irregular  transactions,  and  to  convince  them  that  they  were 
fraudulent,  that  there  was  a  large  deficiency  in  the  assets,  that  defendant 
was  treasurer  for  many  years,  that  his  sworn  reports  were  grossly  false, 
that  when  he  heard  that  the  bank  was  about  to  be  examined  he  fled  to  a 
distant  state,  and  remained  there  under  an  assumed  name  until  discovered 
and  arrested,  and  that  when  he  went  he  left  a  written  statement  showing 
that  the  loss  was  very  large  and  in  which  he  admitted  his  guilt  and  inti- 
mated flight  and  suicide. ^•'' 

Receiving  Deposits  after  Insolvency — Admissibility  of  Evidence 
on  Issue  of  Insolvency. — To  show  insolvency  of  a  bank  at  the  time  an 
officer  w^as  charged  with  having  received  a  deposit,  knowing  at  the  time 
that  the  bank  was  then  insolvent,  evidence  as  to  the  general  condition  of  the 
bank  at  that  time,  such  as  the  amount  of  its  deposits  and  obligations,  and 
the  character  and  value  of  its  securities  and  other  resources,  the  amount  of 
worthless  paper  held  by  it,  etc.,  is  admissible.^^    And  where  the  defendants,  as 

31.  Forgery  and  fraudulent  entries —       i\Iass.  541,  5-4  N.  E.  353. 

Intent — Condition   of   account. — Quert-  36.    Receiving    deposits    after    insol- 

ermous  v.  State,  95  Ark.  48,  127  S.  W.  vency — Admissibility     of    evidence     on 

951.  issue  of  insolvency — Amount  of  liabil- 

32.  Conversion  and  misappropriation  ities  and  character  and  value  of  assets. 
— Records  signed  by  accused,  as  admis-  — State  z'.  Shove,  96  Wis.  1,  70  N.  W. 
sion. — Commonwealth    z'.     Warner,    173  312. 

Mass.  541,  54  N.  E.  353.  In  the  prosecution  of  a  bank  cashier 

33.  Same — Records  signed  in  differ-  for  receiving  a  deposit  after  the  bank's 
ent  capacities.. — Commonwealth  z'.  insolvency,  the  testimony  of  a  witness 
Warner.  173   Mass.  541.  54  N.  E.  353.  ihat    one    of    his   long    overdue    notes, 

34.  Same — Check,  and  evidence  that  given  to  the  bank,  was  accommodation 
payee  never  received  money  thereon.  paper,  and  the  introduction  of  his  writ- 
— Commonwealth  :•.  Warner,  173  Mass.  ten  assumption  of  its  payment,  exe- 
541,  54  N.  E.  353.  cuted   concurrently  with   the   note,   are 

35.  Same — Existence  of  deficiency,  admissible  as  pertinent  to  the  issue  of 
false  reports,  statements  of  loss,  flight,  insolvency.  State  f.  Stevens,  16  S. 
etc.— Commonwealth     v.     Warner,     173       Dak.  309,  92  N.  W.  420. 


§    62    {2h)  OFFICERS  AND  AGENTS.  435 

a  firm,  operated  two  banks,  it  is  proper,  in  determining  the  question  of  their 
insolvency,  to  investigate  the  aflfairs  of  both  banks,  though  the  deposit  was 
only  received  at  one  of  them  ;  the  assets  and  liabilities  of  both  banks  being 
those  of  the  one  firm,  whose  insolvency  is  charged  in  the  indictment. •*'  Evi- 
dence as  to  the  character  and  value  of  assets  and  amount  of  liabilities  should, 
of  course,  relate  to  the  time  of  the  receipt  of  the  deposits,  or  near  thereto  ;^^ 
and  where  the  proof  relates  to  a  date  prior  to  the  time  of  receiving  the 
deposits,  it  should  further  show  that  the  bank  continued  insolvent  down  to 
the  date  of  receiving  the  deposit.-'"*  Where  the  accused  has  made  an  assign- 
ment, the  deed  of  assignment,  the  inventory,  the  appraisement,  the  returns 
of  sales  made  by  the  assignee  and  approved  by  the  court,  and  generally,  all 
proceedings  under  the  assignment,  where  the  same  was  sufficiently  near 
in  point  of  time  to  the  deposit,  are  admissible  in  evidence  as  an  aid  to  the 
jury  in  determining  the  issue  of  insolvency  at  the  time  of  receiving  the  de- 
posit.'*" But  an  assignee's  account  merely  filed  is  not  independent  evi- 
dence, in  a  prosecution  against  the  assignor  as  an  insolvent  banker  for  re- 
ceiving deposits  with  knowledge  of  insolvency,  that  the  various  items  and 
amounts  therein  indicated  as  lost  or  uncollectible  were  of  no  value  as  assets 
for  payment  of  creditors.^  ^  And  much  less  admissible  are  the  far-fetched 
statements,  partially  from  memory,  made  by  a  receiver  relative  to  the  un- 
authenticated  indebtedness  of  the  bank  to  other  banks,  and  testimony  as 
to  numerous  transactions  pertaining  to  the  adjustment  thereof.  Such  evi- 
dence is  incompetent,  because  of  a  secondary  character ;  the  bank  books 
being  the  best  evidence.^-  But  it  is  proper,  as  bearing  on  the  issue  of  in- 
solvency, to  permit  a  witness  who  has  been  appointed  receiver  of  the  bank 

37.  Same— Same— Same— Where    de-       posit— Commonwealth    v.    Hazlett,    14 
fendants  operated  two  banks.— State  v.       ^'^-  S"Per.  Ct.  352. 

Cadvvell.  79   Iowa  432.  44  X.  W.  700.  40-  Same— Same— Same— Deed  of  as- 

38.  Same-Same-Same-Evidence      signment   and   proceedings   thereunder. 

not    to    be    too    remote    as  to    time.-  ~^^^.  .^V"  ^^!^??' A"*;  ^o'^'A^^if  r    ^• 

^t-.t,.    -.     <-.ttl<.w      iM     AT,,  AfA     TJ     c:  949,  46  N.  E.  145,  36  L.  R.  A.  179;  Corn- 
Mate    z'.    battley,    l.Jl     Mo.  404,    J.i    o.  ,.,            tt      i   ^^     .,  ^    t^      V 
iy    41  monwealth    z'.    Hazlett,    14    Pa.    Super. 

;       ■                    .        ,               .    .              ,  Ct.  353;   State  v.  Cadwell,  79  Iowa  432, 

In  a  prosecution   for  receiving   a  de-  44  j^f    \y    700 

posit   as   cashier   of  a   bank   when   such  Thouj?h    the    receipt    of   such    deposit 

hank  was  in   failing  circumstances,  and  jg   charged   to  have   l)een   in    May   1888, 

after    defendant    had    knowledge    of   its  ^  deed  of  assignment  for  the  l)enefit  of 

condition,  on  the  issue  as  to  the  value  creditors   made   l)y   defendants   the    fol- 

of  certain   stock   held   by   the   bank   at  lowing  Octol)er,  is  admissible  as  tend- 

the    date    of   its    assignment    the    court  jng  to  show  insolvency  at  the  time   it 

])roperly    refused    to    permit    a    witness  ^,.^s    made,    from    which,    in    connection 

to  state  the  value  of  a  building  owned  ,^,ith   other  evidence,  defendants'  f^nan- 

by  the   corporation   which   issued   such  cial    condition    in    the    preceding    May 

stock,    based    on    his    knowledge    of   its  ^ay  be   determined.     State  v.   Cadwell, 

cost,   as   the   inquiry   should   have   ])ecn  -()  To\va  432,  44  X.  W.  700. 

confined  to  the  market  value  of  the  real  41.     Same— Same— Same— Assignee's 

estate  at  the  date  of  the  Ijank's  assign-  account.— ConiiiKmuealtli      :'.      llazK'tt. 

ment,    it    having    been    shown    that    the  ]  1    |>;,    Sui)er.   Ct.  :!52. 

stock  had  a  value.     State  ::  Sattley,  131  42.'   Same— Same— Same— Statements 

Mo.  464,  33  S.  W.    11.  of    receiver — Best    and    secondary    evi- 

39.        Same — Same — Same — Continu-  dence.-  Stale    :■.    Stevens,     16    S.     Dak. 

ance  of  insolvency  down  to  date  of  de-  ;i()9,  92  S.  W.  420. 


436 


BANKS   AND   BANKING. 


§  62  (2b) 


after  its  voluntary  closing  to  relate  in  detail  what  he  has  done  to  collect 
the  various  notes  coming  into  his  hands,  and  to  state  whether  he  is  able 
to  tell  when  any  of  them  will  be  paid.'*^  Schedules  filed  by  the  accused  in 
involuntary  bankruptcy  and  testimony  of  an  expert  accountant  based  upon 
an  examination  of  the  accused's  banking  books  which  he  has  turned  over 
to  the  trustee  in  bankruptcy  are  admissible  in  evidence  upon  the  issue  of 
insolvency,  and  their  admission  does  not  constitute  a  violation  of  the 
defendant's  privilege  against  self-incrimination  as  guaranteed  by  the  federal 
bankrupt  act  or  by  state  and  federal  constitutional  provisions. ■^•*  Evidence 
of  the  value  of  defendants'  respective  homesteads,  as  bearing  upon  the 
question  of  their  solvency,  is  inadmissible  where,  in  making  the  assign- 
ment, they  expressly  reserve  such  homesteads.'* -^  So  it  is  admissible  to  re- 
ceive the  reports  of  the  bank  examiner,'*^  and  the  conclusions  of  a  witness 
as  to  defendant's  insolvency  based  on  calculations  made  upon  an  examina- 
tion of  the  defendant's  books  with  a  view  to  determine  the  amount  and 
character  of  assets  and  liabilities.'*'  Acts  of  bankruptcy  and  transactions 
tending  to  show  insolvency  are  also  admissible  upon  this  issue  ;^^  but  not 
transactions  had  and  done  among  others  and  in  which  the  accused  was  not 


43.  Same — Same — Testimony  of  re- 
ceiver as  to  efforts  to  realize  on  as- 
sets.—State  f.  Stevens,  16  S.  Dak.  .'^09, 
92  S.  W.  420;  State  v.  Hoffman.  120  La. 
949,  45   So.  951. 

In  a  prosecution  under  Act  No.  108, 
p.  144,  of  1884,  making  it  a  crime  for 
a  bank  officer  to  assent  to  the  recep- 
tion of  deposits  after  he  knows  the 
bank  is  insolvent,  the  history  of  the 
bank's  assets  subsequent  to  the  da}'  the 
deposits  were  received,  showing  what 
efforts  were  made  by  the  liquidating 
commissioners  to  realize  on  them  and 
with  what  success,  is  relevant  circum- 
stantial evidence  on  the  question  of 
the  probable  value  of  the  assets  of  the 
bank  on  the  day  the  deposits  were  re- 
ceived. State  V.  Hoffman,  120  La.  949, 
45    So.   051. 

44.  _  Same — Same — Same — Schedules 
filed  in  bankruptcy. — Commonwealth  v. 
Ensino-.  228   Pa.  400,  77   Atl.  ()57. 

45.  Value  of  homestead  not  included 
in  assignment.— State  r.  Cadwell.  79 
Iowa  433,   44   N.  W.   700. 

46.  Same — Same — Same — Reports  of 
bank  examiner. — State  :■.  Salmon.  216 
Mo.   466,   115    S.   W.   1106. 

47.  Same — Same — Same — Conclusions 
of  witness  who  has  examined  books.— 
State  V.  Cadwell,  79  Iowa  432,  44  N. 
W.  700. 

48.  Same — Same — Same,  acts  of  bank- 
ruptcy and  transactions  indicating  in- 
solvency.— Commonwealth  v.  Tryon, 
31  Pa.  Super.  Ct.  146;  State  v.  Yetzer, 


97  Iowa  423,  66  N.  W.  737;  State  v. 
Sattley,  131  Mo.  464,  33  S.  W.  41. 

On  the  trial  of  an  indictment  against 
a  banker  for  accepting  a  deposit  when 
insolvent,  it  was  proper  to  permit  the 
commonwealth  to  show  that  the  de- 
fendant was  engaged  in  a  mercantile 
business,  and  that,  as  soon  as  any 
money  was  received  in  such  business, 
he  hastened  to  transfer  it  to  the  bank 
in  order  to  meet  incoming  checks. 
Commonwealth  v.  Tryon,  31  Pa.  Super. 
Ct.  146. 

In  a  prosecution  for  fraudulent  bank- 
ing, defendant,  on  cross-examination, 
was  asked,  as  touching  his  expendi- 
tures, if  there  had  not  been  a  bastardy 
proceeding  against  him  a  few  years 
i:)efore  that  cost  him  a  great  deal  of 
money  to  settle.  After  the  examina- 
tion proceeded  for  some  time,  the 
court  struck  out  the  testimony  as  too 
remote.  Held  that,  thou.gh  the  evi- 
dence should  not  have  been  offered, 
defendant  was  not  prejudiced.  State 
V.  Yetzer,  97  Iowa  423,  66  N.  W.  737. 

On  the  trial  of  a  bank  officer  for  re- 
ceiving deposits,  knowing  that  the 
bank  was  insolvent,  evidence  that  de- 
positors demanded  their  money,  and  of 
the  refusal  of  the  bank  employees  to 
pay  them,  is  admissible  whether  or 
not  defendant  personally  heard  the  de- 
mands, to  show  the  failure  of  the  bank 
to  meet  its  obligations  in  the  ordinary 
course  of  business.  State  z'.  Sattley, 
131    Mo.  464,  33  S.  W.  41. 


§    62    (2b)  •  OFFICERS  AND  AGENTS.  437 

shown  to  have  been  interested  nor  in  any  way  connected.-*^  Proof  of  a 
custom  of  the  banks  in  the  state  in  times  of  great  money  stringency  to 
limit  the  amount  which  any  one  customer  might  draw  out,  is  wholly  irrele- 
vant where  such  custom  is  not  shown  to  have  existed  until  three  years 
after  defendant's  bank  had  failed,  or  that  if  it  did.  defendant's  bank  did  not 
avail  itself  of  the  same,  but  closed  its  doors. ''^ 

Same — Admissibility  of  Evidence  on  Issue  of  Knowledge  of  In- 
solvency.— On  trial  of  an  insolvent  banker  for  receiving  deposits  with 
knowledge  of  his  insolvency,  the  state  is  bound  to  prove  such  knowledge, 
and  can  do  so  by  circumstantial  evidence. -^^  For  example,  an  affidavit,  made 
by  the  cashier  of  the  bank  on  the  day  following  the  receipt  of  the  deposit, 
stating  that  the  bank  was  insolvent ;  letters  written  to  accused  by  persons 
interested  in  the  bank,  suggesting  that  it  was  not  being  prudently  managed ; 
the  fact  that  depositors  who  attempted  to  withdraw  their  deposits  were 
not  allowed  to  do  so ;  evidence  of  excessive  loans  made  to  accused,  to  other 
members  of  his  family,  and  to  further  activities  in  which  he  was  interested ; 
the  fact  that  the  bank  paid  a  high  rate  of  interest  on  deposits ;  the  value  and 
character  of  insolvent  and  worthless  paper  carried  by  the  bank,  and  the 
amount  ultimately  realized  from  the  disposal  of  all  the  bank's  assets  ad- 
ministered in  a  prudent  and  businesslike  way ;  fraudulent  methods  resorted 
to  by  accused  in  making  reports  to  the  Secretary  of  State;  failure  to  keep 
on  hand  the  reserve  required  by  the  statute ;  loans  to  individuals  in  excess 
of  the  amount  permitted  by  law- — are  all  admissible  to  prove  that  accused 
had  notice  that  the  bank  was  insolvent  when  he  received  the  deposit.-''-  On 
the  other  hand,  the  books  of  the  bank,  w'hile  evidence  to  show  the  condi- 
tion of  the  bank,  are  not  evidence  to  prove  the  defendant's  knowledge  of 
such  condition  unless  accompanied  by  proof  that  they  were  kept  under 
his  direction  or  that  it  was  his  duty  to  be  familiar  with  them. •''•'*  A  witness 
for  the  state  may  be  permitted  to  testify  as  to  facts  relating  to  the  value 
of  the  defendant's  property  which   the  witness  had  communicated  to  the 

49.        Same — Same — Same — Same —  I'is  l)ank  were  inadmissiljle,  as  the  law 

Transactions     had    and     done     among  does    not     contemplate    postponement 

others. — State   ?•.    Burliiiii^amc,    14G    Mo.  or   delay  in   such    cases.     State  v.   Sal- 

207,  48  S.  W.  72.  mon.   216    Mo.   AC-,i\.    115    S.    W.    llOfi. 

The  state,  over  accused's  o1)jection,  50.  Same — Same — Custom  of  limit- 
on  a  prosecution  for  receiving  a  de-  ing  withdrawals  in  time  of  stringency, 
posit  when  the  bank  was  insolvent,  — State  :■.  Iloti'man,  120  T^a.  U4'.»,  45  So. 
was    permitted    to    introduce     convey-  951. 

ances    made    by    delators     of    the    liank  51.     Same — Knowledge  of  insolvency 

shortly  after  the  deposit  was  received.  — Circumstantial     evidence. — Couhmou- 

Held  error,  as  accused  was  not   shown  wealth    v.    Hazlett.    14    Pa.    Super.    Ct. 

to    he    in    any  way    interested    therein.  ;;52. 

State   V.    Burlingame,    146    Mo.   207,    48  52.     Same — Same — Same. — Parrish   7'. 

S.  W.  72.  Coninionwraltli,    KiC    Kv.   H77.  12.T   S.  W. 


In  a  prosecution  of  a  private  banker 


:v.','.). 


for  receiving  a  deposit  when  insolvent,  53.     Same — Same — Books  of  bank  as 

conversations   between    a   third   person  proof    of    knowledge    of    insolvency. — 

and    the    secretary    of    state    as  to    the  State    <-•.    Ilorfniaii,    120    La.   '.t4'.),   45   So. 

postponement     of     an     examination     oi  !'51. 


438  BANKS    AND    RANKING.  §    62    (2b) 

defendant  prior  to  the  alleged  commission  of  the  offense  charged. ^^  The 
accuse  on  his  own  behalf  may  testify  as  to  his  belief  that  the  bank  was 
solvent, ^^  and  it  is  error  to  refuse  to  permit  him  to  introduce  evidence  to 
show  what  steps  he  had  taken  to  inform  himself  regarding  the  bank's  sol- 
vency.^^  Evidence  that  he  closed  the  bank  on  account  of  ill-health  and 
upon  the  advice  of  a  physician  is  competent  to  disprove  that  he  closed  it 
on  account  of  knowledge  of  its  insolvency. ^"^  Evidence  by  the  state  as  to 
representations  by  the  accused  as  to  the  solvency  of  the  bank  of  which 
he  was  president  to  persons  he  was  soliciting  as  depositors  and  to  others 
is  not  prejudicial  to  him.  but  corroborates  his  own  evidence  that  he  believed 
that  the  bank  was  solvent. ^^ 

Same — Knowledge  of  Receipt  of  Deposits. — Evidence  as  to  deposits 
made  previously  to  the  one  in  controversy  by  other  parties  is  inadmissible 
to  prove  guilty  knowledge  of  the  receipt  of  deposits,  as  the  receipt  of  each 
deposit  is  a  separate  and  distinct  offense.  Such  evidence  is  inadmissible 
for  any  purpose.^* 

Same — Fraudulent  or  Criminal  Intent. — On  a  prosecution  for  receiv- 
ing deposits  as  a  banker,  knowing  the  bank's  insolvency,  evidence  of  a  con- 
tinual depletion  of  the  resources  of  the  bank,  continued  for  several  years, 
is  competent  on  the  question  whether  an  unlawful  scheme  existed  to  wreck 
the  concern,  and  as  showing  a  motive  for  a  sham  dissolution,  whereby  one 
of  the  partners  could  withdraw  therefrom  a  portion  of  the  funds.^^  The 
question  being  as  to  the  criminal  intent  of  the  defendant  in  receiving  a  de- 
posit knowing  his  insolvency,  it  was  error  to  reject  his  offer  to  show  an 
alleged  partnership  in  the  banking  business,  that  the  other  partners  were 
liable,  and  that  they  had  property.*'*^  The  value  of  land  has  a  bearing  on 
the  criminal  intent  of  a  defendant  indicted  as  an  insolvent  banker,  and 
the  commonwealth  having  introduced  evidence  of  a  sale  by  the  defend- 
ant's assignees  at  a  certain  price  per  acre,  as  tending  to  prove  value,  in  asso- 
ciation with  other  and  independent  proof  of  values,  it  was  error  to  exclude 

54.      Same— Same,     facts     communi-  53      Same— Knowledge  of  receipt  of 

cated    to    defendant   with   reference    to  deposits.— State     7'.      Burlingame,      146 

value     of   his     property. — Common-  jvio.  207,  48  S.  W.  72. 

wealth    7'.   Hazlett,    16    Pa.    Super.     Ct.  ^      •  ~     <           •        •       •                           •,      . 

~oA  In  a  prosecution  of  a  bank  president 


534. 


55.     Same — Same — Accused  may  tes- 


for  receiving  deposits  on  Monday  with 


tify  as  to  his  belief  that  bank  was  sol-  knowledge  of  the  bank's  insolvency, 
vent.-Paulsen  v.  People,  195  111.  507,  ^'dence  that  on  the  preceding  Satur- 
^o  \T    rr    -.,,  day  other  deposits  were  niade  was  not 


63  N.  E.  144. 


dmissible.      Brown  z'.    State    (Tex.   Cr. 


56.  Same — Same,  steps  taken  by  ac-  .        \    ■,--,   c    \Ar    -n 
cused   to   inform   himself   as   to   bank's  M^P).  i^i  ^-   v\  .  obi. 

condition.— McClure      7'.      People,      27  59.      Same— Fraudulent    or    criminal 

Colo.  358.  61    Pac.  612.  intent — Proof    of    unlawful    scheme    to 

56a.     Same— Same— Reason  for  clos-  loot  bank.— State  7'.  Clements,  82  Minn. 

ing   bank. — Commonwealth    7'.    Hazlett.  "'^34,  85  X.  W.  229. 

14  Pa.  Super.  Ct.  352.  60.   Same — Same — Existence  of  part- 

57.  Same — Same — Representations  nership,  and  property  owned  by  other 
of  solvency  made  by  accused. — Parrish  members. — Commonwealth  v.  Hazlett, 
7'.   Commonwealth,   136   Ky.   377,   123   S.  14  Pa.  Super.  Ct.  352. 

W.   339. 


§    62    (2c)  OFFICERS    AND    AGENTS.  439 

an  offer  by  the  defendant  to  show  a  sale  made  by  the  vendee  of  the 
assignee  the  next  day  at  an  increased  price.^^ 

Same — Same — Matters  of  Excuse  or  Mitigation. — It  is  not  error  to 
exclude  evidence,  offered  by  the  accused,  as  to  a  panic  in  banking  circles, 
resulting  in  the  failure  of  many  banks  about  the  time  of  the  failure  of  the 
bank  in  question,  since  the  fact  that  the  failure  was  produced  by  a  financial 
panic  was  no  excuse  for  receiving  money  knowing  the  bank  to  be  insol- 
vent/''- 

Same— Indebtedness  of  Depositor  to  Bank.— Evidence  that  at  the 
time  the  deposit  was  received  the  depositor  making  the  same  was  over- 
drawn in  an  amount  larger  than  the  deposit  is  admissible  as  tending  to 
show  that  the  deposit  was  made  and  accepted  as  an  application  on  the 
depositor's  indebtedness  to  the  bank.'''-'' 

§  62  (2c)  Weight  and  Sufficiency— Variance.— Corporate  Name 
and  Existence  of  Bank.— Under  a  statute  providing  that  in  criminal 
prosecutions  corporate  existence  may  be  shown  by  general  reputation,  it  is 
sufficient,  upon  the  trial  of  an  officer  for  making  false  entries  in  the  books  of 
a  banking  corporation,  to  show  that  there  was  a  corporation  de  facto.«^  And 
in  the  prosecution  of  a  bank  cashier  for  receiving  a  deposit  after  the  bank's 
insolvency,  under  an  indictment  alleging  that  the  bank  was  a  corporation,  it  is 
sufficient  proof  of  de  facto  corporate  existence  to  show  that  an  attempt  was 
made  to  organize  a  corporation,  and  that  the  institution  was  conducted  and 
held  out  to  the  public  as  a  corporation,  and  that  a  statute  existed  at  the 
time  of  the  indictment  authorizing  such  incorporation,  though  no  such 
statute  existed  when  the  attempt  to  organize  was  made.^^^ 

Exhibiting  False  Book,  etc.— Where  the  prosecution  is  for  exiiibiting  a 
false  book  to  the  public  bank  examiner,  it  is  sufficient,  upon  an  issue  as 
to  the  defendant's  knowledge  of  its  falsity,  to  prove  that  during  the  ex- 
amination the  defendant  borrowed  enough  cash  to  make  up  the  amount 
shown  by  the  book,  exhibited  it  to  the  examiner  as  cash  on  hand,  and.  as 
soon  as  the  examination  was  finished,  returned  the  identical  money  to  the 
bank  from  which  he  borrowed  it.'''"' 

Illegal  Declaration  of  Dividend.— Under  a  statute  making  it  criminal 
for  the  president  and  directors  of  a  bank  to  declare  dividends  from  funds 
other  than  profits,  a  conviction  of  the  president  for  participating  in  the 
declaration  of  a  dividend   when   there   were  no  profits   and   when  he  had 

61.  Same — Same — Proof  of  value  of  de  facto,  when. — ^fears  :■.  State.  S4 
land   conveyed   to   assignee. — Common-       .\rk.   l.iC),   104  S.  W.   1095. 

wcaltli  :•.  Ifazlctt.  14  Pa.  Super.  Ct.  .1.->2.  65.     Same— Proof  of  de  facto  corpo- 

62.  Same — Same — Matters  of  excuse  rate  existence. — State  7'.  Stevens,  ir.  S. 
or     mitigation. — ^tatc      :■.     I'.urliiiLjanic.        Dak.   :'.()'.),  (i;:   X.  W.   420. 

1  ir,  M,,    ;.(,:,  4s  S.  W.  ::.>.  66.     To  show  defendant's  knowledge 

63.  Same — Indebtedness  of  depos-  of  falsity. — I'mplc  ?■.  Ilchiur.  n  Api). 
itor  to  bank. — Xirlu.ls  -:  State,  40  Xel).  Div.  42(i.  4;!  N.  'S'.  S.  r)42.  12  X.  Y.  Cr. 
"'•"'•  '''•"'  ^>-  ^V.  r;i.  Rep.    134.   judgment    reversed   on    other 

64.  Sufficient    to    show    corporation  grounds  in  1.")4  X.  Y.  .'ior),  49  N.  F..  249. 


440  BANKS    AND    BANKING.  §    62    (2c) 

full  knowledge  of  the  insolvency  of  the  bank  is  amply  shown  by  evidence 
that  during  the  defendant's  incumbency  as  president  of  the  bank  it  suf- 
fered losses  through  taking  papers  that  proved  to  be  worthless;  that  these 
bad  debts  and  worthless  papers  were  not  charged  off,  but  were  allowed 
to  accumulate  until  they  were  sufficient  not  only  to  offset  all  surplus  and 
undivided  profits,  but  to  impair  seriously  the  original  capital  of  the  insti- 
tution ;  and  that  defendant's  long  service  and  intimate  knowledge  of  the 
bank's  affairs  was  such  that  he  must  have  known  of  this  condition  of  its 
•affairs  at  the  time  he  joined  with  the  directors  in  declaring  the  alleged 
unlawful  dividend.  And  it  is  wholly  unnecessary  in  such  case  to  impute 
to  the  defendant  corrupt  or  malign  motives  in  order  to  prove  a  violation  of 
the  statute.  Nor  is  it  any  defense  that  he  held  only  a  few  shares  of  the 
stock  and  that  not  he,  but  others,  received  the  chief  benefit  of  the  dividend 
declared.^' 

Receiving  Deposits  after  Insolvency — Generally. — Generally  speak- 
ing, in  a  prosecution  of  a  bank  officer  for  receiving  a  deposit  knowing  that 
the  bank  was  insolvent,  the  state  must  prove  that  the  deposit  described  in 
the  indictment  was  actually  received;  that  at  the  time  it  was  received  the 
bank  was  insolvent ;  that  accused  had  knowledge  of  its  insolvency,  and, 
with  such  knowledge,  received  or  assented  to  receiving  the  deposit.*^^  Neither 
knowledge  of  insolvency  nor  fraudulent  intent  need  be  proved,  however, 
where  not  made  elements  of  the  offense  by  the  statute  under  which  the 
prosecution  is  had.*^^'  Testimony  of  an  accomplice  as  to  a  scheme  to  loot 
the  bank  and  defraud  depositors  will  warrant  a  submission  of  the  case  to 
the  jury  when  sufficiently  corroborated."^ 

Same — Proof  of  Insolvency. — In  a  prosecution  under  an  act  making 
it  a  crime  for  a  bank  officer  to  assent  to  the  reception  of  deposits  after 
he  knows  the  bank  is  insolvent,  any  estimate  the  examiner  of  state 
banks  may  have  made  of  the  value  of  the  assets  of  the  bank  is  not  con- 
clusive on  the  question  of  its  solvency  or  insolvency,  which  is  a  question 

67.  To  prove  detendant  guilty  of  ually  the  funds  of  the  depositors  and 
participating  in  declaration  of  wrong-  place  them  in  accused's  hands  in  an 
ful  dividend. — Cabancss  z'.  State.  8  Ga.  unlawful  trust  for  both.  A  bookkeeper 
App.   129,  G8   S.   E.  849.  in    the    bank   testified    to   numerous    in- 

68.  Receiving  deposits  after  insol-  stances  where,  in  his  absence,  accused's 
vency — Generally. — Parrish  v.  Com-  name  had  been  erased  by  chemic- 
monwealth,  136  Ky.  377,  123  S.  W.  339.  als    from    the    bank   journals    and    such 

69.  Same — Where  knowledge  of  in-  accomplice's  name  inserted  in  its  place, 
solvency  and  fraudulent  intent  not  and  that  he  saw  accused  liandling:  and 
made  elements  of  the  offense. — Murphy  examining  the  books.  The  testimony 
7'.   People,   r.)   111.   App.   125.  also   tended    to    show    a   withdrawal    of 

70.  Same — Same — Testimony  of  ac-  a  large  sum  of  money  in  the  aggregate, 
complices. — State  z'.  Clements,  82  Minn.  which  had  a  direct  influence  towards 
434.  85  N.  W.  229.  the  insolvency  of  the  bank.     Held,  that 

On  a  prosecution  for  receiving  de-  there  was  sufficient  corroborating  ovi- 
posits as  a  banker,  knowing  the  bank's  dence,  independent  of  the  testimony 
insolvency,  an  accomplice  of  accused  of  such  accomplice,  to  warrant  a  sub- 
confessed  that  he  had  been  a  party  to  mission  of  the  case  to  the  jury.  State 
a  systematic  scheme  adopted  by  ac-  z'.  Clements,  82  Minn.  434,  85  N.  W. 
cused   and   himself   to   withdraw    grad-  229. 


§    62    (2c)  OFFICERS    AND    AGENTS.  441 

of  fact,  to  be  determined  by  the  jury,  and  not  the  bank  examiner."  ^  But 
evidence  that  a  banker  closed  his  bank,  refused  to  pay  his  depositors  money 
due  and  payable  when  demanded,  and  made  an  assignment  for  the  benefit 
of  his  creditors  after  preferring  some  of  them,  is  sufficient,  if  found  by  a 
jury,  to  establish  the  banker's  insolvency."^ 

Same — Knowledge  of  Insolvency. — Proof  of  active  participation  in 
the  management  of  the  bank's  atiairs  and  in  fraudulent  devices  to  deceiv^ 
the  public  auditor  as  to  the  true  character  of  the  payments  made  on  its 
capital  stock  and  to  keep  the  public  in  ignorance  as  to  the  true  state  of 
its  affairs  is  sufficient  to  show  knowledge  of  insolvency .'^^  /^^i,^  under  a 
statute  providing  that  failure  of  a  bank  within  thirty  days  after  receipt  of 
a  deposit  shall  be  prima  facie  evidence  of  knowledge  of  the  bank's  in- 
solvency on  the  part  of  the  defendant,  proof  that  the  bank  failed  within 
three  days  after  the  receipt  of  the  deposit  alleged  in  the  indictment  is  suffi- 
cient, in  the  absence  of  any  controverting  evidence,  to  sustain  a  conviction."4 

Same— Receipt  of  Deposit  or  Assent  Thereto.— A  bank  president 
who  continues  to  keep  his  bank  open  after  knowledge  of  its  insolvency  must 
be  held  to  authorize  and  assent  to  the  receipt  of  deposits  by  his  subordi- 
nates during  the  time  it  is  so  kept  open ;  hence,  it  is  not  necessary  in  such 
a  case  to  prove  the  name  of  the  person  who  actually  received  the  deposit, 
the  position  he  held  in  the  bank,  or  the  name  of  the  person  who  made  it.'^^ 
The  contrary  has  been  held  in  other  courts,  however,  on  the  ground  that 
the  president  of  an  incorporated  bank  is  not  the  owner,  as  is  generally  the 
case  in  private  banks,  and  that  a  charge  of  receiving  the  deposit  is  not 
sustained  by  proof  of  assent  to  a  deposit  or  proof  of  the  president's  pres- 
ence in  the  bank  or  in  a  back  room  at  the  time  the  deposit  was  received, 
even  though  it  be  fully  shown  that  he  had  knowledge  of  the  bank's  in- 
solvency at  the  time."^' 

Same— That  Depositor  "Was  Indebted  to  Bank.— Where  the  statute 
contains  an  exception  as  to  deposits  received  from  persons  indebted  to 
the  bank,  the  fact  that  the  depositor  from  whom  a  deposit  was  alleged  to 
have  been  received  was  so  indebted  is  a  matter  of  defense,  and  the  state 
need  not  prove  that  he  was  not  so  indebted.'^" 

71.  Same— Proof  of  insolvency.—  1.'!4  Mo.  2.18.  35  S.  \V.  615;  State  r 
State  7:  Hoffman.  120  La.  049,  45  So.  W'arner,  (50  Kan.  94,  55  Pac.  ,342;  State 
^^'l-  '  •    Strait,   99   Minn.  327,   109   N.   W.   598. 

72.  Same — Sarne. — Commonweahli  Under  Rev.  St.,  §  3581.  makint?  it  a 
V.  llazlctt,   10  I'a.   Sui)er.   Ct.  5.'!4.                   crime   for   any  hank   officer   to  "receive 

73.  Same— Knowledge  of  insolvency.  or  assent"  to  the  reception  of  any  de- 
— Paulsen  z;.  People,   195   111.  507,  03   X.       posit   of   money,   knowing   the   hank   to 

vl^^'o             o                    r^  ''*"'   insolvent,   a   conviction   can    not   he 

74.  Same — Same. — McClure  z\  Peo-  had  on  an  indictment  char.qinR-  merely 
I)lc.  27   ('oh..  ;!5s.  f,i    Pac.  012.  that    defendant    did    "receive"    the    de- 

75.  Same — Receipt  of  deposit  or  as-  posit,   on   proof  of  an   "assent"   to   the 
sent      thereto.— ['arrish      ?•.      Cuinmr.n-  reception      of    the     deposit.      State     ?• 
wealth.     l.-JG     Ky.     ;i7T,    12.'.     S.     W.     339.  Wells,    134    Mo.   23S.   35    S.   \V.   r,I5. 
See,  also,  McClure  r'.  People,  27  Colo.  77.      Same— That    depositor    was    in- 
358.  01   Pac.  (-,12.  debted  to  bank.— State  ;■.   Cadwallader, 

76.  Same— Same.— State    v.    Wells,       15  1    liul.  cot,  57  N.  K.  512. 


442  BANKS    AND    BANKING.  §    62    (2c) 

Variance — Proof  of  Time  Laid  in  Indictment. — An  indictment  not 
alleging  any  time  when  the  offense  was  committed  is  bad ;  but,  when  laid, 
it  is  unnecessary  to  prove  the  particular  time  as  laid,  unless  the  time  be 
material.  Thus  where  the  acts  charged  in  the  indictment  are  laid  as 
having  been  committed  on  a  certain  day,  evidence  that  they  were  committed 
on  a  subsequent  day  is  admissible."® 

Same — Proof  of  Conversion,  Misappropriation,  etc. — Where  a 
bank  president  was  indicted  in  his  own  state  for  unlawfully  converting  the 
moneys  of  his  bank,  evidence  that  he  obtained  the  money  from  a  bank  in 
another  state,  with  which  his  own  bank  had  deposits,  by  means  of  a  check 
drawn  and  collected  in  the  other  state ;  that  he  had  no  authority  to  draw 
such  checks ;  and  that  the  withdrawal  of  the  money  was  ratified  by  the 
officials  of  his  own  bank  on  false  representations  by  him  as  to  the  use 
made  of  the  money,  is  sufficient  to  justify  the  court  in  leaving  to  the  jury 
whether  there  was  such  infirmity  in  the  checks  as  made  the  subsequent  rati- 
fication in  his  own  state  one  of  the  efficient  causes  of  the  absorption  of  the 
bank's  credit,  so  that  the  same  might  be  regarded  as  the  consummation  of 
the  offense  in  that  state.'^'^ 

Same — Proof  of  False  Entry. — A  charge  in  an  information  of  having 
made  6r  caused  to  be  made  a  false  entry  in  the  account  of  an  individual 
with  the  bank,  in  that  the  defendant  entered  an  overdraft  of  such  indi- 
vidual in  such  manner  as  to  make  it  falsely  appear  that  such  overdraft 
was  a  loan  owing  to  the  bank,  the  intent  being  to  deceive  the  state  bank 
examiner,  is  not  sustained  by  proof  that  such  entry  was  of  an  overdraft 
drawn  upon  an  account  of  such  individual  in  which  he  was  designated,  not 
merely  by  his  individual  name,  but  as  township  treasurer ;  and  such  variance 
is  rendered  none  the  less  fatal  by  the  fact  that  in  the  account  he  was 
designated  as  "treasurer"  or  simply  "Tr.,"  when  such  abbreviation  evi- 
dently meant  the  same  as  treasurer ;  nor  was  such  variance  rendered  any 
the  less  fatal  by  the  fact  that  in  such  account  there  was  included  private 
money  of  the  individual  referred  to  as  treasurer.-^*^  But  where  the  accused 
is  charged  with  having  made  false  entries  in  the  report  of  the  bank  as  to 
the  amount  due  from  other  banks  and  as  to  the  amount  due  on  time  certifi- 
cates of  deposit,  there  is  no  merit  in  a  contention  that  because  these  two 
items  are  embraced  together  in  the  information  a  verdict  of  guilty  can  not 
be  upheld  unless  the  proof  shows  that  the  report  was  false  as  to  both 
items,  since  a  falsification  of  the  report  as  to  either  item  constitutes  a  vio- 
lation of  the  law,  independently  of  the  other  item.^^ 

78.  Variance — Proof  of  time  as  laid.  appropriation,  etc. — Putnam  z\  United 
—Brown  r.   State,   11    O.  276.  States,  162  U.  S.  687,  40  L.  Ed.  1118,  16 

In  an  indictment  for  acting  as  an  of-  S.  Ct.  923. 

ficer  of  an  unauthorized  bank,  time   is  80.      Same — Proof    of    false    entry. — 

not   material,    and   the    offense    may   be  Williams   v.    State,   51    Xeb.   6.'!0,    71    N. 

proved    to   have    been    committed   after  W.  313. 

the    day  laid.      Brown    f.    State,  11    O.  81.      Same — Same — Proof    of    one    of 

276.  two     averments. — Ruth     v.      State,     140 

79.  Same— Proof  of  conversion,  mis-  Wis.   373.  122  N.  W.  733. 


§  62  (3) 


OFFICERS    AND   AGENTS. 


443 


Same — Receiving  Deposits  While  Insolvent. — \\  here  the  prosecu- 
tion is  for  receiving  deposits  after  knowledge  of  insolvency,  the  state  must 
prove  the  actual  receipt  of  the  deposit  described  in  the  indictment.^-  Thus 
where  the  state,  in  a  prosecution  of  this  kind,  elects  to  try  the  case  on  the 
issue  of  the  receipt  of  a  particular  deposit  set  out  in  a  certain  count  of  the 
indictment,  evidence  as  to  the  receipt  of  other  deposits  at  other  times  is  in- 
admissible.'^'' Proof  of  the  receipt  of  money  as  a  general  deposit  will  not 
sustain  a  charge  that  defendant  received  it  "on  deposit  and  for  safe-keep- 
ing. "■'^^  But  a  charge  that  the  defendant  received  a  certain  sum  stated  in 
dollars  and  cents  is  sufficiently  proved  by  evidence  showing  that  part  of 
the  amount  consisted  of  checks,  certificates  of  deposit,  etc.^-'' 

Same — Same — Proof  of  Person  Making  Deposit. — Evidence  that 
the  deposit  was  made  by  a  different  person  from  the  one  named  in  the  in- 
dictment will  not  support  a  conviction. ^'^ 

§   62    (3)   Instructions. — As   to   Purpose    or   Intent — Generally. — 

Where  under  the  terms  of  the  statute,  intent  to  defraud  is  an  essential 
element  of  the  offense  of  making  a  false  entry  in  the  books  of  a  bank,  an 
instruction  making  proof  of  such  intent  unnecessary  is  fatallv  defective.^"*" 


82.  Same — Receiving  deposits  while 
insolvent — Must  prove  deposit  de- 
scribed  in  indictment. — Parrish  t'. 
Commonweahh,  136  Ky.  .377,  123  S.  W. 
339. 

83.  Same — Same — Same. — Davey  v. 
State,   99  Ark.   547,   139   S.   W.   629. 

Where  the  state  on  the  trial  of  an 
officer  of  a  bank  for  receiving  a  de- 
posit with  knowledge  of  the  insolvency 
of  the  bank  elected  to  try  the  case  on 
a  deposit  made  two  days  before  the 
failure  of  the  bank,  it  was  error  to 
permit  the  state  to  subsequently  rely 
on  a  deposit  made  nearly  a  year  before 
that  time,  especially  in  the  absence  of 
a  witness  who,  as  disclosed  by  the  ap- 
plication of  accused  for  a  continuance, 
knew  more  of  the  condition  of  the 
bank  than  any  one  else.  Davey  v. 
State,   09   Ark.   .5-47.   139   S.   W.   629. 

84.  Same — Same — General  and  spe- 
cial deposits. — Koetting  7'.  State,  SS 
Wis.   j()2.  fU)   X.  W.  S22. 

85.  Same — Same — Where  deposit 
made  up  of  money,  checks,  certificate 
of  deposit,  etc. — State  r.  Shove,  9r> 
Wis.  1.  70  X.  W.  312;  Morris  z:  State 
^'\rk.),  14.5   S.  W.  213. 

On  the  question  whether  an  officer 
of  a  bank  received  on  deposit,  know- 
ing the  insolvency  of  the  bank,  $300, 
for  which  a  certificate  of  deposit  was 
given,  it  is  immaterial  that  the  proof 
shows  that  part  of  the  amount  was  a 
certificate  of  deposit  given  by  the 
bank,    and    tlu-n    dui-.    with    .accrued    in- 


terest thereon,  which  was  then  surren- 
dered. State  v.  Shove,  96  Wis.  1,  70 
N.  W.  312. 

Proof  that  accused  received  $11  in 
currency  on  deposit  in  an  insolvent 
bank,  together  with  checks,  sustains 
a  conviction  under  an  indictment 
charging  receipt  of  $100  in  gold,  silver, 
and  paper  money.  Morris  v.  State 
(Ark.),   ^4r^?,.  W.  213. 

86.  Same — Same — Proof  of  person 
making  deposit. — State  r.  Olcson.  35 
Wash.  149,  76  Pac.  686. 

Where  an  information  charged  an 
officer  of  a  bank  with  receiving  a  de- 
posit, after  knowledge  of  the  fact  that 
the  bank  was  insolvent,  from  the  "By- 
ron Grocery  Company,  a  corporation," 
and  the  proof  showed  that  the  deposit 
was  made  l)y  a  partnership  known  as 
Byron  &  Shumway,  and  that  the  cor- 
poration named  in  tlie  information  was 
not  in  existence  at  the  time  the  deposit 
was  made,  the  variance  is  fatal  to  a 
conviction,  notwithstanding  2  Balling- 
er's  .-Xnn.  Codes  &  St..  §  6846,  provid- 
ing that  when  a  crime  involves  the 
commission  or  attempt  to  coipmit  a 
private  injury,  and  is  described  with 
sufficient  certainty  in  other  respects  to 
ideiUify  tlie  act.  an  erroneous  allega- 
tion as  to  the  person  injured  is  not  ma- 
terial. State  7'.  Oleson,  35  Wash.  149, 
76  Pac.  686. 

87.  Omitting  element  of  intent. — 
Mears  i-.  State,  H4  Ark.  136,  104  S.  W. 
1095. 


444  BANKS    AND    BANKING.  §    62    (3) 

Same — Specific  Intent — Effect  of  Other  Intent. — The  question  of 
intent  is  for  the  jury,  and  where,  under  the  statute,  the  existence  of  a 
specific  intent  is  essential  to  the  criminahty  of  the  acts  charged,  it  is 
competent,  and  a  good  defense  for  the  defendant  to  show  that  in  com- 
mitting the  act  charged,  he  was  actuated  by  an  entirely  different  intention, 
even  though  such  other  intention  was  within  itself  unlawful.  It  is  error 
in  such  a  case,  therefore,  to  charge  the  jury  that  the  existence  of  such 
other  intention  on  the  part  of  the  defendant  would  constitute  no  defense, 
and  that  the  intention  to  perform  one  unlawful  act  could  not  excuse 
another.^** 

Where  Statute  Mentions  Several  Intents. — A\  here  the  court  has  sev- 
eral times  stated  to  the  jury  that  the  indictment  charges  the  making  of 
false  entries  in  the  books  of  the  bank,  with  intent  to  deceive  the  bank  ex- 
aminer, and  the  making  of  false  reports,  with  intent  to  deceive  the  comp- 
troller, it  is  not  misleading  to  thereafter  say  that  defendant  is  guilty  if  he 
made  such  false  entries  and  report  "with  the  intent  mentioned  in  the 
statute,"  although  the  statute  mentions  several  other  intents.-'^ 

Authorizing  Conviction  upon  Proof  of  Different  Intent — Variance. 
— Where  the  indictment  charges  the  defendant  with  having  made  a  false 
entry  with  intent  to  defraud  the  bank,  an  instruction  authorizing  a  convic- 
tion if  the  intent  was  to  defraud  the  officers  of  the  bank  is  not  erroneous. ^*^ 

Defining  Fraudulent  Intent. — And  an  instruction  telling  the  jury  that 
if  the  entry  was  made  by  the  defendant  "with  the  intention  of  circumvent- 
ing, misleading  and  deceiving  the  officers  of  the  bank,"  to  his  own  ad- 
vantage and  benefit ;  such  intention  was  fraudulent,  was  held  to  define  cor- 
rectly fraud  as  applicable  to  the  facts  in  evidence.''^ 

_  88.  Specific  intent— Effect  of  other  father's  account,  that  he  believed  his 
intent—People  v.  Comstock,  115  Mich.  father  would  pay  it.  and  that  he  thought 
305,  73  N.  W.  245.  ^  .  ^^  the  bank  would  not  lose  by  the  trans- 
General  Banking  Law,  §  58  (3  How.  action.  Held,  that  it  was  error  to 
Ann  St.,  §  3208f7),  provides  for  the  charge  the  jury  that  such  intent  on  the 
punishment  of  every  bank  officer  who  part  of  respondent  would  constitute 
embezzles  the  funds  of  the  bank,  or  „o  defense,  and  that  the  intention  to 
who.  without  authority  of  the  direct-  perform  one  unlawful  act  could  not  ex- 
ors,  draws  any  order  or  bill  of  ex-  cuse  another.  The  question  of  intent 
change  with  intent  to  injure  or  de-  .^as  for  the  jury,  as  it  is  not  every  in- 
fraud  the  bank.  Section  52  restricts  fraction  of  the  banking  law  which  is 
the  indebtedness  of  individual  debtors  a  fraud  upon  and  injurv  to  the  bank, 
of  the  bank.  Under  an  information  ...jthin  the  statute.  People  v.  Coni- 
charging  respondent  with  having,  while  stock,  115  Mich.  305.  73  N  W  245 
acting  as  clerk  and  manager  of  a  cer-  oo  a  4.  •  .^  .  u 
tain  bank,  drawn  an  order  or  bill  of  ex-  .  ^^-  ^^  to  intent  where  statute  men- 
change  with  intent  to  defraud  said  t^°"^  several  intents.— United  States  t'. 
bank,      respondent    was     convicted      of  ^^'ters.  S7   Fed.  984. 

drawing  and  issuing  a  draft  to  pay  an  .    90-      Intent    to    defraud    directors    or 

acceptance   of  his   father's   without   the  intent    to      defraud    bank — Variance. — 

express   authority   of   the   board    of   di-  Shipp   v.    Commonwealth,   101    Ky.   518, 

rectors,    the    father    being    at    the    time  19  TCv-  L-   Rep.  634,  41   S.  W.   856. 

indebted  to  the  bank  in  excess  of  the  91.     Instruction    defining    fraudulent 

amount   fixed   by   the    statute.      On    the  intent.— Shipp    r.    Commonwealth,    101 

trial    the    respondent    testified    that    he  Ky.   518,   19   Ky.   L.   Rep.  634,  41   S.  W. 

intended     to    charge    the    draft    to    his  856. 


§    62    (3)  OFFICERS    AXD    AGENTS.  445 

Offense  Committed  by  More  than  One  Person — Participation  or 
Consent — Aiders  and  Abettors. — On  a  trial  for  forgery,  in  fraudulently 
altering  entries  in  the  bank's  books,  an  instruction  that  the  fact  that  others 
than  the  defendant  consented  to  or  assisted  in  the  alteration  is  no  defense, 
if  the  change  was  falsely  made  with  intent  to  defraud  a  certain  depositor,  is 
not  objectionable  as  leading  the  jury,  to  believe  that,  if  the  bank's  directors 
consented  to  the  change  and  did  so  with  intent  to  defraud  said  depositor, 
the  defendant  would  be  guilty,  though  he  had  no  such  fraudulent  intent ; 
the  purport  of  the  instruction  being  that  the  consent  of  the  directors  to  the 
transaction  would  not  exonerate  the  defendant  if  he  participated  with 
fraudulent  intent.''-  Under  an  indictment  for  aiding  a  bank  president  in 
violating  the  banking  laws,  an  instruction  that,  to  make  defendants  guilty, 
they  must  have  done  something  "showing  their  consent  to  or  participation 
in"  the  unlawful  acts  of  the  president  could  not  have  misled  the  jury  to 
understand  that  the  acts  of  the  president  were  to  be  treated  by  them  as 
criminal  acts ;  nor  could  they  have  been  misled  by  the  use  of  the  disjunctive 
"or"  into  supposing  that  mere  consent  of  defendants  to  his  unlawful  acts 
would  be  sufficient  to  render  them  guilty.*^"^  Where  the  charge  was  that 
defendants  aided  the  president  in  misapplying  the  funds  of  the  bank  and 
in  making  false  entries  in  its  books,  and  the  jury  were  charged  that  if  the 
president  did  knowingly  make,  or  cause  to  be  made,  the  false  entries, 
they  could  not  find  defendants  guilty  as  aiders,  unless  defendants,  with 
like  intent,  did  something  showing  their  consent  to  and  participation  in 
the  "unlawful  and  criminal  acts"  of  the  president,  such  instruction  was  not 
open  to  the  objection  that  the  expression  "unlawful  and  criminal  acts" 
might  have  been  understood  as  relating  to  unlawful  acts  of  the  president 
generally."^ 

Restricting-  "Words  to  Connection  in  "Which  "Used. — Where  in  one 
count  of  an  information  the  defendant  is  charged  with  making  false  en- 
tries in  the  report  of  the  bank  as  to  the  amount  due  from  other  banks  and 
as  to  the  amount  due  on  time  certificates  of  deposit,  and  the  court  reads 
such  count  to  the  jury,  and  states  that  it  is  for  them  to  determine  whether 
there  are  any  false  statements  or  false  entries  as  to  the  resources  and  lia- 
bilities of  the  bank  in  such  report,  and  whether  or  not  it  contains  any  false 
statements  or  entries  as  to  any  of  the  books  of  the  bank,  it  will  be  pre- 
sumed that  the  jury  applied  the  words  "any  false  statements  or  false  en- 
tries" in  view  of  what  immediately  preceded,  namely,  that  the  prosecution 
was  for  falsifying  the  report  in  the  two  respects  alleged  in  the  information 

92.  Forgery  and  fraudulent  entries  abetting. — Coffin  v.  United  States,  102 
—Instruction  as  to  effect  of  consent  or  U.  S.  0()4,  40  L.  Ed.  1109,  16  S.  Ct.  94.'^. 
assistance  of  other  officers.— Qucrter-  94.  Same— Reference  to  unlawful 
ni'.ii.  V.  State,  O.".  .\rk.  48,  127  S.  \V.  acts  of  principal.— Crim  .-.  L'nitcl 
•'•''„        _                .  Stales,    102    U.    S.    004,    40    L.    \'a\.    1109, 

93.  Instruction    as    to     consent    or  IG  S    Ct   943. 
participation     by    person    aiding     and 


446  BANKS    AND    BANKING.  §    62    (3) 

read  to  them,  and  that  hence  the  instruction  is  sufficiently  restrictive,  and 
not  prejudicial   to  the   accused. ^° 

Exhibiting  False  Books — Weight  of  Evidence. — The  question 
whether  a  defendant  has  knowingly  exhibited  false  books  to  the  bank  ex- 
aminer is  purely  one  of  fact  to  be  determined  by  the  jury  from  the  evi- 
dence before  it,  unprejudiced  by  any  statement  as  to  what  another  court 
may  have  said  upon  the  subject  in  a  previous  trial;  hence  in  charging  the 
jury  upon  the  question  of  the  defendant's  knowledge  in  such  case,  it  is 
reversible  error  to  instruct  the  jury  that,  as  held  by  the  court  upon  a  former 
trial  of  the  case,  certain  evidence  is  sufficient  to  satisfy  the  jury  that  there 
was  an  exhibition  or  presentation  of  the  books  to  the  examiner  by  the 
defendant.'^"' 

Officer  Becoming-  Indebted  to  Bank. — An  instruction  that  "it  is  not,  of 
itself,  a  crime  for  the  president  of  a  bank  to  borrow  money  of  the  bank  of 
which  he  is  president,"  is  not  objectionable  because  of  the  presence  of  the 
words  "of  itself."^" 

Receiving  Deposits  after  Insolvency — Insolvency  and  Failing  Cir- 
cumstances.—In  a  prosecution  for  receiving  money  on  deposit  with  knowl- 
edge of  the  bank's  insolvency,  the  court  should  charge  as  to  the  rule  for  deter- 
mining insolvency  ;•'"''  and  in  those  jurisdictions  where  insolvency  is  defined 
to  be  the  inability  to  pay  checks  and  other  obligations  in  the  ordinary  course 
of  business,  it  is  not  error  to  instruct  that  a  bank  is  in  failing  circumstances 
when  unable  to  meet  the  demands  of  its  depositors  in  the  ordinary  and  usual 
course  of  business,  even  though  an  inability  to  so  meet  demands  upon  it 
was  caused  by  a  stringency  in  the  money  market. ^^  And  even  where  the 
contrary  doctrine  prevails,  an  instruction  defining  insolvency  as  meaning 
inability  to  meet  liabilities  in  the  usual  course  of  business  is  not  objec- 
tionable, as  being  too  broad  in  its  application  to  such  insolvency  as  would 
fasten  guilty  knowledge  on  accused,  where  it  was  followed  by  a  further 
charge  that,  if  the  assets  of  a  banking  firm  and  of  the  individual  members 
thereof  were  insufficient  in  value  to  pay  the  debts  of  the  firm,  then  the  firm 
was  insolvent. ^■-''  Where  there  was  no  effort  made  by  the  prosecution  to 
prove  that  the  bank  was  insolvent  merely  because  it  did  not  have  suffi- 
cient cash  on  hand  to  pay  its  depositors,  and  evidence  was  offered  demon- 
strating that  when  the  bank  received  the  deposit,  all  its  assets,  prudently 
administered,  were  only  sufficient  to  pay  a  very  small  dividend  to  its  de- 
positors, an  instruction  that  a  bank  is  "insolvent."  within  the  meaning  of 

95.     As  to  false  statements  and  en-  54   g    yj    oog 

tries — Restricting  words  to  connection  „^        ^   *"".  '.         ,          .         .        .       , 

in  which  used.-Ruth  z.  State,  140  Wis.  ^^^-     R^^^ving  deposits   after  insol- 

3^3    ,.,.,  Y    -s^-    ^00  vency — Insolvency  and  faihng  circum- 

'96.  "As  to  knowingly  exhibiting  false  ?^"?^;-^^°'-^;^    -V,   ^^^^'      ^'^^-^-     ^'• 

books— Invading     province    of    jury.—  '^PP''  ^^^  ^-  ^-  ^^'^• 
People  7'.  Helmer,  154  N.  Y.  596,  49  N.  98.    Same— Same.— Stale    f.    Darrah, 

5;    249.  ^52   Mo.  522,   54   S.   W.  226. 

97.    Officer    becoming     indebted     to  98a.      Same — Same. — State     v.     Cle- 

bank.— State    z:    Darrah,    152    Mo.    522,  ments,   82    Minn.   434,   85   N.   W.    229. 


§  62  (3) 


OFFICERS    AND    AGENTS. 


447 


the  law  creating  such  otlense,  when  its  property  and  assets  are  such  that 
it  can  not  meet  its  demands  in  the  ordinary  course  of  business  should  be 
construed  as  requiring  that  the  evidence  should  show  that  all  the  bank's 
assets  were  insufficient  to  pay  its  debts,  and  was  not,  therefore,  erroneous 
as  authorizing  a  finding  of  insolvency  in  case  the  bank  had  insufficient  mone- 
tary funds  to  pay  depositors  on  demand.'"*  As  regards  the  proof  of  ni- 
solvency  it  is  not  error  to  refuse  an  instruction  that  testimony  as  to  the 
value  of  assets  must  not  be  considered  when  based  on  information  gained 
from  others,  since  the  only  way  of  ascertaining  the  value  of  such  assets  is 
to  take  the  estimate  at  which  they  are  generally  held  in  the  market.^  An 
instruction  discrediting  the  testimony  of  the  defendant  and  all  his  witnesses 
should  not  be  given  because  certain  witnesses  for  the  defense  made  their 
estimates  of  value  upon  an  improper  basis.-  Where  evidence  is  properly 
receivable  only  for  the  purpose  of  aiding  the  jury  in  determining  the  con- 
dition of  the  bank,  it  is  proper  to  limit  its  effect  to  that  purpose.-^ 

Same — Knowledge  of  Insolvency. — Where  knowledge  of  insolvency 
is  made  an  essential  element  of  the  offense,  this  fact  should  be  clearly 
presented  to  the  jury  ;^  and  where  the  statute  requires  that  the  defendant 
should  have  had  actual  knowledge  of  insolvency,  an  instruction  authorizing 
or  permitting  a  conviction  on  proof  of  anything  less  is  erroneous.^ 


99.  Same — Same. — Parrish  i-.  Com- 
monwealth, 13()  Ky    377,  123  S.  W.  339. 

1.  Same — Proof  of  insolvency. — 
State  v.  Darrah,  152  Mo.  522,  54  S.'W. 
226. 

2.  Same — Same. — Commonwealth  v. 
Hazlett,   16   Pa.    Super.    Ct.   534. 

On  the  trial  of  an  indictment  against 
a  banker  for  receiving  deposits  when 
insolvent,  where,  on  the  question  of 
insolvency,  various  witnesses  for  the 
defendant  have  testified  as  to  the  value 
of  defendant's  property,  and  two  wit- 
nesses for  the  defendant  based  their 
estimate  on  what  they  would  have 
paid  for  it  in  depreciated  certificates  of 
the  bank,  it  is  error  for  the  court  to 
charge  that,  if  the  jury  believed  the 
testimony  of  the  two  witnesses,  then 
under  all  the  evidence,  including  the 
defendant's  testimony,  the  estimates  of 
value  were  not  found  upon  a  proper 
basis,  as  such  instruction  vitiated  the 
testimony  of  the  defendant,  and  all  the 
other  witnesses  of  the  defendant.  Con\- 
monwealth  v.  Hazlett,  16  Pa.  Super. 
Ct.  534. 

3.  Same — Same. — State  ?'.  Darrali, 
15;.'    Mo.    .-,22,    54    S.    W.    226. 

It  was  not  error,  as  commenting 
upon  evidence,  on  the  trial  of  a  presi- 
dent of  a  bank  for  assenting  to  the  re- 
ception of  deposits  after  knowledge  of 
the  bank's  insolvency,  and  where  it 
had  been  shown  that   tlie  president  liarl 


borrowed  money  of  the  bank,  to  in- 
struct that  the  fact  that  the  president 
borrowed  money  of  the  bank  could  be 
considered  in  determining  the  condi- 
tion of  the  bank,  and  for  no  other 
purpose.  State  z\  Darrah,  152  Mo.  522, 
54   S.  W.  226. 

4.  Same — Knowledge  of  insolvency. 
— Commonwealth  z\  Tryon,  31  Pa. 
Super.   Ct.   146. 

On  the  trial  of  an  indictment  against 
a  banker  for  accepting  a  deposit  wlien 
insolvent,  the  prisoner  can  not  com- 
plain that  the  trial  judge  failed  to  give 
due  prominence  to  the  question  of  the 
prisoner's  knowledge  of  the  insol- 
vency, where  the  court  in  the  course 
of  its  charge  said:  "If  he  did  not 
have  such  knowledge,  if  he  believed 
honestly,  as  a  prudent  man  in  his  posi- 
tion would,  that  he  had  sufficient  as- 
sets to  be  converted  into  cash  that 
would  meet  his  obligations,  then  he 
would  not  be  guilty  of  the  offense 
charged.  This  is  a  question  of  fact 
for  you  from  the  testimony  in  tlie 
case."  Commonwealth  7'.  'i'ryi>n,  .">1 
Pa.    Super.    Ct.    146. 

5.  Same-  Same — Where  statute  re- 
quires actual  knowledge. — Slate  :•. 
Dunning,   130  Iowa  67S,   107  N.  W.  927. 

On  a  prosecution  under  Code  1885, 
making  it  a  felony  for  any  banker  to 
knowin.gly  receive  deposits  vvlion  in- 
solvent,    unless     .-ictual     knowledge      of 


448  BANKS    AND    BANKING.  §    62    (3) 

Same — Presumption  and  Burden  of  Proof  of  Knowledge  of  Insol- 
vency.— An  instruction  that  so  long  as  the  defendant  retained  the  presi- 
dency of  the  bank  he  was  presumed  to  know,  and  it  was  his  duty  to  know, 
its  condition  as  to  solvency,  is  erroneous,  since  the  president  is  only  bound 
to  exercise  reasonable  care  and  diligence  to  ascertain  and  keep  himself  in- 
formed regarding  the  bank's  financial  condition.^  Even  where  the  statute 
makes  the  failure,  or  failing  condition,  of  the  bank  prima  facie  evidence  of 
knowledge  of  insolvency,  it  is  improper,  after  declaring  the  law  in  that 
respect,  to  further  emphasize  its  provisions  by  telling  the  jury  that  it  was 
the  defendant's  duty  to  know  its  financial  condition,  and  that  the  law  pre- 
sumed that  he  did  know  it  at  the  time  the  deposit  was  received.'''  An  in- 
struction, in  the  language  of  the  statute,  that  the  failure  of  a  bank  is  prima 
facie  evidence  of  knowledge  on  the  part  of  its  president  that  the  same  was 
in  failing  circumstances,  coupled  with  a  statement  that  prima  facie  evidence 
is  such  as  raises  such  a  degree  of  probability  in  its  favor  that  it  must 
prevail  unless  it  be  rebutted,  or  the  contrary  proved,  is  not  erroneous.^  The 
fact  that  the  statute  creates  a  prima  facie  presumption  of  knowledge  from 
the  subsequent  failure  of  the  bank  does  not,  however,  shift  the  burden  of 
proof  from  the  state  to  the  defendant,  and  it  is  error  for  the  court  to  re- 
fuse, upon  request,  to  give  an  instruction  to  that  effect,  and  to  make  it 
clear  that  the  defendant  may  still  show  the  condition  of  the  bank  and  cir- 
cumstances tending  to  exonerate  him  from  criminal  liability,  and  that,  on 
the  whole  case,  the  burden  of  proof  would  still  rest  on  the  state. ^  Failure 
to  so  instruct  is  not  cured  by  other  general  instructions  that  the  jury  must 
be  satisfied  of  the  defendant's  guilt,  and  that  the  law  presumes  his  inno- 
cence.^" 

Receipt  or  Assent  to  Receipt  of  Deposit. — Instructions  relating  to 
the  receipt  of  deposits,  or  assent  to  receipt  of  deposits,  are  not  erroneous 
where,  taken  as  a  whole,  they  make  it  clear  that  the  deposit  must  have  been 

the  insolvency  is  shown,  an  erroneous  if  the  state  proved  beyond  a  reason- 
instruction  that  if  defendant  had  acted  able  doubt  that  accused  had  good  rea- 
as  a  reasonable  and  prudent  man  in  son  to  know  he  was  insolvent.  State 
the  conduct  of  his  business  as  a  t'.  Drew.  110  Minn.  247,  124  N.  W. 
banker,    and,    based    on    his    so    acting,  1091. 

he  had  a  right  to  believe  and   did  be-  6.     Same — Presumption    and    burden 

lieve   that   he   and   the   bank   were   sol-  of   proof   of   knowledge   of   insolvency, 

vent,  he  must  be  acquitted,  was  preju-  — McClure  v.   People,  27   Colo.   358,   61 

dicial,    though    other    instructions    had  Pac.  r5l2. 

positively    declared    that     the      deposit  7.     Same — Same. — State    v.      Salmon, 

must    have    been    received     when      the  21(1   Mo.  466,   11.")   S.  W.   1106. 

bank    and    the    defendant    were    in    fact  8.       Same —  Same — Defining       prima 

insolvent,    and   that   it   must   be    shown  facie   evidence   in   language   of   statute, 

that   the   defendant   then   knew   of  such  — State  z'.  Buck,  120  Mo.  479,  2.")  S.  W. 

insolvenc5^      State     v.      Dunning,      130  573;    State   v.    Sattley.   131    Mo.   464,   33 

Iowa  678,  107  N.  W.  927.  S.    W.    41;    State    v.    Darrah,    152    Mo. 

Rev.    Laws    1905,    §    5118,    makes    it    a  522.  54  S.  W.  226. 

criminal    offense    for    a    banker    to    re-  9.     Same — Same — Shifting   of  burden 

ceive    deposits    when    he    is    insolvent.  of    proof. — State    v.    Darrah.    152    Mo. 

Accused,    a    private    banker,    was    con-  522.  54  S.  W.  226. 

victed  of  such  ofifense.     Held  error  to  10.       Same — Same — Same. — State      v. 

instruct  the  jurv  th&t  it  was   sufficient  Darrah,  152  Mo.  522,  54  S.  W.  226. 


§  62   (5;) 


OFFICERS    AND    AGRXTS. 


449 


received  either  actually  by  the  defendant,  or  with  his  knowledge  and  con- 
sent, or  that  knowing  of  the  unlawful  receipt  of  the  deposit,  he  accepted 
and  received  it  and  placed  it  among  the  funds  of  the  bank.^^ 

§  62  (4)  Verdict. — Where  an  indictment,  contains  a  count  for  re- 
ceiving a  deposit,  knowing  that  the  bank  is  insolvent,  and  another  count  for 
assenting  to  the  creation  of  an  indebtedness  by  the  bank,  with  such  knowl- 
edge, and  the  evidence  shows  but  one  transaction,  which  consisted  in  re- 
ceiving a  deposit  and  issuing  a  certificate  therefor,  a  general  verdict  of 
guilty,  without  specifying  on  which  count,  is  sufficient.^-  Where  the  statute 
fixes  the  punishment  for  receiving  a  deposit  while  insolvent,  which  is  lost 
to  the  depositor,  at  a  fine  in  double  the  amount  of  the  deposit,  and,  in  addi- 
tion, imprisonment — the  imprisonment  being  optional — a  general  verdict 
fixing  the  amount  of  the  fine  and  the  term  of  imprisonment,  without  finding 
as  to  the  amount  of  the  deposit,  is  not  invalid. ^^  And  a  verdict  of  guilty  in 
such  case,  against  F.  and  C,  codefendants,  and  fixing  the  "punishment  of 
said  F.  and  C.  at  a  fine  of  twenty-eight  dollars,  and,  in  addition  thereto,  at 
imprisonment  for  one  year,"  is  not  defective,  as  fixing  a  joint,  instead  of 
several,  punishment.  ^"^ 

§  62  (5)  Sentence  and  Punishment.— Under  a  statute  making  it  a 
felony  for  an  insolvent  banker  to  receive  deposits,  a  judgment  of  conviction, 
sentencing  the  accused  to  the  penitentiary  at  hard  labor  for  the  term  of 
five  years,  is  not  reversible  as  providing  excessive  punishment. ^-"^ 


11.  Receipt,  or  assent  to  receipt,  of 
deposit. — State  z'.  Eifert.  102  Iowa  188, 
f.o  X.  W.  309,  71  N.  W.  248,  38  L.  R. 
A.  485,  6.3  Am.  St.  Rep.  433. 

On  trial  of  an  indictment  of  a 
banker  for  receiving  deposits  when  in- 
solvent, it  was  proper  to  charge  that, 
though  the  deposit  was  received  by 
defendant's  son  after  defendant  had  in- 
structed him  to  refuse  deposits,  if  de- 
fendant, on  learning  that  the  deposit 
was  so  'received,  placed  it  among  the 
funds  of  the  bank,  he  "knowingly  ac- 
cepted and  received"  it,  within  the 
statute.  State  v.  Eifert.  102  Iowa  188, 
65  X.  W.  309.  71  X.  W.  248,  38  L.  R. 
A.  485.  63  Am.  St.  Rep.  433. 

.An  instruction  on  trial  of  a  banker 
for  receivmg  deposits  when  insolvent, 
that  it  is  enough  that  the  deposit, 
though  not  received  I)y  him  person- 
ally, was  received  under  his  authority, 
is  not  error,  though  tlie  evidence  is 
that  it  was  received  against  his  order, 
where  such  charge  is  but  part  of  the 
instruction,  and  aids  in  making  plain 
a  pertinent  charee  following,  as  to  de- 
fendant's accepting  the  deposit  after 
'♦  had  been  so  received.  State  7'. 
Eifert,  102   Iowa   188,  65   X.  W.  309.   71 

1    B  &  B— 29 


X.  W.  248,  38  L.  R.  A.  485.  63  Am.   St. 
Rep.   433. 

On  trial  of  a  banker  for  receiving 
deposits  when  insolvent,  it  is  proper 
to  instruct  that  though  tlie  deposit  was 
received  against  defendant's  orders,  if, 
on  learning  that  it  had  been  received, 
he  placed  it  among  the  funds  of  the 
bank,  he  "knowingly  accepted  and  re- 
ceived" it,  within  the  statute,  such  in- 
struction resting  the  acceptance  on  de- 
fendant's own  acts,  not  on  a  ratifica- 
tion of  the  acts  of  others.  State  t'. 
Eifert,  102  Iowa  188,  65  X.  W.  309,  71 
N.  W.  248,  38  L.  R.  A.  485.  63  .\m.  St. 
Rep.    433. 

12.  Verdict — Failure  to  distinguish 
between  counts. — State  r.  Salt  lev.  131 
.Mo.  -16 1,  ;j3  S.  \V.  41. 

13.  Same—  Failure  to  find  amount  of 
deposit. — Meadowcroft  7'.  People,  163 
111.  56,  45  X.  E.  991,  35  L.  R.  .\.  176, 
54  Am.  St.   Reii     I  17. 

14.  Same — Fixing  joint  instead  of 
several  punishment. — Meadowcroft  .•■. 
People.  163  111.  56,  45  N.  E.  991,  35 
L.   R.  A.  176.  54  Am.  St.   Rep. '447. 

15.  Sentence  and  punishment,  ex- 
cessive sentence. —.State  ;•.  I'oomer, 
lo;{   Inwa   lOi).  72   .\.  W.  424. 


450 


BANKS    AND    BANKING. 


§  62   (5) 


Restitution. — To  authorize  a  judgment  of  restitution  under  a  statute 
requiring,  in  addition  to  the  prescribed  punishment,  in  crimes  which  in- 
chide  in  their  perpetration  the  obtaining  of  money,  that  the  defendant  shaU 
be  adjudged  to  restore  such  money  to  its  owner,  the  indictment  must 
show  that  the  defendant  obtained  the  money. ^"^ 

Costs. — Where  the  receipt  of  deposits  after  insoh-ency  is  made  a  mis- 
demeanor, and  the  question  of  costs  in  such  cases  left  to  the  jury,  they 
should   dispose  of   the  same  in  their  verdict.^' 


16.  Restitution. — Huntzinger  ■:■.  Com- 
monwealth, 97  Pa.  336. 

Therefore  a  judgment  of  restitution 
can  not  be  supported  Ijy  an  indictment 
alleging  that  defendants,  being  the 
president  and  cashier  of  a  bank,  a  cor- 
poration, did  conspire  to  cheat  and  de- 
fraud K.  of  $24,000  by  means  of  falsely 
and    fraudulently    representing    to    said 


K.  that  said  bank  was  solvent,  and 
thereby  inducing  him  to  deposit  in 
said  bank  the  said  $24,000,  whereas  de- 
fendants well  knew  said  bank  was 
wholly  insolvent.  Huntzinger  X'.  Com- 
monwealth, 97  Pa.  336. 

17.    Costs. — Commonwealth   v.  Schall. 
]2    Pa.    Co.    Ct.    Rep.   209. 


CHAFTER  \'I. 

E.  IxsoLvuxcv  AND  Dissolution. 

§  63.  Constitutional  and  Statutory  Provisions. 
§  63   (1)   Constitutionality   of    Statutes. 
§  63   (2)   Interpretation  and  Construction  of  Statutes. 
§  64.  Voluntary   Liquidation   and   Dissolution. 
§  64   (1)   Voluntary  Liquidation. 
§  64  (la)   Definitions. 
§  64   (lb)   Methods  of  Liquidation. 
§  64   (Ic)   Time    of    Dissolution. 
§  64  (Id)    Estoppel. 
§  64   (2)   Involuntary    Liquidation. 
§  65.   Reorganization. 

§  65   (1)   In  General. 
§  65   (2)    Effect  of  Reorganization. 
§  65   (2a)   In    General. 

§  65   (2b)   On    Liability    for    Debts    of    Old    Corporation. 
§  65   (2c)   On    Rights    and    Liabilities    of    Stockholders. 
§  65   (3)   Validity    of    Reorganization    Proceedings. 
§  65   (4)    Reorganization    Agreements. 
§  66.   Effect  on   State   Bank  of  Reorganization  as   National   Bank. 
§  67.  Consolidation. 

§  67  '(1)   Right   to   Consolidate. 
§  67   (2)   What    Constitutes. 
§  67   (3)   Effect   of    Consolidation. 
§  68.  Grounds   of   Forfeiture   of   Franchise   or   Dissolution. 
§  69.  Waiver  or  Remission   of  Forfeiture. 
§  70.   Proceedings  to  Enforce  Dissolution. 
§  70   (1)   In   General. 

§  70  (2)   Nature   or   Character   of   Proceeding. 
§  70  (3)   Necessity   of   Proceeding. 
§  70   (4)   Jurisdiction    and    Venue. 
§  70   (5)    Parties. 
§  70   (6)   Multifariousness. 
§  70   (7)    Pleading. 
§  70   (8)   Judgment. 

§  70   (9)   Abatement   and    Vacation   of   Proceedings. 
§  70   (10)   Costs. 
§  70  (11)   New   Trials. 
§  71.   Receivers,   Trustees   or   Commissioners   in    Proceedings    for   Dissolution. 
§  71   (1)   Selection,  Appointment  and   Removal. 
§  71   (2)  Title,  Right  and  Authority. 
§  71    (3)   Salary   or   Compensation. 
§  71    (4)   Suits    by    and    against. 
§  71   (4a)   Suits   by. 
§  71   (4b)   Suits    against. 
§  71   (4c)   Revivor  of   Actions. 
§  71    (5)   Termination  of  Trust. 
§  71    (6)   Accounting. 


452  BANKS    AND    BANKING. 

§  72.   Effect  of   Dissolution. 
§  72   (1)   In    General. 

§  72   (2)   On    the    Relation    of    Officers    to    the    Bank. 
§  72   (3)   On    Rights    of   Creditors. 

§  72   (3a)   In    General. 

§  72   (3b)   Rule   in    Equity. 

§  72   (3c)   Pre-Existing    Liability    for    Taxes. 
§  72   (4)   On  Rights  of  Stockholders. 
§  72   (5;   On    Liability    of    Stockholders. 
§  72   (6)   On   Right  to  Make  Collections. 
§  73.   Insolvency  and   Its   Effect  in   General. 

§  73   (1)   What    Constitutes    Solvency   or   Insolvency. 
§  73   (2)   Evidence   of   Insolvency. 
§  73   (3)    Effect    of    Insolvency. 

§  73   (3a)    In   General. 

§  73   (3b)  Transacting   Business   after    Knowledge   of   Insolvency. 

§  73   (3c)    On   the   Venue   of   Suits   against    Bank. 
§  73   (4)   Rights   of   Correspondent    Bank. 
§  73   (5)   Insolvency    of    Foreign    Banks. 
§  74.  Transfers  and  Preferences  Affected  by  Insolvency. 
§  74  (1)   In  General. 

§  74   (2)    Right  of  Directors  to  Prefer  Themselves. 
§  74   (3)    Payments   to    Depositors. 
§  74  (4)   Who   Is   Entitled  as  a   Preferred  Creditor. 
§  74  (5)  Transfers    to    Pledgees. 
§  74   (6)   Transfer  after  Appointment  of  Receiver. 
§  74   (7)   Purchase  of  Its  Own   Stock  by  a  Bank. 
§  75.  Rights    of   Persons    Making    Deposits    after   Insolvency. 
§  75   (1)   In   General. 
§  75   (2)    Deposits   for   Collection 
§  75   (3)   Special    Deposits. 
§  75   (4)   Rights  of  Payee  of  Draft. 

§  75   (5)   Restoration    of   Consideration   on    Rescission. 
§   75   (6)    Evidence. 
§  76.  Remedies  and  Proceedings  on  Insolvency. 
§  76   (1)    Right   of   Action. 
§  76   (2)   Modes   of   Procedure. 

§  76  (2a)   In   General. 

§  76   (2b)   Injunction. 

§  76   (2c)   Summary   Remedies. 

§  76   (2d)   Creditors'    Suits. 
§  76   (3)   Parties. 
§  76   (4)    Evidence. 
§  76   (5)  (Accounting. 
§  76   (6)   Reference. 
§  76   (7)   Costs. 

§  76   (8)   Supplying   Vacancies    in    Boards    of    Directors. 
§  77.  Assets  and   Receivers  on   Insolvency. 
§  77    (^)  Assets. 

§  77  (Ha)  What  Constitutes. 
§  77  (Haa)  In  General. 
§  77   iV.hh)    Surplus    from    Sale    of    Collateral. 


INSOLVEXCV    AND   DISSOLUTION'.  453 

§  77   (5^4cc)   Unpaid    Subscriptions    and     Statutory    and    Other 
Liabilities   of   Stockholders. 

§  77   (Hdd)   Credits. 

§  77   (^ee)   County    Money    Wrongfully    in     Bank. 
§  77   (^b)   Distribution    of    Assets. 
§  77   (1)   Appointment    and    Removal    of    Receiver. 
§  77   (la)    Purpose    of    Appointment. 
§  77   (lb)   Selection,    Qualification    and    Compen.sation. 
§  77   (laa)   In    General. 

§  77   (Ibb)   Oath. 

§  77   (Ice)   Bond. 

§  77   (idd)    Number   of    Receivers. 

§  77   (lee)   Compensation. 

§  77   (lf¥)   Temporary    Receivers. 
§  77   (Ic)   Grounds    for    Appointment    of    Receiver. 
§  77   (Id)    Proceedings    for    Appointment    of    Receiver. 

§  77   (laa)    In    General. 

§  77   (Ibb)   Jurisdiction   and    Powers   of   the    Court. 

§  77   (Ice)   The    Petitioner. 

§  77   (Idd)    Notice. 

§   77   (lee)    Petition  and  Answer. 

§  77   (Iflf)    Hearing  and   Determination   of  Motion. 

§  77   (Igg)   The    Order   of   Court. 
§  77   (le)    Removal  and   Discharge. 
§  77   (2)   Operation    and    Efifect. 
§  77   (2a)   In    General. 

§  77   (2b)   On  Rights  of  Attaching  Creditors. 
§  77   (2c)   On   Right  to   Sue  the   Bank. 
§  77  (3)  Title,  Rights,  Powers  and  Duties  of  Receivers. 
§  77   (3a)   In    General. 

§  77   (3b)   Relation   of   Receiver   to   Bank   and    Creditors. 
§  77   (3c)   Conflicting   Receiverships. 
§  77   (3d)   Title  and  Rights  as  to  Assets. 
§  77   (Be)   Powers  of  Receiver  in   General. 
§  77   (3f)   Duties  of  Receiver  in   General. 
§  77   (3g)   Liabilities   of    Receivers    in    General. 
§  77   (3h)   Instructions   from    Court. 
§77   (4)   Collection   and    Protection    of  Assets. 
§  77   (4a)   In    General. 

§  77   (4b)   Surrender  of  Assets   to    Receiver. 
§  77   (4c)   Compromise    of    Claims. 
§  77   (4d)    Proceedings    to    Collect. 

§  77  (4aa)   Form    of    Proceedings. 

§  77   (4bb)   Jurisdiction    and    Power   of   Courts. 

§  77   (4cc)    Parties. 
§  77   (4c)   Retention  of  Assets  by  Bank. 
§  77   (.'■))    Sale   or   Other   Disposition   of  Assets. 
S  77   (5a)   Marshaling    the    Assets. 
§  77   (5b)   Sale    of    Assets. 
§  77   (.'■jc)    Purchaser  of   Notes. 

§  77   (5d)   Right   of   Receiver   to    Purchase   at    His   Own    Sale. 
§  77   (5e)   Interest    on    Purchase    Money. 


454  .  BANKS    AND    BANKING. 

§  77   (6)   Actions    by    or   against    Receiver. 
§  77   (6a)   Actions    by. 

§  77   (6aa)   Jurisdiction. 

§  77   (6bb)   Right  of  Action. 

§  77   (6cc)   In  Whose  Name  Action  to  Be  Brought. 

§  77   (6dd)   Representative    Capacity   of   Plaintifif. 
§  77   (6b)   Actions   against. 
§  77   (6c)    Defenses. 

§  77   (6aa)    In    Actions    by    Receivers. 

§  77   (6bb)   In   Actions   against   Receivers. 
§  77   (6d)   Set-Ofifs. 

§  77   (6aa)   Set-Offs    by    Receivers. 

§  77   (6bb)   Set-Ofifs  against  Receivers. 
§  77   (6e)   Plea,  Answer  and  Reply. 
§  77   (6f)   Issues,    Proof   and   Variance. 
*  §  77   (6g)    Parties. 

§  77   (6h)   Evidence. 
§  77   (6i)   Judgment. 
§  77   (6j)   Costs. 
§  78.  Assignments  for  Benefit   of   Creditors. 
§  78   (1)   Right  to   Make. 
§  78   (2)   Involuntary    Assignments. 
§  78   (3)    Requisites    and    Validity. 
§  78   (3a)   Requisites. 

§  78   (3aa)   In   General. 

§  78   (3bb)   Execution    of   Assignment. 

§  78   (Sec)  Assent    of    Stockholders. 

§  78   (3dd)   Acceptance   of   Trust   by   Assignee. 
§  78   (3b)   Validity. 

§  78   (3aa)    In   General. 

§  78   (3bb)    Preferences.' 
§  78  (4)   Operation  and  Efifect  of  Assignment. 
§  78   (4a)   In    General. 

§  78   (4b)   What    Passes    by    Assignment. 
§  78   (5)  The  Assignee  or  Trustee. 

§  78   (5a)    Relation  of  Trustee  to  Bank  and  Creditors. 
§  78   (5b)   Necessity  of  Assignee. 
§  78   (5c)   Selection    or    Appointment. 
§  78   (5d)   Qualifications    of    Assignee. 
§  78   (5e)   Joint   Assignees. 

§  78   (5f)  Title  and   Rights,   Powers  and   Duties  of  Assignee. 
§  78   (5g)    Compensation    of    Assignee. 
§  78   (5h)    Removal   of  Assignee. 
§  78   (6)   Rights   and   Remedies   of   Creditors. 
§  78   (6a)   Assets. 

§  78   (6aa)   \\'hat    Constitutes. 

§  78   (6bb)   Collection    of   Assets. 

§  78   (6cc)    Limitation    on    Actions    by    Assignee. 
§  78   (6b)    Presentation,    Proof   and    Payment    of    Claims. 

§  78   (6aa)    Presentation   of   Claims. 

§  78   (6bb)   Allowance   of   Claims. 

§  78   (6cc)    Set   Off. 


INSOLVENCY    AND   DISSOLUTION.  455 

§  78   (6c)   Distribution   of  Assets. 
§  78   (6aa)   In   General. 
§  78   (6bb)    Priorities. 
§  78   (6d)  Actions  by  Creditors. 
§  78   (7)   Proof  of  Assignment. 

§  78/  (8)  Vacating  and   Setting  Aside  Assignment 
§  79.  Rights  of  Holders  of  Circulating  Notes. 

§  79   (1)   Payment  Out  of  Assets  in   General. 

§  79   (la)   Right  of  Bill   Holders  to  Share  in  Assets. 
§  79   (lb)   Payment  in  Bills,  Notes  or  Other  Obligations  of  the  Bank. 
§  79   (2)   Preference. 
§  79   (3)   Penalties  and   Interest. 
§  79   (4)   Set-Oflf  against  Bank  or  Receiver. 
§  79  (5)   Rights  against  Officers  of  Bank. 
§  79   (6)  Actions  by  Bill  Holders. 
§  80.  Presentation    and    Payment   of   Claims. 

§  80   (1)   Claims  Provable  and  Estoppel  to  Claim. 
§  80   (la)   Claims   Provable. 
§  80   (laa)    In   General. 
§  80   (Ibb)   Claims    for   Taxes. 
§  80   (Ice)   Claims    of   Depositary. 
§  80  (Idd)   Paid-Up    Stockholders. 
§  80   (lee)   Incidental    Expenses   in   General. 
§  80   (lb)    Estoppel    to    Claim. 
§  80   (2)   Presentation  and   Proof. 
§  80   (2a)    Presentation. 

§  80   (2aa)   In   General. 

§  80   (2bb)   Notice   to   Creditors   to    Present   Claims. 
§  80   (2cc)   Time   for   Presentation   or   Filing  of  Claim. 
§  80   (2b)   Proof. 
§  80  (3)  Allowance  and  Payment. 

§  80  (3a)   By  Whom  Allowed. 
§  80   (3b)   To   Whom   Allowed. 

§  80   (3c)    Rights   and    Liabilities   of   Creditors    Holding   Collateral. 
§  80   (3d)   Hearing  and   Determination. 
§  80   (3aa)   In    General. 

§  80   (3bb)    Raising  and    Waiving   Objections   to   .\llowance   of 
Claims. 
§  80  (3e)   Payment. 
§  80   (4)   Preferences   and    Priorities   in   General. 
§  80   (4a)   Order   of   Lia])ility   of   Assets. 
§  80   (4b)   Claims   Preferred. 
§  80  (4aa)   In   General. 

§  80  (4bb)   Expenses  of  Insolvency  Proceedings. 
§  80   (4cc)   Claim   for  Taxes. 
§  80   (4dd)    Pre-Existing  Liens   and   Equities. 
§  80   (4ee)    Debts    Lawfully   and    Unlawfully   Contracted. 
§  80   (4ff)    Claims  of  Firm   and    Individual    Creditors. 
§  80    (4gg)    Claims   of   State   and    County. 
§  80   (4hh)   Claims   of   I'orwarding  or   Collecting   Banks. 
§  80   (tc)    I'.ffcct    of   iM-aud. 
§   80    (Id)    TransfiT   of    Riglit    to    Priority 


456  BANKS    AND    BANKING. 

§  80   (4e)   Allowance  of  Preferences. 
§  80  (4aa)   In   General. 

§  80   (4bb)   Funds  or  Assets  Available  to   Preferred   Creditors. 
§  80   (4f)   Estoppel    and    Election. 
§  80   (5)   Deposits. 

§  80   (5a)   In    General. 

§  80  (5b)   Priorities    as   between   Themselves. 
§  80   (5c)   Deposits   by    Savings    Banks. 
§  80   (6)   Special    or    Segregated    Deposits. 
§  80   (6a)   In   General. 

§  80   (6b)   Checks  Deposited  for  Collection. 
§  80   (6c)   Identification  of  Fund   Deposited. 
§  80   (7)   Deposit  of  Trust  Funds. 
§  80   (7a)   In  General. 
§  80   (7b)   Deposits  of  Public  Moneys. 
§  SO   (7c)   Right   to    Follow    and    Reclaim    Fund. 
§  80   (7aa)   In   General. 

§  80   (7bb)    Notice  of  Character  of  Deposit. 
§  80   (7cc)    Efifect  of   Beneficiary  Taking  Collateral   Security. 
§  80   (7dd)   Identification   of   Fund   or    Deposit. 
§  80   (7d)    Proceedings    to    Establish    Trust. 
§  80   (8)   Holders   of   Checks   or   Drafts. 
§  80   (8a)   In  General. 
§  80   (8b)   Rule  in   Equity. 
§  80  (8c)   Holders  of  Protested   Paper. 
§  80   (8d)   Drawers   of   Drafts   on    Consignment. 
§  80   (8K0   Ofiicers  and  Stockholders. 
§  80   (8i^a)   Bank   Ofiicers. 
§  80   (8^b)   Stockholders. 
§  80  (9)   Dividends   and   Interest. 
§  80   (9a)   Dividends. 

§  80  (9aa)   Right   to    Dividends. 
§  80   (9aaa)   In   General. 

§  80   (Qbbb)   Rights   of   Purchasers   of   Claims. 
§  80   (9ccc)    Establishment   of   Right. 
§  80   (9bb)   Distribution    of    Dividend. 
§  80   (9b)   Interest. 

§  80   (9aa)    Right   to  and  Liability  for. 
§  80   (9bb)   Computation   cf. 
§  80   (9cc)   Rate  of. 
§  80  (914)   Set  Ofif. 

§  80   (9Ha)   In    General. 

§  80   (91.4b)   Conditions   Annexed   to    Exercise    of   Right. 
§  80  (9^c)   Claims  That  May  Be  Used  as  Set  Ofii. 
§  80  (9^d)   Estoppel  to  Interpose   Set  Off 
§  80   (9^)   Proceedings  to   Compel   Payment. 
§  81.   Distribution   of    Surplus. 
§  82.   Civil  Liability  on  Insolvency. 
§  83.   Criminal  Responsibility  on   Insolvency. 

§  84.  Oflfenses. 

§  85.  Prosecution  and   Punishment. 


§    63    (1)  INSOLVENCY    AND   DISSOLUTION.  457 

E.    INSOLVENCY  AND    DISSOLUTIONS 

§  63.  Constitutional  and  Statutory  Provisions — §  63  (1)  Con- 
stitutionality of  Statutes. — It  is  under  art.  1,  §  10,  of  the  federal  consti- 
lution  that  most  of  the  constitutional  questions  respecting  banks  have  arisen, 
and  these  controversies  usually  grow  out  of  alleged  violations  of  the  sanctity 
of  the  bank's  charter  by  subsequent  state  legislation.  It  has  been  trul\- 
said  that  no  provision  of  the  federal  constitution  has  received  more  fre- 
quent consideration  than  this  one.-  For  example,  the  statutory  modes  pre- 
scribed for  winding  up  banking  corporations  constitute  a  contract  with  the 
creditors,  and  a  statute  taking  them  away  entirely  impairs  the  obligation 
of  the  contract.-"  In  like  manner  a  law  authorizing  and  re(juiring  a  corpo- 
ration to  distribute  its  property  among  its  stockholders,  or  to  transfer  it 
to  its  sole  stockholder,  leaving  its  bills  unredeemed,  impairs  the  obligation 
of  the  contract  contained  in  those  bills.-*  And  a  law  which  withdraws  from 
the  reach  of  legal  process  the  real  property  of  a  bank,  which  at  the  time 

1.  As  affecting  power  to  borrow  paying  specific  sums  in  relief  notes 
money,  see  post,  "Borrowing  Money,"'  into  the  state  treasury — -was  a  contract 
§  97.  between   t]ie   state   and    the      accepting 

Enforcement    of  'liability     of     stock-  banks,  which  was  binding  on  the  state 

holders,    see    ante,    "Actions    and    Pro-  until      the     loan    was    repaid.      Long  z'. 

ceedings  to   Enforce,"   §   49.  Farmers'    Bank    (Pa.),    1    Clark    284. 

Of    national    banks,    see     post,      "In-  The    act    of   the   legislature     of     ]S4o 

solvency    and    Its    Effect    in    General,"  provided   that,    on  judgment   of   forfei- 

§  285.  ture    against    a    bank    when     its      debts 

Power  to  impose  penalty  for  ronduct  could    not    be     extinguislied,      trustees 

of    business    by    insolvent     bank,      see  should    be    appointed    to    collect    them, 

ante.    "Power    to    Control    and    Regu-  Held,    that   the    .A.ct   of   1846,   providing 

late."   §   3.  that  trustees  appointed  under  such  .\ct 

Of   savings    l)anks,    see    post,    "Insol-  of    1843    should    sell     to      the      highest 

vency  and   Receivers,"  §  309.  bidder    the    property    and    evidence    of 

Of  trust  companies,  see  post,  "Func-  debts  of  banks  to  whom  charters  were 

tions   and   Dealings,"   §   315.  forfeited    under    that   act,    in    so    far   as 

Insolvency    of    collecting     bank,      ef-  it  prohil)ited  the  right  of  such  trustees 

feet    on    liabilities    as    to    proceeds    of  to  enforce  payments  of  the   debts,   and 

collections,    see    post,     "Insolvency     of  destroyed    the    trust    character    of    the 

Collecting  Bank,"  §  106.  fund   for   the  benefit   of  creditors,   was 

Temporary   receivership    as   affecting  unconstitutional.        Commercial      P.ank 

liability    for    interest    on    deposits,    see  i.  Chambers  (Miss.),  8  Smedes  &  .M.  '.•. 

post,    "Interest    on    Deposits,"    §    132.  The   .A.ct   of  1840   which   provides   for 

Enforcement    of     liability      of      loan,  the   appointment   of  a   receiver   to  lake 

trust    and    investment    companies,     see  cliarge    of    the    assets    of   l)anks    where 

post,      "Insolvency       and       Receivers,"  the    charters    thereof   may    l)e    declared 

§  317.  forfeited    by    judicial    proceedings,    and 

Action    against    receiver    on    fraudu-  ^^'^^    several    acts    amendatory    thereof, 

lently    certified    check,    sec    post.    ".\c-  ^°  ""^  impair  the  rights  of  the  debtors 

tions  by  Payees  or   Holders  of  Cliecks  ^o  the   bank.     The   statute   lieing  renie- 

against  Bank"  5  155  '^'''*'  '"   i''/ cluiracter,  is  not   unconslitu- 

2.  See   Barnitz  tV  Beverly,  163  U.  S.       ''T\'    "''"  '''  ^x'^'  ''   ^'nT~'J^     i- 

118,   41    L.    Ed.   93,    16   S.   Ct     1042.  ,  ,  *•      S.y.V^"'    V      rl'""'-       ^         ^      '       ' 

II  o\v.    .id  1.    II    1..    ]'.(].    .0,). 

3.  I.ank  Comm  rs  r.   bank  (Mich.),  I  -'i-i,,.    ^, ,.,,,.    i,;„i    ,„,    .-ij,],,      ,,,      pji^s 

'"^-  '"^'-  these  laws,  uiider  the  circumstances. 
Contract  to  suspend  forfeiture  pro-  eitiier  as  a  creditor  of  the  bank  or  as 
ceedings.— Act  .May  4,  IH41— whicli  a  trustee  taking  possession  of  the  real 
suspended  j^roceedings  against  non-  estate  for  tiie  l)encfit  of  all  the  credit- 
specie  jjaying  l)anks  for  the  forfeiture  ors."  Cm-ran  7'.  Arkansas  (U.  S.),  15 
of   their    cliarler    on    conrlition    of    their  Mow.    :;()!,    It    1,.    I'.d.   705. 


458 


BANKS    AND    BANKING. 


63    (1) 


of  the  execution  of  the  contract  was  liable  to  be  subjected  to  the  satisfac- 
tion of  such  contract,  and  which  provides  no  substitute  remedy,  thereby 
reducing  the  creditors  of  the  bank  to  a  condition  in  which  their  rights 
"live  but  in  grace,  and  their  remedy  is  entreaty  only,"  impairs  the  obligation 
of  their  contracts  and  is  therefore  invalid.^  Likewise,  a  statute  appropriat- 
ing the  bank's  assets  to  the  payment  of  debts  due  the  state  in  preference 
to  other  creditors,''  or  a  statute  which  deprives  creditors  of  the  right  to 
follow  the  assets  of  an  insolvent  bank  into  the  hands  of  any  one  not  a 
bona  fide  purchaser,  without  notice  and  appropriates  the  property  to  other 
uses,'''  or  a  statute  subsequently  enacted  which  allows  a  debtor  to  a  bank 
to  discharge  his  obligations  to  it  in  a  different  medium  from  that  in  which 
they  were  soluble  when  contracted,^  impair  the  obligation  of  contract  and 
are  invalid.  And  when  a  bank  becomes  insolvent,  the  conflicting  rights  of 
its  various  creditors  and  stockholders  are  questions  for  the  courts,  to  be 
determined  in  accordance  with  the  laws  then  in  force.    It  is  not  the  province 


5.  'Withdrawing  assets  from  creditors. 

— Curran  v.  Arkansas  (U.  S.),  15  How. 
304,  14   L.   Ed.  705. 

In  1836,  the  legislature  of  Arkansas 
incorporated  a  bank  with  the  usual 
banking  powers  of  discount,  deposit, 
and  circulation,  the  state  being  the 
sole  stockholder.  The  bank  went  into 
operation,  and  issued  bills  in  the  visual 
form,  but  in  November,  1839,  sus- 
pended specie  payments.  The  bills  of 
the  bank  being  payable  on  demand, 
there  was  a  contract  with  the  holder 
to  pay  them;  and  laws,  which  with- 
drew the  assets  of  the  bank  into  a 
different  channel,  impaired  the  obliga- 
tion of  this  contract.  Curran  v.  Ar- 
kansas (U.  S.),  15  How.  304,  14  L.  Ed. 
705. 

Nor  does  the  repeal  or  modification 
of  the  charter  of  the  bank  by  the  leg- 
islature prevent  this  conclusion  from 
being  drawn.  Curran  v.  Arkansas  (U. 
S.),   15   How.   304,   14   L.    Ed.   705. 

6.  Preferences  given  the  state  in  the 
assets. — Though  the  stock  of  a  bank  be 
altogether  owned  by  a  state,  if  the 
bank  is  insolvent  its  assets  can  not  be 
appropriated  by  legislative  act  or 
otherwise  to  pay  the  debts  of  the 
state,  as  distinguished  from  the  debts 
of  the  bank.  Those  assets  are  a  trust 
fund  first  applicable  to  the  payment  of 
the  debts  of  the  bank.  Baring  v.  Dab- 
ney  (U.  S.).  19  Wall.  1,  22  L.'"Ed.  90. 

An  act  of  the  legislature  requiring 
the  managers  of  an  insolvent  bank  be- 
longing to  the  state  to  hold  its  assets 
appropriated  to  the  payment  of  certain 
specified  debts,  creates  a  trust  in  favor 
of    the    creditors    holding    said    debts. 


and,  if  assented  to  by  them,  amounts 
to  a  contract  with  them  to  carry  out 
said  trust.  Baring  v.  Dabney  (U.  S.), 
19  Wall.  1,  22  L.  Ed.  90.  If  such  an 
act,  however,  has  the  effect  to  appro- 
priate the  assets  of  the  bank  to  pay 
the  debts  of  the  state,  to  the  preju- 
dice of  bill  holders  and  other  creditors 
of  the  bank,  it  is  repugnant  to  that 
clause  of  the  constitution  which  pro- 
hibits a  law  impairing  the  obligation 
of  contracts,  and  is  void.  Baring  v. 
Dabney  (U.  S.),  19  Wall.  1,  22  L. 
Ed.   90. 

The  fact  that  a  state  is  the  sole 
stockholder  in  an  incorporated  bank 
does  not  change  the  nature  of  the  re- 
lation of  such  bank  to  its  creditors, 
and  therefore,  when  such  bank  be- 
comes insolvent,  an  act  of  the  general 
assembly  authorizing  and  requiring  the 
governor,  for  and  on  behalf  of  the 
state,  to  take  possession  of  the  assets, 
is  unconstitutional,  as  depriving  the 
creditors  of  the  bank  of  their  right  to 
such   assets.   State  v.   State,   1   S.   C.   63. 

A  provision  in  a  state  statute  for  a 
preference  in  favor  of  a  savings  bank 
in  the  distri]nition  of  the  funds  of  an 
insolvent  national  bank  is  void  because 
in  conflict  with  the  federal  statutes  re- 
quiring the  distribution  ratably  to  the 
creditors.  Davis  z'.  Elmira  Sav.  Bank, 
161  U.  S.  275,  40  L.  Ed.  700,  16  S.  Ct. 
502. 

7.  Statutes  taking  away  right  to  fol- 
low assets. — State  :■.  P.ank,  (U  Tenn. 
(5   Baxt.)    1. 

8.  Right  of  debtor  to  pay  debt  in 
notes  of  bank. — Woodrull  <'.  Trapnall 
(U.  S.),  10  How.  190;  Miller  v.  .\n- 
drews,    4.3    Tenn.    (3    Coldw.)    380. 


§  63   (1) 


IXSOLVEXCV    AND   DISSOLUTION. 


459 


of  the  legislature  to  legislate  upon  the  subject.  A  law  assuming  to  declare 
or  settle  the  conflicting  rights  growing  out  of  these  past  transactions  is 
manifestly  ex  post  facto.'-^  But  where  the  general  assembly  has  reserved 
the  right  to  alter  or  repeal  the  bank's  charter,  an  act  placing  upon  the 
same  footing  all  creditors  not  having  specific  liens  is  not  obnoxious  to  the 
charge  of  interfering  with  vested  rights  or  impairing  the  obligation  of  con- 
tracts.i"  And  a  statute  making  the  circulating  notes  of  a  bank  an  ofifsei 
to  its  claims  is  unobjectionable.^^ 

Summary  Remedies  by  Execution.— It  has  been  held,  that  an  act 
of  a  state  legislature  giving  a  bank  a  summary  process  against  debtors  on 
paper  expressly  made  negotiable  at  the  bank  is  not  unconstitutional. i- 

Statutes  Restricting-  Powers  of  Trustee. — In  authorizing  the  ap- 
pointment of  a  trustee  where  a  banking  corporation  is  dissolved,  the  state 
undoubtedly  has  a  right  to  restrict  his  power  within  such  limits  as  it 
thinks  proper.  And  the  trustee  may  exercise  no  power  over  the  assets  or 
credits  of  the  bank  beyond  that  which  the  law  authorizes. ^-^ 

Constitutionality  of  Acts  Allowing  Suits.— Acts  allowing  banks,  or 
the  trustees  of  banks,  which  have  been  dissolved  or  whose  charters  have 
expired,  to  prosecute   suits  against  their  debtors,  are  constitutional.^-* 

Waiver  of  Constitutional  Objections.— A  creditor  of  a  bank  who 
voluntarily  submits  his  claim  to  the  determination  of  an  officer  appointed 


9.  State  T'.  Bank,  64  Tenn.  (.j 
Baxt.)    1. 

Bank  notes  are  entitled  to  a  priority 
of  payment  out  of  the  assets  of  the 
l)ank,  whether  issued  before  or  after 
the  6th  of  :\Iay,  1861,  the  date  at 
which  the  ordinance  of  secession  was 
passed,  and  the  provisions  of  the 
•  amended  constitution  of  1865  and  ac- 
cordant state  legislation  repudiating 
the  liability  of  the  bank  for  deposits 
received  and  notes  issued  after  that 
date,  are  held  void  as  impairing  the 
obliaration  of  contracts.  Stale  c'.  Bank, 
64   Tenn.    Co    Baxt.)    1. 

10  Robinson  v.  Gardiner,  ,jy  Va.  (18 
Gratt.)   509. 

11.  Statute  allowing  set-off  of  cir- 
culating notes.— .\cts  1842,  Xos.  9S. 
157,  and  is;43,  Xo.  92,  provide  specially 
forjirljders  of  notes  of  lianks  in  liqui- 
dation, and  make  the  circulation  of 
each  a  good  offset  to  its  claims;  and, 
in  compelling  the  commissioners  to 
allow  such  offsets,  they  violate  no 
veste<l  right,  and  mipair  the  oliligation 
of  no  contract.  Exchange  &  Bank- 
ing C.I    r-.    MudL'c    Cr.a.).   6    R.,b.   ;i97. 

12.  Attachment  against  parties  to 
paper  negotiable  at  bank.— The  act  of 
r's.scml.ly  Ml'  .Xlarvl.-MHI.  <>{  179.'J.  c.  'M), 
incorporatini;  tin-  I'.ank  r.f  Columbia, 
and   giving   to   tlu-   cori)or.'ition   a   sum- 


mary process,  by  execution  in  the  na- 
ture of  an  attachment,  against  its 
debtors  who  have,  by  an  express  con- 
sent, in  writing,  made  the  bonds,  bills 
or  notes,  by  them  drawn  or  indorsed, 
negotiable  at  the  bank,  is  not  repug- 
nant to  the  constitution  of  the  United 
States  or  of  Maryland.  Bank  r.  Okely. 
4  Wheat.  235,  4  L.  Ed.  559.  See  Bank 
V.  Sweeney,  2  Pet.  671,  7  L.  Ed.  557. 

But  the  last  provision  in  the  act  of 
incorporation,  which  gives  this  sum- 
mary process  to  the  bank,  is  no  part 
of  its  corporate  franchises,  and  may 
be  repealed  or  altered,  at  pleasure,  by 
the  legislative  will.  Bank  r.  Okelv, 
4  Wheat.  235,  4  L.   Ed.  559. 

13.  Restriction  of  trustee's  authority. 
— Robertson  r.  Coulter  ( L' .  S.).  Hi 
Tlow.    106,    113,    14    L.    Ed.    864. 

.\nd  if  the  statute  clothes  Iiim  will) 
the  power  to  collect  the  del)ts  and 
deal  with  the  assets  of  the  bank  to  a 
certain  amount  only,  and  for  certain 
i)urposos,  such  a  limitation  of  his  au- 
thority does  not  irUorfero  in  any  de- 
cree with  the  obligation  of  contracts. 
Robertson  7'.  Coulter  (U.  S.),  16  How. 
IOC).    14    L.    I'M.    S6l. 

14.  Statutes  authorizing  suits  against 
trustees. — T^cwis  t'  Mci'.lvain,  16  O. 
•  ili:  Cuyahoga  Falls  l^eal  Estate  .Ass'n 
-■.  ,VicCaii"hv.  2  O  St.  152:  Bate<  r. 
Ecwis,  3  O.  St.  4  50. 


4G0 


BANKS    AND    BANKING. 


64    (lb 


under  the  aiitbority  of  a  statute,  to  take  proof  of  claims,  and  at  the  hear- 
ing makes  no  objection  to  the  proceeding,  waives  his  right  to  question  the 
constitutionaHty  of  the  statute  making  the  decision  of  sucli  officer  final.^--" 

§  63  (2)  Interpretation  and  Construction  of  Statutes. — Statutes 
authorizing  the  institution  of  insolvency  proceedings  against  banks  are  to  be 
strictly  construed.^*'  Hence,  statutes  providing  for  the  forfeiture  of  char- 
ters of  insolvent  banks  do  not  operate  retroactively.^'^  Repeals  by  implica- 
tion are  not  favored,^ ^  but  an  act  covering  the  subject  matter  of  a  former 
act   refines    it.^^* 

§  64.  Voluntary  Liquidation  and  Dissolution — §  64  (1)  Volun- 
tary Liquidation — §  64  (la)  Definitions. — Liquidation  of  a  banking 
corporation   imphes  the  winding  up  of   its  affairs.-" 

§   64    (lb)    Methods  of  Liquidation. — The  banking  laws  in  most  ju- 


15.  Waiver  of  constitutional  objec- 
tions.— Dowd  7'.  City  Sav.  Bank,  59  N. 
H.    391. 

16.  Construction  of  statutes  allow- 
ing insolvency  proceedings. — A  bank- 
ing association,  organized  under  the 
Act  of  1838,  "to  authorize  the  business 
of  banking,"  is  not  a  corporation, 
within  the  meaning  of  the  statute, 
liable  to  be  proceeded  against  for  in- 
solvency or  other  causes  specified 
therein.  Parmlv  i'.  Tenth  Ward  Bank 
(N.  Y.),  3   Edw'  Ch.  39.5. 

17.  Forfeiture  of  bank  charters. — 
The  provisions  of  the  statute  of  April 
21,  1825,  providing  for  the  forfeiture 
of  the  charters  of  insolvent  Ijanks,  do 
not  apply  to  cases  of  forfeiture  hap- 
pening before  it  was  passed.  People 
V.    Niagara   Bank   (N.   Y.),   6   Cow.    196. 

18.  Implied  repeals. — The  power 
conferred  on  the  board  of  currency  liy 
St.  Feb.  5,  1842,  §  2,  and  St.  March  14, 
1842,  §§  15,  27,  28,  29,  of  requiring  that 
the  books,  papers,  and  minutes  of  the 
proceedings  of  +he  board  of  managers 
and  directors  appointed  to  liquidate  the 
affairs  of  the  Citizens"  Bank  should  be 
subject  to  examination  by  them  and 
of  supervising  the  proceedings  of  the 
managers  and  directors,  was  not  re- 
pealed by  the  subsequent  statutes  (St. 
April  5.  1843,  §  8,  and  St.  April  fi, 
1847).  Board  v.  Managers,  3  La.  Ann. 
346. 

The  Act  of  1850.  which  directed  a 
sale  of  the  remaining  assets  of  the 
Planters'  &  Merchants"  Bank  of  Mo- 
bile, does  not  repeal,  by  implication, 
the  Act  of  1845,  which  authorized  the 
appointment  of  trustees  to  settle  its 
affairs,  and  gave  them  power  to  use  all 
the   remedies   to   which   the   bank,  while 


in  existence,  was  entitled;  and  a  sale, 
pursuant  to  the  act,  of  notes  then  in 
suit,  does  not  afifect  the  further  prose- 
cution of  it  for  the  benefit  of  the  pur- 
chaser. Jemison  v.  Planters',  etc.. 
Bank,   23   Ala.   168. 

Implied  repeal  by  repugnancy.— 
Where  one  act  directed  the  appoint- 
ment of  trustees,  to  sue  for  and  col- 
lect the  debts,  and  sell  the  property  of 
charter  forfeited  banks,  and  a  subse- 
quent act  directed  a  sale  of  debts  and 
property  in  a  prescribed  mode,  it  was 
held  that  there  was  a  direct  repug- 
nancy between  the  two  acts.  Com- 
mercial Bank  v.  Chambers  (Miss.),  8 
Smedes  &  M.  9. 

An  act  provided  that,  when  the 
charters  of  banks  were  declared  for- 
feited, the  debts  due  by  and  to  them 
should  not  be  extinguished,  but  that 
trustees  should  be  appointed  to  sue 
for  and  collect  the  debts  due  to  them. 
.'\n  act  was  subsequently  passed  di- 
recting the  trustees  to  sell  all  the 
debts  due  to  the  banks  to  the  highest 
liidder  for  cash.  Held,  that  the  last 
law,  if  constitutional,  repealed  the 
former  by  implication.  Commercial 
Bank  v.  Chambers  (Miss.),  8  Smedes 
&   M.    9. 

19.  Act  March  24,  1909  (Laws  1909, 
c.  191),  §  22,  making  it  a  felony  to  pub- 
lish any  false  statement  of  the  amount 
of  the  assets  or  liabilities  of  any  bank, 
was  repealed  by  Act  March  22,  1911 
(Laws  1911,  c.  150),  which  makes  it  an 
oftense  to  make  such  false  statements. 
Eureka  County  Bank  Habeas  Corpus 
Cases  (Nev.),  126  Pac.  655. 

20.  Assets  Realization  Co.  v.  How- 
ard, 70  Misc.  Rep.  651,  127  N.  Y.  S. 
798. 


^  64   (  lb 


l.\S()L\t:XCV    AXL)    DISSOLUTION. 


461 


risdictions  prescribe  tb.e  method  of  winding  up  the  affairs  of  a  bank,  and 
this  method,  when  so  prescribed,  is  exclusive.-^  Thus  a  bank  may  be  dis- 
solved by  a  resolution  of  its  board  of  directors,--  or  by  a  surrender  of  its 
charter  or  seizure  of  its  franchises,--'  or  by  a  transfer  of  its  business  to 
another  man.-^  The  owners  of  two-thirds  of  the  stock  may  vote  for 
liquidation.-''  And  this  means  three-fourths  of  the  stock  represented  at 
the  meeting  called  to  consider  the  question  of  dissolution,  not  three-fourths 
of  the  entire   stock.-"' 


21.  Methods  of  liquidation. — Verp- 
lanck  I'.  Mercantile  Ins.  Co.,  1  Edw. 
Ch.  84;  Hitch  v.  Hawley,  132  N.  Y. 
212,  30  X.  E.  40];  Assets  Realization 
Co.  V.  Howard.  70  Misc.  Rep.  651,  127 
X.   Y.    S.   798. 

Liquidation  agreements. — An  agree- 
ment by  one  bank  to  liquidate  another 
providing  for  a  personal  guaranty 
against  loss  to  the  first  bank  does  not 
imply  release  of  the  second  bank  from 
liability.  Assets  Realization  Co.  v. 
Howard,  70  Misc.  Rep.  651,  127  X.  Y. 
S.    798. 

One  bank  agreeing  to  liquidate  an- 
other was  not  entitled  to  the  fixed 
compensation  until  full  performance. 
Assets  Realization  Co.  v.  Howard,  70 
]\lisc.   Rep.   651.   127   N.   Y.   798. 

An  agreement  by  one  bank  to  liqui- 
date another  implied  repayment  cover- 
ing its  advances  and  expenses.  Assets 
Realization  Co.  7\  Howard,  70  Misc. 
Rep.  651,  127  X.  Y.  798. 

22.  Dissolution  by  resolution  of 
board. — A  banking  association,  organ- 
ized under  the  general  banking  laws  of 
this  state,  has  the  power,  by  a  reso- 
lution of  its  board  of  directors,  volun- 
tarily to  dissolve  itself  and  close  its 
business,  and  to  distribute  a  portion  of 
its  capital  and  surplus  earnings  among 
the  stockholders.  People  v.  Ohnsted 
(X.    Y.),_45    Rarb.    644. 

23.  Dissolution  by  surrender  of 
charter.— Cooper    t'.     Curtis,      :!()       Mv. 

Effect  of  seizure  of  corporate  fran- 
chises.— .\  seizure  of  the  franchises  of 
a  corporation  effects  it?  dissolution. 
I'ut  a  judgment  of  seizure  of  the  fran- 
chises for  a  violation  of  the  charter 
of  a  corporation  should  not  direct  a 
seizure  of  the  corporate  possessions. 
The  better  opinion  is  that  such  a  judg- 
ment does  not  dissolve  the  corpora- 
tion, though  the  seizure  of  the  fran- 
chises by  execution  issued  upon  the 
'Uflgment  may  work  such  dissolution. 
State  Hank  7'.  State  (Ind.),  1  P.lackf. 
2(;r.    i;i   Am     Dec.  2:!4. 

Abuse  of  corporate  franchises  works 
a  forfeiture   of   the    franchises,   but    not 


of  the  lands  or  chattels  of  the  corpo- 
ration. State  Bank  z'.  State  (Ind.).  1 
Blackf.  267.  12  Am.  Dec.  234. 

Voluntary  surrender  of  charter. — 
.A.  banking  corporation  can  not,  by  a 
voluntary  surrender  of  its  franchises, 
dissolve  itself  at  will.  Subsequent  leg- 
islative assent  is  necessary.  Me- 
chanics"   Bank   t'.    Heard,   37    Ga.    401. 

What  constitutes  surrender  of  fran- 
chise.— The  closing  of  a  bank  and  call- 
ing on  the  superintendent  of  banks  to 
take  charge  of  its  assets,  resulting 
from  fright  or  overcaution  in  view  of 
the  financial  situation  existing,  or  from 
ignorance  of  the  bank's  actual  sol- 
vency, were  not  a  surrender  of  the 
bank's  corporate  franchise,  since  sur- 
render of  a  corporate  franchise  can 
not  be  inferred  even  from  insolvency 
and  suspension  of  business  for  a  less 
period  than  that  designated  by  the 
statute,  unless  the  circumstances  are 
such  as  to  make  it  appear  that  the  cor- 
poration has  not  power  to  continue 
or  resume  its  business.  People  v. 
Oriental  Bank.  124  .\pp.  Div.  741,  109 
X.  Y.  S._509. 

24.  Dissolution  by  transfer  of  as- 
sets.— .A  bank,  desiring  to  quit  l)usi- 
ness,  may  transfer  its  accounts  to  an- 
other bank,  and  pay  its  depositors  with 
borrowed  money,  and  pledge  its  as- 
sets for  such  purpose.  Overstreet  f. 
Citizens'  Bank,  12  Okl.  383,  72  Pac. 
379. 

25.  Who  may  vote  for  liquidation 
of  national  bank. — Whenever  the  own- 
ers of  two-thirds  of  the  shares  should 
agree  that  they  do  not  desire  to  con- 
tinue the  business,  they  may,  mider 
the  forms  prescribed,  terminate  llie 
existence  of  the  bank,  and  wind  up  its 
affairs;  that  is.  provide  for  payment 
of  its  debts  and  distribution  of  the 
surplus  of  its  assets  among  the  share- 
holders. Green  r.  Bennett  CCiv.  .AjipV 
110  S.  W.  108,  115,  citing  Watkins  r. 
Xational  Bank,  51  Kan.  254,  32  Pac. 
914;  Windmuller  r.  Standard  Distill- 
n-iii,   etc..   Co.,    114    In-d.   491. 

26.  Dreifns  .•■.  Colonial,  I'le.,  'I'ru-^l 
Co.,    123    Pa.   61,   48   So.   649. 


462 


r.AXKS    AND    BANKING. 


§  65   (1) 


Suspension  of  Specie  Payment. — During  periods  of  great  financial 
depression,  banks  are  frequently  authorized  by  statute  to  suspend  specie 
payments. ^^ 

§  64  (Ic)  Time  of  Dissolution. — The  duration  of  banking  corpora- 
tions is  often  prescribed  in  the  charter.-'' 

§  64  (Id)  Estoppel. — Persons  consenting  to  a  vokuitary  lic[uidation  of 
a  bank  are  thereafter  preckided  from  questioning  its  vahdity.-^ 

§  64  (2)  Involuntary  Liquidation. — Under  the  Act  of  the  A'irginia 
Legislature  of  February  12,  1866,  the  banks  of  the  commonwealth  were 
required  to  go  into  liquidation,  when  insolvent,  and  execute  deeds  convey- 
ing all  their  property,  including  debts  due  to  them,  to  trustees  for  the  pay- 
ment of  their  debts. 2° 

§  65.  Reorganization — §  65  (1)  In  General. — The  method  of  ef- 
fecting the  reorganization  of  a  bank  is  prescribed  by  statute  in  most  juris- 
dictions.^^ 


27.    Suspension  of  specie  payment. — 

The  charter  of  the  bank  of  the  state 
of  Indiana  (§  45)  does  not  authorize  a 
suspension  of  a  specie  payment  v.'ithin 
Const.,  art.  11,  §  7.  Wright  <:•.  Defrees, 
8   Ind.  298. 

Right  to  premium  on  specie  pay- 
ments.— The  banks  of  this  conimon- 
weahh  in  which  the  public  moneys 
were  on  deposit,  paid  the  interest  fall- 
ing due  in  January,  1840,  upon  public 
loans,  in  specie  or  its  equivalent.  Un- 
der the  proviso  to  the  second  section 
of  the  Act  of  March  28,  1838  (Sess. 
Acts  of  1838.  p.  27,  ch.  13),  they 
claimed  credit  in  account  with  the 
commonwealth  for  the  premium  which 
they  had  to  pay  to  the  public  creditors 
for  the  then  difference  between  specie 
and  the  notes  of  the  banks.  Held:  1. 
That  under  the  acts  in  2  R.  C,  1819, 
ch.  174,  §  6,  p.  2,  and  in  Sess.  Acts  of 
1838,  p.  27,  ch.  14,  the  claim  of  any 
bank  for  such  premium  may  properly 
be  presented  to  the  first  auditor.  2. 
That,  upon  the  disallowance  of  such 
claim,  the  bank  may  file  a  petition  for 
redress  to  the  court  of  chancery  for 
Henrico  and  Richmond,  created  by  the 
Act  of  March  13.  1840-41,  p.  65,  ch.  48. 
3.  That  according  to  the  true  construc- 
tion and  ellfect  of  the  Act  of  Decem- 
ber 11,  1839,  in  Sess.  acts  of  1839-40, 
p.  52,  ch.  63  (especially  the  first  proviso 
thereto),  the  claim  of  any  bank  for 
the  premium  so  paid  must  be  disal- 
lowed; dissentiente  Brooke,  J.,  on  the 
last  point.  Commonwealth  7'.  Farm- 
ers' Bank   (Va.),  2  Rob.  737. 


28.  Time  of  dissolution. — A  clause 
in  the  charter  of  a  bank  providing  that 
the  corporation  shall  not  be  dissolved 
before  the  time  specified  for  the  ex- 
piration of  its  charter,  until  all  its 
debts  are  paid,  does  not  prevent  the 
seizure  of  its  franchise  for  violation 
of  its  charter.  State  Bank  v.  State 
(Ind.).  1   Blackf.  267,  12  Am.  Dec.  234. 

29.  Estoppel  by  agreement  to  dis- 
solution.— A  depositor  in  an  insolvent 
bank  who  consented  to  a  liquidation 
agreement  whereby  another  bank  took 
over  the  assets  of  the  insolvent  in- 
stitution can  not,  at  a  later  date,  ques- 
tion its  validity.  Wilde  v.  Oregon 
Trust,  etc..  Bank,  59  Ore.  551,  117  Pac. 
807. 

But  where  a  creditor's  claim  against 
an  insolvent  bank  has  been  approved, 
he  is  already  in  court,  and  need  not 
petition  for  permission  to  intervene 
before  attacking  a  liquidation  agree- 
ment. Wilde  V.  Oregon  Trust,  etc., 
Bank.   59   Ore.   551,   117   Pac.   807. 

30.  Exchange  Bank  v.  Knox,  60  Va. 
(19  Gratt.)  739,  reaffirmed  in^  Saunders 
V.  White.  61  Va.  (20  Gratt.)  327;  Bank 
7'.    Marshall,   66   Va.    (25    Gratt.)    378. 

31.  Hunt  7'.  Roosen,  87  Minn.  68,  91 
N.   W.   259. 

A  dismissal  liy  the  court  of  a  peti- 
tion for  reorganization  of  a  bank  un- 
der chapter  89,  Gen.  Laws  1897,  with- 
out prejudice,  disposes  of  the  matter 
until  it  is  reinstated  upon  notice  to 
parties  interested  therein;  and  a  sub- 
sequent judgment  rendered  on  such 
petition  is  without  merit,  unless   based 


§  65   (2b) 


IXSOLVHXCV    AXL)   DISSOLUTIOX. 


463 


§    6  5    (2)    Effect   of  Reorganization— §    6  5    (2a)    In   General.— 

The  old  bank  continues  to  exist  for  the  purpose  of  winchng  up  its  affairs 
and  to  that  end  may  sue  and  be  sued.-'- 

§   65    (2b)    On  Liability  for  Debts  of  Old  Corporation.— Where  tne 

reorganized  bank  is  the  same  as  the  original  bank,  it  is  lial)le  for  the  unpaid 
debts  of  the  latter.^s  But  when  a  new  banking  corporation,  with  different 
stockholders,  is  formed  out  of  another,  it  can  not  be  sued  by  the  creditors, 
or  be  held  liable  for  the  debts  of  the  old  corporation,  except  upon  some 
special  ground,  such  as  having  received  assets  of  the  old  corporation  with- 
out giving  value  therefor.-^-* 


upon  the  express  consent  of  the  par- 
ties interested.  Abel  v.  AUemania 
Bank,  79  Minn.  419,  82  N.  W.  680. 

32.  Donnally  v.  Hearndon,  41  W. 
Va.    .319.    23    S.    E.    646. 

33.  Liability  of  reorganized  bank  for 
debts  of  old  bank. — Where  certain 
persons  enter  into  an  agreement  with 
the  shareholders  of  an  insolvent  bank, 
by  which  they  !jind  themselves  to  open 
the  bank  and  coiuinue  its  business  and 
to  pay  its  debts  to  a  specified  amount, 
if  such  shareholders  will  release  and 
surrender  to  them  all  the  stock  and 
assets  of  the  bank,  it  was  held  that  the 
bank  as  reorganized  is  in  law  the 
same  as  the  original  bank,  and  be- 
comes liable  for  its  unpaid  debts. 
Island  City  Sav.  Bank  v.  Wales,  3 
Tex.  App.  Civ.  Cases,  §  244;  Island 
City  Sav.  Bank  z:  Sachtleben,  67  Tex. 
420.  3    S.   W.   733. 

Rights  of  depositors. — A  special  de- 
posit of  money  was  made  with  a 
branch  bank,  and  this  branch  being 
withdrawn,  and  a  new  bank  estalilished 
with  the  same  officers,  the  deposit 
went  into  the  possession  of  the  new 
bank,  and  was  embezzled  by  its  cash- 
ier. Held,  that  the  depositor  should 
have  been  notified  of  the  transfer,  and, 
unless  he  assented  thereto,  the  old 
i)ank  must  l)ear  the  loss;  but  if,  be- 
fore the  loss,  he  acquiesced  in  the  ar- 
rangement, he  must  be  presumed  to 
have  consented  either  that  the  new 
bank  should  hold  the  deposit  on  its 
own  account,  or  as  the  agent  of  his 
bailee.  If  the  deposit  was  so  held  bv 
the  new  bank  in  its  own  right,  the  old 
bank  was  released  from  all  liability. 
Kav  7'.  Rank.  73  Ky.  flO  Bush)  344. 
_  Where  an  insolvent  Iianking  associa- 
tion, after  sus])cnsion  of  business,  com- 
promised with  all  its  depositors,  save 
one,  on  the  ])asis  of  a  payment  of 
seventy-four  cents  on  a  dr)llar.  and 
transferred  all  its  assets,  including  its 
name   and    franchise,   to  a   new   associa- 


tion, and  obligated  itself  to  pay  back 
to  the  new  association  any  amount  it 
might  be  compelled  to  pay  in  excess 
of  the  seventy-four  per  cent  compro- 
mise, which  compromise  the  new  as- 
sociation agrees  to  pay,  and  such  new 
association  resumed  its  l)usiness  un- 
der the  old  name  and  franchise,  using 
the  seal  of  the  insolvent  bank,  there  is 
a  mere  change  of  membership  and  not 
a  change  of  the  corporation  itself:  and 
the  bank  as  reorganized  is  liable  to  a 
depositor  who  refused  to  compromise 
for  the  full  amount  of  his  debt  with 
mterest  from  the  date  of  demand. 
Island  City  Sav.  Bank  v.  Sachtleben 
67  Tex.  420,  3  S.  W.  733.  See.  also 
Island  City  Sav.  Bank  v.  Wales,  3- 
Tex.   App.    Civ.    Cases,   §   244. 

But  a  banking  firm,  by  accepting 
the  assets  of  a  bank  and  agreeing  to 
pay  its  debts,  did  not  act  in  a  fiduciary 
capacity  with  respect  to  the  deposits 
of  the  bank  and  the  repayment  thereof 
to  depositors,  since  a  depositor,  by 
placmg  money  in  the  bank,  was  not 
entitled  to  demand  of  the  bank  the 
return  of  the  identical  money,  but  only 
a  sum  of  money  equal  to  that  de- 
posited; and  hence  the  agreement  of 
the  firm,  on  the  assets  being  turned 
over  to  it,  was  to  pay  the  deposit  out 
of  the  assets,  but  not  to  return  the 
specific  deposit.  Hoskins  7\  Velasco 
Nat.  Bank,  48  Tex.  Civ.  .\pp.  246,  107 
S.   W.   .598. 

34.  Donnallv  r'.  Hearndon,  41  W. 
Va.   .519,  23   S.   E.  646. 

When  a  bank  becomes  insolvent,  it 
may,  under  proper  contract,  transfer 
its  assets  to  a  new  association,  which 
may  continue  a  similar  business  witli- 
out  incurring  lialiib'ty  for  tiie  debts  of 
the  insolvent  cori)ora(ion.  Island  City 
Sav.  Bank  t-.  Sachtleben.  67  Tex.  420. 
.1  S.  W.  733.  See,  also.  Island  City 
Sav.  Bank  ?-.  Wales,  3  Tex.  .App.  Civ. 
Cases,    §    244. 

The    mere    receij)!    by    the    officers    of 


464 


BANKS    AND    BANKING. 


§  65   (2c) 


§  6  5    (2c)   On  Rights  and  Liabilities  of  Stockholders. — The  right 
of  stockholders  upon  reorganization  depend  largely  upon  the  terms  of  the 
reorganization   scheme.-' •'' 


a  new  bank,  of  the  bills  of  an  old  bank 
of  the  same  name,  and  paying  out  the 
same  bills,  does  not  make  the  new 
bank  responsible  to  pay  all  the  bills  of 
the  old  bank.  Bellows  v.  Hallowell, 
etc.,  Bank,  Fed.  Cas.  No.  1,279,  3 
Mason  31. 

Where  a  new  bank  is  incorporated 
with  the  same  name  as  an  old  one, 
whose  charter  is  about  to  expire,  the 
new  bank  is  not  responsible  for  the 
notes  of  the  old,  though  a  major  part 
of  the  stockholders  are  the  same  in 
each.  Bellows  v.  Hallowell.  etc..  Bank, 
Fed.  Cas.   No.  1,279,  2  Mason  31. 

Under  St.  Feb.  5,  1842,  No.  22,  re- 
viving the  charters  of  the  banks  in 
New  Orleans,  only  the  debts  due 
them  at  the  date  of  the  act  can  be  con- 
sidered a  part  of  their  "dead  weight." 
Debts  subsequently  contracted,  though 
between  the  date  of  the  passage  of  the 
act  and  its  promulgation,  or  acceptance 
by  the  banks,  are  not  included  in  the 
"dead  weight."  City  Bank  z:  Barbarin 
(La.),  6   Rob.  289. 

Proof  that  a  bank  issued  the  notes 
of  a  former  bank  of  the  same  name 
will  not  make  it  responsible  therefor, 
unless  it  issued  them  as  its  own  notes, 
nor  then,  except  as  to  the  very  notes 
issued.  Wyman  v.  Hallowell,  etc.. 
Bank,   14   Mass.   58,  7  Am.   Dec.   194. 

Where  a  banking  company,  incor- 
porated by  the  same  name  with  a 
former  one,  appoints  the  same  presi- 
dent and  cashier,  and  the  officers  re- 
ceive and  issue  the  notes  of  the  former 
company,  and  declare  that  there  is  no 
difference  between  the  notes  thus  is- 
sued and  those  of  the  new  company, 
the  new  company,  never  having  au- 
thorized these  proceedings,  is  not  li- 
able to  pay  such  notes.  Wyman  v. 
Hallowell,  etc..  Bank,  14  Mass.  58,  7 
Am.   Dec.   194. 

The  pleadings. — A  petition  seeking 
to  charge  a  newly-organized  corpora- 
tion for  the  debts  of  a  bank  to  whose 
busiript-s  and  property  it  had  suc- 
ceeded, which  did  not  allege  a  con- 
tractuj^l  liability,  or  that  the  corpora- 
tion did  not  in  good  faith,  in  the  usual 
course  of  business,  purchase  and  pay 
for  the  rights  and  property  of  the 
bank,  but  showed  merely  that  the  cor- 
poration, by  some  undisclosed  means, 
acquired  the  assets,  business,  and  good 
will  of  the  bank,  and  that  the  bank's 
business  was   at   one   time   conducted  in 


the  room  occupied  by  the  corporation, 
and  by  men  who  had  been  officers  and 
stockholders  of  the  bank,  and  who  be- 
came stockholders  and  officers  of  the 
corporation,  was  insufficient.  Austin 
7'.  Tecnmseh  Nat.  Bank,  49  Neb.  412, 
68  N.  W.  628,  35  L.  R.  A.  444,  59  Am. 
St.    Rep.    543. 

35.  Rights  of  stockholders. — Gre- 
sham  z:  Island  City  Sav.  Bank,  2  Tex. 
Civ.    App.   52,   21   S.   W.   556. 

Where  upon  the  reorganization  of 
an  insolvent  bank,  new  stock  is  issued 
and  the  holders  of  the  new  shares  as- 
stmie  control  of  the  bank,  paid  up 
stock  of  nonconsenting  shareholders 
was  not  subject  to  further  assessment 
for  any  purpose.  The  corporate  ex- 
istence of  the  old  organization  con- 
tinued, notwithstanding  its  insolvency 
and  suspension  of  business,  and  the 
legal  rights  of  shareholders  could  not 
be  taken  from  them  by  a  majority, 
however  large.  Gresham  z\  Island  City 
Sav.  Bank,  2  Tex.  Civ.  App.  52,  21  S. 
W.  556. 

Where  upon  the  reorganization  of 
a  bank  one  of  the  old  stockholders  is 
refused  recognition  as  a  stockholder 
in  the  new  organization,  the  conver- 
sion of  his  stock  took  place  at  the  date 
of  demand  by  him  for  recognition  as 
a  stockholder.  Gresham  z'.  Island  City 
Sav.  Bank,  2  Tex.  Civ.  App.  52,  21  S. 
W.  556. 

Where  the  owner  of  stock  in  a  bank 
which  is  reorganized  delays  for  four 
years  in  demanding  recognition  as  a 
stockholder  and  sues  for  the  value  of 
his  stock,  the  aid  of  equity  to  reinstate 
him  in  the  enioyment  of  the  privileges 
of  a  stockholder  in  the  new  organiza- 
tion should  be  withheld.  The  managers 
of  the  bank  have  been  allowed  to  go 
on  and  establish  it  in  accordance  with 
the  arrangements  made  four  years  be- 
fore, and  the  business  of  the  bank  is 
doulitless  readiusted  to  its  changed 
conditions,  and  the  plaintiff  can  be 
compensated  in  money  for  any  dam- 
age he  has  sustpined,  and  that  should 
be  his  remedv.  Gresham  z'.  Island  City 
Sav.  Bank,  2  Tex.  Civ.  App.  52,  21  S. 
W.   556. 

Where  the  stock  of  an  old  bank 
which  has  been  reorganized  is  trans- 
ferred to  the  plaintiff  it  was  held  that 
he  was  not  an  innocent  holder  and 
that  he  acquired  only  such  rigrhts  by 
his    purchase    as    the    original    owners 


§  65   (4) 


IXSOLVEXCV    AND   DISSOLUTION. 


465 


§  6  5  (3)  Validity  of  Reorganization  Proceedings. — The  fact  that 
creditors  are  not  made  parties  to  a  reorganization  agreement  does  not  af- 
fect its  vaHdity.^^  Nor  can  the  irregularity  of  reorganization  be  set  up  as  a 
defense  to  an  action  brought  by  the  new  bank.^' 

§  6  5  (4)  Reorganization  Agreements.— An  agreement  by  stock- 
holders of  a  bank  to  supply  a  deficiency  of  the  assets  to  cover  liabilities  as 
a  part  of  a  plan  of  reorganization,  may  be  enforced  by  the  receiver  in  ac- 
cordance  with    its   terms.-'^      Xor   is   such    agreement   invalid   because   the 


had.  Init  he  had  a  right  to  maintain  a 
suit  for  reinstatement  as  a  stockholder 
or  for  conversion  of  the  stock  upon 
the  lien  transferred  by  the  original 
owners  of  their  stock.  Gresham  v. 
Island  City  Sav.  Bank.  2  Tex.  Civ. 
App.  52.  21  S.  W.  556. 

Stockholders  of  reorganized  savings 
bank. — The  depositors  of  a  member- 
ship savings  bank,  which  was  in  need 
of  funds,  met  and  agreed  to  reorganize 
as  a  capital  bank,  whereupon  subscrip- 
tion books  were  opened,  the  old  de- 
positors being  preferred  in  the  right  to 
subscribe  for  stock,  and  their  sub- 
scriptions being  made  payable  by  their 
funds  in  the  savings  bank.  A  large 
amount  of  stock  was  taken  in  the  man- 
ner, amounting  nearly  to  the  amount 
of  the  bank's  deposits,  and  such  sub- 
scribers, before  all  the  stock  was  taken, 
incorporated  and  organized  the  bank, 
and  proceeded  to  operate  it.  These 
subscriptions  were  unconditional  in 
form,  and  soon  thereafter  the  bank 
suspended,  and  turned  over  its  assets 
to  a  board  of  directors  for  liquidation. 
The  board  collected  the  assets,  and 
proceeded  to  pay  dividends  on  de- 
posits, excluding  such  as  had  been  ap- 
plied in  payment  for  stock.  Held,  that 
such  stockholders  could  not  now  claim 
their  subscriptions  to  have  been  con- 
ditional on  the  subscription  of  the  en- 
tire capital  of  the  bank,  and  be 
relegated  to  their  ricfhts  as  depositors. 
Dallemand  v.  Odd  Fellows'  Sav.  Bank. 
74   Cal.   598.   16   Pac.   407. 

36.  Validity  of  reorganization  pro- 
ceedings.—That  creditors  of  an  in- 
solvent bank  were  not  made  parties 
|.o  an  agreement  included  in  a  plan  for 
its  reorganization,  binding  the  stock- 
holders to  give  their  notes  to  the  bank 
|o  the  amount  of  their  rf-spective  hold- 
ing's of  stock,  to  be  collected  in  case 
there  was  a  deficiency  of  assets,  and 
providing  that  payment  thereof  should 
discharrre  the  payor's  statutory  lia- 
biiitv  existing  at  the  date  of  the  acrree- 
mcnt,      did      not      affect      its      validity. 

1   B  &  B— :!0 


Thompson    :■.    Gross,    106    Wis.    34,    81 
X.  W.   1061. 

37.  Where  a  new  charter  was  granted 
to  a  bank,  and  it  thereupon  ceased  to 
operate  under  its  old  charter,  and  was 
in  fact  reorganized  under  the  new  one, 
the  fact  that  such  reorganization  was 
irregularly  accomplished,  or  that  a 
condition  precedent  to  its  full  cor- 
porate existence  thereunder  was  not 
complied  with,  can  not  be  set  up  by 
an  indorser  of  usurious  notes  dis- 
counted by  the  old  bank,  and  renewals 
thereof,  accepted  by  it  after  reorgani- 
zation, as  a  defense  to  an  action, 
thereon  by  the  new  bank.  Spahr  v. 
Farmers'  Bank,  94  Pa.  429,  434. 

Estoppel. — Where  creditors  of  an  in- 
solvent bank  were  permitted,  under 
Laws  1897,  c.  89,  to  reorgauize,  and 
the  receivers  were  discharged,  and  the 
officers  of  the  bank  resumed  control, 
and  issued  certificates  of  deposit  to 
the  creditors,  which  they  accepted,  and 
at  no  time  questioned  the  validity  of 
the  reorganization,  or  the  judgment 
authorizing  it,  though  the  judgment 
adopting  and  approving  the  plan  of 
reorganization  was  void,  because  l)ased 
on  a  petition  which  had  formerly  been 
dismissed  by  a  judge  other  than  the 
one  granting  the  order,  l)ut  without 
his  knowledge,  the  creditors  who  ac- 
quiesced therein  and  retained  the 
lienefits  accruing  therefrom  are  es- 
topped from  questioning  the  validity 
of  the  proceedings.  Hunt  v.  Roosen, 
87    Minn.    68,    91    N.    W.    259. 

38.  A  plan  for  the  reorganization  of 
an  insolvent  bank  included  the  execu- 
tion and  delivery  of  an  agreement 
binding  its  stockholders  to  give  their 
notes  to  the  bank  to  tlie  amount  of 
their  respective  holdings  of  stock,  to 
lie  collected  only  in  case  there  was  a 
dcficiencv  of  "present  assets"  to  cover 
the  liabilities  then  existing,  and  pro- 
viding tlial  the  pavment  of  such  notes, 
or  any  portion  thereof,  should,  pro 
tantr,.  discharge  the  payor's  statutory 
liability    existing    at    the    date    of    the 


466 


BANKS    AND    BANKING. 


66 


creditors  were  not  made  parties  thereto, ^^  nor  is  it  void  for  want  of  con- 
sideration.^'^ 

An  action  to  enforce  an  agreement  binding  stockholders  of  an  in- 
solvent bank  to  give  their  notes  to  it,  to  be  collected  in  case  there  was  a 
deficiency  in  assets  to  discharge  liabilities  existing  at  the  date  of  the 
agreement,  was  not  prematurely  brought  where  it  appeared  from  the 
complaint  that  there  was  such  a  deficiency  when  the  action  was  commenced, 
and  that  an  accounting  was  necessary  to  determine  the  exact  amount 
thereof.'*^ 

§  66.  Effect  on  State  Bank  of  Reorganization  as  National  Bank. 

— When  a  state  bank  reorganizes  as  a  national  bank  the  change  does  not  re- 
lieve it  from  any  former  liabilities  to  individuals  with  whom  it  has  had 
dealings.  It  passes  from  one  jurisdiction  to  another ;  but  its  identity  is 
not  thereby  necessarily  destroyed.  It  remains  substantially  the  same  in- 
stitution under  another  name.  The  transition  does  not  disturb  the  relation 
of  either  the  stockholders  or  officers  of  the  corporation,  nor  enlarge  or 
diminish  the  assets  of  the  institution.  These  all  remain  the  same  under 
the  national  as  they  were  under  the  state  organization. ■*- 


agreement.  The  plan  was  carried  out. 
and  the  bank  resumed  business,  and 
continued  until  it  again  became  in- 
solvent. Held,  that  an  action  to  en- 
force the  agreement  was  properly 
brought  by  the  receiver  of  the  bank, 
since  it  did  not  take  the  place  of  the 
statutory  liability  of  stockholders,  but 
merely  bound  them  to  pay  the  notes 
on  the  contingency  mentioned.  Thomp- 
son c'.  GrossT  106  Wis.  34,  81  N.  W. 
1061. 

39.  That  the  creditors  of  an  in- 
solvent bank  were  not  made  parties 
to  an  agreement  included  in  a  plan 
for  its  reorganization,  binding  the 
stockholders  to  give  their  notes  to  the 
bank  to  the  amount  of  their  respective 
holdings  of  stock,  to  be  collected  in 
case  there  was  a  deficiency  of  assets. 
and  providing  that  payment  thereof 
should  discharge  the  payor's  statutory 
liability  existing  at  the  date  of  the 
agreement,  did  not  affect  its  validity. 
Thompson  7'.  Gross,  106  Wis.  34,  81 
N.    W.    1061. 

40.  An  agreement  between  an  in- 
solvent bank  and  its  stockholders, 
binding  them  to  give  their  notes  to  it 
to  the  amount  of  their  holdings  of 
slock,  to  be  collected  in  case  there  is 
a  shortage  of  assets  to  cover  liabili- 
ties, and  providing  that  pajmient 
thereon  should  pro  tanto  discharge  the 
payor's  statutory  liability,  is  not  void 
for  want  of  consideration,  since  pay- 
ments   thereunder    constitute     a      trust 


fund  in  the  hands  of  the  bank,  in  which 
creditors  can  not  participate  except  by 
releasing  pro  tanto  their  rights  against 
the  stockholders  under  the  statute. 
Thompson  r.  Gross,  106  Wis.  34,  81 
X.   W.   1061. 

The  reorganization  of  an  insolvent 
bank,  and  the  mutual  agreement  be- 
tween its  stockholders  to  effect  that 
result  by  increasing  its  capital  stock 
and  canceling  part  of  its  liabilities  by 
allowing  creditors  to  subscribe  for 
stock  in  satisfaction  of  their  claims, 
is  a  sufficient  consideration  for  an 
agreement  binding  the  stockholders  to 
give  their  notes  to  the  bank,  to  be  col- 
lected in  case  there  is  a  deficiency  of 
assets  to  cover  the  remaining  liabili- 
ties. Thompson  z'.  Gross,  106  Wis.  34, 
81  N.  W.  1061. 

41.  Premature  suits. — Thompson  v. 
Gross,    106    Wis.    34,    81    X.    W.    1061.  _ 

42.  Effect  on  state  bank  of  reorgani- 
zation as  national  bank. — Coffey  v.  Xa- 
tional  Bank,  4()  Mo.  140,  2  Am.  Rep. 
4S8:  Citv  Nat.  Bank  r  Phelps,  86  N. 
Y.  484:  Citv  X^at.  Bank  7'.  Phelps,  07 
X.  Y.  44;  Kelsey  7'.  Xational  Bank,  69 
Pa.   426. 

The  conversion  of  a  state  bank  into 
a  national  bank  is  not  a  "closing  of  its 
business,''  within  the  meaning  of  the 
statute  of  1859,  providing  for  the  re- 
demption of  a  state  bank's  circulation, 
and  releasing  it  from  liability  on  such 
notes  as  are  not  presented  within  six 
years  after  the  giving  of  the  prescribed 


§  66 


IXSOLVKXCV    AND    DISSOLUTION. 


467 


notice;  and  any  notes  not  so  presented 
*  constitute  a  valid  claim  against  the  na- 
tional bank.  Metropolitan  Xat.  Bank 
V.  Claggett,  141  U.  S.  520.  35  L.  Ed. 
841,   12   S.   Ct.   60. 

Laws  1865,  c.  97,  §  2,  provides  that 
any  state  bank  becoming  a  national 
bank  shall  be  deemed  to  have  surren- 
dered its  charter  on  compliance  "with 
the  requirements  of  this  act,"  btit  that 
it  shall  continue  a  body  corporate  for 
three  years  afterwards  for  the  purpose 
of  closing  its  concerns,  but  not  for  the 
purpose  of  the  business  for  which  it 
was  established.  Section  6  provides 
that,  when  authorized  to  commence 
business  as  a  national  bank,  all  assets 
of  the  old  bank  shall  vest,  without  any 
conveyance,  in  the  national  bank, 
which,  on  returning  the  bills  of  the 
state  bank  to  the  banking  department 
of  the  state,  may  receive  the  stock 
pledged  to  secure  the  redemption  of 
the  same,  and  that  it  shall  be  sub- 
jected to  the  same  rules  as  the  state 
banks  with  regard  to  the  final  re- 
demption of  the  circtilating  notes  of 
"such  state  banks  so  converted  into 
national  associations."  Section  8  pro- 
vides that  the  act  shall  not  be  con- 
strued so  as  to  release  the  national 
bank  from  any  obligation  incurred  be- 
fore becoming  such  association.  Held, 
that  the  conversion  of  a  state  bank 
into  a  national  bank  did  rrot  constitute 
such  a  "closing  of  the  business"  of  the 
state  l)ank  that  it  could  limit  its  lia- 
bility to  redeem  its  circulating  notes 
by  proceedings  under  Laws  1859,  c. 
236,  authorizing  state  banks  intending 
to  close  business  to  publish  notice  that 
any  persons  having  any  of  the  circu- 
lating notes  of  the  bank  should  present 
them  for  redemption  within  six  years; 
and.  failing  to  do  so,  the  bank  would 
no  loneer  be  liable  on  such  notes. 
Clairgett  f.  Metropolitan  Xat.  Bank, 
56  Hun  578.  10  X.  Y.  S.  165.  31  X.  Y. 
St.  Rep  937,  affirmed  in  125  X.  Y.  720, 
26   X.   F.   757. 

.^ct  March  9.  1865  (Laws  1865,  p. 
169).  §  2.  provides  that,  where  a  state 
liank  is  merged  in  a  national  bank,  it 
shall  be  deemed  to  have  surrendered 
its  state  charter,  but  that  "every  such 
bank  shall,  nevertheless,  be  continued 
a  body  corporate  for  the  term  of  three 
years,  *  *  *  for  the  purpose  of  prose- 
cutintr  and  defending  suits  l)y  and 
atrainst  it.  and  of  enabling  it  to  close 
its  concerns."  A  state  bank  was  con- 
verted into  a  national  l)ank.  and  the 
national  l)ank  failed  two  vears  hitcr. 
and  went  into  the  hands  of  a  receiver. 
Held,  that  the  receiver  could  prosecute 


an  appeal  from  a  judgment  against  the 
state  hank,  taken  within  the  three 
years,  under  Code,  §  121.  providing 
that  no  action  shall  abate  by  disability 
of  a  party,  or  by  the  transfer  of  any 
interest,  if  the  cause  of  action  survive. 
Clat'hn  T'.  Farmers',  etc.,  Bank  (X.  Y.), 
54    Barb.   228. 

When  a  state  bank  has  surrendered 
its  charter  to  the  state,  and  has  organ- 
ized as  a  national  bank,  the  right  of 
the  state  to  continue  to  exact  a  bonus 
imposed  by  the  charter  for  the  e.xer- 
cise  of  the  franchise  is  terminated. 
State   V.   Xational   Bank,   33   Md.   75. 

Tlie  conversion  of  a  state  bank  into 
a  national  bank,  under  Act  Cong.  June 
3,  1864,  is  not  equivalent  in  law  to  a 
paying  off  in  fact  of  its  stock,  so  as  to 
adeem  a  residuary  legacy  in  certain 
shares  of  the  bank's  stock,  limited  on 
a  life  estate  in  such  shares,  which  is 
to  become  absolute  in  case  the -bank 
should  pay  off  its  stock.  Maynard  v. 
^Mechanics'  Nat.  Bank  (Ta.),  1  Brev\rst. 
483. 

Form  of  suit. — Under  Act  1865,  c. 
144,  authorizing  a  change  of  the  state 
banking  institutions  into  national 
banks,  and  providing  that  they  might 
continue  to  use  their  corporate  name 
for  the  purpose  of  "prosecuting  and 
defending  suits"  instituted  by  or 
against  them,  and  of  winding  up  their 
business,  the  Farmers'  Bank  of  Mary- 
land was  converted  into  the  Farmers' 
Xational  Bank  of  Annapolis,  in  June, 
1865.  Held  that,  on  a  judgment  ob- 
tained by  it  in  1864,  a  scire  facias  might 
properly  issue  in  the  old  corporate 
name  of  the  bank  against  the  original 
defendants.  Thomas  t'.  Farmers'  Hank, 
46    Md.   43. 

Where  a  state  bank,  after  paying  to 
its  president  money  falsely  represented 
by  him  to  have  been  paid  to  an  agent 
to  whom  the  bank  was  indebted,  is 
duly  changed  into  a  national  baid<,  the 
new  association,  upon  being  sued  l)y 
the  agent  who  recovers  a  judgment 
against  it.  can  maintain  an  action  in 
its  own  name  against  the  president  for 
money  had  and  received,  under  St. 
1870,  c.  217,  setting  forth  in  the  writ 
the  fact  of  sale  by  the  state  bank,  and 
purchase  of  the  chose  in  action  by 
plaintiff.  .Atlantic  Xat.  Bank  r.  Har- 
ris,   lis;   Masr,.   1J7. 

Liability  for  costs. — Under  tlie  pro- 
visions of  .Act  1H65,  c.  144,  a  state 
bank  organized  as  a  national  bank  in 
June,  1865;  and  in  1874  it  sued  out,  in 
its  old  corporate  name,  a  scire  facias 
iin  a  Midgment  obtained  in  1K()4.  ileld, 
that    till'    new   bank    was     sul)stantially 


468 


P.ANKS    AND    P.ANKING. 


§  67  (3) 


§  67.  Consolidation^-"— §  67    (1)   Right     to     Consolidate.— \\ith^ 

legislative  authority  and  the  assent  of  stockholders,  banks  are  allowed  to 
consolidate. ■*•"' 

§  67  (2)  What  Constitutes. — One  banking  corporation  may,  in  con- 
templation of  closing  up  its  business,  sell  its  assets,  property,  and  business 
to  another  corporation,  and  make  arrangement  for  the  liquidation  of  its 
liabiHties.  but  this  does  not  constitute  a  consohdation.^'* 

§  67  (3)  Effect  of  Consolidation. — Where  two  banks  consolidate, 
a  new  corporation  is  thereby  formed,  composed  of  two,  and  the  stockhold- 
ers of  each  become  ipso  -facto  stockholders  in  the  new  bank  and  are  entitled 
to  a  proportionate  share  in  its  stock. '*•"' 


the  plaintiff,  and,  as  such,  was  there- 
fore liable  for  costs  in  case  of  judg- 
ment for  the  defendant.  Thomas  z'. 
Farmers'    Bank,    46    Md.    43. 

Service  of  process. — Where  a  state 
bank,  on  a  proper  application  made  by 
it,  is  duly  clianged  into  a  national  batik, 
whereby  it  surrenders  its  charter  as 
a  state  bank  (Laws  1865,  c.  97;  Laws 
1882,  c.  409,  §  168),  and  the  period  dur- 
ing which  it  may  do  l)usiness  as  a  na- 
tional bank,  as  prescribed  by  the  cer- 
tificate issued  by  the  comptroller  of 
the  currency,  has  expired,  its  corpo- 
rate existence,  both  as  a  state  bank 
and  as  a  national  bank,  is  at  an  end, 
and  the  authority  of  the  cashier  thereof 
is  terminated,  and  service  of  summons 
on  such  cashier  in  an  action  against 
the  two  banks  will  be  set  aside  as  to 
each  defendant.  Haycjen  v.  Bank,  59 
Hun   620,   15    N.   Y.   S.   48. 

42a.  Of  national  banks,  see  post, 
"Consolidation,"  §  283. 

43.  Rule  in  Oklahoma. — "Corpora- 
tions can  not  consolidate  without  au- 
thority of  law,  and  there  was  no  law 
in  this  territory,  at  the  time  of  doing 
the  acts  complained  of,  authorizing 
banking  corporations  to  merge  or  con- 
solidate." Overstreet  z'.  Citizens' 
Bank,   12   Okl.  383,  72  Pac.  379. 

Consolidation  under  invalid  statute. 
— Of  national  banks,  see  post,  "Con- 
solidation,"  §   283. 

Where  a  consolidation  of  banks  is 
made  pursuant  to  an  invalid  statute, 
such  consolidation  is  inoperative  and 
void.  Boor  :■.  Tolman,  113  111.  App. 
322. 

Right  of  nonassenting  stockholder. 
— Under  Banking  Laws  (Laws  1892,  p. 
1842,  c.  689,  as  amended  by  Lav.'S  l!i95, 
p.  222,  c.  382),  §  36,  providing  that 
any  stockholder  not  voting  in  favor  of 
merger  may,  on  application  therefor, 
procure  the   appointment   of  appraisers 


to  appraise  the  value  of  his  stock,  and 
that,  when  the  corporation  has  paid  the 
appraised  value  thereof,  the  stock 
shall  be  canceled,  one  owning  stock 
which  stands  on  the  books  of  the 
corporation  in  the  name  of  another 
person  can  not  maintain  the  pro- 
ceeding. In  re  Rogers,  102  App.  Div. 
466,    92    N.    Y.    S.   465. 

44.  Overstreet  v.  Citizens'  Bank,  12 
Okl.    383,    72    Pac.    379. 

A  banking  corporation  desiring  to 
quit  business  may  transfer  its  deposi- 
tors' accounts  to  another  bank,  and 
may  borrow  money  from  such  other 
bank  to  pay  its  depositors,  and  may 
pledge  its  assets  as  security  for  the 
money  so  borrowed;  and  such  action 
is  not  a  consolidation  or  merger,  nor 
does  it  release  the  first  bank  from  lia- 
loility,  nor  render  the  second  liable  to 
the  other  creditors  of  the  first  bank. 
Overstreet  v-  Citizens'  Bank,  12  Okl. 
383,    72   Pac.    379. 

45.  Green  c\  Bennet  (Civ.  App.),  110 
S.   W.   108. 

Where  a  debtor  bank,  on  consoli- 
dating with  another  corporation,  caused 
trustees  to  be  appointed  to  wind  up  its 
affairs,  the  corporation  formed  by  the 
consolidation  was  not  liable  for  the 
debts  of  the  bank  on  general  grounds. 
Donnally  7'.  Hearndon,  41  W.  Va.  519, 
23   S.   E.   646. 

Banking  Law,  §  37,  as  amended  by 
Laws  1895,  p.  223.  c.  382,  provides  that 
on  the  merger  of  any  corporation  in 
tlie  manner  prescribed  all  the  rights 
and  interests  of  the  corporation  merged 
in  property  and  things  in  action  shall 
be  deemed  to  be  transferred  to  tht 
merging  corporation  without  any  other 
deed  or  transfer,  and  the  latter  cor- 
poration shall  hold  the  same  in  the 
same  manner  as  if  the  corporation 
merged  should  have  continued  to  re- 
tain title  and  transact  the  business   of 


§  68 


IXSOLVEXCV    AXI)    DISSOLUTIOX, 


469 


§  68.  Grounds  of  Forfeiture  of  Franchise  or  Dissolution.^" Be- 
cause of  the  well-settled  general  rule  that  forfeitures  are  not  favored,  the 
forfeiture  of  a  bank  charter  will  not  be  declared,  except  where  there  is  a 
plain  abuse  of  power  by  which  the  corporation  ceases  to  fulfill  its  func- 
tions.■*'      But  when  the  corporation  is  insolvent-* •"*  or  fails  or  refuses  to  pay 


such  corporation;  and  §  38,  as  amended 
by  Laws  1900,  p.  428,  c.  199,  provides 
that  the  rights  of  creditors  and  others 
having  relations  with  the  merged  cor- 
poration shall  not  be  impaired  by  any 
such  merger.  Held  that,  where  de- 
fendant was  liable  on  a  guaranty  to  a 
bank  which  was  subsequently  merged 
under  such  act  in  plaintiff  bank,  plain- 
tiff, by  virtue  of  the  statute,  acquired 
the  right  to  enforce  the  guaranty. 
Bank  z:  Young,  101  App.  Div.  88,  91 
X.  Y.   S.   849. 

Void  consolidation. — Where  the  de- 
fendant was  a  stockholder  in  a  bank- 
ing corporation  organized  under  a 
special  act  of  the  legislature  which  im- 
posed a  stock  liability  equal  to  the 
amount  of  his  stock,  and  such  corpora- 
tion subsequently  is  sought  to  be  con- 
solidated with  another  banking  cor- 
poration, such  special  stock  liability 
will  not  be  enforced  in  an  action 
against  such  supposed  consolidated 
corporation  where  it  appears  that  such 
attempted  consolidation  was  void. 
Boor  V.   Tolman,   113    111.   App.   322. 

46.  Waiver  or  remission  of  forfei- 
ture, see  post,  "Special  Deposits," 
§   153. 

47.  Expansions  and  contractions  of 
circulation  work  no  forfeiture  of  the 
franchises  of  a  bank  where  another 
adequate  remedy  or  penalty  was  pro- 
vided by  the  charter  of  the  bank.  State 
r.  Commercial   Bank,   10  O.   .j3."). 

48.  Insolvency  as  ground  for  dis- 
solution.— State  V.  Mechanics',  etc., 
liank.  35  La.  Ann.  562;  Attorney  Gen- 
eral f.  Oakland  County  Bank  (Mich.), 
Walk.  Ch.  90. 

Under  the  act  incorporating  the 
Bank  of  Niagara,  the  bank  did  not  for- 
teit  its  charter  by  insolvency  and 
closing  its  operations,  if  payment  of 
its  debts  were  .resumed  before  prose- 
cution. Aliter,  if  a  prosecution  were 
commenced  before  payment  was  re- 
sumed. People  z:  Niagara  Bank,  fi 
Cow.  196;  People  ?-.  Bank  (N.  Y.),  6 
Cow.   211. 

Suspension  of  specie  payments  by  a 
bank,  continued  a  great  length  of  time, 
without  being  produced  by  the  fault 
of  the  state,  and  adopted  without  any 
sufficient   excuse   or   necessity   or   when 


done  in  violation  of  positive  statute,  is 
good  cause  of  forfeiture  of  its  charter. 
State  V.  Real  Estate  Bank,  5  Ark.  595. 
41  Am.  Dec.  109;  State  z:  Commercial 
Bank,  10  O.  535;  Bank  z:  Iglehart, 
Fed.  Cas.  No.  860,  6  McLean  568; 
Lane  v.  Morris,  8  Ga.  468;  Lumpkin  v. 
Jones,  1  Ga.  27;  Planters'  Bank  v. 
State  (Miss.),  7  Smedes  &  M.  163; 
Commercial  Bank  v.  State  (Miss.),  6 
Smedes  &  M.  599,  45  Am.  Dec.  280; 
State  V.  Commercial  Bank,  10  O.  535; 
Long  V.  Farmers'  Bank  (Pa.),  1  Clark 
284:  unless  such  cause  of  forfeiture  is 
waived.  State  z:  Bank  (S.  C),  2  Mc- 
Mullan  439,  39  Am.  Dec.  135;  or  cured 
by  a  subsequent  resumption  of  specie 
payment.     Lumpkin  v.  Jones.  1   Ga.  27. 

But  a  mere  suspension  of  specie  pay- 
ments by  a  bank  does  not  work  a  for- 
feiture of  its  charter.  State  v.  Com- 
mercial Bank,  10  O.  535;  especially  if 
the  bank  has  good  cause  for  refusing 
payment.  Long  z:  Farmers'  Bank 
(Pa.),  1   Clark  284. 

Though  a  bank  charter  contains  no 
provision  for  its  forfeiture  in  the  event 
of  a  failure  to  pay  specie,  yet,  where 
there  was  in  force  at  the  date  of  the 
charter  a  general  law  to  the  same  ef- 
fect, the  forfeiture  can.  under  that  law. 
be  enforced.  Palfrey  z'.  Paulding.  7 
La.  Ann.  363;  .Atchafalaya  Bank  z: 
Dawson.   13   La.  497. 

The  Act  of  1821,  declaring  the  char- 
ter of  the  Tombeckbee  Bank  liable  to 
forfeiture  for  a  failure  to  pay  specie 
on  demand  for  its  notes,  did  not  af- 
fect the  bank,  as  its  charter  contained 
no  such  provision.  State  z:  Tombcck- 
l)ce   Bank    (Ala.).   2   Stew.   30. 

A  bank'  incurred  no  forfeiture  by 
mere  suspension,  where  another  pen- 
alty for  suspension  was  given  to  the 
holder  of  its  notes,  both  by  its  charter 
and  the  general  law.  State  v.  Com- 
mercial  Bank,   10   O.   535. 

Redemption  in  treasury  notes. — The 
act  ol  congress  making  tre.-isury  notes 
a  legal  tender  is  within  the  constitu- 
tion, and  valid;  and  hence  the  state 
banks,  by  redeeming  in  treasury  notes, 
do  not  e.xposc  their  franchises  to  for- 
feiture, under  charter  provisions  that 
tlicy  sliall  not  at  any  time  suspend  or 
refuse  jiaynient  in  gold  or  silver  of 
their    <)l)ligali(ins    or    moneys    received 


470 


BANKS    AND    BANKING. 


§  68 


its  debts,"***  or  when  it  has  violated  any  provision  of  its  charter  or  any  law 
binding  on  it,  though  such  violation  be  unintentional,^'*'  or  where  it  aban- 


on  deposit.  Reynolds  v.  Bank,  18  Ind. 
467. 

By  statute  in  Pennsylvania,  a  bank 
refusing  specie  payment  is  compelled 
to  make  an  involuntary  assignment  for 
creditors.  But  as  such  statute  is  penal 
it  will  be  strictly  construed.  General 
Banking  Laws  April  16,  1850,  §  24, 
provide  that,  if  a  bank  refuse  or  tail 
to  redeem  its  bills  when  presented,  it 
shall  forfeit  its  charter.  Section  25 
provides  that  the  cashier  of  any  bank 
refusing  to  pay  specie  for  the  bank  s 
liabilities  shall,  if  the  demand  is  on  a 
note  or  bill,  indorse  thereon,  over  his 
signature,  the  date  of  the  demand. 
Section  27  provides  that  if.  upon  a 
hearing,  the  court  or  judge  shall  be 
satisfied  that  the  bank  has  refused  to 
redeem,  and  that  the  provisions  of 
§  25  have  been  violated,  the  directors 
shall  make  an  assignment.  On  an  ap- 
plication for  an  order  directing  an  as- 
signment, on  the  ground  that  the 
bank  has  refused  to  redeem  its  notes, 
held,  that  it  must  appear  that  the  of- 
ficers of  the  bank  not  only  refused  to 
pay  the  notes  in  gold  or  silver,  but 
that  they  also  refused  to  indorse  the 
day  and  year  when  they  were  pre- 
sented for  payment.  Commonwealth 
V.  Bank,  9  Am.  Law  Reg.  379. 

Act  April  16,  1850,  §  24,  declares  that 
a  bank's'  failure  to  redeem  Us  notes  in 
specie  upon  demand  shall  be  an  abso- 
lute forfeiture  of  its  charter.  Section 
25  provides  that  the  cashier  of  a  bank 
refusing  to  pay  its  notes  in  specie 
shall  indorse  thereon  the  day  and  year 
of  the  demand.  Section  27  provides 
that,  if  "the  provisions  of  the  twenty- 
fifth  section  of  this  act  have  been  will- 
fully violated,"  then  the  directors  shall 
make  an  assignment  to  trustees,  and 
thus  forfeit  the  charter.  Held,  that 
the  statute  must  be  construed  as  penal, 
and  hence  an  assignment  could  not  be 
required,  unless  the  officer  refused  to 
make  the  indorsement.  The  court 
could  not  presume  that  the  legislature 
intended  a  reference  in  §  27  to  §  24, 
instead  of  §  25.  Commonwealth  v. 
Bank,  9  Am.  Law  Reg.  379. 

Rule  in  Louisiana. — Since  Act  March 
14,  1839,  relieving  banks  fromthe  for- 
feiture of  their  charters  occasioned  by 
the  previous  suspension  of  specie  pay- 
ments, no  bank  can  suspend  specie 
payments  even  for  a  day  without  ex- 
posing its  charter  to  forfeiture.  State 
V.  New  Orleans  Gas.  etc.,  Co.  (La.). 
2  Rob.   529. 


49.  Failure  of  bank  to  pa3'  debts  as 
ground  for  dissolution. —  Bank  Comm'rs 
r.    Bank   (X.   Y.).   (i   Paige   497. 

Failure  to  pay  circulating  notes. — 
To  subject  a  banking  association  to  a 
forfeiture  of  its  charter,  under  the  Act 
of  1840,  for  allowing  its  circulating 
notes  to  remain  unpaid  for  twenty 
days  after  presentation  at  an  agency 
of  the  bank,  such  notes  must  be  al- 
lowed to  remain  with  the  agent  until 
the  expiration  of  the  twenty  days,  or 
must  be  presented  a  second  time  at  or 
after  the  expiration  of  that  time.  B?nk 
Comm'rs  f.  James  Bank  (N.  Y.),  9 
Paige   457. 

Failure  to  pay  interest  on  state 
bonds. — That  a  bank  has  failed  to  pay 
the  interest  on  state  bonds  is  no  cause 
of  forfeiture.  State  i'.  Real-Estate 
Bank,  5  Ark.  595,  41  Am.  Dec.  109. 

Refusal  to  redeem  obligation. — A 
general  refusal  by  an  incorporated 
bank  to  redeem  its  issues  and  other 
obligations  in  gold  and  silver  coin  is 
per  se  a  sufficient  cause  of  forfeiture  of 
its  charter.  Commercial  Bank  7'.  State 
(Miss.),  6  Smedes  &  M.  599,  45  Am. 
Dec.  280;  State  r.  Bank  (S.  C),  1 
Spcer  433. 

50.  Violation  of  law  or  charter  pro- 
visions as  ground  for  dissolution. — 
Bank  Comm'rs  z'.  Bank  (X.  Y.),  6 
Paige  497;  Miami  Exporting  Co.  v. 
Clark.  13  O'.  1;  Franklin  Bank  v.  Com- 
mercial Bank.  36  O.  St.  350,  38  Am. 
Rep.   594. 

Contracting  debts  or  issuing  bills  to 
a  larger  amount  than  a  charter  allows, 
or  issuing,  with  a  fraudulent  intention, 
more  paper  than  the  bank  can  redeem, 
or  embezzling  large  sums  deposited 
for  safe-keeping,  or  making  large  divi- 
dends of  profits,  while  it  refuses  to  pay 
specie  for  its  bills,  subjects  a  bank  to 
?  forfeiture  of  its  charter.  State  Bank 
r.  State  (Ind.),  1  Blackf.  267,  12  Am. 
Dec    234. 

The  establishment  of  an  agency  or 
ofiice  by  a  bank  at  a  place  not  au- 
thorized by  the  charter  is  a  violation 
of  it  and  works  a  forfeiture  of  the 
franchise.  Attorney  General  t'.  Oak- 
land County  Bank  (Mich.),  Walk. 
Ch.   90. 

Failure  to  comply  with  clearing 
house  regulations. — Act  March  14, 
1839.  §  3,  Xo.  22,  requiring  the  banks 
in  the  city  of  New  Orleans  to  settle 
and  pay  in  gold  and  silver  the  lialances 
due  each  other,  every  Monday,  im- 
posed no  duty  not  previously  required 


§    68  IXSOLVENCV    AND   DISSOLUTION.  471 

dons  its  corporate  franchise  and  surrenders  its  assets   for  the  purpose  of 


by  law;  and  if  the  part}-,  in  whose 
favor  it  was  stipulated,  chooses  to 
waive  the  right,  the  state  can  not  corn- 
plain  without  showing  some  injury  to 
the  comnuinity.  State  z\  New  Orleans 
Gas.  etc..  Co.  (La.).  2  Rob.  529. 

Failure  to  maintain  legal  reserve. — 
Under  Gen.  St.,  c.  57,  §  19,  it  is  the 
duty  of  a  bank  so  to  conduct  its  busi- 
ness as  to  keep  on  hand  an  amount  of 
specie  equal  to  15  per  cent  of  its  lia- 
bility for  circulation  and  deposits;  and, 
for  a  neglect  or  omission  substantially 
to  complj"-  with  this  requisition,  a  bank 
is  liable  to  be  enjoined,  on  the  applica- 
tion of  the  bank  commissioners,  from 
the  further  prosecution  of  its  business, 
so  far  as  may  be  needful  to  prevent  a 
violation  of  this  provision  of  the  stat- 
ute. Commonwealth  f.  Bank  (Mass.), 
4  Allen   1. 

Failure  to  elect  directors. — The  fail- 
ure to  elect  directors  or  other  officers 
could  not  produce  a  dissolution  of  the 
corporation.  Blake  z'.  Hinkle,  18  Teun. 
(10    Yerg.)    218. 

But  where  the  charter  of  an  incor- 
porated bank  provides  for  tlie  election 
of  directors  annually,  the  failure  to 
hold  an  election  for  five  years  is  a 
cause  of  forfeiture  of  its  charter.  State 
V.   Commercial   Bank,  33   Miss.  474. 

Failure  to  pay  up  full  capital  stock. 
— Where  a  bank  has  failed  to  comply 
with  the  law  requiring  its  full  capital 
stock  to  be  paid  up  within  one  year 
from  the  date  of  its  organization,  its 
charter  will  be  forfeited.  People  t. 
City   Bank.  7   Colo.   226,   3   Pac.   214. 

-Act  March  29,  1869,  incorporating  a 
banking  companj-.  provided  that  the 
capital  stock  should  be  a  certai:' 
amount,  and  that  no  increase  should 
be  made  unless  the  amount  thereof 
was  paid  in;  that,  before  the  corpora- 
tion began  business,  the  stockholders 
should  pay  their  subscriptions  in  full: 
and  that  the  act  should  become  void 
unless  the  corporation  organized  and 
proceeded  to  business  witiiin  two 
years.  Held,  that  a  failure  to  sul)- 
scribe  and  pay  in  the  amount  of  capi- 
tal stock  within  two  years  forfeited 
the  charter.  People  v.  National  Sav. 
I'.ank.   129   Til.   618,   22    N.   E.   288. 

Failure  to  sell  for  nonpayment  of 
stock  subscription.  -'I'lic  cliarter  of  .i 
liank  provider!  that,  "should  any  stock- 
holder refuse  or  fail  to  ])ay  any  install- 
ment on  iiis  stock  when  called  for,  the 
company  shall  sell  said  stock,  on  giv- 
ing thirty  flays'  notice  in  sotne  gazette, 
on   account    of   and    at   the    risk   of   the 


stockholder."  Held,  that  a  failure  on 
the  part  of  the  bank  to  comply  with 
the  provision  of  its  charter,  respecting 
the  sale  of  stock  upon  which  anj' 
stockholder  should  fail  to  pay  any  in- 
stallinent.  was  not  a  cause  of  forfei- 
ture of  the  charter;  the  authority  to 
sell  the  stock  being  a  mere  cumulative 
remedy  given  to  coerce  the  payment 
of  stock.  Commercial  Bank  z'.  State 
(Miss.),  6  Smedes  &  M.  599,  45  Am. 
Dec.   280. 

Failure  to  file  financial  statement. — 
Where  an  independent  l^anking  com- 
pany, organized  under  the  act  passed 
February  26,  1846  (§  59),  requiring 
that  a  statement  of  its  condition  he 
transmitted  to  the  auditor  of  state,  re- 
fused to  transmit  such  statement,  held, 
that  it  forfeited  its  corporate  franchise. 
.Attorney  General  v.  Seneca  County 
Bank,    5    O-    St.    171. 

Subscription  to  its  stock. — A  l)ank's 
charter  provided  that  no  person  sliould 
on  any  one  day  subscrilje,  directlj-  or 
indirectly,  for  more  than  fifty  sliares 
of  stock.  The  act  of.  incorporation  di- 
rected that  the  books  should  be  opened 
for  subscription  to  the  capital  stock 
on  a  certain  day  under  the  superintend- 
ence of  eight  commissioners  named 
in  the  act.  Section  6  of  the  act  pro- 
vided that,  as  soon  as  $500,000  should 
be  subscribed,  the  subscribers  should 
i)e  a  body  corporate.  Held,  tliat  a 
violation  of  the  charter  by  indirect 
subscriptions  for  more  than  fifty 
shares,  while  the  Ijooks  were  still  in 
the  hands  of  the  commissioners,  who 
were  the  agents  of  the  state,  was  no 
grotmd  for  forfeiture  of  the  charter. 
Commercial  Bank  t'.  State  (Miss.),  6 
Smedes   &   M.  599,  45  .\m.   Dec.  280. 

Excessive  loans  to  officers. — .\ 
])ank's  charter  will  not  be  forfeited  be- 
cause a  large  portion  of  their  loans 
have  been  made  to  their  officers,  in 
the  absence  of  a  statute  requiring  for- 
feiture on  account  of  disproportionate 
loans  to  its  officers.  State  z\  Com- 
mercial   Bank,    10    O.    535. 

But  in  some  jurisdictions  there  are 
statutes  expressly  providing  that  ex- 
cessive loans  to  directors  shall  work  a 
forfeiture  of  the  franchise  and  disso- 
lution of  the  bank.  Bank  Comm'rs  z'. 
I'.ank  (N.  Y.),  6  Paige  497;  Attorney 
General  z'.  Seneca  County  Bank,  5  O. 
St.   171.  172. 

.Ml  loans  and  discounts  made  by  the 
officers  of  a  l)ank  will  be  ])resumed  to 
have  been  made  by  the  authority  of 
the    (lireclors,    unless    they    show    that 


472 


BANKS    AND    BANKING. 


liquidating  its  debts, "^^  or  where    the    affairs    therefore    are  being  misman- 


such  officers  have  been  guilty  of  fraud 
or  embezzlement,  and  that  they  have 
removed  such  officers  on  the  discover}^ 
of  the  fraud.  Bank  CommVs  v.  Bank 
(N.    Y.),    6   Paige    497. 

It  is  a  violation  of  the  act  to  incor- 
porate banking  companies  for  one  of 
the  independent  banks  chartered  by  it 
to  make  loans  to  a  director  before  the 
adoption,  by  the  stockholders,  of  by- 
laws to  regulate  the  liabilities  of  di- 
rectors; and  such  violation  may  be  a 
cause  of  forfeiture  of  the  charter,  and 
render  each  director  who  knowingly 
assents  to  it  individually  liable  for  all 
damages  which  the  company,  share- 
holders, or  others  shall  sustain  in  con- 
sequence thereof.  But  the  court  are 
not  prepared  to  say  that  no  debt  is 
created  by  such  loan;  yet  even  if  such 
debt  be  void,  and  be  paid,  a  creditor  at 
large  of  the  payer  can  reach  the  money 
or  property  with  which  it  is  paid,  such 
creditor  having  at  the  time  no  lien  on 
nor  interest  in  the  money  or  property. 
Conanti  etc.,  Co.  v.  Reed,  1  O.  St.  298. 

A  loan  knowingly  made  by  a  bank 
for  the  benefit  of  a  director  is  a  loan  to 
the  director,  within  a  statute  provision 
prohibiting  loans  to  the  officers  of  the 
bank  beyond  a  certain  amount,  though 
the  name  of  such  director  does  not  ap- 
pear upon  the  paper  discounted,  and 
though  he  has  not  guarantied  the  pay- 
ment. Bank  Comm'rs  v.  Bank  (N.  Y.), 
6  Paige   497. 

It  is  no  excuse  for  a  violation  of  the 
act  incorporating  a  bank  by  loaning  to 
the  officers  to  an  amount  prohibited 
by  the  act  that  the  directors  had  neg- 
lected to  keep  themselves  informed  of 
the  amount  of  the  loans  to  officers  of 
the  corporation.  Bank  Comm'rs  v. 
Bank   (N.  Y.).  6  Paige  497. 

Illegal  loans  to  directors. — Under  the 
act  to  incorporate  tlie  State  Bank  of 
Ohio  and  other  banking  companies,  it 
was  ground  for  forfeiture  of  its  char- 
ter for  a  bank  incorporated  under  such 
act  to  make  loans  to  its  directors  be- 
fore the  adoption  of  by-laws  to  regu- 
late the  liabilities  of  directors.  Con- 
ant,  etc.,  Co.  7'.  Reed,  1  O.  St.  298;  Ar- 
nold V.  Reid,  1  O.  Dec.  347;  Attorney 
General  v.  Seneca  County  Bank,  5  O. 
St.  171. 

Contracting  by  a  bank  to  take  usuri- 
ous interest  works  no  forfeiture  of  its 
charter;  where  the  charter  contains  no 
restrictions  as  to  the  rate  of  interest. 
State  V.  Commercial  Bank,  10  O.  535. 

When  an  incorporated  company  is. 
by  its  charter,  authorized  to  lend 
iTioney,    without    restriction    as    to    the 


rate  of  interest,  it  does  not  work  a  for- 
feiture of  its  charter  to  receive  more 
than  the  legal  rate.  Corwin  v.  Urbana, 
etc.,  Ins.  Co.,  14  O.  7. 

And  even  where  there  is  a  restriction 
upon  the  rate  of  interest  chargeable  l)y 
a  bank,  the  charging  or  taking  of  usuri- 
ous interest  does  not,  in  the  absence  of 
charter  or  statutory  provision  to  the 
contrary,  afford  ground  for  forfeiture 
of  franchises.  State  v.  Commercial 
Bank,   10  O.  535. 

But  by  statute  in  some  jurisdictions, 
persons  exercising  the  privilege  of 
banking  are  prohibited  from  exacting 
usury  under  penalty  of  forfeiting  their 
privileges.  Commonwealth  v.  Com- 
mercial Bank,  28  Pa.  383;  Wetmore  r. 
Brien,  40  Tenn.  (3  Head)  723;  Per- 
kins V.  Watson,  61  Tenn.   (2  Baxt)  173. 

On  the  other  hand  it  has  been  held 
that  the  violation  by  an  incorporation 
bank  of  the  provisions  of  its  charter, 
and  the  general  banking  law,  by  the 
reservation  of  more  than  the  legal  rate 
of  interest,  does  not  forfeit  the  con- 
tract or  security,  but  merely  prevents 
the  recovery  of  the  illegal  excess  of  in- 
terest.    Bank   v.   Bingham,   33   Vt.   (521. 

Failure  to  make  report  to  auditor, — 
Where  an  independent  Ijanking  com- 
pany, organized  under  the  act  of  Feb- 
ruary 26,  1845,  refused  to  make  and 
transinit  to  the  auditor  of  state  a  state- 
ment of  its  condition,  as  required  by 
§  59  of  said  act,  it  thereby  incurred  the 
penalty  of  forfeiture  of  corporate 
franchises.  Attorney  General  v.  Sen- 
eca County  Bank,  5  O.  St.  171. 

Violation  of  charter  by  cashier. — 
The  directors  of  a  bank  may,  through 
their  cashier,  violate  the  charter  of  the 
bank.  If,  however,  they  can  show  that, 
in  the  particular  act  of  the  cashier  al- 
leged to  be  in  violation  of  the  charter, 
he  departed  from  his  duties  as  pre- 
scribed by  them,  such  act  will  not 
cause  a  forfeiture  of  the  charter. 
State  T'.  Commercial  Bank  (Miss.),  6 
Smedes  &  M.  218,  45  Am.  Dec.  280. 

Unintentional  violations. — If  viola- 
tions of  Gen.  St.  c.  57,  §§  19,  63,  67, 
liave  been  committed  by  a  bank  under 
a  mistake  or  misapprehension  of  the 
law,  and  with  no  willful  intent  to  vio- 
late the  same,  and  it  is  not  alleged  that 
any  other  or  further  similar  acts  are 
threatened  or  intended  by  it,  a  tem- 
porary injunction  which  had  been 
granted  upon  it  may  be  dissolved  upon 
payment  of  costs.  Commonwealth  v. 
Bank   fMass.).  4  .\llen  1. 

51.  Abandonment  of  corporate  fran- 
chise   as    ground    for    dissolution. — At- 


§  68 


INSOLVKXCV    AND   DISSOI,UTIO.\", 


473 


aged.''-  or  where  one  of  the  members  of  a  vohmtary  association  dies''"  disso- 
lution and  forfeiture  of  charter  resuks.  But  a  cashier  of  a  bank  can  not  cause 
a  forfeiture  of  its  charter  by  a  direct  and  palpable  violation  of  his  authority 
or  instructions. ''■*     Neither  the  opinion  of  the  superintendent  of  banks,  nor 


lorney  General  :•.  Seneca  County  Bank, 
5  O.   St.   171. 

But  a  mere  omission  alone  to  exer- 
cise corporate  powers.  Attorney  Gen- 
eral r.  Bank  (N.  Y.),  1  Hopk.  Ch.  354; 
or  a  brief  temporary  cessation  of  busi- 
ness operations  will  not  work  a  for- 
feiture of  its  charter.  State  v.  Louisi- 
ana Sav.  Co.,  12  La.  Ann.  508. 

And  it  has  even  been  held  that  a 
nonuser  of  the  corporate  franchise  of 
a  bank  for  sixteen  years  does  not  of 
itself  work  a  dissolution  of  the  corpo- 
ration. Richards  z'.  Minnesota  Sav. 
Bank.  75  :\Iinn.  196,  77  X.  W.  822. 

But  if  a  bank  abandons  its  franchise 
and  ceases  to  do  business  as  a  bank  its 
charter  is  thereby  forfeited.  Hender- 
son Loan,  etc.,  Ass'n  z'.  People,  163  111. 
196,  45  N.  E.  141;  Attorney  General  z: 
Seneca  County  Bank,  5  O.  St.  171. 
See,  also.  State  v.  Commercial  Bank, 
10  O.  535. 

Where  a  bank  became  insolvent  and 
suspended  operations  in  1840,  and  did 
not  resume  again  until  1864,  and  only 
fourteen  months  of  its  chartered  ex- 
istence remained  unexpired  when  it 
resumed  business  after  such  suspen- 
sion, the  court,  if  it  has  a  discretion  so 
to  do  under  the  statute,  will  not  impose 
a  fine  instead  of  adjudging  a  forfeiture 
of  the  charter.  People  v.  Bank,  12 
Mich.   527. 

In  Tennessee  a  (banking)  corpora- 
lion  is  not  dissolved  by  the  nonuse,  or 
assignment  to  others,  in  whole  or  in 
part,  of  its  powers,  franchises  and  priv- 
ileges, unless  all  the  corporate  prop- 
erty has  been  appropriated  to  the  pay- 
ment of  its  debts;  and,  in  such  cases, 
says  the  Code  (§  3431),  "any  creditor, 
lor  himself  and  other  creditors,  whether 
he  has  recovered  a  judgment  or  not,  or 
any  stockholder,  for  himself  and  other 
stockholders,  may  file  a  l)ill,  under  the 
provision  of  this  chapter,  to  attach  the 
corporate  property,  and  have  sucli 
property  ajjplied  to  the  payment  of  the 
corporation  debts,  and  any  surplus  di- 
vided among  the  stockholders."  Marr 
V.   I'<ank.    U  Tc-nn.   (4  CdKIw.)   471. 

Assignment  for  benefit  of  creditors. 
— .'\n  assignment  by  a  bank  of  its  pro])- 
erty  to  trustees  is  not  a  dissolution  of 
the  corporation  or  a  surrender  of  its 
franchises;  but  though  such  an  assign- 
ment, if  fair,  will  be  sustained,  and  will 
not  be  held  as  misuser,  so  as  to  work 


a  forfeiture  of  its  charter,  yet  if  it 
place  the  bank  in  a  position  where  it 
can  not  comply  with  the  terms  of  its 
cliarter,  or  fulfill  its  purposes,  it  may 
work  a  forfeiture  for  nonuser.  State 
V.  Commercial  Bank  (Miss.),  13  Smedes 
&  M.  509,  53  Am.  Dec.  106;  Town  r. 
Bank  (Mich.),  2  Doug.  530. 

But  if  a  bank  makes  a  valid  assign- 
ment of  all  its  assets  and  property  to 
trustees,  for  the  benefit  of  its  creditors, 
it  is  good  cause  of  forfeiture.  State  f. 
Real  Estate  Bank,  5  Ark.  595,  41  Am. 
Dec.  109. 

Where  a  bank  becomes  insolvent, 
and  assigns  so  much  of  its  property  to 
trustees  for  payment  of  its  del)ts  as  to 
prevent  its  resuming  banking  business, 
it  is  equivalent  to  a  surrender  of  its 
corporate  rights;  such  act  destroying 
the  end  and  object  for  which  the  bank 
v/as  instituted.  People  z:  Hudson 
Bank   (X.   Y.).  r,  Cow.  217. 

52.  Mismanagement  as  ground  for 
dissolution. — To  justify  the  action  of 
the  bank  commissioners,  or  of  the 
court  against  a  bank,  under  Rev.  St. 
c.  126,  §  47,  on  the  ground  that  ''it  is 
so  managing  its  concerns  that  the  pub- 
lic, or  those  having  funds  in  its  cu.'^- 
tody,  are  in  danger  of  lieing  defrauded 
thereby,"  it  is  not  necessary  that  ei- 
ther should  be  satisfied  that  there  is  a 
formed  design  on  the  part  of  the  man- 
agers to  cheat  the  l)ill  holders  or  the 
depositors,  but  only  that  the  condition 
of  the  bank,  from  its  gross  and  illegal 
mismanagement,  and  the  temptation 
to  and  danger  of  fraud  growing  out  of 
it,  are  such  that  the  commissioners  and 
the  court  ought  to  interfere  to  prevent 
it.  Bank  Comm'rs  z'.  Rhode  Island 
Cent.   Bank,  5   R.    1.    12. 

53.  The  death  of  any  member  of  a 
banking  association  operates  as  a  disso- 
hition  tlieredf  as  between  all  the  mem- 
bers. i"irst  Xat.  iiank  z'.  Payne  &  Co., 
85   Va.   890,   9   S.   E.   153,  3   L.   R.   A.  284. 

54.  State  r'.  Commercial  Bank  (Miss."), 
C>  Smedes   &   M.  218,   45   .Xm.   Dec.   280. 

In  a  proceeding  l)y  information  in 
the  nature  of  a  quo  warranto  against  a 
hank,  the  court  was  asked  to  charge 
tiie  jury  that,  if  they  believed  from  tlie 
evidence  that  the  cashier,  or  teller,  or 
clerks  of  the  bank,  as  officers  and 
agents  f)f  the  I)ank,  received,  euh.er  di- 
rectly or  indirectly,  from  anj'  one.  tlie 
notes    of    nniispecie-paying    banks,    in 


474 


BANKS    AND    BANKING. 


69 


of  the  attorney  general,  that  it  is  unsafe  or  inexpedient  to  allow  a  bank  to 
transact  business,  is  a  sufficient  basis  for  a  judgment  dissolving  the  bank 
.and  distributing  its  assets  through  the  medium  of  a  receiver,  or  otherwise.^^ 
And  where  another  penalty  is  provided  for  the  commission  or  omission  of  a 
specified  act  by  a  bank,  the  presumption  is  that  such  commission  or  omis- 
sion was  not  intended  by  the  legislature  to  be  a  ground  of  forfeiture  of 
franchises/'*^ 

§  69.  Waiver  or  Remission  of  Forfeiture. — The  state  may  waive^^ 
or  remit  the  forfeiture  of  a  bank  charter.-'''* 

Relief  against  Forfeiture.— While  a  state  legislature  may  relieve  a 
bank  chartered  by  it  from  the  penalty  of  forfeiture  of  its  charter  for  breach 
of  its  legal  obligations,  it  can  not  do  more  or  relieve  against  the  other  legal 
■consequences  thereof  as  to  private  contracts.  •^'^ 


f)ayment  for  any  part  of  the  capital 
stock  of  the  bank,  they  must  find  for 
the  plaintiff.  Held,  that  the  charge 
was  too  broad;  that,  to  make  a  pay- 
ment binding  on  a  corporation,  it 
should  be  made  to  some  agent  author- 
ized to  receive  it;  and  that  the  charge, 
as  asked,  was  properly  rejected.  State 
z'.  Commercial  Bank  (]Miss.),  6  Smedes 
.&  M.  218,  45  Am.  Dec.  280. 

55.  People  v.  Oriental  Bank,  124  App. 
Div.  741,  109  N.  Y.  S.  nO'). 

56.  State  r.  Commercial  Bank,  10  O. 
535. 

57.  Waiver  or  remission  of  forfeiture. 
— If  the  state  borrow  money  of  a  liank, 
knowing  a  cause  of  forfeiture  to  exist, 
this  is  a  waiver  of  the  forfeiture.  State 
■V.    Real    Estate    Bank,    5    Ark.    595,    41 

Am.  Dec.  109. 

Where  a  banking  corporation  be- 
came insolvent  and  suspended  opera- 
tions in  1840,  and  did  not  attempt  to 
resume  business  until  1864,  and  no  pro- 
ceedings were  taken  by  the  state  dur- 
ing that  time  to  enforce  the  forfeiture 
of  the  charter  of  the  corporations,  un- 
der Comp.  Laws,  §  4854,  it  was  held 
that  the  forfeiture  was  not  waived 
thereby,  and  that  the  state  might  insti- 
ttite  proceedings,  and  claiin  a  forfei- 
ture, within  a  reasonable  time  after 
discovering  the  intention  of  the  cor- 
poration to  resume.  People  r.  Bank, 
12   Mich.  527. 

The  act  approved  November  23,  1857, 
entitled  "An  act  in  relation  to  certain 
bank  paper  in  this  state,"  was  a  waiver 
by  the  state  of  all  forfeitures  imposed 
upon  the  banks  of  this  state,  incurred 
under  the  provisions  of  Act  1855,  p. 
287,  §  5,  for  dealing  in  the  paper  of  the 
suspended  banks  of  this  state  prior  to 
the  date  of  said  waiver.  An  answer, 
therefore,   which   pleaded    the   violation 


of  said  fiftli  section  of  the  Act  of  1855, 
in  relation  to  illegal  Ijanking,  in  bar  of 
the  right  of  the  plaintiff  to  sue,  was 
held  to  be  properly  stricken  out  on  mo- 
tion.    Bank  r.  Bredow,  31  Mo.  523. 

Where  a  l^ank  had  forfeited  its  cor- 
porate franchises  by  a  violation  of  the 
act  of  incorporation,  the  court,  being 
satisfied  of  the  integrity  of  the  officers, 
that  the  institution  could  go  on  with- 
out danger  to  the  creditors  or  the  pub- 
lic, and  that  the  suspension  of  'the  op- 
erations of  the  bank  would  cause  great 
public  inconvenience,  permitted  the 
liank  to  go  on,  notwithstanding  the 
forfeiture.  Bank  Comm'rs  t'.  Bank  (X. 
v.).  C  Paige  497. 

Forfeiture  for  suspension  of  specie 
payment. — Where,  after  a  bank's  char- 
ter had  been  forfeited,  for  its  suspen- 
sion of  specie  payment,  it  continued 
to  exist  de  facto,  and  exercised  all  the 
privileges  previously  granted  by  the 
legislature,  and  the  legislature  after- 
wards, by  subsequent  legislation,  de- 
clared that  the  corporation  should  ex- 
ist, it  was  a  waiver  by  the  state  of  the 
previous  forfeiture.  State  f.  Bank  (S. 
C).  2   McMullan  439,  39  Am.  Dec.  135. 

58.  The  legislature  may  remit  a  for- 
feiture, and  the  exercise  of  that  power 
l>y  Act  March  14,  1839,  No.  22.  relieved 
i]ie  banks  from  all  penalties  incurred 
In'  the  nonpayment  of  specie.  Atchaf- 
alava   Bank   r.   Dawson.  13  La.  497. 

59.  Relief  against  forfeiture. — When 
the  suspension  of  specie  payments  in 
1860,  by  the  banks  of  South  Carolina, 
was  legalized  by  her  legislature,  the 
legislature  did  no  more,  and  could  do 
no  more  than  to  relieve  them  from  the 
penalty  of  the  forfeitures  of  their  char- 
ters. It  could  not  relieve  them  from 
the  obligation  to  pay  their  debts  in 
specie,    nor    extend    the    time    for    such 


§  /  0  (  1 


IXSOLX'EXCV   AND   DISSOLUTION. 


475 


§  70.  Proceedings  to  Enforce  Dissolution'^^'— §  70  (1)  In  Gen- 
eral.— Proceedings  to  dissolve  banking  corporations  are  usually  regulated 
and  prescribed  by  statute  in  the  various  jurisdictions." i     lUit  if  the  statute 


paj-ment.  It  could  not  do  this,  because 
an}'  such  law  would  impair  the  obliga- 
tion of  the  creditor's  contract.  God- 
frey f.  Terry,  97  U.  S.  171,  24  L.  Ed. 
SI44. 

The  act  of  the  legislature  of  1852, 
which  relieved  the  Citizens'  Bank  from 
the  decree  of  forfeiture  of  its  charter, 
while  it  restored  the  "rights  and  priv- 
ileges" of  the  corporation,  is  not  to  be 
understood  as  having  restored  those  of 
the  individual  corporators,  so  as  to  en- 
title the  original  stockholders  to  a 
credit  at  the  hands  of  the  bank,  as  at 
present  organized,  of  $33  per  share,  as 
a  loan  payable  in  installments,  accord- 
ing to  the  original  charter.  Pollock  v. 
Citizens"  Bank,  12  La.  Ann.  228. 

60.  Proceedings  against  persons  en- 
gaged in  unauthorized  banking,  see 
ante,  'Tn  General,"  §  8.  Proceedings 
on  insolvency,  see  post,  "Making,  Re- 
ceipt, and  Entry  of  Deposit  for  Col- 
lection,"' §  158;  "Rights  and  Liabilities 
as  to   Proceeds,"   §   164. 

61.  See  statutes  in  the  various  juris- 
dictions. 

California. — Bank  Commissioners'  Act 
March  30,  1878,  §  11,  as  amended  by 
St.  1887,  p.  90,  provides  that  if  the  com- 
missioners find  that  any  bank  has  vio- 
lated its  charter,  or  is  conducting  busi- 
ness in  an  unsafe  manner,  and  refuses 
to  discontinue  its  illegal  practices,  the 
attorney  general  may  bring  suit  to 
prohiliit  further  l)usiness.  and  to  wind 
up  its  affairs.  Section  21  provides  for 
the  repeal  of  all  inconsistent  acts. 
Held,  that  the  insolvent  Act  of  1880, 
providing  for  an  adjudication  of  insol- 
vency on  the  petition  of  creditors,  is 
superseded  by  the  bank  commission- 
ers' act  so  far  as  banking  corporations 
are  concerned.  People  f.  Superior 
Court,    100   Cal.   105,   34   Pac.   492. 

A  contention  that  the  sole  ol)ject  of 
the  bank  commissioners'  act  is  visita- 
tion and  a  report  to  the  attorney  gen- 
eral l)y  the  commissioners,  and  that 
there  is  no  suggestion  therein  for  the 
sequestration  of  assets,  is  untenable; 
§11  of  such  act  further  providing  that 
if  the  court  shall  consider  it  unsafe 
for  the  corporation  to  continue  to 
transact  business,  and  that  it  is  insol- 
vinl,  an  injunction  shall  be  issued,  and 
tlii-rcupon  sucli  proceedings  shall  be 
taken  against  the  cori)oration  "as  may 
be  decided  upon  by  its  creditors";  and 
§§  18,  19  authorizing  the  commission- 
ers to  maintain  actions  in  the  name  of 


the  people,  under  the  court's  direction. 
People  T.  Superior  Court,  100  Cal.  105, 
34   I'ac.  492. 

The  remedies  provided  l:)y  liic  bank 
commissioners"  act  and  the  insolvent 
act  are  not  cumulative,  nor  tne  pow- 
ers conferred  by  the  bank  commission- 
ers" act  auxiliary  to  those  comeired 
by  the  insolvent  act;  the  object  of  the 
Ijank  commissioners'  act  being  to  pro- 
vide an  entirely  different  scheme  for 
winding  up  the  business  of  a  banking 
corporation.  People  z-.  Superior  Court^. 
100  Cal.  105,  34  Pac.  492. 

Louisiana. — Acts  1842,  Xos.  98,  157, 
intend  all  contests  as  to  the  liabilities 
of  banks  in  liquidation  to  be  cumulated 
before  the  court  putting  them  in  liqui- 
dation. The  former  act  (§  24)  assim- 
ilates the  proceedings,  except  where 
otherwise  provided,  to  those  of  the 
voluntary  surrender,  and  thereby  es- 
lal)lishes  a  concurso  in  a  modified 
form.  Dorvilte  v.  Citizens'  Bank  (La.), 
9    Rob.  362. 

Mississippi. — By  the  fifth  section  of 
the  Act  of  1843,  prescribing  the  mode 
of  proceeding  against  incorporated 
banks  for  a  violation  of  their  corporate 
franchises,  etc.,  it  is  enacted  that  the 
provisions  of  the  act  shall  not  extend 
to  the  Commercial  and  Railroad  Bank 
of  Vicksburg,  so  as  to  affect  the  rail- 
road and  its  operation.  Held,  that  this 
bank  was  not,  by  this  provision,  ex- 
empted entirely  from  the  operation  of 
the  act.  The  provision  only  limited 
the  extent  of  the  judgment  of  forfei- 
ture against  the  bank  in  the  event  one 
.should  be  rendered.  State  v.  Comnu-r- 
cial.  etc.,  P.ank  (Miss.),  12  Smedes  X: 
M.  276. 

The  third  section  of  tlie  act.  "relat- 
ing to  informations  in  the  nature  of 
quo  warranto,  and  for  otiier  purposes," 
passed  March  12.  1845  (2  Curw.  1153). 
providing  for  proceedings  by  the  as- 
signee of  dissolved  corporations;  tlie 
first  section  of  the  act  of  March  10, 
1843  (2  Curw.  951),  providing  that  suits 
should  not  abate  by  the  dissolution  of 
any  corporation;  and  the  provision  of 
the  act  of  March  21,  1850,  "in  relation 
to  judicial  proceedings  in  favor  of  and 
against  dissolved  corporations,"  that 
suits  might  be  i)rosecuted  liy  banking 
or  other  corporations  at  any  time  .after 
dissolution — had  all  the  same  object. 
Stetson  r.  City  Bank.  2  O.  St.  167. 

'i^Iiey  were  intended  l<>  |)reseive  the 
rights  of  and   furnish   an  erreetual   rem- 


47'6 


BANKS    AND    BANKING. 


§  70  (2> 


provides  no  method  of  procedure,  the  procedure  should  follow  that  specifiea 
for  ordinary  actions. ''- 

§  70  (2)  Nature  or  Character  of  Proceeding. — It  is  well  settled, 
however,  that  in  order  to  forfeit  the  charter  of  a  bank  a  direct  proceeding 
for  the  purpose,''"'  usually  an  information  in  the  nature  of  a  quo  warranto,^-* 


edy  to  persons  entitled  by  assignment 
or' otherwise  to  rights  in  action  which 
had  accrued  to  corporations,  during 
their  continuance  (and  which  must 
therefore  be  prosecuted  in  the  name 
of  the  corporation),  against  the  opera- 
tion of  the  common-law  rule,  which 
forfeited  all  such  rights  on  the  uncon- 
ditional dissolution  of  the  corporation. 
Stetson  V.  City  Bank,  2  O.  St.  167. 

While  many  of  the  provisions  of 
these  statutes  are  necessarily  confined 
to  domestic  corporations,  those  which 
relate  to  the  prosecution  of  suits  must, 
by  a  just  and  sound  construction  of 
the  acts  in  question,  be  extended  to  as- 
signees holding  such  claims  as  those 
mentioned  by  assignment  from  corpo- 
rations bevond  the  limits  of  this  state. 
Stetson  z'."City  Bank,  2  O.  St.  167. 

"The  Act  of  May  1,  1852  (3  Curw. 
1876),  'to  provide  for  the  adjustment 
and  settlement  of  the  affairs  of  incor- 
porated associations  and  companies,' 
was  not  inconsistent  with  and  did  not 
repeal  the  provisions  of  the  former 
statutes  allowing  suits  to  be  prosecuted 
in  the  name  of  a  dissolved  corporation, 
although  the  further  facilities  which  it 
afforded  for  the  same  object  were  lim- 
ited to  domestic  corporations."  Stet- 
son V.  City  Bank,  12  O.  St.  577,  approv- 
ing and  following  Stetson  v.  City 
Bank,  2  O.  St.  167. 

62.  As  corporations  might  be  organ- 
ized under  the  act  of  June  15,_  1852,  of 
such  a  character  as  to  fall  within  the 
class  of  "moneyed  corporations,"  as 
intended  by  §  28  of  the  act  to  regulate 
the  business  of  general  banking  (1 
Rev.  St.  1852,  p.  159),  is  appears  to  fol- 
low that,  so  far  as  proceedings  to  dis- 
solve corporations  for  banking  pur- 
poses and  the  appointment  and  duties 
of  a  receiver  are  governed  at  all  by 
special  statute,  the  act  establishing 
general  provisions  respecting  corpora- 
tions (1  Rev.  St.  1852,  p.  239)  should 
maintain.  Herron  v.  Vance,  17  Ind. 
595.  See  Wright  z:  Rogers,  26  Ind. 
218. 

63.  Forfeiture  not  enforceable  in  a 
collateral  proceeding. — Forfeiture  of  a 
bank  charter  can  not  be  taken  advan- 
tage of  in  a  collateral  proceeding,  but 
only  in  a  proceeding  instituted  directly 


for  that  purpose.  Bank  i\  Snelling,  35 
Mo.  190;  Aliami  Exporting  Co.  v. 
Clark,  13  O.  1;  Bank  z:  Renick.  15  O. 
322;  Johnson  z:  Bentley,  16  O.  97;  Bar- 
tholomew V.  Bentley,  1  O.  St.  37;  Zinn 
V.   Baxter,  65   O.   St.  341,   62  N.   E.   327. 

The  debtor  of  a  bank  can  not  ab- 
solve himself  from  payment  by  alleg- 
ing that  the  bank  has  by  mismanage- 
ment forfeited  its  charter,  until  the 
fact  of  forfeiture  is  established  by  di- 
rect proceedings  against  the  bank. 
Such  a  forfeiture  can  only  be  enforced 
by  the  state  in  a  direct  proceeding  for 
that  purpose.  Hughes  z\  Bank  (Ky.), 
5  Litt.  45;  Farmers'  Bank  z\  Garten.  34 
Mo.  119. 

Effect  of  reversal  of  judgment  of 
forfeiture. — Where  the  affairs  of  a 
bank  are,  by  statute,  placed  in  the 
hands  of  trustees  for  settlement,  after 
a  judgment  has  been  rendered  on  quo 
warranto  against  the  bank  declaring 
its  charter  forfeited,  the  subsequent  re- 
versal of  that  judgment  does  not  affect 
a  suit  previously  instituted  by  the- 
trustees  against  a  debtor  of  the  bank, 
so  as  to  protect  the  debtor  against  the 
rendition  of  judgment.  Jemison  z'. 
Planters',   etc..   Bank.   23   Ala.   168. 

64.  Information  in  nature  of  quo 
warranto. — Saltmarsh  r.  Planters",  etc., 
Bank.  14  Ala.  668;  People  z:  Ridgley, 
21  111.  65;  Miners'  Bank  z:  Thomas 
(Iowa),  4  Green  336;  Coulter  z'.  Rob- 
ertson, 24  Miss.  278,  57  Am.  Dec.  168; 
Farmers'   Bank  z\   Garten.   34   Mo.    119. 

Nature  of  proceeding. — An  informa- 
tion in  the  nature  of  a  quo  warranto 
is  a  civil,  and  not  a  criininal,  proceed- 
ing. Commercial  Bank  z\  State  (Aliss.), 
4  Smedes  &  'SI.  439. 

Grounds  for  quo  warranto. — Persons 
appointed,  under  Acts  1847,  to  wind  up 
the  affairs  of  a  state  bank,  are  not  of- 
ficers, within  the  meaning  of  Scates' 
Comp.  224,  providing  that,  in  case  any 
person  usurps  or  unlawfully  holds  any 
ofiice  or  franchise,  it  shall  be  lawful 
for  the  attorney  general  to  exhibit  an 
information  in  the  nature  of  a  quo 
warranto.     People  z\  Ridgley,  21  111.  65. 

Persons  appointed  under  the  .\ct  of 
1847  to  wind  up  the  affairs  of  a  state 
bank  do  not  enioy  a  franchise,  within 
the  meaning  of  Scates'  Comp.  224,  pro- 


§    70    (2)  INSOLVENCY    AND   DISSOLUTION.  4/ 

in  the  name  of  the  state''"'  must  be  instituted  in  the  proper  forum.*''''' 


viding  for  the  filing  of  an  information 
in  the  nature  of  a  quo  warranto  to 
oust  a  person  who  unlawfullj^  holds  or 
executes  any  office  or  franchise.  Peo- 
ple f.  Ridgley,  21  111.  65. 

Hearing  in  quo  warranto  proceed- 
ings.— The  court  has  full  power  and 
jurisdiction,  upon  a  writ  of  quo  war- 
ranto, to  hear  and  determine  all  ques- 
tions touching  the  forfeiture  of  the 
bank's  franchises.  ^liami  Exporting 
Co.  ::  Clark,  13  O.  1. 

Quashal  of  quo  warranto. — If  a  pro- 
ceeding in  the  nature  of  a  quo  war- 
ranto has  been  improvidently  issued 
against  a  bank,  it  will  be  dismissed  or 
quashed  on  motion.  S.tate  v.  Com- 
mercial, etc..  Bank  (Miss.).  12  Smedes 
&  M.  276. 

Injunction  as  ancillary  to  quo  war- 
ranto.— After  the  attorney  general  had 
filed  an  information  in  the  nature  of  a 
quo  warranto  in  the  supreme  court  to 
annul  the  charter  of  a  bank,  he  filed  a 
bill  in  chancery  to  restrain  the  bank 
from  doing  business.  •  Held,  that  the 
bank's  continuing  its  operations  while 
insolvent,  or  buj-ing  up  its  own  notes 
at  a  discount,  will  not  authorize  an  in- 
junction from  chancery  to  restrain  its 
operations,  as  the  questions  of  for- 
feiture are  to  be  determined  in  the  quo 
warranto  proceedings.  Attorney  Gen- 
eral V.  Bank  (N.  Y.),  1  Hopk.  Ch.  354. 

In  order  to  justify  the  issuing  of  an 
injunction,  under  the  statute,  to  re- 
strain a  bank  and  its  officers  from  ex- 
ercising its  franchises,  positive  testi- 
mony of  the  insolvency  of  the  bank, 
or  that  it  has  violated  some  provision 
of  law,  is  requisite;  and  an  affidavit  of 
belief  to  that  efifect  is  not  sufficient. 
.\ttorney  General  v.  Bank  (N.  Y.), 
1   Hopk.  Ch.  590 

Scire  Facias. — In  South  Carolina 
forfeiture  of  a  bank  charter  for  sus- 
pension of  specie  payments  may  be  en- 
forced by  scire  facias  in  the  common 
pleas.  State  z\  Bank  (S.  C),  1  Speers 
433.- 

Schedule  annexed  to  petition. — The 
provision  of  Code  Civ.  I'rnc,  §  2421, 
that  the  schedule  annexed  to  a  peti- 
tion for  voluntary  dissolution  of  a  cor- 
poration shall  show,  as  far  as  petition- 
ers "know  or  have  the  means  of  know- 
ing," the  name  and  residence  of  each 
creditor,  or,  if  either  of  these  is  un- 
known, a  statement  to  that  effect,  is 
com]>lied  wifli  where  the  schedule  to 
sucli  a  ]jetition  by  the  directors  of  a 
hank,  whose  i)rf)])erty  is  in  the  posses- 


sion of  the  superintendent  of  banks, 
states  that  it  contains  the  required 
matter  so  far  as  known,  and  that  there 
are  "a  number  of  other  depositors 
whose  names  are  unknown  to  petition- 
ers," and  gives  the  aggregate  claims 
of  all  depositors.  In  re  Murray  Hill 
Bank,  9  App.  Div.  546.  41   X.  Y.  S.  914. 

65.  Parties  to  quo  warranto  pro- 
ceeding.— Huntington  z'.  Crescent  City 
Bank.   18  La.  Ann.  350. 

"The  state  *  *  -^  only,  by  the  at- 
torney general,  can  institute  proceed- 
ing to  have  the  franchises  of  a  corpo- 
ration declared  forfeited  for  failure  to 
comply  with  the  provisions  of  the 
charter.  State  v.  White's  Creek  Turn- 
pike, etc.,  Co.,  3  Tenn.  Ch.  163;  State  f. 
McConnell,  71  Tenn.  (3  Lea)  332;  State 
V.  Scott,  32  Tenn.  (2  Swan)  332;  Code, 
3409,  et  seq.;  Merriman  f.  Magiveny, 
59  Tenn.  (12  Heisk.)  494."  State  r. 
Butler,  83  Tenn.  (15  Lea)   104. 

Third  parties  can  not  enforce  the 
forfeiture  of  a  charter.  The  state 
grants  it  and  alone  can  take  it  away, 
but  other  parties  in  dealing  with  such 
corporations  may  inquire  into  their 
powers  and  obligations.  State  v.  But- 
ler,   83   Tenn.    (15    Lea)    104. 

"By  our  law,  a  (banking)  corpora- 
tion is  not  dissolved  by  the  nonuse, 
or  assignment  to  others,  in  whole  or 
in  part,  of  its  powers,  franchises  and 
privileges,  unless  all  the  corporate 
property  has  been  appropriated  to  the 
payment  of  its  debts;  and,  in  such 
cases,  says  the  Code  (§  3431),  'any 
creditor,  for  himself  and  other  credit- 
ors, whether  he  has  recovered  a 
judgment  or  not,  or  any  stockholder, 
for  himself  and  other  stockholders, 
may  file  a  bill,  under  the  provision  of 
this  chapter,  to  attach  the  corporate 
property,  and  have  such  property  ap- 
plied to  the  payment  of  the  corpora- 
tion   debts,    and    any    surplus    divided 

66.  ''By  the  common  law  the  forfei- 
ture of  a  charter  can  only  be  enforced 
in  a  court  of  law,  in  a  proceeding  by 
scire  facias,  or  on  an  information  in 
the  nature  of  a  writ  of  quo  warranto, 
yet  in  this  state  there  can  be  no  doubt 
that,  under  the  act  of  185(i,  ch.  55,  a 
court  of  chancery  is  invested  with  the 
jurisdiction  to  inquire  into  and  de- 
termine the  fact  of  a  violation  of  the 
charter  l)y  the  corpoiation,  in  the  re- 
spects indicated  in  the  12th  section^  of 
the  act  incorporating  the  Bank  of  h'ast 
Tennessee."  Johnson  7'.  Churchwell, 
I3S    Tenn.     fl     Head)     146. 


478 


BANKS    AND    BANKING. 


§  70  (3) 


§  70  (3)  Necessity  of  Proceeding. — Until  a  bank  charter  has  been 
judicially  forfeited,  the  institution  may  continue  to  exercise  its  banking 
functions,  because  it  is  well  settled  that  the  powers  of  a  corporation  do 
not  cease  by  the  mere  act  of  violating  its  charter.*''^     But  in  a  few  juris- 


among    the    stockholders."  "'       Marr      z'. 
Bank,  44  Tenn.   (4   Coldw.)    471. 

Consent  of  attorney  general  re- 
quired.—Under  Act  March  18,  1858, 
providing  for  the  establishment  of  a 
general  free  banking  system  within  the 
state,  §  20  authorizing  the  forfeiture 
of  a  bank  charter  on  the  application  of 
the  attorney  general,  a  judgment  of 
forfeiture  obtained  not  only  without 
the  attorney  general's  consent,  but 
contrary  to  his  express  agreement  will 
be  set  aside.  Riggin  &  Co.  i'.  Union 
Bank,  18  La.  Ar.n.  677, 

Bank  commissioners. — It  i  s  not 
necessary  tliat  all  the  bank  commis- 
sioners should  unite  in  a  proceeding 
against  a  bank  for  a  violation  of  its 
charter.  Bank  Comm'rs  7'.  Bank  (N. 
y.),   6   Paige   497. 

Private  relator. — A  writ  of  quo  war- 
ranto to  dissolve  a  banking  corpora- 
tion can  not  be  maintained  in  the  su- 
preme court  upon  the  suggestion  of 
a  mere  private  relator;  but  in  ques- 
tions involving  merely  the  administra- 
tion of  corporate  functions  or  duties  af- 
fecting only  individual  rights,  svich  as 
the  election  of  officers,  or  admission 
of  corporate  officers  or  members,  the 
writ,  under  the  Act  of  1836,  may  issue 
at  the  suit  of  the  attorney  general,  "or 
of  any  person  or  persons  desiring  to 
prosecute  the  same."  ]\'Iurphy  :■.  Farm- 
ers'  Bank,   20   Pa.   415. 

Suit  to  dissolve  by  stockholder. — 
Notwithstanding  it  may  be  true  tlie 
right  to  dissolve  a  banking  corpora- 
tion is  reposed  solely  in  the  state,  yet 
a  court  of  equity  may,  at  the  instance 
of  a  stockholder  of  such  a  corporation, 
entertain  a  proceeding  against  it  and 
its  officers  and  compel  it  to  account 
for  a  fraudulent  conversion  of  its 
funds,  and  such  court  may,  if  neces- 
sary for  the  preservation  of  the  res, 
appoint  a  receiver.  Chandler  Mortg. 
Co.    V.    Loring,    113    111.    App.    423. 

Priority  of  proceedings. — The  pro- 
visions of  the  banking  law  (Laws  1892, 
c.  689)  relative  to  the  taking  posses- 
sion of  the  property  of  an  insolvent 
banking  corporation  by  the  superin- 
tendent of  banks,  and  the  institution  of 
proceedings  by  the  attorney  general 
for  its  dissolution,  being  a  special  act, 
applying  only  to  banking  and  similar 
corporations,  and  of  later  date  than 
the   general   provisions   of  the   Code   of 


Civil  Procedure  relating  to  the  volun- 
tary dissolution  of  corporations 
(§§  2419-2432),  a  proceeding  instituted 
by  the  attorney  general  under  the 
former  statute  for  the  dissolution  of 
such  a  corporation,  after  the  seizure 
of  its  property  by  the  superintendent 
of  banks,  takes  priority  over  a  pro- 
ceeding instituted  by  the  directors  un- 
der the  latter  statute,  though  the  di- 
rectors' proceeding  was  begun  before 
that  of  the  attorney  general.  Judg- 
ment, 43  N.  Y.  S.  836,  14  App.  Div.  318, 
affirmed.  In  re  Murray  Hill  Bank,  153 
X.  Y.  199,  47  X.  E.  29S. 

67.  Necessity  of  forfeiture  proceed- 
ings.— Atchafalaya  Bank  z'.  Dawson, 
13  La.  497;  Union  Bank  z'.  Macdonald, 
15  La.  25;  Bank  z'.  Green,  20  La.  Ann. 
214;  People  z'.  Bank,  12  Mich.  527; 
Montgomery  z'.  Merrill,  18  Mich.  338;. 
Finnell  z:  Burt,  2  Handy  202,  12  O. 
Dec.  403;  State  r.  Butler,  83  Tenn.  (15 
Lea)    104. 

A  decree  of  a  court  where  a  bank  is- 
located,  finding  the  latter  insolvent,  ap- 
pointing a  receiver,  and  restraining  the 
liank  from  further  transacting  any 
liusiness,  is  not  a  declaration  of  a  for- 
feiture. City  Ins.  Co.  z'.  Commercial 
Bank,   68   111.   348. 

The  failure  of  a  bank  to  redeem  its 
notes  is  a  question  for  the  state  to  in- 
quire into,  and  the  bank  possesses  the 
power  to  make  loans  imtil  its  charter 
shall  have  been  declared  forfeited. 
Maury  z'.   Tngraham,  l?8   Miss.  171. 

Bank  may  dispense  with  judicial  pro- 
ceeding.— The  object  of  the  Act  of 
Fel)ruary  12.  1843,  "for  the  final  set- 
tlement of  the  affairs  of  the  Planters'^ 
and  Merchants'  Bank  of  Mobile,"  was 
to  obtain  a  dissolution  of  the  bank's 
charter  agreeably  to  law;  and  although 
it  provides  for  the  institution  of  ju- 
dicial proreedintrs  against  the  bank,  to 
obtain  a  judgment  of  forfeiture  of  its 
charter,  and  declares,  "that,  if  no  cause 
of  forfeiture  shall  be  found,  this  act 
shall  have  no  force  or  validity,"  yet 
the  bank  might  dispense  with  the  ju- 
dicial proceeding  by  surrendering  its 
charter  and  accepting  the  provisions 
of  the  act,  and  it  was  competent  for 
the  state,  with  the  assent  of  the  bank, 
to  resume  its  franchises  at  any  time. 
Savace  z\  Walshe,  26  Ala.  619. 

Effect  of  order  of  foreign  court. — 
The   order   of  a   Kentucky   court,   made 


§  /O  (5) 


IXSOLVEXCV    AXD   DISSOLUTION. 


479 


dictions,  because  of  peculiar  statutory  provisions,  a  bank  ceases  to  exist 
upon  a  noncompliance  witb  or  violation  of  tbe  banking  laws,  so  as  to  ren- 
der a  judgment  of   forfeiture  unnecessary.'""^ 

§  70  (4)  Jurisdiction  and  Venue. — Dissolution  proceedings  by  a 
creditor  of  a  corporation  to  wind  it  up  can  not  be  instituted  in  a  court  of 
equity.''^ 

§  70  (5)  Parties. — In  some  jurisdictions  creditors  and  stockholders 
mav  institute  dissolution  proceedings  against  a  bank.'" 


under  the  law  of  the  slate,  appointing 
commissioners  to  take  possession,  for 
the  benefit  of  its  creditors,  of  the  as- 
sets of  a  banking  institution  there, 
does  not  operate  as  a  dissolution 
of  the  bank's  corporate  powers, 
so  that  the  bank's  interest  in  property 
of  any  description  in  Ohio  could  not 
be  reached  by  legal  remedies  directed 
against  that  property  by  its  creditors. 
Finnell  v.  Burt,  2  Handy  202,  12  O. 
Dec.  40,3. 

68.  Wilson  v.  Tcsson.  12  Ind.  28.). 
Under    the    act    to     prevent      illegal 

banking,  a  violation  thereof  may  be 
pleaded  in  bar  of  any  suit  brought  by 
a  corporation,  and  it  is  not  necessary 
that  the  franchise  should  have  been 
forfeited,  upon  direct  proceedings  for 
that  purpose.  North  [Missouri  R.  Co. 
(■.  Winkler.  '.V.',  ^io.  .'!.'J4. 

69.  Jurisdiction  of  forfeiture  pro- 
ceedings.— Discontinuance  of  business, 
reputed  insolvency,  suffering  its  cir- 
culating notes  to  be  returned  to  the 
comptroller  for  redemption,  and  non- 
payment of  rent  for  the  premises  oc- 
cupied by  the  association,  and  the  is- 
suing of  post  notes  to  circulate  as 
money,  are  not  sufficient  groimds  for 
a  proceeding  in  this  court  to  dissolve 
the  association  at  the  instance  of  a 
simple  contrftct  creditor.  Parmly  v. 
Tenth  Ward  Rank  (N.  Y.),  3  Edw.  Ch. 
30.-). 

But  in  Michigan  under  the  .\ct  of 
Iniu-  21.  is:!7.  the  court  of  chancery 
has  jurisdiction  over  banking  corpora- 
tions to  restrain  them  by  iniimction 
from  exercising  their  corporate  pow- 
ers, to  aopoint  a  receiver  to  take 
charge  of  their  assets,  and  to  decree 
their  dissolution,  when  the  corporation 
is  insolvent,  when  it  refuses  to  pay  its 
dflits.  or  v*hen  it  has  violated  any  pro- 
vision of  its  charter,  or  of  any  law 
liindinir  on  it.  .Attornev  Oenernl  7'. 
0;.kl;uul  County  Bank  CMich.),  W^-llk. 
CI:     W 

Court    of    common    pleas     of      New 


York. 


I«;)4    (Const.,    art. 


§    12) 


the  superior  city  courts,  of  which  the 
common  pleas  of  the  city  and  county 
of  Xew  York  was  one,  continued  with 
the  jurisdiction  then  possessed,  and 
such  further  civil  and  criminal  juris- 
diction as  might  be  conferred  by  law. 
Code  Civ.  Proc,  §  263,  subd.  2,  pro- 
vided that  the  superior  city  courts 
should  have  jurisdiction  of  actions  for 
causes  specifically  enumerated,  as  well 
as  for  any  other  cause  of  action  aris- 
ing within  the  city,  or  where  defend- 
ant is  a  resident  of  that  city,  or 
where  the  summons  is  personally 
served  on  him  therein.  Held,  that  the 
court  of  common  pleas  of  New  York 
had  jurisdiction  to  entertain  an  action 
to  dissolve  a  state  bank  incorporated 
under  Laws  1882,  c.  409,  where  New 
York  City  was  its  principal  place  of 
business,  and  the  summons  was  served 
there,  and  the  cause  of  action  arose 
therein.  Hagmayer  v.  Alten,  36  Misc. 
Rep.   .59,   72   N.   Y.   S.   623. 

70.  Who  may  institute  forfeiture 
proceedings. — In  an  action  1)\'  a  stock- 
holder of  a  bank,  praying  the  dissolu- 
tion of  the  corporation,  the  vacation 
of  an  assignment  made  by  the  presi- 
dent and  cashier,  alleged  to  have  been 
made  without  the  knowledge  of  the 
stockholders,  and  with  intent  to  de- 
fraud them,  removal  of  the  assignee, 
and  appointment  of  a  receiver,  the 
bank,  the  president,  and  the  cashier 
and  assignee  are  all  proper  parties  de- 
fendant. Mitchell  V.  Bank,  7  .Minn. 
252    (Gil.    192). 

Rev.  St.,  c.  148,  §  2')  (2  Taylor's  v^t., 
p.  1734),  provides,  witii  reference  to 
proceedings  against  corporations,  for 
failure  to  pay  del)ts  oi  for  charter  \''\a- 
lations,  that  if  an  ajjplication  for  an 
injunction  and  tlie  api)ointnient  of  a 
receiver  be  made  by  a  creditor  of  any 
corporation  whose  stockholders  are 
liable  for  the  jiayment  of  the  debt,  in 
any  event  or  contingency,  tliey  "or 
any  of  them  may  be  made  i)arties  to 
the  action,  either  at  the  coninience- 
nuMit     thereof,     or     in     any     sul)se(iueiTt 


480 


BANKS    AND    BANKING. 


§  70  (7) 


§  70  (6)  Multifariousness. — A  single  suit  to  wind  up  a  banking 
corporation  is  sufficient,  and  the  statutory  liability  of  stockholders,  and  the 
liability  of  directors  and  officers  and  stockholders  of  the  corporation  for 
the  payment  of  the  indebtedness  of  the  corporation  in  any  event  or  con- 
tingency and  the  liability  of  the  directors,  managers,  trustees  and  other 
officers  of  the  corporation  to  make  good  any  money  or  property  squandered 
or  lost  through  their  fraud  or  negligence,  are  all  germane  to  the  subject  of 
the  action ;  therefore,  may  all  be  properly  brought  in  as  parts  of  the  one 
controversy.'''^ 

§  70  (7)  Pleading. — The  general  rules  of  pleading  in  civil  cases  are 
applicable  to  proceedings  upon  an  information  in  the  nature  of  a  quo  war- 
ranto, except  so  far  as  these  rules  have  been  modified  by  statute.  The  in- 
formation is  a  pleading  which  must  be  answered  or  demurred  to,  but  the 
allegations  of  the  information  may  be  in  very  general  terms ;  no  great  par- 
ticularity is  required."-     On  the  other  hand,  the  defendant's  answer  to  the 


stage  of  the  proceedings,  whenever  it 
shall  become  necessary  to  enforce  such 
liability."  Section  26  provides  that,  if 
any  creditor  desires  to  make  stock- 
holders parties  to  the  action  "after  a 
judgment  therein  against  the  corpora- 
tion,'' he  may  do  so  by  filing  a  com- 
plaint against  them  founded  on  such 
judgment.  Held,  that  §  26  is  but  an 
extension  of  the  remedy  to  such  credit- 
ors as  may  choose  to  proceed  to  judg- 
ment before  resorting  to  the  equitable 
proceedings,  and  is  not  an  implied  de- 
nial of  the  action  expressly  authorized 
by  §  25;  and  hence  a  creditor  of  a 
bank  may,  w^ithout  having  obtained  a 
judgment  at  law  against  it,  maintain 
an  action  against  the  bank  and  its 
stockholders  jointly,  to  restrain  the 
further  exercise  of  corporate  fran- 
chises to  procure  the  appointment  of 
a  receiver,  the  distribution  of  assets, 
and,  if  necessary,  enforce  the  stock- 
holders' individual  liability.  Cleveland 
T.   IMarine   Bank,   17   Wis.   54,5. 

The  forfeiture  of  charter  for  a  fail- 
ure to  pay  one  of  its  notes  in  specie, 
given  by  the  fourth  section  of  the 
Act  of  18th  February,  1836,  incorporat- 
ing the  Bank  of  the  United  States,  is  a 
penalty  to  enforce  a  private  claim,  and 
can  not  be  pursued  by  a  party  who,  on 
a  second  application,  has  received  the 
amount  of  his  note,  with  12  per  cent 
interest,  in  specie,  and  who  has  de- 
livered it  up  to  the  bank,  he  not  be- 
ing the  "holder  or  proprietor,"  within 
the  meaning  of  the  law.  Kuhn  v.  Bank 
(Pa.),   2   Ashm.   170. 

71.  Rev.  St.  1878,  §  3218,  provides 
that,  when  a  banking  corporation  shall 


become  insolvent,  the  court  may  re- 
strain it  from  transacting  business; 
§  3219  provides  that  the  injunction  may 
issue  at  the  commencement  of  any  ac- 
tion by  any  creditor  or  stockholder; 
and  §  3227  provides  that  when  an  ac- 
tion shall  be  commenced  imder  any  of 
the  provisions  of  the  chapter  against 
a  corporation,  its  officers  or  stock- 
holders, the  court  may,  on  application 
of  either  party,  restrain  all  proceed- 
ings by  any  other  creditor.  Held,  that 
but  one  winding-up  suit  is  proper,  and 
in  an  action  by  a  creditor  to  close  the 
business  of  an  insolvent  bank  the  statu- 
tory liability  of  stockholders,  the  lia- 
bility of  directors,  officers,  and  stock- 
holders for  the  indebtedness  of  the 
bank,  and  the  liability  of  the  directors 
or  other  officers  to  make  good  any 
money  squandered  through  their  fraud 
or  negligence,  may  be  enforced:  the 
several  liabilities  not  being  different 
causes  of  action.  Gaeer  v.  Marsden, 
101    Wis.    598.    77    N.    W.    922. 

72.  Pleadings  in  quo  warranto  pro- 
ceedings.— Commercial  Bank  :•.  State 
(Miss.),  6  Smedes  &  M.  599.  45  Am. 
Dec.  280;  People  v.  Hudson  Bank  (X. 
v.),   6   Cow.   217. 

For  exacting  excessive  rate  of  dis- 
count.— Where  a  bank  is  prohibited  by 
its  charter  from  making  loans  above  a 
certain  rate  of  discount,  and  also  in 
dealing  in  anything"  but  bills  of  ex- 
change, gold  or  silver  bullion,  etc. 
(not  including  promissory  notes),  a 
count  in  an  information,  charging  the 
bank  with  "dealing  in  promissory 
notes,"  without  charging  the  taking  of 
unlnv.'ful    discounts,    is    liad    on    special 


§  70  (8) 


INSOLVEXCY   AND  DISSOLUTION. 


481 


charge  of   forfeiture  must  set   fortii  particularly  his  matters  of  excuse  or 
defense."^ 

§  70  (8)  Judgment. — Under  the  New  York  practice,  a  final  judgment 
entered  in  an  action  brought  by  the  attorney  general  to  wind  up  the  affairs 
of  an  insolvent  bank,  which  dissolves  the  corporation  and  adjudges  that 
it  is  insolvent  and  that  its  capital  stock  has  been  impaired,  relates  back  to 
the  date  when  the  temporary  receiver  was  appointed  and  took  possession 
of  the  assets  of  the  corporation.'^ 


demurrer.  Commonwealth  v.  Com- 
mercial Bank,  28  Pa.  383. 

The  bank  being  expressly  authorized 
to  deal  in  bills  of  exchange,  a  count  in 
a  quo  warranto  information  charging 
the  discounting  of  bills  of  exchange, 
at  rate  of  discount  exceeding  that  al- 
lowed by  the  charter,  is  bad  on  special 
demurrer,  as,  being  drawn  upon  a  dis- 
tant place,  the  discount  may  have  been 
regulated  by  consideration  of  ex- 
change as  well  as  time.  Common- 
wealth v.  Commercial  Bank,  28  Pa.  383. 

A  count  charging  the  bank  with 
"dealing  in  promissory  notes  by  pur- 
chasing same  at  rates  of  discount 
greatly  exceeding"  the  allowed  rate  is 
good  on  special  demurrer.  Common- 
wealth r.  Commercial  Bank,  28  Pa.  383. 

Counts  charging,  respectively,  that 
defendant,  on  a  day  named,  "and  at 
divers  other  days  before  and  since,  dis- 
counted promissory  notes  and  made 
loans,  at  rates  of  discount  exceeding" 
the  rate  allowed,  are  good  on  special 
demurrer,  without  setting  out  the  spe- 
cial notes,  their  parties,  dates,  or 
amounts,  or  the  particular  loans  re- 
ferred to,  as  the  offense  charged  is  the 
diversion  of  the  business  from  its 
proper  course.  Commonwealth  v. 
Commercial  Bank,  28   Pa.  383. 

Where  the  charter  of  a  bank  de- 
clared that  the  "rate  of  discount  at 
which  loans  may  be  made  shall  not 
exceed  one-half  of  one  per  centum  for 
thirty  days,"  a  count,  charging  it  with 
"discounting  promissory  notes  at  rates 
of  discount  exceeding  one-half  of  one 
per  centum  for  thirty  days,"  is  good  on 
special  demurrer,  without  averring  that 
sucli  discounts  were  made  upon  loans 
of  money.  Commonwealth  i'.  Com- 
mercial Bank,  28   Pa.  383. 

A  count  charging  such  a  discount 
of  a  l)ill  of  exchange  payal)le  at  Phila- 
delphia is  good,  as  this  is  a  mere  dis- 
cruint  of  a  domiciliary  l)ill,  for  which 
finly  the  rate  fixed  l)y  law  could  be 
charj/ed.  Commonwealth  i'.  Commer- 
cial   Bank.  28   Pa.   383. 

1    I'.  &  B— 31 


A  count  charging  that,  "for  many 
months  past,  the  defendant  has  been 
in  the  constant  practice  of  discounting 
promissory  notes  at  exorbitant  and 
usurious  rates  of  interest,  far  exceed- 
ing the  rate  of  one-half  of  one  per 
centum  for  thirty  days,"  is  good  on 
special  demurrer.  Commonwealth  z'. 
Commercial  Bank,  28  Pa.  383. 

Service  of  petition. — The  officers  of 
a  bank  are  without  authority  to  waive 
the  service  of  a  petition  praying  a  for- 
feiture of  its  charter,  or  to  waive  the 
delay  within  which  third  persons  may 
intervene  to  protect  their  interest,  or 
of  filing  an  answer  which  virtually  con- 
fesses the  forfeiture  of  the  charter, 
and  admits  the  necessity  of  the  imme- 
diate liquidation  of  the  bank.  State  r. 
Citizens'  Sav.  Bank,  31  La.  Ann.  836. 

73.  In  a  proceeding  against  a  bank 
to  forfeit  its  charter  because  of  its  sus- 
pension of  specie  payments,  the  an- 
swer of  the  bank  stated  that  it  paid  all 
its  notes  and  liabilities,  except  certain 
checks  wliicli  it  had  drawn  on  another 
bank,  for  payment  of  which  provision 
had  been  made  with  that  bank,  but  it 
failed  to  pay  them,  and  they  were  re- 
turned; that,  on  being  returned,  the 
bank  was  unable  to  pay  them  at  the 
time,  but  in  two  years  afterwards,  and 
liefore  the  commencement  of  any  pro- 
ceeding against  it,  it  resumed  specie 
payment  on  these  checks  and  all  other 
liabilities,  whenever  payment  was  de- 
manded at  its  counter,  and  was  then 
paying  specie.  Held,  that  this  was  not 
a  sufficient  answer  to  the  charge  of  for- 
feiture, and  no  excuse  for  the  sus- 
pension. Commercial  Bank  <'.  State 
(Miss.),  (•)   Smcdes   iS:   ]\1.   .SOU. 

74.  Judgment  in  forfeiture  proceed- 
ings.— People  ?'.  Merchants'  Trust  Co., 
187  N.  Y.  293,  79  N.  H.  1004,  citing 
People  7'.  American  Loan,  etc.,  Co., 
172  N.  Y.  371,  fi.'S  N.  R.  200;  People  7'. 
Commercial  Alliance  Life  Tns.  Co.,  ^^A 
X.  Y.  95.  47  N.  K.  9f)8;  .Attorney  Gen- 
eral V.  Life,  etc.,  Ass'n.  l.'iO  N.  Y.  94, 
!.'■.  N.  E.  8;  In  re  Kquitable.  etc., 
Life  Ass'n.  131  N.  Y.  354,  30  N.  K.  114. 


482 


r.ANKS   AND   BANKING. 


§  71   (1) 


§  70  (9)  Abatement  and  Vacation  of  Proceedings. — Abatement 
of  Proceedings. — A  proceeding  for  a  voluntary  dissolution  of  a  banking 
corporation,  instituted  by  its  directors,  abates  upon  the  entry  of  a  judgment 
dissolving  such  corporation  in  an  action  brought  by  the  attorney  general."^ 

Setting  Aside. — A  stockholder  of  a  bank  can  not  have  the  dissolution 
proceedings  set  aside  on  account  of  defects  therein.'*^ 

§  70  (10)  Costs. — The  costs  of  a  proceeding  to  wind  up  the  affairs 
of  a  bank  should  be  borne  ratably  by  all  the  creditors.'^' 

§  70  (11)  New  Trials. — AMiere  an  issue  of  fact  is  involved  in  dis- 
solution proceedings  against  a  bank,  a  new  trial  may  be  had  as  in  other 
cases."^ 

§  71.  Receivers,  Trustees  or  Commissioners  in  Proceedings  for 
Dissolution^ — §  71  (1)  Selection,  Appointment  and  Removal. — Where 
a  banking  corporation  goes  into  liquidation,  a  receiver  is  the  officer  usually 


75.  In  re  Murray  Hill  Bank,  153  X. 
Y.  199,  47  N.  E.  298,  affirming  14  App. 
Div.   318,    43    N.   Y.    S.    836. 

Another  suit  pending. — The  pend- 
ency of  a  proceeding  by  directors  of 
an  insolvent  bank  to  dissolve  it  does 
not  bar  an  action  by  the  attorney  gen- 
eral for  the  same  relief.  People  z'. 
Murray  Hill  Bank,  10  App.  Div.  328, 
41  N.  Y.  S.  804,  26  Civ.  Proc.  R.  1,  75 
N.   Y.    St.    Rep.   1203. 

76.  A  bank  was  dissolved  and  a  re- 
ceiver appointed,  who  assigned  a  judg- 
ment in  favor  of  the  bank,  under  au- 
thority of  court.  The  assignee  at- 
tempted to  enforce  the  judgment 
against  the  proceeds  of  the  share  of 
the  debtor  in  realty  which  had  been 
sold  in  partition  proceedings.  A  stock- 
holder of  the  bank  intervened,  and  at- 
tacked the  assignment  of  the  judg- 
ment, setting  forth  defects  in  the  dis- 
solution proceedings.  Held,  that  he 
could  not  afterwards  inove  to  have  the 
dissolution  proceedings  set  aside  on 
account  of  said  defects.  Order  In  re 
Grand  Cent.  Bank,  27  Misc.  Rep.  116, 
57  N.  Y.  S.  418,  affirmed.  In  re  Volun- 
tary Dissolution,  42  App.  Div.  157,  58 
N. 'Y.  S.  1022;  Treacy  z:  Ellis,  45  App. 
Div.    492,    61    N.    Y.    S.    600. 

77.  Costs  in  dissolution  proceedings. 
— Under  the  statute  forbidding  an  in- 
solvent corporation  giving  a  prefer- 
ence, and  providing  that  any  of  its 
creditors  may  institute  proceedings 
for  winding  up  its  affairs,  and  on  such 
application  the  court  shall  take  charge 
of  all  its  assets  and  distribute  them 
equally  among  the  creditors,  an  action. 


though  in  the  name  of  a  single  creditor, 
for  appointment  of  a  receiver  and 
to  wind  up  the  affairs  of  an  insolvent 
Ijank,  is  for  the  benefit  of  all  its 
creditors,  so  that  the  fees  of  the  at- 
torneys bringing  the  action  should  be 
borne  by  all  the  creditors  in  propor- 
tion to  the  amounts  'received  by  them. 
Bradshaw  v.  Bank,  76  Ark.  501,  89  S. 
W.  316. 

Counsel  fees. — For  services  rendered 
in  the  prosecution  of  a  bill  by  creditors 
to  wind  up  the  affairs  of  a  bank,  coun- 
sel are  entitled  to  be  paid  out  of  the 
aggregate  recover^^  all  the  petitioning 
creditors  contributing  pro  rata;  but 
counsel,  only  representing  petitioning 
creditors,  must  be  paid  by  their  clients 
out  of  the  funds  recovered  for  them. 
Moses  r.  Ocoee  Bank.  69  Tenn.  (1 
Lea)   398. 

78.  New  trials  in  proceedings  to  en- 
force dissolution. — St.  1903,  p.  388,  c. 
266,  §  10,  authorizes  the  dissolution  of 
a  bank  at  the  suit  of  the  attorney  gen- 
eral, where  the  bank  is  insolvent,  or 
its  directors  are  transacting  its  busi- 
ness in  an  unsafe  manner  and  by  un- 
safe practices.  Held  that,  while  such 
section  provided  for  the  summarj'- 
winding  up  of  the  affairs  of  a  bank 
under  such  circumstances,  suit  brought 
by  the  attorney  general  was  rot  neces- 
sarily of  a  summary  character  in  its 
proceedings,  so  that,  where  an  issue 
of  fact  was  raised  therein  as  to  the  in- 
solvency of  the  bank,  and  as  to  alleged 
improoer  acts  of  its  directors,  a  mo- 
tion for  a  new  trial  was  authorized 
after  decree  of  dissolution.  People  v. 
Bank,    152    Cal.    261,    92    Pac.    481. 


§  7\   (1) 


IXSOLVEXCV    AXD   DISSOLUTIOX. 


483 


designated  to  wind  up  its  affairs.''^  But  in  some  jurisdictions  the  statutes 
authorize  the  appointment  of  other  officers,  such  as  trustees,  with,  how- 
ever, much  the  same  powers.^^  This  trustee  is  sometimes  appointed  upon 
petition  or  appHcation  by  the  stockholders.^^ 

In  New  York,  a  superintendent  of  banks  is  authorized  to  take  charge 
of  any  institution  that  has  violated  its  charter  or  any  state  law,  or  is  con- 
ducting its  business  in  an  unsafe  or  unauthorized  manner.  This  officer  acts 
by  virtue  of  his  authority  as  such  superintendent  under  the  statute,  and 
not  as  a  result  of  any  proceeding  in  court,  but  his  general  administration 
of  the  trust  is  subject  to  the  supervision  and  control  of  the  state  supreme 
court  in  most  respects. *'- 


79.  See  post,  "Assets  and  Receivers 
on   Insolvency."  §  77. 

80.  Appointment  of  trustees. — The 
governor  has  no  authority,  by  virtue 
of  his  office,  to  appoint  trustees  un- 
der the  act  of  1847  to  wind  up  the  af- 
fairs of  a  state  bank.  People  v.  Ridg- 
ley,  21   111.  65. 

Persons  appointed  to  wind  up  the 
affairs  of  a  state  bank  are  not  public 
officers,  but  merely  trustees.  People 
V.  Ridgley.  21  111.  6.5;  and  hence  are 
not  subject  to  legislative  control.  Com- 
mercial Bank  z\  Chambers  (Miss.),  8 
Smedes  &  ^l.  9. 

Removal  of  trustees. — Since  persons 
appointed,  under  Act  1847,  to  close  up 
the  affairs  of  a  state  bank,  are  merely 
trustees,  the  proper  method  of  pro- 
ceeding to  remove  them  is  by  bill  in 
chancery,  and  not  by  quo  warranto. 
People   i\   Ridgley,   21   111.   65. 

Liquidators  in  Louisiana. — Where 
a  charter  gives  the  right  to  sharehold- 
ers to  control  liquidation  of  a  liank, 
the  officers,  including  the  board  of  di- 
rectors, are  without  authority  to  sur- 
render such  right,  and  a  request  by  the 
shareholders,  made  to  the  court,  to 
confirm  their  action  in  appointing 
liquidators,  is  not  a  renunciation  of 
their  right  to  select  liquidators,  but  is 
an  affirmance  of  it.  Dreifus  f.  Colonial, 
etc..   Trust   Co..    123   La.   61.  48   So.   640. 

Election  of  liquidators. — Louisiana 
Rev.  St..  §  687.  provides  that  stock- 
holders at  a  general  meeting  convened 
therefor  may  dissolve  the  corporation 
with  assent  of  three-fourths  of  the 
stock  represented  thereat.  Articles  of 
incorporation  of  a  bank  provided  "said 
association  may  be  dissolved  with  the 
assent  of  two-thirds  of  the  capital 
stock  represented  at  a  general  meeting 
of  the  stockholders  convened  for  that 
purpose."  Held,  that  the  election  of 
liquidators  by  all  the  stockholders 
])rcsciit  at  a  meeting  is  not  invalid,  l)e- 


cause  the  election  was  not  supported 
l:)y  three-fourths  of  the  entire  stock. 
Dreifus  t'.  Colonial,  etc..  Trust  Co.,  123 
La.  61,  48  So.  649. 

81.  A  bank,  being  insolvvint  by  ac- 
tion of  its  stockholders,  under  Bank- 
ing Law  (Laws  1895,  p.  92,  c.  8),  §  35, 
passed  with  all  its  assets  into  the  con- 
trol of  the  State  Banking  Board,  which 
turned  over  the  property,  under  the 
law,  to  a  trustee  on  the  application  of 
the  stockholders.  Thereafter  the  bank 
brought  suit  on  a  note,  and  defendant 
pleaded  that  the  bank  was  not  the  real 
party  in  interest,  but  that  the  trustee 
was  the  proper  party  plaintiff.  Held, 
that  where  the  answer  fails  to  allege 
that  the  parties,  who  are  described  as 
stockholders  and  on  whose  petition 
the  assets  were  turned  over  to  the 
trustee,  were  all.  or  even  a  majority, 
of  the  stockholders,  as  required  by 
Laws  1895.  pp.  91.  92,  c.  8,  §§  34,  35.  to 
authorize  such  appointment  of  a  trus- 
tee, it  was  insufficient  to  show  a  legal 
appointment  of  such  trustee,  and  vest- 
ing in  him  the  right  to  sue  and  recover 
assets.  Omaha  Sav.  Rank  v.  Rose- 
water,  1    Neb.  723,  96  X'.  W.  68. 

Where  the  assets  of  an  insolvent 
bank  were,  on  petition  of  its  stock- 
holders, turned  over  to  the  trustee  in 
accordance  with  the  banking  law.  if 
such  act  was  illegal,  because  a  suffi- 
cient numl)cr  of  stockholders  had  no: 
petitioned  therefor,  as  required  l)y  the 
statute,  any  acquiescence  in  the  pro- 
ceedings or  ratification  thereof  by  the 
stockholders  must  be  shown  in  the 
record.  Omaha  Sav.  Rank  r'.  Rose- 
w.-itcr.    1    Xcb.  723.  96  N.  W.  68. 

82.  Under  New  York  Ranking  Law 
(Consol.  Laws  1909,  c.  2),  §§  19.  190. 
iMithoriziiT'-  control  of  certain  lianks  by 
the  superintendent  of  l)anks  under 
spccififd  circumstances,  a  sui)i'rintend- 
cnt  taking  cliarire  of  a  lianking  in- 
stitution   does    so    bv    virtue    of    statu- 


484 


BANKS  AND  BANKING. 


71   (2) 


§  71  (2)  Title,  Right  and  Authority.— While  the  legal  title  to  the 
bank's  assets  is  in  the  trustee, ''•'  yet  a  bank  commissioner  under  the  stat- 
utes in  some  states  can  not  supersede  the  officers  of  the  bank  in  control  ol 
its  property. '^^  The  powers  of  bank  commissioners  and  trustees  are  lim- 
ited to  such  acts  alone  as  pertain  to  closing  the  pecuniary  matters  of  the 
bank,  to  do  what  the  officers  of  the  bank  could  do  before  its  charter  was 
repealed.  In  short,  they  are  merely  administrators  to  settle  up  the  estate.^^ 
A  majority  of  such  commissioners  are  authorized  to  act.*«     Thus  trustees 


tory  authority  as  superintendent,  and 
not  as  a  result  of  any  proceeding  in 
court,  though  his  administration  is,  in 
certain  respects,  subject  to  the  action 
of  the  state  supreme  court.  In  re 
Bologh,   185   Fed.  825. 

83.  The  charter  of  a  bank  was  for- 
feited by  legal  proceedings,  and  the 
plaintifif  was  appointed  a  trustee  to 
sue  for  and  collect  the  debts  due  the 
bank.  Afterwards,  in  pursuance  of  a 
law  subsequently  passed,  the  circuit 
court  directed  the  trustee  to  sell  the 
assets  of  the  bank  to  the  highest  bid- 
der. Held  that,  the  legal  title  to  all 
the  property  of  the  bank  being  vested 
in  the  trustee  by  operation  of  law  and 
the  proceeding  of  the  court  consequeni 
on  the  forfeiture  of  the  charter,  such 
title  was  not  terminated  by  the  order 
to  sell.  Bingaman  z'.  Robertson,  25 
Miss.    390. 

84.  Powers  of  California  bank  com- 
missioner.— Act  March  30.  1878,  §  11, 
as  amended  by  Acts  1886-87,  p.  90,  au- 
thorizing the  bank  commissioners  to 
obtain  an  injunction  to  restrain  the 
doing  of  business  by  a  bank  which  is 
insolvent  or  can  not  safely  do  busi- 
ness, requires  the  business  of  such 
bank  to  be  settled  within  four  years 
after  it  is  declared  insolvent,  unless  a 
majority  of  the  commissioners  consent 
to  its  longer  continuance  in  liquida- 
tion. The  act  also  provides  that  banks 
in  liquidation  shall  make  semiannual 
reports  of  their  condition  to  the  bank 
commissioners,  and  that  the  commis- 
sioners shall  examine  their  condition, 
and  "shall  have  a  general  supervisory 
control"  of  them,  and  shall  designate 
the  number  of  officers  and  employees 
necessary  to  close  up  the  business  and 
fix  their  salaries.  Held,  that  the  act 
does  not  authorize  the  commissioners 
to  supersede  the  officers  of  the  bank 
in  the  control  of  the  bank's  property 
during  its  progress  towards  final  liqui- 
dation. Long  z'.  Superior  Court,  i02 
Cal.   449,   36   Pac.   807. 

85  Authority  over  directors. — Un- 
der the  law  creating  the  bank  commis- 
sioners  and   defining   their   powers,   re- 


quiring the  commissioners  to  examine 
the  condition  of  every  banking  cor- 
poration in  liquidation  in  the  same 
manner  as  in  case  of  solvent  banks, 
and  providing  that  subject  to  the  right 
of  removal  and  appointment  the  di- 
rectors of  banking  corporations  in 
liquidation  shall  manage  the  affairs 
thereof  under  the  direction  of  the  bank 
commissioners,  etc.,  the  business  of 
closing  up  the  affairs  of  a  banking 
corporation  in  liquidation  is  vested  in 
the  directors  of  the  corporation,  and 
the  bank  commissioners  have  authority 
over  the  directors  and  the  affairs  of 
the  corporation  only  for  the  purpose 
of  safeguarding  the  depositors  and 
stockholders  against  an  extravagant  or 
fraudulent  admmistration.  Bank  z'. 
Brown.  8   Cal.   App.   566,   97   Pac.   533. 

Number  and  salaries  of  employees. 
—St.  1895,  p.  177,  c.  167,  §  12,  giving 
the  Ijank  commissioners  power  to 
limit  the  number  and  salaries  of  em- 
ployees of  banking  corporations  in 
liquidation,  amends  St.  1887,  p.  92,  c. 
80,  giving  the  commissioners  power 
"to  designate  the  number  of  officers 
and  employees  necessary  to  close  up 
the  business  *  *  *  and  to  fix  the  sal- 
aries of  the  same;"  and  under  it  the 
commissioners  are  empowered  to  fix 
the  maximum  number  of  employees 
of  banking  corporations  in  liquidation, 
and  to  fix  their  maximum  salaries,  and, 
where  the  commissioners  have  fixed 
such  limitation,  the  directors  of  the 
corporation  must  fix  the  number  of 
employees  and  their  salaries  within 
such  limit.  Bank  v.  Brown,  8  Cal. 
App.   566,   97   Pac.   433. 

86.  Act  March  24,  1903,  §  10,  St. 
1903,  p.  368,  c.  266,  as  amended  by  Act 
March  20,  1905,  St.  1905,  p.  304,  c.  296, 
provides  that  upon  the  failure  of  a 
bank  to  conform  to  the  requirements 
of  the  bank  commissioners,  or  if  the 
commissioners  unanimously  decide 
that  it  is  unsafe  for  the  bank  to  con- 
tinue business,  they  shall  take  its 
property,  whereupon  the  attorney  gen- 
eral shall  commence  suit  to  enjoin  the 
transaction   of  business   by   such   bank. 


§  /"I  (-') 


IXSOLVEXCV   AND   DISSOLUTION. 


485 


may  compromise  debts  clue  the  bank,*^'  with  the  approval  of  tlie  court,^* 
or  perform  any  other  acts  that  will  contribute  to  an  advantageous  closing 
of  its  affairs."^"     The  trustees  of  an  insolvent  bank  may  execute  a  warrant 


the  act  also  providing  that  there  shall 
be  four  bank  commissioners.  Held 
that  the  fact  that  there  were  only 
three  bank  commissioners  serving 
when  they  decided  that  a  continuance 
of  defendant's  bank  was  unsafe  did  not 
prevent  a  "unanimous"  decision  under 
the  act,  as  they  could  exercise  the 
powers  conferred  by  law  so  long  as 
there  v.'as  in  office  i  majority  of  the 
number  provided  by  statute.  People  v. 
Bank,    154    Cal.    194,    ST    Pac.    306. 

87.  Trustees  may  make  compromises. 
— Neither  one  of  several  nor  all  the 
assignees  in  conjunction  appointed  to 
wind  up  the  affairs  of  the  Bank  of 
Illinois  is  or  are  authorized  to  make  a 
compromise  with  any  debtor  of  the 
bank,  by  which  the  security  of  the 
bank  or  the  trust  fund  will  be  dimin- 
ished, unless  some  advantage  will 
thereby  accrue  to  the  creditors  of  the 
bank.     Thomas  v.  Sloo,  15   111.  60. 

Under  the  powers  conferred  by  the 
acts  of  the  13th  February,  1843,  for  the 
final  settlement  of  the  affairs  of  the 
Planters'  &  Merchants'  Bank  of  Mo- 
bile, and  of  the  24th  January,  1845, 
amendatory  thereof,  the  trustees  ap- 
pointed by  virtue  of  the  latter  act  may 
lawfully  enter  into  a  contract  with  a 
third  person,  without  the  consent  of 
the  debtor,  to  secure  the  payment  of 
a  doubtful  debt  due  to  the  bank,  and 
transfer  the  debt  for  that  purpose  to 
such  third  person.  Saltmarsb  v.  Plan- 
ters',   etc..    Bank,    17    Ala.    761. 

Act  1845  authorizes  the  appointment 
of  trustees  to  settle  the  affairs  of  the 
Planters'  &  Merchants'  Bank,  whose 
charter  had  been  declared  forfeited, 
and  gave  them  power  to  compromise 
bad  or  doubtful  debts,  and  to  use  all 
the  remedies  which  the  l)ank  miglit 
have  used,  while  in  existence,  for  the 
collection  and  securing  of  its  claims. 
Held,  that  the  trustees  were  authorized 
to  take  individual  notes  to  secure  a 
balance  due  from  another  bank  that 
had  suspended  specie  payment,  as  such 
debt  must  be  considered  bad  or  doubt- 
ful. Jcmison  7'.  Planters',  etc.,  P.ank, 
23  Ala.   168. 

Act  Feb.  13,  1843.  for  tlie  final  set- 
tlement of  affairs  of  the  Planters'  & 
Merchants'  Bank  after  declaring  its 
charter  forfeited,  and  providing  for  the 
exhibition  of  an  information  in  tlic  na- 
ture of  a  quo  warranto  and  the  ap- 
Ii''>intmciit    of    commissioners,    i)r(ividcs 


that  it  shall  be  lawful  for  said  com- 
missioners to  submit  to  arbitration 
contested  claims,  "to  compound  any 
doubtful  or  bad  debt,"  etc.  Pamph. 
.Acts  1845,  p.  46,  provides  that  the 
trustee  may  use  the  corporate  name  of 
said  bank  in  the  collection  of  debts 
due  it,  and  may  use  all  the  modes  and 
powers  given  to  the  bank  for  the  col- 
lection of  its  debts,  in  the  same  man- 
ner as  if  the  charter  had  never  been 
forfeited.  Held,  that  these  provisions 
do  not  authorize  discounting  or  pur- 
chasing bills  except  in  payment  or  as 
security  for  a  debt  that  is  bad  or 
doubtful.  Saltmarsb  r.  Planters',  etc.. 
Bank,  14  .\la.  668. 

88.  The  proceedings  of  a  trustee  ap- 
pointed to  settle  up  the  affairs  of  a 
bank,  and  authorized  to  make  such  com- 
promises as  he  may  deem  most  ad- 
vantageous, are  subject  to  the  revision 
and  control  of  a  court  of  equity,  and 
may  be  rejected  or  confirmed.  ]\Iorris 
7'.   Thomas.   17   111.    I  1:2. 

89.  Powers  incidental  to  main  power. 
— Under  the  Act  of  1850.  relative  to 
the  final  settlement  of  the  affairs  of 
the  Planters'  &  Merchants'  Bank  of 
Mobile,  etc.,  and  providing  that, 
within  thirty  days  after,  etc.,  the  trus- 
tees of  said  bank  shall  sell  for  cash  all 
remaining  property,  claims,  etc.,  be- 
longing to  said  bank,  and  realize  the 
same  for  the  purpose  of  final  settle- 
ment, the  trustees,  by  necessary  im- 
plication, had  the  power  to  transfer 
negotiable  securities  so  as  to  pass  the 
legal  title  l)y  their  assignment,  and  en- 
aljle  the  purchaser  to  sue  in  his  own 
name.     Savage  z'.  Walshe.  26  .A.la.   619. 

Discounting  notes. — .As  the  trustees 
of  tlie  IMaiilers'  Sc  Merchants'  Bank  of 
Mobile  had  authority,  on  tlie  final  set- 
tlement of  the  affairs  of  tlie  bank,  to 
take  a  note  in  settlement  of  a  debt  due 
to  the  bank,  the  fact  that  a  note  taken 
by  the  trustees  after  tlie  surrender  of 
the  bank's  charter  was  made  "nego- 
tiable and  payable  at  said  bank"  does 
not  raise  a  legal  presumption  that  it 
was  unlawfully  discounted  iiy  the  trus- 
tees, instead  of  being  taken  in  settle- 
ment of  a  de1)t  due,  so  as  to  defeat  an 
action  brought  thereon  by  one  who 
I)urcliased  the  note  at  the  trustees' 
sale  of  the  bank's  assets.  Sr>Tige  r'. 
Walshe,   26   Ala.   61'.). 

Sale  of  collateral  securities  by  trus- 
tee.— 'I'lic    tnistiH'   of   a    hank    in    hcnn'd.'i- 


486 


BANKS  AND  BANKING. 


§  7\   (2) 


to  confess  judgment  given  to  the  bank  before  its  insolvency.^^  But  trus- 
tees have  no  power  to  contract  away  the  assets  of  the  bank  to  carrv  on 
quo  warranto  proceedings  against  its  officers,'^^  nor '  sue  for  and  recover 
debts  due  the  bank,  after  its  Habihties  are  paid  ofif/^-  Commissioners  ap- 
pointed in  another  state  have  no  extraterritorial  powers. '^s 

Duties. — The  duty  of  a  trustee  of  a  banking  corporation  forbids  the 
conceahiient  of  any  fact  from  the  note  holders  and  creditors  which  affects 
the  value  of  their  notes  or  debts,  and  recjuires  them  to  disclose  every  fact 
that  the  creditor  is  concerned  to  know.  It  requires  prompt  distribution  of 
cash  assets,  prompt  notice  to  creditors  to  file  claims,  and  a  full  recognition 
of  the  fact  that  they  are  equally  the  agents  of  the  creditors  to  protect  and 
to  assist  them,  and  of  the  corporation  to  husband  and  economically  ad- 
minister its  resources.'*^ 


tion  has  the  same  ri^ht  as  any  pawnee 
or  pledgee  to  sell  collateral  security 
transferred  to  the  bank,  upon  giving 
to  the  debtor  notice  of  the  time  and 
place  of  the  sale.  But  if  it  appears  that 
he  had  actual  knowledge  of  the  fact 
a  reasonable  tiine  before  the  sale  was 
to  take  place,  this  is  sufficient  without 
a  formal  notice.  Alexandria,  etc.,  R. 
Co.  7'.  Burke,  G3  Va.  (22  Gratt.)  ^.54. 
See,  also,  Howe,  etc.,  Co.  v.  Ould,  69 
Va.    (28    Gratt.)    1. 

Transfer  of  assets. — St.  1895,  p.  172, 
c.  167,  creates  a  bank  commission,  and 
§  11  (page  175)  requires  the  commis- 
sioners to  control  a  bank  in  liquida- 
tion until  the  court  shall  order  the 
commissioners  to  surrender  the  prop- 
erty in  their  possession  to  the  corpo- 
ration for  liquidation,  and  that  the  di- 
rectors or  trustees  shall  be  permitted 
to  manage  the  bank's  affairs  during 
liquidation.  The  corporation  is  also 
required  to  report  its  affairs  to  the 
commissioners,  and  with  amounts  re- 
alized for  property  sold  since  any  pre- 
vious report.  Held,  that  the  officers 
of  a  bank  in  process  of  liquidation  had 
power,  with  the  knowledge  and  ac- 
quiescence of  the  bank  commission- 
ers, to  make  an  absolute  assiornment 
of  pledged  securities  to  the  pledgee, 
in  a  final  settlement  of  the  bank's 
transactions  with  such  pledgee.  Merced 
Bank   r.    Price    CCal),    98    Pac.   383. 

Revival  of  judgment. — The  trustee 
of  a  l)ank  whose  charter  has'  been  for- 
feited may,  in  his  own  name,  revive  a 
judcment  upon  which  a  claim  of  the 
bank  is  founded,  and  the  claim  will  be 
regarded  as  that  of  the  trustee  of  the 
bank.  Robertson  v.  Agricultural  Bank, 
28  Miss.  237. 

90.  Warrant  of  attorney  to  confess 
judgment. — Trustees        authorized       to 


close  the  affairs  of  a  bank  after  its 
charter  has  expired  may  use  a  warrant 
of  attorney  to  enter  judgment  given 
to  the  bank.  [Martin  v.  Belmont  Bank, 
13  O.  250. 

91.  The  trustees  of  the  Miners'  Bank 
of  Dubuque,  appointed  under  the  act 
repealing  the  bank  charter,  could  only 
settle  the  affairs  of  the  bank,  and  were 
not  authorized  to  employ  and  pay, 
from  the  assets  of  the  bank,  an  at- 
torney to  conduct  a  quo  warranto  suit 
against  the  .  bank  officers.  Miners' 
Bank  v.  Thomas  (Iowa),  4  Greene  336. 

92.  Powers  of  trustee  appointed  on 
judgment  of  dissolution  against  bank 
under  the  act  of  the  twentieth  of  July, 
1843,  are  terminated  when  he  has  paid 
off  and  discharged  the  whole  of  the 
debts  of  the  bank,  and  he  can  not  sue 
for  and  recover  the  debts  which  were 
due  to  it,  and  which  were  still  out- 
standing and  unpaid.  Coulter  v.  Rob- 
ertson,  24   Miss.  278,   57   Am.    Dec.   168. 

93.  Rights  of  foreign  commission- 
ers.— The  order  of  a  KetUucky  court, 
made  under  the  law  of  the  state  ap- 
pointing commissioners  to  take  pos- 
session, for  the  benefit  of  creditors,  of 
the  assets  of  a  banking  institution 
there,  does  not  operate  so  as  to  di- 
vest any  title  or  interest  of  that  in- 
stitution in  property  of  any  descrip- 
tion in  Ohio,  and  prevent  legal 
remedies  directed  against  that  prop- 
erty to  satisfy  a  debt.  To  give  such 
commissioners  a  priority,  they  must 
establish  their  claim  under  the  laws  of 
this  state.  P'innell  v.  Burt,  2  Handy 
202.  12   O.  Dec.  403. 

94.  Trustee  must  act  in  good  faith. 
— Moses  t'.  Ocoee  Bank.  69  Tenn.  (1 
Lea)    398. 


§  7\   (4a) 


IXSOLVHNCV    AXD   DISSOLUTION. 


487 


Liabilities. — Such  trustees  are  liable  as  well  for  acts  of  nonfeasance  as 
misfeasance.^"^  « 

§   71    (3)     Salary   or   Compensation. — Right   to   Compensation. — 

The  trustees  of  a  banking  corporation  in  process  of  Hquidation  are  entitled 
to  reasonable  compensation  for  services  performed. ^'^ 

Amount  of  Compensation. — In  the  absence  of  any  amount  of  com- 
pensation having  been  fixed  for  commissioners  appointed  to  effect  the  liqui- 
dation of  an  insolvent  bank  by  the  statute  governing  the  subject,  it  is  the 
duty  of  the  judge  of  the  court  before  whom  the  proceedings  are  taken  to 
fix  same  according  to  his  best  judgment  and  discretion,  and  his  finding  in 
the  premises  wiU  not  be  reversed  unless  it  clearly  appears  that  his  award 
is  excessive  or  erroneous.'^'  Where  the  directors  of  a  banking  corporation 
in  liquidation  fail  purposely  or  negligently  to  fix  the  salary  of  its  secretary 
and  manager,  though  the  bank  commissioners  have  fixed  the  ma:ximum 
salary  to  be  paid  him,  he  can  only  recover  on  a  quantum  meruit. ^^ 

§  71  (4)  Suits  by  and  against— §  71  (4a)  Suits  by.— The  trustee 
may  bring  suit  to  collect  claims  due  the  bank  until  a  sufficient  fund  has 
been  realized  to  pay  its  debts.''-'     But  it  has  been  held  that  commissioners 


95.  Liabilities  of  trustees. — Where 
the  managing  trustees  of  a  bank  in 
liquidation  have  funds,  the  distribution 
of  which  is  prevented  by  litigation, 
and  responsible  banks  in  the  com- 
munity in  which  the}'  reside  pay  ip- 
lerest  on  deposits,  and  such  funds  were 
l)earing  interest  when  the  trustees  ob- 
tained custody  of  the  same,  and  they 
withdrew  the  moneys  from  the  banks 
and  deposited  them  in  a  bank  in  which 
a  trustee  was  a  stockholder,  without 
interest,  such  trustee  is  personally 
liable  for  the  customary  rate  of  in- 
terest paid  for  deposits  of  like  char- 
acter, Gund  f.  P.allard,  80  Xcl).  ;i85, 
114    X.   W.   420. 

96.  Compensation  of  trustees. — 
That  managing  trustees  of  a  bank  in 
process  of  liquidation  have  not  been 
active  in  defending  actions  by  one  of 
their  number  against  the  bank  on  an 
individual  claim  will  not  defeat  their 
right  to  a  reasonaljle  compensation 
fftr  services  in  settling  the  other  af- 
fairs of  the  bank.  Gund  :■.  P.allard,  80 
Xeb.   38:j.    114   X.   W.   4:^0. 

97.  Amount  of  compensation. — State 
V.    P.ank,   49    La.    Ann.    10G0.  22   So.   207. 

Under  St.  .Xpril  0.  184:i,  §  2,  the  com- 
missioners for  the  liquidation  of  banks 
were  entitled  to  compensatidn  ;it  the 
rate  fixed  by  that  section  until  su- 
perseded by  the  appointment  of  a 
liquidator  under  St.  May  4.  1847.  The 
salaries    allowed    by    St.    184:5    were    not 


limited  to  the  period  of  four  years, 
mentioned  in  St.  March  14,  1842,  §  25. 
In  re  ^Merchants'  Bank,  3  La.  Ann. 
:;82. 

Arrears  of  salary  which  arc  due  a 
liquidating  bank  commissioner  under 
the  Louisiana  Act  of  March  14,  1842, 
are  extinguished  by  a  judgment  of 
equal  amount,  held  against  him  by  the 
l^ank.  Conrev  v.  Copland,  4  La.  Ann. 
.^.;07. 

98.  In  an  action  by  a  banking  cor- 
poration for  money  collected  and  re- 
tained by  an  officer,  the  answer  ad- 
mitted receiving  the  monej^  in  the  ca- 
pacity as  officer,  and  alleged  that  the 
officer  retained  the  same  in  part  pay- 
ment of  his  compensation  for  serv- 
ices as  secretary  and  manager  during 
the  liquidation  of  the  corporation,  and 
set  forth  an  express  agreement  to  pay 
him  a  specified  sum  per  month  as  his 
salary  without  alleging  between  whom 
the  agreement  was  made.  Held,  tliat 
the  allegation  of  an  agreement  to  pay 
him  a  salary  referred  to  the  action  of 
the  bank  commissioners  fixing  the 
limit  of  the  salary  and  the  answer 
fjiiled  to  show  a  valid  agreement  fixing 
his  salary.  Pank  7'.  I'ldwii,  8  Gal. 
App.  r)r,r),'n7  Pac.  n.T^. 

99.  Suits  by  trustee  to  collect  as- 
sets.— The  trustee  of  a  dissolveil  bank 
appointed  under  Act  1843,  with  power 
to  collect  sufficient  assets  of  the  bank 
to  pay  its  del>ts,  has  no  hunger  power, 


488 


BANKS  AND  BANKING. 


§  7\   (5) 


can  not  enforce  the  liability  of  bank  directors.^ 

Manner  of  Instituting  Suit. — The  trustees  of  an  insolvent  bank  should 
sue  in  their  collective  and  not  in  their  individual  names. ^  But  an  action 
by  a  sole  trustee  should  be  in  his  own  name,  without  in  any  way  using  the 
name  of  the  bank.^ 

§  71  (4b)  Suits  against. — Commissioners  may  be  sued  for  any  cause, 
though  arising  under  the  administration  of  former  boards  of  directors.'* 

§  71  (4c)  Revivor  of  Actions. — Suits  by  bank  commissioners  do  not 
abate  upon  the  abolition  of  their  office.^ 

§  71  (5)  Termination  of  Trust. — After  the  trustee  executes  his 
trust,  his  rights  terminate." 


after  a  sufficient  amount  has  been  col- 
lected, to  sue  on  claims  due  the  bank. 
Coulter  V.  Robertson,  24  Miss.  278,  57 
Am.   Dec.   168. 

The  charter  of  a  bank  was,  by  legal 
proceeding,  declared  forfeited,  and  the 
plaintiff  was  appointed  a  trustee  to 
sue  for  and  collect  the  debts  due  the 
bank.  Afterwards,  in  pursuance  of  a 
law  subsequently  passed,  the  circuit 
court  directed  the  trustee  to  sell  the 
assets  of  the  bank  to  the  highest  bid- 
der. Held,  that  the  right  of  the  trus- 
tee to  sue  for  and  collect  a  note  due 
the  bank  was  not  devested  by  the  or- 
der of  sale.  Bingaman  v.  Robertson, 
25   Miss.  390. 

Where,  before  an  assigninent  to 
trustees  on  the  dissolution  of  a  bank, 
as  provided  for  by  the  Laws  of  1843, 
the  bank  had  transferred  wnthout  in- 
dorsement a  note  payable  to  a  third 
person,  the  trustees  appointed  could 
not  bring  an  action  on  such  note  in 
their  own  name  for  the  use  of  the 
holder  of  such  note.  Bacon  v.  Cohea 
(Miss.),   12   Smedes   &  M.   516. 

The  trustees  of  the  rights  and  prop- 
erty of  a  bank,  on  its  dissolution,  can 
not  maintain  an  action,  as  such  trus- 
tees, on  a  note,  against  a  person  who 
drew  or  indorsed  it,  as  an  officer  and 
in  behalf  of  the  bank.  McLaren  v. 
Pennington    (N.   Y.),   1   Paige   102. 

1.  Suits  by  trustee  to  enforce  lia- 
bility of  directors. — Commissioners  ap- 
pointed to  liquidate  a  free  bank,  whose 
charter  was  judicially  forfeited,  have 
no  right  of  action  against  directors 
charged  with  violating  Rev.  St., 
§§  300,  301,  regulating  loans,  etc.  The 
directors'  liability  for  the  debts  is  not 
an  asset  susceptible  of  collection  by 
the  commissioners,  but  accrues  to  the 
creditors  ut  singuli.  Lacombe  v.  Milli- 
ken,  36  La.  Ann.  367. 


2.  Manner  of  bringing  suit. — ^ylartin 
V.    Belmont    Bank,    13    O.   250. 

3.  Action  by  sole  trustee. — In  an  ac- 
tion brought  in  the  name  of  the  "Bank 
of  Tennessee  for  the  use  of  R.  Ewing, 
trustee  and  receiver,"  on  a  note  ex- 
ecuted to  S.  Watson,  trustee  of  said 
bank,  the  defense  was,  that  the  bank 
as  a  corporation  had  ceased  to  exist 
when  the  action  was  brought.  Held, 
that  the  bank  was  not  the  real  plaintiff, 
or  even  a  necessary  nominal  plaintiff, 
and  the  defense  was  not  available. 
Kyle  V.   Ewing,   73   Tenn.    (5   Lea)    580. 

Suit  by  surviving  trustee. — ^A  suit 
on  a  note  assigned  to  the  trustees  of 
the  Real-Estate  Bank  by  that  bank  is 
perfectly  brought  in  the  name  of  the 
surviving  trustees,  after  the  death  of 
any  of  them.  Conway  v.  Roane,  10 
Ark.  242. 

4.  Suits  against  bank  commission- 
ers.— Gaillard  v.  Citizens'  Bank  (La.), 
11   Rob.  168. 

5.  Abatement  of  suits  against  bank 
commissioners. — .\fter  the  dissolution 
of  a  lianking  corporation  by  a  decree 
in  a  suit  by  the  bank  commissioner, 
and  after  the  appointment  of  a  re- 
ceiver, and  a  reference  to  a  master  to 
settle  the  claims  of  creditors,  who 
had  come  in  under  the  decree  requir- 
ing all  the  creditors  of  the  bank  to 
come  in  and  prove  their  claims,  the 
office  of  bank  commissioner  was  abol- 
ished by  statute,  but  no  provision  was 
made  for  the  continuance  of  suits  pre- 
viously commenced  by  such  officer. 
Held,  that  the  court  might  proceed  in 
the  suit,  without  a  formal  revivor,  upon 
the  inere  entry  of  an  order  that  the 
master  proceed  in  the  reference.  In 
re  Citv  Bank   (X.  Y.).  10  Paige  378. 

6.  Termination  of  trust. — LInder  the 
.\ct  of  July  26,  1843,  a  payment  of  the 
bank's    debts,    or    collection    from    the 


§  /2  (1) 


INSOLVEXCY   AND   DISSOLUTION, 


489 


§  71  (6)  Accounting. — If  a  Irustee  of  a  bank  should  receive  the 
money  of  the  bank,  use  it  as  his  own,  or  in  any  way  interfere  with  it,  so 
that,  in  consequence  of  his  wrongful  act,  it  was  lost  to  the  bank,  the  bank 
would  have  an  action  in  equity  to  compel  him  to  account." 

§  72.  Effect  of  Dissolution— §  72  (1)  In  General.^— The  statutes 
providing  for  the  winding  up  and  dissolution  of  banking  corporations 
usually  specify  the  efifect  thereof.''  But  it  may  be  stated  generally  that 
upon  dissolution  the  right  of  the  bank  to  enter  upon  new  business  is  sus- 
pended, except  such  as  is  necessary  and  appropriate  in  settling  the  affairs 
of  the  concern.^"     And  the  legal  duty  resting  on  going  concerns  to  report 


assets  of  sufficient  money  for  that  pur- 
pose by  the  trustee,  was  a  full  execu- 
tion of  his  trust,  whereby  he  became 
functus  officio.  Coulter  z:  Robertson, 
24   Miss.   278,   .57  Am.   Dec.   168. 

7.  Accounting  by  trustees. — Hig- 
gins  V.  Tefft,  4  App.  Div.  62,  38  N.  Y. 
S.   716,   74   N.    Y.    St.    Rep.    100. 

8.  Effect  of  appointment  of  re- 
ceiver, see  post,  "Negligence  or  De- 
fault of  Agents  or  Correspondents," 
§   1''0. 

9.  General  effect  of  dissolution  of 
banks. — Donnally  v.  Hearndon,  41  W. 
Va.  519,  23  S.  E.  646. 

Rule  in  Mississippi. — A  judgment  of 
forfeiture,  under  the  statute  of  1843, 
prescribing  the  mode  of  proceeding 
against  banks  for  a  violation  of  their 
franchises,  has  none  of  the  common- 
law  consequences  of  a  judgment  of 
forfeiture,  but  only  such  effect  as  is 
given  it  by  the  statute  itself,  it  being 
competent  for  the  legislature  to  waive 
the  penalties  of  the  forfeiture  in  whole 
or  in  part,  and  to  determine  all  the 
consequences  of  such  judgment.  Ne- 
vitt  V.  Bank  (Miss.),  6  Smedes  &  AI. 
51.3. 

A  judgment  of  forfeiture  rendered  in 
a  proceeding  to  forfeit  the  charter  of 
a  bank  (Sess.  Acts,  p.  55),  and  an  ap- 
pointment of  trustees  thereunder  to 
take  charge  of  and  collect  the  assets 
of  the  bank,  operate  as  an  assignment 
of  the  effects  of  the  bank  to  the  trus- 
tees for  the  benefit  of  creditors.  Ncvitt 
r.    Bank    CMiss.).    6    Smedes   &    M.   5i:!. 

10.  No  new  business  allowable  after 
dissolution. — Saltmarsh  7:  Planters', 
etc..  Hank.  14  Ala.  668;  Smith  7-.  Frye! 
1-ed.  Cas.  No.  13.049.  5  Cranch  C.  C. 
515. 

By  death. — On  the  dissolution  of  a 
banking  association  l)y  the  death  of  a 
member,  the  survivor  has  the  right  to 
take  possession  of  the  coiKirtnerslii]) 
assets  and  settle  up  the  affairs  of  the 
jr)iiit    concern;    and    it    mav    lie    stated. 


as  a  settled  proposition,  that  the  power 
of  a  partner  to  make  a  contract  for 
the  firm  ceases  upon  the  dissolution 
of  the  firm,  and  the  surviving  partners 
or  expartners  can  enter  into  no  con- 
tract which  will  bind  the  estate  of  the 
deceased  partner,  except  such  as  is  ap- 
propriate and  necessary  in  settling  the 
affairs  of  the  concern.  Dissolution 
operates  as  a  revocation  of  all  author- 
ity for  making  new  contracts;  as  dis- 
solution finds  the  engagements  of  the 
company,  they  must  remain  until 
liquidated  and  paid.  First  Nat.  Bank 
r.  Payne  &  Co.,  85  Va.  890,  9  S.  E.  153, 
3  L.  R.  A.  284. 

Where  a  bank  became  insolvent  and 
went  into  liquidation,  its  power  to 
Ijind  its  stockholders  ceased  except 
with  reference  to  transactions  implied 
in  the  duty  of  liquidation.  Covell  v. 
Fowler,    144    Fed.    535. 

Right  to  contract. — .\  contract  made 
by  a  bank  officer  after  the  I)ank  had 
ceased  to  exist,  for  failure  to  comply 
with  the  provisions  of  Act  of  1855,  is 
not  binding  on  the  stockholders.  Wil- 
son v.  Tesson,   12   Ind.   285. 

Under  St.  1819.  c.  43,  providing  that 
corporations  shall  continue  bodies  cor- 
porate for  the  term  of  three  years 
after  the  expiration  of  their  charters, 
for  the  purpose  of  settling  their  Inisi- 
ness,  but  not  for  the  purpose  of  con- 
tinuing business,  a  l)ank  is  authorized, 
immediately  1-)efore  the  expiration  of 
the  term  of  three  years  after  its  cliar- 
ter  has  expired,  to  indorse  a  note  to 
trustees  appointed  to  wind  up  its  af- 
fairs. Folger  r.  Chase  (Mass.),  IS 
Pick.   63. 

Necessary  officers  may  be  appointed. 
— Where,  (HI  the  surrender  of  the  eh;ir- 
ter  of  a  bank,  .and  its  accei)laiu-e  by 
the  legislature.  (lie  liank  is  continued 
in  its  CDi-poralt'  capacity  for  a  limited 
time,  for  the  ])urp()se  of  closing  its 
, affairs,  tlie  directors  may  legally  ap- 
|)oint     a    e.isbier.      under      the       j.^ener;il 


490 


BANKS  AND  BANKING. 


§  72  (1) 


their  financial  condition  is  also  suspended.^ ^  But  the  dissolution  of  a  bank- 
ing corporation  does  not  prevent  a  court  of  equity  from  collecting  and 
administering  its  assets. ^- 

On  Right  to  Sue  and  Be  Sued. — In  the  absence  of  statute  a  banking 
corporation,  after  its  charter  has  been  forfeited,  can  not  sue  in  the  cor- 
porate name.^"^  But  by  statute  in  most  jurisdictions,  even  after  dissolution, 
a  bank  is  continued  in  its  corporate  capacity  for  a  limited  time  and  may 
sue  and  be  sued,  plead  and  be  impleaded,  as  a  corporation.^^     Xor  will  a 


banking    law.       Cooper     r.     Curtis,     30 
Me.   488. 

Issuing  and  circulating  securities. — 
St.  1812,  c.  57,  which  prohibited  banks, 
after  the  expiration  of  their  charters, 
from  issuing  or  putting  into  circula- 
tion any  securities  for  money,  did  not 
extend  to  the  assignment  of  a  note  for 
the  purpose  of  paying  a  debt  owed  by 
the  bank  before  the  charter  expired; 
no  new  obligation  being  contracted  by 
the  bank.  Hallowell,  etc..  Bank  c'. 
Hamlin,   14  Alass.  178. 

11.  On  duty  to  report  financial  con- 
dition.— Under  Sess.  Laws  1897,  p.  Ill, 
c.  47,  §  30,  providing  that  a  bank  may 
be  voluntarily  liquidated  by  paying  its 
depositors  in  full,  and  that,  on  filing 
a  verified  statement  with  the  bank 
commissioner  setting  forth  that  its  lia- 
bilities have  been  paid  and  the  sur- 
render of  its  certificate  of  authority  to 
transact  a  banking  business,  it  shall 
cease  to  be  subject  to  the  provisions 
of  that  act,  and  may  continue  to  trans- 
act a  loan  and  discount  business  under 
its  charter,  where  a  bank  has  paid  its 
depositors  and  surrendered  its  cer- 
tificate of  authority,  it  is  no  longer 
subject  to  the  requirement  of  that  act 
that  reports  of  its  financial  condition 
be  made  to  the  bank  commissioner. 
Wilson  7'.  First  State  Bank,  77  Kan. 
589,    95    Pac.   404. 

12.  Kyle  z:  Ewing,  73  Tenn.  (5 
Lea)    580. 

13.  Effect  of  dissolution  on  right  to 
sue  and  be  sued. — A  hanking  company, 
whose  charter  was  adjudged  forfeited, 
and  which  had  been  placed  in  the 
hands  of  receivers  under  the  Act  of 
February  13,  1842,  could  not  prosecute 
a  suit  after  such  dissolution.  Under 
this  act,  the  corporate  name  of  the 
company  could  be  used  only  by  the 
receivers  appointed  under  the  act. 
]\Iiami  Exporting  Co.  v.  Gano,  13  O. 
269. 

The  dissolution  of  a  corporation  by 
act  of  the  legislature  deprives  it  of  its 
corporate  existence,  so  that  a  legal 
judgment  can  not  be  rendered  against 
it.      Merrill    v.    Suffolk    Bank,    31    Me. 


57,  50  Am.  Dec.  649;  Rankin  r.  Sher- 
wood,  33   Me.   509. 

Where,  after  the  repeal  of  the  char- 
ter of  a  bank,  property  had  been  or- 
dered to  be  taken  and  distributed 
among  creditors  by  receiver,  suit  on 
a  debt  due  by  the  bank  can  not  be 
brought  against  it  in  its  name,  and  a 
judgment  in  such  suit  is  a  nullity,  the 
statute  giving  corporations  three  years 
in  which  to  wind  up  their  aflfairs  not 
being  applicable.  Whitman  v.  Co.x,  26 
Me.  335. 

After  the  charter  of  a  bank  has 
been  repealed,  and  a  receiver  ap- 
pointed, a  stockholder  has  no  authority 
to  defend  an  action  brought  against 
the  corporation.  Merrill  t'.  Shaw,  38 
Me.    267. 

Suit  by  assignee  of  judgment. — The 
assignee  of  a  judgment  rendered  in 
favor  of  a  bank  filed  a  bill  to  revive 
and  enforce  the  same  against  the 
judgment  debtor.  After  the  assign- 
ment, a  judgment  of  forfeiture  was 
pronounced  against  the  bank.  Held 
that,  as  the  assignee  can  not  proceed 
at  law  in  the  name  of  the  bank  by 
reason  of  the  forfeiture,  a  court  of 
equity  will  entertain  jurisdiction,  and 
enforce  such  judgment.  ^larsh  v. 
:\randeville,  28   Miss.  122. 

14.  Pomeroy  z:  State  Bank,  1  Wall. 
23.  17  L.  Ed.  500;  Smith  f.  Frye,  Fed. 
Cas.  No.  13,049,  5  Cranch  C.  C.  515; 
Huntsville  Bank  z'.  McGehee  (Ala.), 
1  Stew.  &  P.  306;  Underbill  z\  State 
Bank,  6  Ark.  135;  Cunningham  z'. 
Clark,  24  Ind.  7;  Conwell  z:  Pattison, 
28  Ind.  509;  American  Bank  z'.  Cooper, 
54  Me.  438;  Folger  z'.  Chase  (Mass.), 
18  Pick.  63;  Pub.  St.  New  Hamp.  1901, 
Ch.  148,  §§  18,  19;  Kalb  v.  American 
Nat.  Bank,  21  O.  C.  C.  1,  11  O.  C.  D. 
-4  37;  Franklin  Bank  v.  Commercial 
Bank,  5  O.  Dec.  339,  4  Am.  L.  Rec. 
7  05;  Commonwealth  z:  Huntingdon 
Bank  (Pa.),  2  Pen.  &  W.  438;  Kyle  z: 
Ewing,  73  Tenn.  (5  Lea)  580,  con- 
struing. §  1493  of  the  Code;  Shappard 
-'.  Cage,  19  Tex.  Civ.  App.  206,  46  S. 
W.  839.  affirmed  in  93  Tex.  656.  no  op.; 
Donnally  z:  Hearndon,  41  W.  Va.  519. 


§  72  (1) 


IXSOLVEXCV   AND   DISSOLUTION. 


491 


suit  brought  against  the  corporation  prior  to  the  expiration  of  its  charter 


23  S.  E.  64G:  W.  Va.  Code,  p.  511,  ch. 
53.  §  59. 

When  the  condition  arrives  which 
drives  an  incorporated  company  into 
liquidation,  when  it  must  marshal  and 
collect  its  assets,  and  pay  its  delfts, 
and  wind  up  its  business  and  adjust 
its  affairs,  its  power  to  assert  and  de- 
fend its  rights  is  most  strong  because 
the  necessity  is  then  most  imperative. 
The  last  sign  of  vitality  of  an  incor- 
porated company  is  the  power  to  main- 
tain and  defend  an  action;  and  the  na- 
ture and  purpose  of  the  action  is  the 
test  of  whether  or  not  the  company 
has  sufficient  life  to  maintain  it.  Kalb 
v.  American  Nat.  Bank,  21  O.  C.  C.  1, 
11   O.   C.   D.  437. 

A  banking  corporation  may  prose- 
cute its  suit  to  final  judgment  for  the 
purpose  of  closing  up  its  affairs, 
though  it  goes  into  voluntary  liquida- 
tion pending  the  litigation.  Commer- 
cial Loan,  etc.,  Co.  v.  Mailers,  242  111. 
50.  89   N.   E.  661. 

\\'here  a  solvent  bank  goes  into  vol- 
untary liquidation  under  Act  March 
14,  1842,  No.  98,  though  its  banking 
franchises  be  surrendered,  the  body 
corporate  exists,  and  the  commissioner 
in  collecting  its  debts  may  sue  in  the 
corporate  name.  Commercial  Bank  :•. 
Villavasco,  6  La.  Ann.  542. 

A  bank,  just  before  the  expiration  of 
its  corporate  existence,  by  its  cashier, 
indorsed  and  assigned  to  a  trustee,  for 
the  stockholders,  all  unpaid  paper  be- 
longing to  the  bank.  Held,  that  the 
assignment  was  valid,  and  that  the 
trustee  might  sue,  after  the  expiration 
of  the  bank  charter,  on  paper  so  in- 
dorsed to  him.  Cooper  v.  Curtis,  30 
Me.   488. 

The  period  for  which  a  I:)ank  was 
chartered  not  having  expired,  no  for- 
feiture having  been  suffered,  and  no 
judgment  of  dissolution  having  been 
rendered  against  it.  it  continued  to 
exist  as  a  banking  corporation,  au- 
thorized to  sue  on  a  note  due  it,  not- 
withstanding it  had  gone  into  volun- 
tary liquidation,  paid  off  its  depositors, 
surrendered  to  the  banking  commis- 
sioner its  certificate  of  authority  to 
transact  business,  and  ceased  to  trans- 
act any  business,  except  to  collect 
del)ts  owing  it  and  to  distribute  the 
proceeds  among  its  stockholders  l)y 
way  of  closing  up  its  affairs.  Wilson 
r.  First  State  P.ank,  77  Kan.  589.  95 
I'ac.    404. 

The  .\ct  of  .March  ■',,  1855  (I  Gav.  ^ 
li.    St.    124),    difl   not    operate    to    dis- 


solve a  free  bank  organized  under  the 
.\ct  of  May  28,  1852,  because  its  pro- 
visions were  not  complied  with.  But 
sucli  bank,  under  §  48  of  the  first-men- 
tioned act,  continued  until  March  1, 
1857,  for  the  purpose  of  winding  up, 
or  accepting  such  act,  and  had  three 
years  from  the  latter  date  to  sue  and 
be  sued,  to  settle,  dispose  of,  and  con- 
vey its  property,  and  divide  the  capital 
stock,  but  not  to  continue  the  business 
for  which  it  was  established.  Cun- 
ningham V.  Clark,  24  Ind.  7;  Conwell 
V.  Pattison,  28   Ind.  509. 

Lender  the  bank  commissioners'  act. 
as  amended  in  1895,  providing  a 
scheme  of  liquidation  for  insolvent 
banks  by  which  the  assets  are  created 
a  trust  in  the  hands  of  the  directors 
for  the  benefit  of  creditors,  and  the 
corporation  enjoined  from,  the  trans- 
action of  any  business  except  that  of 
trustee  for  the  purpose  of  liquidation, 
an  ordinary  action  for  the  collectiDU 
of  a  debt  can  not  be  maintained 
against  an  insolvent  bank  in  process 
of  liquidation  under  the  act.  Argues 
V.  Union  Sav.  Bank,  133  Cal.  139,  65 
Par.    ?,n7. 

Right  to  sue  on  collaterals. — Where 
a  note  and  mortgage,  payal)le  to  a  l>ank 
as  a  corporation,  was  pledged  l)y  the 
bank,  it  was  entitled  to  sue  thereon  in 
its  corporate  name,  though  it  v»'as  in 
course  of  liquidation.  ATerced  Bank 
V.   Price    (Cal.).  98   Pac.  383. 

Rights  of  foreign  corporations. — 2 
Rev.  St.  Can.,  c.  129,  §  15,  provides  that 
a  company  shall  cease  to-  carry  on  its 
business  from  the  time  of  the  winding- 
up  order,  except  in  so  far  as  is  re- 
quired for  the  l)eneficial  winding  up 
thereof,  and  that  the  corporate  state 
and  all  the  corporate  powers  of  the 
company  shall  continue  until  the  af- 
fairs of  the  company  are  wound  up. 
St.  Can.  53  Vict.,  c.  31.  §  91.  provides 
that  on  the  forfeiture  of  the  charter 
of  a  bank  it  shall  only  remain  in  force 
for  the  purpose  of  enal>ling  tlie  di- 
rectors or  other  lawful  authority  to 
wind  up  its  business.  II  eld.  that  an 
insolvent  Canadian  liank  has  the  ca- 
pacity to  maintain  an  action,  after  the 
appointment  of  liquidators,  for  the  rc- 
coverv  of  a  debt.  Ham  r'.  Banqno 
Ville   Marie.  22   R.    1.  248.  -17   All.  .iCI. 

Attachment  after  dissolution. —  Tlie 
fc^rfeituri'  by  a  bank  of  its  cb.irtir. 
and  tile  appointment  of  a  receiver  to 
(listril)ute  the  assets  among  its  credit- 
ors in  the  state  of  its  location,  does 
not    i)revent    a    creditor    from    bringing 


492 


BANKS   AND  BANKING. 


ri  (2) 


abate  on  its  expiration/^  though  as  a  general  principle,  the  dissolution  of 
a  corporation  by  the  expiration  of  its  charter  pendente  lite  is  an  abate- 
ment of  the  suit.i*^  Furthermore,  it  is  the  especial  duty  of  its  officers  to 
see  that  all  such  suits  are  maintained  and  defended.^" 

§  72  (2)  On  the  Relation  of  Officers  to  the  Bank. — The  powers 
and  duties  of  the  officers  of  an  insolvent  bank  cease  when  it  makes  an  as- 
signment for  the  benefit  of  creditors.  After  its  dissolution  said  officers 
are   neither  the  agents  nor  trustees  of   the  bank,   and  they  may   lawfully 


an  attachment  suit  against  the  bank 
in  another  state.  City  Ins.  Co.  'v. 
Commercial  Bank,   68   111.  348. 

A  banking  corporation  may  sue  out 
execution  on  its  judgment  for  the  pur- 
pose oi  closing  up  its  affairs,  though 
more  than  two  years  have  intervened 
between  its  voluntary  dissolution  and 
the  date  of  the  judgment;  the  limita- 
tion in  Hurd's  Rev.  St.  1908,  c.  32, 
§  10,  continuing  corporations  for  two 
years  for  the  purpose  of  collecting 
debts,  being  applicable  to  "corpora- 
tions organized  under"  that  law,  and 
not  to  banking  corporations  which  are 
within  the  general  public  policy  of  the 
state,  allowing  a  corporation  to  do 
such  acts  as  may  be  necessary  to  col- 
lect its  debts  and  settle  up  its  affairs 
after  dissolution.  Commercial  Loan, 
etc.,  Co.  V.  Mailers,  242  111.  50,  89  X. 
E.    661. 

On  rights  of  federal  courts. — Judicial 
proceedings  on  petition  of  the  bank 
commissioners,  under  Pub.  St.  N.  H. 
1901,  c.  162,  for  winding  up  a  banking 
corporation,  in  which  an  assignee  is 
appointed  in  whom  the  title  to  all  its 
property  vests,  do  not  operate  to  dis- 
solve the  corporation  at  once  so  as  to 
preclude  the  rendition  of  a  judgment 
against  it  by  a  federal  court.  Judg- 
ment, Anglo-American  Land,  etc.,  Co. 
V.  Cheshire  Provident  Ins.,  124  Fed. 
464,  affirmed.  Cheshire  Provident 
Inst.  V.  Anglo-American  Land,  etc., 
Co.,   66   C.   C.   A.   122.   132   Fed.  968. 

Effect  of  appearance. — "It  is  by  no 
means  certain  that  the  bank  had  no 
capacity  to  sustain  a  suit,  notwith- 
standing the  expiration  of  its  charter 
and  the  transfer  of  its  property  to 
trustees.  But,  however  this  may  be, 
where  those  very  trustees,  in  whom 
plaintiff  claims  that  the  title  was 
vested,  and  from  whom  he  derives 
title  by  deed,  appeared  to  this  suit 
and  inoved  to  dissolve  the  attachment, 
and  the  bank  appeared  by  attorney 
and  defended  the  suit,  both  must  then 
be    bound    by    these    proceedings,    and 


neither  can  deny  a  jurisdiction  to 
which  they  voluntarily  submitted." 
McGoon  V.  Scales  (U.  S.),  9  Wall.  23- 
19   L.    Ed.   545. 

15.  Abatement  of  actions  against 
banks. — Pomeroy  v.  State  Bank  (U. 
S.),   1   Wall.   23,   17   L.    Ed.   500. 

Banking  associations  organized  un- 
der the  Act  of  1838  are  corporations; 
and  therefore  a  suit  begun  by  such 
bank  is  not  abated  by  the  appointment 
of  a  receiver,  within  the  Act  of  April, 
1832,  which  provides  that  dissolution 
of  a  corporation  shall  not  abate  any 
suit  brought  l^y  it,  and  that  such  suit 
may  be  continued  by  the  receiver. 
Talmage  v.   Pell    (N.   Y.),  9   Paige  410. 

But  the  expiration  by  limitation  of 
the  charter  of  the  United  States  banks 
abated  all  pending  suits  in  the  name 
of  the  president,  directors,  and  com- 
pany of  that  bank,  though  by  the  char- 
ter its  notes  were  still  receivable  in 
all  payments  to  the  United  States.. 
Bank  v.  McLaughlin.  Fed.  Cas.  No. 
928,   2   Cranch    C.    C.   20. 

16.  The  rule  that  at  law  no  action 
can  be  maintained  by  or  against  a  cor- 
poration after  it  has  ceased  to  exist, 
in  the  absence  of  statute,  still  applies 
in  some  jurisdictions.  Kyle  f.  Ewing, 
73  Tenn.   (5  Lea)   580. 

The  expiration  of  the  charter  of  the 
State  Bank  during  the  pendency  of  a 
bill  in  chancery  for  the  collection  of  a 
debt  due  the  bank  did  not  affect  the 
right  to  the  debt  which  was  previously 
vested  in  the  superintendent  and  board 
of  common-school  commissioners  of 
the  state.  Ingraham  v.  Terry,  30  Tenn. 
(11  Humph.) 'o72. 

17.  When  an  incorporated  company 
goes  into  liquidation,  it  becomes  the 
special  function  of  its  president,  for  the 
purpose  of  winding  up  its  affairs,  to 
see  that  actions  to  that  end  are  main- 
tained and  defended;  and  he  may  do 
this  without  specific  authority  of  the 
board  of  directors.  Kalb  v.  American 
Nat.  Bank,  21  O.  C.  C.  1.  11  O.  C.  D. 
437. 


§  72  (3a) 


INSOLVENCY   AND   DISS(^LUTIOX. 


493 


buy  up  outstanding  claims  against  it,  if  in  so  doing  they  act  fairly  and  with 
an  honest  intent.^® 

§  72    (3)   On  Rights  of  Creditors— §   72    (3a)    In  General.— The 

elementary  books  and  the  numerous  cases  decided  are  uniform  in  their  lan- 
guage in  regard  to  the  consequences  resulting  from  the  dissolution  of  a 
banking  corporation  at  common  law.  They  hold  that  upon  the  death  of  a 
corporation,  all  its  real  estate  remaining  unsold  reverts  back  to  the  original 
grantor  and  his  heirs.  The  debts  due  to  and  from  the  corporation  are  all 
extinguished.  Neither  the  stockholders,  nor  the  directors,  nor  trustees  of 
the  corporation,  can  recover  those  debts,  or  be  chargeable  with  them  in 
their  natural  character.  All  the  personal  estate  of  the  corporation  vests 
in  the  crown,  with  use  in  the  people  of  the  state,  as  succeeding,  in  this 
respect,  to  the  rights  and  prerogatives  of  the  king.^'* 

The  principal  alterations  made  by  statute  in  the  common-law 
rule  are  that,  by  judgment  of  forfeiture  its  debtors  are  not  released  from 
their  debts,  and  it  is  usually  provided  that  a  trustee  shall  be  appointed  w'ith 
power  to  sue  for  and  collect  debts  due  to  the  dissolved  bank  and  to  sell 
and  dispose  of  all  of  the  property  belonging  to  it,  and  that  the  debts  when 
collected  and  the  proceeds  of  sale  of  the  property  shall  be  applied  by  the 
trustee  to  the  payment  of  its  debts. ^o    In  other  words,  the  assets  of  a  bank- 


18.  Hill  V.  Frazier,  22  Pa.  320.  dis- 
tinsjuished.     Craig's  Appeal,  92  Pa.  396. 

19.  Effect  of  dissolution  at  common 
law    on    rights    of    creditors. — Co.    Lit. 

13  b;  1  Bla.  Com.  4S4;  2  ICent's  Com. 
309;  Angell  &  Ames  on  Corp.  513;  Rob- 
ertson V.  Coulter  (U.  S.).  16  How.  106, 

14  L.  Ed.  864;  Smith  v.  Frye,  Fed.  Cas. 
No.  13,049,  .5  Cranch  C.  C.  515;  United 
States  V.  Alexander,  Fed.  Cas.  No. 
14.428,  4  Cranch  C.  C.  311;  Mayor,  etc., 
of  Colchester  v.  Seaber,  3  Burr.  (Eng.) 
1868:  Commercial  Bank  v.  Lockwood 
(Del.),  2  Har.  8;  State  Bank  v.  State, 
1  Blackf.  267.  12  Am.  Dec.  234;  Con- 
well  V.  Pattison.  28  Ind.  509;  Commer- 
cial Bank  v.  Chambers  (Miss.),  8 
Smedes  &  M.  9;  Coulter  v.  Robertson, 
24  Miss.  278,  57  Am.  Dec.  168;  Bank  v. 
Duncan,  56  Miss.  166;  Fox  v.  Horah,  36 
N.  C.  358,  36  .Am.  Dec.  48. 

Since  all  debts  due  to  a  bank  are  ex- 
tinguished by  the  expiration  of  its 
charter,  it  is  held  that  when  a  note  has 
I'cen  given  to  the  cashier  as  trustee 
for  the  bank,  although  the  legal  title 
is  in  him,  equity  will  restrain  its  en- 
forcement after  the  bank  has  ceased  to 
exist.  Fox  7'.  Hr)rah,  36  N.  C.  358,  36 
Am.  Dec.  48. 

Foreign  banking  corporations. — 
Where  a  l)ank  in  a  foreign  state  has 
forfeited  its  charter  under  the  laws  of 
such    state,    the    obligation    of   its    con- 


tracts still  survives,  and  its  property, 
not  in  the  hands  of  a  bona  fide  pur- 
chaser, may  be  sui)jected  to  the  pay- 
ment of  its  debts  Ijy  suit  commenced 
by  attachment,  there  being  nothing  in 
the  comity  existing  between  states 
rendering  it  improper  on  the  ground 
that  by  the  local  laws  its  effects  are 
in  the  hands  of  a  receiver.  City  Ins. 
Co.  V.   Commercial   Bank,   68   111.  348. 

20.  McGoon  v.  Scales  (U.  S.),  9  Wall. 
23,  19  L.  Ed.  545;  Kipp  v.  Miller,  47 
Colo.  598.  108  Pac.  164;  Coulter  v.  Rob- 
ertson, 24  Miss.  278,  57  \m.  Dec.  168; 
Donnally  v.  Hearndon,  41  W.  Va.  519, 
23   S.   E.  646. 

On  judgment  of  forfeiture  against 
bank,  all  assets,  consisting  of  credits 
or  debts  due  to  it,  cliattels,  and  real  es- 
tate, become  a  trust  fund  for  the  sole 
purpose  of  paying  the  debts  due  by  the 
l)ank  at  the  time  of  its  dissolution. 
Coulter  V.  RoI>ertson,  24  Miss.  278,  57 
;\m.  Dec.  168. 

Debts  due  the  late  Bank  of  the  United 
States  were  not  extinguisiied  by  the 
expiration  of  its  charter;  and  a  note 
given  after  such  ex]5iralioii  to  one  of 
its  agents,  in  his  own  name,  in  renewal 
of  a  note  previously  due,  is  valid. 
Smith  V.  Frye,  Fed.  Cas.  No.  13.049.  5 
Cranch  C.  C.  515. 

.An  .Act  of  1843  provided  tli.il  .iflcr 
jndgnu-iU    of    furft'iture    ag.'iiiist    a   bank 


494 


BANKS   AND  BANKING. 


§  /2   (4) 


ing  corporation,  after  its  dissolution,  are  regarded  as  a  trust  fund,  for  the 
payment  of  the  bank's  debts.-^  And,  if  the  legislature  has  failed  to  pro- 
vide an  adequate  remedy  for  the  enforcement  of  that  right,  a  court  of 
equity  will  supply  the  deficiency. -- 

§  72  (3b)  Rule  in  Equity.— But  the  rule  in  equity  independent  of 
statute  is  that  upon  the  dissolution  of  a  bank  by  the  expiration  of  its  char- 
ter or  otherwise,  its  property  will  be  impounded  and  appropriated  first  to 
the  payment  of  its  debts,  and  then  for  the  benefit  of  the  stockholders.--^ 

§  72  (3c)  Pre-Existing  Liability  for  Taxes.— The  liability  of  a 
bank  for  taxes  assessed  against  its  capital  stock,  being  fixed  and  primary 
before  its  dissolution,  may  be  enforced  afterwards  by  distraint  and  levy 
when  due,  upon  property  in  the  hands  of  trustees  for  the  benefit  of  stock- 
holders and  creditors.-'^ 

§   72    (4)   On  Rights   of  Stockholders.— In  most,  if  not  all  of  the 

states,  in  which  the  legislature  has  deemed  it  expedient  to  repeal  or  modify 
the  principles  of  the  common  law  which  apply  on  the  dissolution  of  a  bank- 
ing corporation  produced  by  a  judgment  of  forfeiture,  express  provision 
has  been  made  by  which  the  stockholders  may  take  the  surplus  after  the 
payment  of  debts. -^  The  dissolution  of  a  banking  corporation  not  only 
does  not   suspend  the  property   rights  of  the   stockholders,   or  hinder  the 


its  debts  should  not  be  extinguished, 
but  that  trustees  should  be  appointed 
to  collect  them,  apd  apply  their  pro- 
ceeds to  the  payment  of  the  debts  of 
the  bank.  Held,  that  the  legislature 
did  not  thereby  make  an  appropriation 
in  favor  of  creditors,  but  that,  wholly 
independent  of  the  legislative  provi- 
sion, the  trustees  should  thus  apply  the 
proceeds,  the  creditors  having  a  right 
to  such  application,  growing  out  of  the 
relation  of  debtor  and  creditor  pre- 
served by  the  act.  Commercial  Bank 
z:  Chambers  (Miss.),  8  Smedes  &  M.  9. 

The  Act  of  1843,  saving  rights  of 
creditors  of  a  bank  after  dissolution, 
did  not  apply  to  banks  dissolved  by 
limitation  of  time,  but  only  to  those 
against  which  any  judgment  of  for- 
feiture should  be  rendered.  Bank  z'. 
Duncan.  50  j\Tiss.  166. 

Subjection  of  land  lying  in  another 
state. — And  the  proceedings  of  a  cred- 
itor of  the  bank  to  subject  such  real 
estate  lying  in  Wisconsin  to  the  pay- 
ment of  its  debts,  had  in  the  courts  of 
Wisconsin,  must  be  governed  by  the 
laws  of  that  state  made  for  such  cases. 
McGoon  7'.  Scales  (U.  S.),  9  Wall.  23, 
19  L.  Ed.  543. 

The  state  of  Wisconsin  had  a  right 
to  pass  laws  to  subject  such  lands  to 
the  payment  of  the  debts  of  the  bank, 


though  the  corporation  had  ceased  to 
exist  as  such  by  the  laws  of  Illinois, 
the  only  limitations  on  the  right  of  the 
legislature  to  prescribe  the  mode  of 
doing  this,  being  the  constitution  of 
the  state  and  of  the  United  States. 
McGoon  t'.  Scales  (U.  S.),  9  Wall.  23, 
19  L.  Ed.  .545. 

Under  the  Indiana  statute,  where  no 
application  is  made  to  the  circuit  court 
for  the  appointment  of  a  receiver  and 
an  extension  of  the  time  for  collecting 
the  debts  due  an  insolvent  bank,  such 
debts  are,  at  the  expiration  of  three 
years,  totally  extinguished.  Conwell 
r.  Pattison.  28  Ind.  509. 

21.  Coulter  v.  Robertson,  24  Miss. 
278.  57  .A.m.  Dec.  168. 

22.  Commercial  Bank  f.  Chambers 
CiMiss.).  8  Smedes  &  M.  9. 

23.  Effect  of  dissolution  in  equity. — 
OTonnor  7'.  Memphis,  74  Tenn.  (0 
Lea)  730;  Connecticut  Mut.  Life  Ins. 
Co.  7'.  Dunscomb,  108  Tenn.  724,  69  S. 
W.  345,  58  L.  R.  A.  694,  91  Am.  St.  Rep. 
769. 

24.  Bramel  7'.  Manring,  18  Wash.  421, 
,  51  Par    lO.iO. 

25.  Effect  of  dissolution  on  rights  of 
stockholders.— Connecticut  Mut.  Life 
Ins.  Co.  7'.  Dunscomb.  108  Tenn.  724, 
69  S.  W.  345.  58  L.  R.  A.  694.  91  Am. 
St.  Rep.  769. 


§  72  (6) 


IXSOLVEXCV    AND   DISSOLUTION. 


495 


preservation  thereof  by  a  court  .  of  chancer}-,  but  furnishes  adchtional 
ground  therefor.-'''  But  in  Mississippi,  the  rule  is  otherwise.-"  In  that 
state  the  statute,  as  to  the  dissokition  of  a  banking  corporation,  leaves 
stockholders  in  just  the  position  they  had  at  common  law.-** 

The  stockholders  may  also  interfere  to  prevent  waste  of  the  as- 
sets by  the  recei\er.-"'  And  the  assets  must  be  prorated  and  paid  out  in 
proportion  as  the  subscriptions  of  stock  have  been  paid.-^" 

§  72  (5)  On  Liability  of  Stockholders. — Where  a  bank  corporation 
continues  to  transact  business  after  the  expiration  of  its  charter  for  the 
purpose  of  winding  up  its  afifairs,  it  is  a  de  facto  corporation  and  stock- 
holders can  not  maintain  that  they  become  thereafter  liable  only  as 
partners. ^1 

§  72  (6)  On  Right  to  Make  Collections. — After  a  bank  has  sus- 
pended, it  thereby  ceases  to  have  the  general  power  and  authority  which 
it  previously  had  to  collect  paper  wdiich,  before  its  suspension,  had  been 
deposited  with  it  for  this  purpose,  so  as  to  make  it  a  general  creditor  of 
the  depositor,  but  this  subsequent  collection  must  be  held  by  it  as  agent 
in  trust  for  the  owner. •^- 


23.  Property  rights  and  equity  juris- 
diction.— The  tendency  of  tlie  decisions 
and  judgments  of  the  court  of  chan- 
cery in  Great  Britain,  and  of  the 
courts  of  this  country,  is  to  concede 
the  existence  of  a  distinct  and  posi- 
tive right  of  property  in  the  individuals 
composing  the  corporation,  in  its 
capital  and  business,  which  is  subject 
in  the  main  to  the  management  and 
control  of  the  corporation  itself:  but 
that  cases  may  arise  where  the  corpo- 
rators may  assert  not  only  their  own 
rights,  but  the  rights  of  the  corporate 
body.  And  no  reason  can  be  given 
why  the  dissolution  of  a  banking  corpo- 
ration, whether  by  judicial  sentence  or 
otherwise,  whose  capital  was  con- 
tribufed  by  sliareholders,  for  a  lawful 
and  perhaps  laudable  enterprise,  witli 
the  consent  of  the  legislature,  should 
suspend  the  operation  of  these  prin- 
ciples, or  hinder  the  effective  inter- 
ference of  the  court  of  chancery  for 
the  preservation  of  individual  rit^Ins 
of  property  in  such  a  case.  The  with- 
drawal of  the  charter — that  is,  the 
right  to  use  the  corporate  name  for 
the  purposes  of  suits  before  the  or- 
dinary tribunals — is  such  a  substantial 
impediment  to  the  prosecution  of  the 
rights  of  the  parties  interested, 
whether  creditors  or  debtors,  as 
would  authorize  equitaljle  interposition 
in   their   behalf,   within    the   doctrine   oi 


chancery  precedents.  Bacon  v.  Rob- 
ertson (U.  S.),  18  How.  480,  13  L.  Ed. 
499. 

27.  Coulter  v.  Robertson,  24  Miss. 
278,  .J7  Am.  Dec.  168. 

Debts  due  a  bank  are  not  kept  alive 
for  benefit  of  stockholders,  under  the 
statute  passed  the  twentieth  of  July, 
184:i,  and  they  have  no  right  to  the 
surplus;  their  rights  are  left  as  they 
were  at  the  common  law;  this  act  was 
for  the  benefit  of  the  creditors  of  the 
corporation  merely.  Coulter  v.  Rob- 
ertson, 24  Miss.  278,  ;)7  Am.   Dec.   1G8. 

28.  Coulter  v.  Robertson,  24  Miss. 
278,   57   Am.    Dec.    168. 

29.  The  statute  of  1842  (Cobb's  St. 
118,  119),  providing  for  the  winding  up 
of  defaulting  banks,  did  not  deprive 
stockholders  of  the  right  to  interfere 
and  prevent  waste  by  the  receivers. 
Robinson  v.  Lane,  19  Ga.  337. 

30.  Cook,  Stock  &  Stockholders, 
§  641.  Connecticut  Mut.  Life  Ins.  Co. 
V.  Dunscomb,  108  Tenn.  724,  69  S.  W. 
345,  58  L.  R.  -A.  094,  91  Am.  St.  Rep. 
7  6'.). 

31.  I'tlson  V.  Wright,  134  Iowa  634, 
1 1:.'  .\    \V.  105. 

32.  Effect   of  dissolution  on  right  to 

make     collection Jockusch  v.     Tow- 

sey,    5  1      lex.     i;.'9;    German  American 

Bank  v.  'I'hird  Nat.  Bank,  2  Tc.x.  Law 
Jour.   150. 


496 


BANKS  AND  BANKING. 


73  (1) 


§  73.  Insolvency  and  Its  Effect  in  General-^^— §  73  (1)  What 
Constitutes  Solvency  or  Insolvency. -^^ — Where  the  question  of  insol- 
vency is  in  issue  in  a  state  court,  it  is  proper  for  the  court  to  follow  the 
definition  of  "insolvency"  contained  in  the  national  bankruptcy  act.^^  The 
terms  solvency  and  insolvency,  however,  are  usually  defined  as  follows : 
A  bank  is  solvent  so  long  as  it  possesses  sufficient  assets  to  pay,  within  a 
reasonable  time,  all  its  liabilities  through  its  own  agencies.-^*'  But  a  bank 
is  insolvent  when  the  capital  stock  and  all  its  assets  are  insufficient  to  meet 
its  liabilities.-^"     And  where  a  suspension  of  specie  payment  is  the  alleged 


33.  Conclusiveness  of  receiver's  ap- 
pointment on  question  of  insolvency, 
see  post,  "Appointment  and  Removal 
of  Receiver,"  §  77   (l). 

34.  On  criminal  prosecution  for  re- 
ceiving deposits  when  insolvent,  see 
ante,  "Criminal  Responsibility,"  §  60. 
Proof  of  insolvency,  see  post,  "What 
Constitutes    Collection,"   §    163. 

35.  What  constitutes  insolvency 
under  bankrupt  act. — Owen  z'.  Ameri- 
can Nat.  Bank,  36  Tex.  Civ.  App.  490, 
81    S.    W.   988. 

Closing  doors  for  few  days. — "It  is 
provided  by  the  bankrupt  law,  that  if 
a  banker  stops  or  suspends  fraudu- 
lently for  a  period  of  fourteen  days, 
he  is  deemed  to  have  committed  an 
act  of  bankruptcy;  but  if  the  suspen- 
sion be  not  fraudulent  it  is  not  an  act 
of  bankruptcy.  Brightly  Bankrupt 
Law,  p.  80,  and  notes."  Moseby  f. 
Williamson,    .■)2    Tenn.    (5    Heisk.)    278. 

36.  Definition  of  solvency. — Dodge 
V.  Mastin  (C.  C),  17  Fed.  660,  5  Mc- 
Crary  404. 

The  closing  of  a  bank  and  calling  on 
the  superintendent  of  banks  to  take 
charge  of  its  assets  may  very  properly 
be  deemed  acts  of  insolvency,  but  are 
not  conclusive,  and  where  it  is  shown 
that  this  course  was  unnecessary,  that 
the  bank  was  able  to  pay  its  debts,  and 
have  a  large  surplus,  these  acts  re- 
sulting from  fright  or  overcaution,  in 
view  of  the  financial  situation  existing, 
or  from  ignorance  of  solvency,  lose 
their  probative  force.  People  v.  Ori- 
ental Bank,  124  App.  Div.  741,  109  N. 
Y.   S.   509. 

37.  Definition  of  insolvency. — Dodge 
V.  Mastin  (C.  C),  17  Fed.  660,  5  Mc- 
Crary  404;  Youmans  v.  State,  7  Ga. 
App.  101,  66  S.  E.  383;  Fremont 
County  v.  Fremont  County  Bank,  14.5 
Iowa  8,  123  N.  W.  782;  Marr  v. 
Bank,  44  Tenn.   (4  Coldw.)  471. 

"Insolvency,"  in  its  legal  sense,  as 
applied  to  banks  and  trust  companies, 
exists  whenever  such  an  institution, 
from    any    cause,    is    unable    to    pay    its 


debts  in  the  ordinary  course  of  busi- 
ness. Bell  V.  Tradesmen's  Trust  Co. 
(Pa.),  85  Atl.  363. 

A  bank  is  insolvent  when,  from  the 
uncertainty  of  being  able  to  realize  on 
its  assets,  in  a  reasonable  time,  a  suffi- 
cient amount  to  meet  its  liabilities,  it 
becomes  necessary  for  the  control  of 
its  afifairs  to  pass  out  of  its  hands. 
Livingstain  z'.  Columbian,  etc.,  Trust 
Co.,  81  S.  C.  244,  62  S.  E.  249,  22  L.  R. 
A.,  N.  S.,  445,  quoting  3  Encyc.  Law 
(2iid  ed.)  847. 

Though  a  banking  corporation,  at 
the  time  it  suspended,  had  enough 
funds  on  hand  to  meet  the  demands 
made  against  it  on  that  day,  in  the  or- 
dinary course  of  business,  it  was  then 
insolvent,  if  its  property  was  insuffi- 
cient to  pay  all  its  debts.  Higgins  v. 
Worthington,  12  App.  Div.  361,  42  N. 
Y.   S.   737. 

But  a  bank  will  not  be  considered 
as  insolvent  merely  because  it  has 
gone  voluntarily,  or  been  forced,  into 
liquidation.  It  is  only  when  the  whole 
amount  of  a  bank's  capital  stock,  to- 
gether with  assets,  is  insufficient  to 
meet  liabilities,  that  it  can  be  said  to 
be  insolvent.  Exchange  &  Banking 
Co.  V.   Mudge    (La.).   6   Rob.   387. 

Nor  is  a  bank  insolvent  if  it  has 
property  more  than  sufficient  to  pay 
all  demands,  though  it  has  suspended 
specie  payment.  Livingston  z'.  Bank 
(N.  Y.),  5  Abb.  Prac.  338,  26  Barb.  304. 

Ability  to  pay  in  cash. — A  bank 
ceased  business  in  1862  because  of  the 
Civil  War,  and  continued  its  existence 
simply  to  close  its  business.  In  1865, 
after  publishing  a  resolution  of  its  di- 
rectors that  it  would  make  settle- 
ments by  set-off,  it  continued  to  liq- 
uidate its  business  in  this  way  until 
June,  1872,  when  it  was  forced  into 
l)ankruptcy  before  completing  its  set- 
tlements. Held,  that  the  question  of 
its  insolvency  as  against  persons  with 
whom  it  had  effected  settlements 
within  four  months  prior  to  the  bank- 
ruptcy   proceedings,    which   are   fraudu- 


§  /3  (1) 


INSOLVEXCV   AXD   DISSOLUTION-. 


497 


ground  of  insolvency,  it  is  to  be  considered  insolvent  as  of  the  time  when 
payment  was  first  suspended.^*' 


lent  and  void  under  Rev.  St.  L'.  S., 
§  5128,  should  be  determined  by 
whether  or  not  its  assets  were  suffi- 
cient to  meet  its  liabilities  simply,  and 
not  by  its  ability  to  pay  all  its  claims 
in  cash  on  presentment.  Harmanson 
7-.  Bain.  Fed.  Cas.  Xo.  (5.072,  1  Huche? 
ISS. 

Insolvency  of  borrower. — If  an  ac- 
tion by  a  depositor  against  a  banker 
for  negligence  in  loaning  the  deposi- 
tor's money  in  1896  to  a  borrower  who 
became  bankrupt  in  1899,  the  defend- 
ant requested  an  instruction  that  the 
fact  that  the  borrower  was  insolvent 
when  the  bankruptcj^  proceedings 
were  begun  w^as  not  evidence  that  he 
was  not  a  safe,  responsible,  and  con- 
servative borrower  in  1896.  It  ap- 
peared that  the  borrower  w^as  in  fail- 
ing circumstances  at  and  after  the 
loan,  and  the  bankruptcy  w-as  the  cul- 
mination of  this  condition  of  affairs. 
Held,  that  the  instruction  was  prop- 
erly refused  Judgment  (1902)  10.5  111. 
App.  .32,  affirmed.  Watson  z\  Fagner, 
208   111.   ].']6,   70   N.    E.  23. 

Construction  of  words  "not  clearly 
solvent." — A  bank  which  has  suspended 
.--pecie  payments  is  "not  clearly  sol- 
vent," within  the  New  York  Act  of 
.A.pril  .5,  1849,  providing  that  a  cred- 
itor, in  ten  days  after  refusal  of  pay- 
ment, may  apply  for  an  order  under 
which,  upon  a  hearing,  if  the  judge  de- 
termine that  the  bank  is  "not  clearly 
solvent,"  he  shall  make  a  further  order 
declaring  it  insolvent,  restraining  any 
further  exercise  of  its  corporate  or 
legal  rights,  etc.  In  re  Empire  City 
Bank    (X.    Y.),    ]0    How.    Prac.   498. 

A  bank  is  "not  clearly  solvent" 
where  it  refuses  to  pay  its  undisputed 
debts  for  more  than  twenty  days  after 
demand.  In  re  Empire  City  Bank 
ex.   Y.),   10   How.   Prac.   498. 

A  bank  is  "not  clearly  solvent," 
within  the  act  of  April  .5,  1849,  where 
it  has  suffered  judgments  against  it  to 
l)c  recovered,  and  executions  upon 
them  to  be  issued,  and  to  remain  and 
to  be  returned  unsatisfied,  either  in 
whole  or  in  part.  In  re  Empire  City 
Bank    (X.    Y.),    ]0    How.    Prac.   498. 

A  bank  is  "not  clearly  solvent," 
within  the  Act  of  .'\pril  .5,  1849,  where 
it  allows  an  injunction  against  its  busi- 
ness to  be  issued,  and  when,  on  a  com- 
promise with  the  creditors,  such  in- 
junction was  withdrawn  or  dissolved, 
or  supposed  to  be,  it  immcdi.itely  ex- 
1   B  &  B— :j2 


ecuted  (without  security)  to  three  in- 
dividuals— two  of  'them,  if  not  all, 
debtors  to  it,  and  selected  by  direct- 
ors occupying  the  same  position— an 
absolute  assignment  of  all  its  property 
and  effects  to  the  nominal  amount  of 
$.500,000,  to  pay  its  creditors.  In  re 
Empire  City  Bank  (N.  Y.),  10  How. 
Prac.  498. 

A  bank  is  "not  clearly  solvent," 
within  the  act  of  April  5,  1849,  where, 
prior  to  suspending  specie  payments, 
it  borrowed  money  in  large  amounts 
at  the  rate,  in  some  instances,  of  5 
per  cent  per  inonth.  In  re  Empire 
City  Bank  (X.  Y.),  10  How.  Prac.  498. 

If  a  bank  is  so  circumstanced  as  to 
depend  on  the  individual  resources  and 
exertions  of  its  directors  and  stock- 
holders, and  is  compelled  to  rely  on 
their  private  funds  to  meet  its  en- 
gagements, and  only  claims  to  be  able 
to  pay  at  a  future  day,  it  can  not  be 
said  to  be  solvent.  Ferry  v.  Bank 
(N.  Y.),  1,5  How.  Prac.  44.5. 

But  if  the  inability  of  a  bank  to 
meet  its  undertakings  arises  solely 
from  an  unexpected  crisis,  and  it  ex- 
hibits resources  abundantly  sufficient 
to  enable  it  to  meet  its  engagements 
and  discharge  its  liabilities  in  the  or- 
dinary and  usual  method  of  conduct- 
ing that  business,  it  should  not  be  pro- 
nounced insolvent,  with  a  view  to  its 
dissolution.  Ferry  z:  Bank  (X.  Y.),  15 
How.    Prac.   445. 

Receiving  deposits  with  knowledge 
of  "insolvency." — Under  §  5718  (M.  & 
v.).  Code,  making  the  managing  offi- 
cers of  a  banking  cori)oration  indi- 
vidually liable  to  depositors  for  money 
received  on  deposit,  when  they  knew, 
or  had  good  reason  to  believe,  the 
bank  insolvent,  a  bank  is  treated  as 
insolvent  when  it  becomes  unable  to 
nieet  its  liabilities  as  they  become  due 
in  the  ordinary  course  of  its  business. 
It  is  not  insolvent,  within  the  mean- 
ing of  this  statute,  so  long  as  it  is 
meeting  its  liabilities  as  they  become 
due,  and  there  is  a  reasonable  expecta- 
tion on  the  part  of  its  officers  familiar 
with  its  business  affairs  of  continuing 
to  do  so.  Whether  tlie  officers  acted 
in  good  faitii  and  upon  a  reasonaiile 
expectation  of  continuing  the  business 
must  be  determined  from  the  con- 
sideration of  all  the  attendant  circum- 
stances. Minton  r-.  i^tahlman,  06  Tenn. 
98,    :M    S.    W.    222. 

38.  Suspension  of  specie  payment. — 
Where     a     bank      in      South     t'arolina 


498 


BANKS  AND  BANKING. 


§  72>   (3a) 


§  73  (2)  Evidence  of  Insolvency. — Evidence  that  is  competent  and 
relevant,  according  to  the  well-estabHshed  general  rules  of  evidence,  whether 
direct, ^^  or  presumptive,'*'^'  may  be  admitted  to  prove  the  fact  of  solvency  or 
insolvency.     But  such  fact  must  be  shown  by  a  preponderance  of  evidence.^ ^ 

§  73  (3)  Effect  of  Insolvency— §  73  (3a)  In  General.^-— By  the 
insolvency  of  a  bank  the  corporation  is  rendered  incapable  of  pursuing  the 
objects  for  which  it  was  created  without  defrauding  the  public  and  its  ex- 
isting creditors.  Its  officers  or  agents  should  cease  to  use  its  franchises 
after  the  insolvency  is  ascertained,  but  their  responsibility  as  to  assets  does 


suspended  specie  payments  in  Novem- 
ber, 1860,  and  never  after  resume'd, 
paying  out  its  own  bills  for  the  last 
time  in  August,  1861,  and  after  that 
date  paying  its  debts  only  in  Con- 
federate money,  held,  that  the  bank 
failed  at  the  time  of  the  suspensions, 
in  November,  1860.  Godfrey  v.  Terry, 
97   U.    S.    171,    24    L.    Ed.    944. 

39.  W.,  who  owned  a  private  bank, 
drew  a  draft  on  such  bank  in  July. 
In  October  he  assigned,  and  in  No- 
vember the  plaintiffs,  as  his  assignees, 
made  a  statement  of  his  liabilities. 
Held  that  this,  with  testimony  that 
there  were  no  losses  between  July  and 
November,  and  no  extraordinary 
shrinkage  in  assets  or  increase  of  lia- 
bilities between  the  dates  named,  was 
■competent  on  the  question  of  W.'s  in- 
solvency in  July.  Kling  v.  Irving  Nat. 
Bank,  21  App.  Div.  373.  47  N.  Y.  S.  528, 
order  affirmed  in  160  N.  Y.  698,  55  N. 
E.  1096. 

40.  Presumption  of  insolvency. — The 
jury  might  infer  that  a  banking  cor- 
poration was  insolvent  when  it  sus- 
pended, where  the  suspension  was  fol- 
lowed in  a  few  days  by  the  appoint- 
ment of  a  receiver,  and  subsequently 
by  a  judgment  of  dissolution  on  the 
ground  of  insolvency.  Higgins  v. 
Worthington,  12  App.  Div.  361,  42  N. 
Y.    S.   737. 

The  alleged  acts  of  insolvency  of  a 
bank  consisted  in  payments  made  upon 
the  checks  of  its  depositors  at  a  time 
when  it  was  insolvent.  Some  of  the 
payments  were  made  between  the  time 
it  closed  its  doors  and  the  date  of  an 
assignment  for  the  benefit  of  creditors. 
Held  that,  although  the  presumption 
was  that  such  payments  were  made 
by  the  firm  with  knowledge  of  its  in- 
solvency, or  in  contemplation  of  it, 
such  presumption  was  overcome  where 
the  members  testified  that  they  be- 
lieved the  firm  to  be  solvent  up  to  the 
time  of  assignment;  that  they  used 
their  individual  means  to  pay  deposi- 
tors; and  that,  after  the  bank  had  closed 


its  doors,  they  tried  to  borrow  money 
to  continue  the  business.  McAfee  v. 
Bland,  11   Ky.   L.   Rep.   1,   11  S.  W.  439. 

41.  Sufficiency  of  evidence  to  show 
insolvency. — The  fact  that  circum- 
stances have  made  it  a  bank's  duty  to 
abstain  from  receiving  further  deposits 
and  making  further  payments;  that  it 
has  suspended  in  justice  to  its  deposi- 
tors, creditors,  and  stockholders;  and 
that  it  is,  for  the  present,  unable  to 
meet  its  cash  liabilities — establishes 
legal  insolvency.  State  v.  Mechanics', 
etc..   Bank,  35  La.   Ann.  562. 

Evidence  showed  that  an  examina- 
tion of  the  affairs  of  a  bank  was  made 
on  August  2d,  when  the  specie  then 
on  hand  amounted  to  $9,754.92.  Another 
examination  was  made  on  the  11th  of 
the  same  month,  when  it  then  had 
only  $138.89,  and  there  was  no  corre- 
sponding decrease  in  its  liabilities;  that 
about  $44,000  of  all  the  bank's  issues 
were  then  in  the  hands  of  agents 
without  securities;  and  that  of  the  as- 
sets there  were  $5,000  in  uncurrent 
notes  and  about  $25,000  in  post  notes, 
which  were  issued  on  August  4th,  with- 
out being  indorsed  by  the  bank  com- 
missioner, as  required  by  law.  Held, 
that  the  bank  was  insolvent,  and  that 
such  facts  were  sufficient  for  the  ap- 
pointment of  a  receiver  to  close  up 
its  business.  Bank  Comm'rs  v.  Bank 
(Mich.),   1  Har.   106. 

Evidence  held  to  support  a  finding 
that  a  bank  was  solvent  on  January 
4,  1905,  when  a  check  was  drawn  on 
it  by  a  retiring  county  treasurer  in 
favor  of  his  successor,  and  three  days 
later,  when  the  successor  deposited  the 
check  with  the  bank  and  until  after 
the  adoption  on  May  3d  by  the  board 
of  supervisors  of  a  resolution  desig- 
nating the  bank  as  a  depository  of 
county  funds.  Fremont  County  v. 
Fremont  County  Bank,  145  Iowa  8,  123 
N.  W.  782. 

42.  As  ground  for  forfeiture  of  char- 
ter, see  post,  "Set-Off  by  Depositor," 
§   135. 


§  73  (3b) 


IXSOLVEXCV   AND    IMSSOLUTIOX. 


499 


not  cease.  They  continue  to  use  them  as  before ;  not  for  themseh-es,  or  for 
the  use  and  benefit  of  the  stockholders,  but  for  the  creditors  of  the  corpora- 
tion. After  the  insolvency  of  the  corporation,  ahhough  the  legal  ownership 
of  the  assets  may  continue  as  before,  the  beneficial  interest  of  the  stock- 
holders no  longer  exists,  as  a  state  of  insolvency  presupposes  that  the  cap- 
ital and  assets  are  insufficient  to  meet  the  liabilities.-*--  Kut  the  mere  insol- 
vency of  a  banking  corporation  will  not  work  a  dissolution.-*-*  nor  convert  its 
ettects  into  a  trust  fund  for  its  creditors.-*''  And  money  on  deposit  in  a 
bank,  subject  to  check,  becomes  due  without  demand  when  the  bank  be- 
comes insolvent. ■**^ 

A  stock  assessment  levied  before  the  insolvency  of  the  bank  but  not 
collected  can  not  be  enforced  by  the  bank  commissioners.^" 

§  73    (3b)   Transacting- Business  after  Knowledge  of  Insolvency.4s 

—By  statute  in  many  jurisdictions  the  officers  of  a  bank  are  forbidden  to 
receive  deposits  or  create  any  debts,  after  knowledge  that  it  is  insolvent  and 
in  failing  circumstances,  and  the  plaintiff  is  only  bound  to  prove  to  the  sat- 
isfaction of  the  jury  that  the  bank  was  insolvent.  Upon  this  showing,  the 
officers  of  the  bank,  to  escape  liability,  must  prove  that  they  did  not  have 
the  knowledge  the  law  imputes  to  them,  and  thus  overcome  the  law,  which 
says  they  did  know.  The  burden  of  proof  of  the  want  of  knowledge  of 
insolvency  is  on  the  officer  sued.-*'»     The  rule  seems  to  be  well  settled,  that 


43.  General    effect    of    insolvency 

Williams  z'.  Patrons.  2.3  Mo.  App.  i;]2; 
Roan  V.  Winn.  93  Mo.  :>():).  4  S.  W. 
736;  :\Iarr  z:  Bank,  44  Tenn.  (4  Coldw.) 
471. 

The  general  authority  of  private 
bankers'  cashier  to  transact  business 
for  them  ceased  with  their  insolvency, 
and  hence  he  could  not  validly  deliver 
a  note  for  them.  Casale  z\  Guion.  116 
X.  Y.  S.  294. 

44.  Insolvency  does  not  work  disso- 
lution.— Tlie  mere  insolvency  of  a  C(^r- 
I>oration  will  not  work  a  dissolution, 
nor  will  the  assignment  of  all  of  its 
property,  nor  the  appointment  of  a  re- 
ceiver, extinguish  the  franchises  with 
which  the  company  has  been  invested, 
where  there  have  been  no  proceedings 
for  forfeiture  inaugurated  by  the 
state,  nor  a  surrender  by  act  of  the 
stockholders.  Coburn  v.  Boston,  etc., 
Mi.'{.  Co..  76  .Mass.  (lO  Gray)  24.3; 
Hickerhof  t-.  Brown,  7  Johns.  Ch..  217; 
State  c'.  Butler,  86  Tenn.  614,  8  S.  W 
586. 

The  existence  of  the  corporation, 
■Nvith  the  powers  conferred  by  its  ciiar- 
ter,  continued,  notwithstanding  the  in- 
solvency of  the  bank  and  its  conse- 
quent suspension  of  business,  and  the 
legal    rights   of   individual    shareholders 


could  not  be  taken  from  them  by  the 
majority,  however  large,  and  the  at- 
tempt of  such  a  majority  was  beyond 
the  power  of  the  corporation.  Gresham 
■z:  Island  City  Sav.  Bank.  2  Tex.  Civ. 
App.  ,52,  21  S.  \\\  5.J6:  Island  City  Sav. 
Bank  z'.  Sachtleben,  67  Tex.  420.  3  S. 
W.    733. 

45.  Catlin  r.  Eagle  Bank.  6  Conn. 
233. 

46.  Thompson  v.  Union  Trust  Co., 
130  Mich.  508.  90  X.  W.  294.  97  Am. 
St.   Rep.  494. 

47.  A  stock  assessment  levied,  but 
not  collected,  and  not  yet  due,  when 
the  adjudicati(jn  of  insolvency  was 
made  under  the  bank  commissioners' 
act,  was  set  aside  by  the  adjudication; 
and  the  levy  can  not  be  enforced,  as 
a  call  for  the  payment  of  unpaid  sub- 
scriptions, by  the  bank  commissioners, 
since  the  commissioners  had  no  such 
authority,  nor  could  the  directors  act 
as  trustees  under  the  statute  before 
such  adjudication  was  made.  Bank  7\ 
Johnson,   i;!;{  Cal.   185,  65   I'ac.  3s:!, 

48.  C'riniiiiril  Resi)onsil)ilil y,  sec  .iiite. 
"Criniiii.'il     I\is])onsil)ility."    S    '''"• 

49.  Transacting  business  after  knowl- 
edge of  insolvency. — St.  Louis,  etc.,  R. 
Co.  7'.  Johnston,  133  U.  S.  566,  33  L. 
Kd.   6.s:;,    10   S.   Ct.  :{90:   Dodge  :•.    Mas- 


500 


BANKS  AND  BANKING. 


§    73     (3b) 


after  a  bank  has  suspended,  it  ought  not  to  receive  payments  upon  business 
paper  previously  deposited  with  it  for  collection,  in  such  a  manner  that  the 
money  so  received  by  it  will  pass  into  its  general  assets,  and  the  owner  of 


tin  (C.  C),  17  Fed.  660,  5  McCrary 
404,  (construing  Missouri  Constitu- 
tion); Minton  v.  Stahlman.  96  Tenn. 
98.  .34  S.  W.  222. 

Where  one  intrusts  his  monej^  to  a 
bank  as  a  general  deposit,  makes  no 
inquiry  as  to  its  solvency,  and  is  not  in- 
duced to  make  the  deposit  as  the  re- 
sult of  any  statement  made  by  the 
officers  of  the  bank,  such  depositor  is 
in  no  better  position  than  any  other 
person  who  deals  with  an  insolvent 
under  the  impression  that  he  is  sol- 
vent. McGregor  v.  Battle.  128  Ga. 
.577.    58    S.    E.   28. 

Right  to  recover  funds  deposited 
pending  insolvency. — Where  it  ap- 
pears that  a  bank  has  been  insolvent 
for  a  long  time  before  the  assignment, 
to  the  knowledge  of  the  directors  ana 
officers  of  the  bank,  it  was  a  fraud  on 
the  part  of  such  officers  to  continue 
to  do  business,  and  persons  having  in- 
trusted money  to  the  bank  may  re- 
cover it  back  if  it  can  be  identified. 
But  where  the  money  can  not  be 
identified,  but  was  mingled  with 
the  funds  of  the  bank,  they  must  take 
their  chances  with  the  other  creditors 
of  the  bank,  unless  the  money  came 
into  the  hands  of  the  bank  impressed 
with  a  special  trust,  in  which  case  the 
assignee  will  have  to  refund  it  out  of 
any  money  of  the  bank  in  his  hands. 
In  re  Assignment,  2  N.  P.  170,  4  O.  Dec. 
108;  Jones  v.  Kilbreth,  49  O.  St.  401, 
31  N.  E.  346;  Mad  River  Nat.  Bank 
V.  Melhorn,  8  O.  C  C.  191,  4  O.  C.  D. 
401;  In  re  Assignment.  1  X.  P.  358, 
2  O.  Dec.  304. 

Right  to  recover  check  given  for 
worthless  draft. — A  few  hours  before 
the  Fidelity  National  Bank  closed  its 
doors,  and  at  a  time  when  its  officers 
knew  that  it  was  hopelessly  insol- 
vent, and  that  no  deposit  made  could 
be  withdrawn,  G.,  acting  as  agent  of 
W.,  was  allowed  by  said  officers  to  de- 
posit W.'s  check  on  another  bank  to 
G.'s  account  in  the  Fidelity  National 
Bank,  and  receive  in  exchange  there- 
for a  draft  of  the  Fidelity  National 
Bank  on  a  New  York  Bank,  where  it 
had  no  funds.  It  was  held  that  W.,  as 
against  the  receiver  of  the  Fidelity 
National  Bank,  was  entitled  to  rescind 
the  contract  of  deposit  of  the  check  for 
fraud,  and  on  the  tender  of  the  dis- 
honored draft  was  entitled  to  a  de- 
livery up   of  the   check.      Held,   further, 


that  W.  was  entitled  in  equity  to  en- 
join suit  against  himself  by  the  re- 
ceiver in  a  jurisdiction  where  G.'s  as- 
signee in  insolvency,  who  held  the  dis- 
honored draft  and  refused  to  deliver 
the  same  to  W.  or  the  receiver,  could 
not  be  made  a  party.  Warner  v.  Arm- 
strong, 21  Wkly.  L.  Bull.  124,  10  O. 
Dec.  426,  affirmed  in  49  O.  St.  376,  31 
N.   E.   877. 

Effect  of  fraud  by  bank  inducing  de- 
positor to  let  fund  remain  on  deposit. 
— Where  a  depositor,  who  presented 
his  check  for  the  payment  of  the  bal- 
ance of  his  deposit,  was  induced 
through  the  fraudulent  misrepresenta- 
tions of  the  bank  as  to  its  solvency  to 
let  his  money  remain  on  deposit  in 
said  bank,  such  deposit  does  not  be- 
come a  trust  fund  in  the  hands  of  the 
bank  as  trustee,  but  the  relation  of 
debtor  and  creditor  still  exist.  Com- 
mercial Bank  v.  Armstrong,  148  U.  S. 
50.  37  L.  Ed.  363,  13  S.  Ct.  533;  Ven- 
ner  v.  Cox  (Tenn.),  35  S.  W.  769;  Akin 
V.  Tones.  93  Tenn.  353,  27  S.  W.  669, 
25   L.   R.   A.   523.  42  Am.   St.  Rep.  921. 

Discounting  paper. — Act  Feb.  13, 
1843,  for  the  final  settlement  of  the  af- 
fairs of  a  certain  bank,  after  declaring 
its  charter  forfeited  for  failure  to  pay 
its  debts,  and  providing  for  the  exhi- 
bition of  an  information  in  the  nature 
of  a  quo  warranto  by  the  solicitor 
of  the  circuit  court  on  the  requisition 
of  the  governor,  and  the  appointment 
of  commissioners  to  take  charge  of  itb 
effects,  with  power  to  sue,  etc.,  pro- 
vides that  it  shall  be  lawful  for  said 
commissioners  to  submit  to  arbitration 
contested  claims,  either  those  against 
or  held  by  the  bank,  and  "to  com- 
pound any  doubtful  or  bad  debt,"  etc. 
Pamph.  Acts  1845,  p.  46,  provides  that 
the  trustees  may  use  the  corporate 
name  of  said  bank  in  the  collection  of 
debts  due  it,  and  may  use  all  the 
modes  and  powers  given  to  the  bank 
by  its  original  charter,  or  any  subse- 
quent act  of  the  legislature,  for  the  col- 
lection of  its  debts,  in  the  same  man- 
ner as  if  the  charter  had  never  been 
forfeited.  Held  that,  though  the  stat- 
ute authorizes  the  bank  to  exert  all 
the  powers  conferred  by  the  charter  for 
the  purpose  of  collecting  its  debts,  it 
has  no  power  to  discount  or  purchase 
a  bill  of  exchange  as  a  business  trans- 
action: and  an  averment,  therefore,  in 
a   plea    in   an   action   on   a   bill   due    the 


§  /'3   (4, 


IXSOLVEXCV    AND    mSSOLUTIOX. 


501 


the  paper  be  placed  in  the  position  of  one  of  its  creditors,  entitled  only  to 
take  his  dividends ;  and  proceeds  received  after  the  bank  becomes  insolvent, 
will  be  held  in  trust,  and  may  be  recovered  in  full.'"^ 

On  Right  to  Secure  Future  Advances. — A  banking  corporation  may 
execute  a  mortgage  to  secure  an  antecedent  indebtedness  of  the  bank  even 
at  a  time  when  it  is  insolvent,  provided  it  is  not  in  the  hands  of  a  receiver. ^^ 

On  Right  of  Directors  to  Withdraw  Deposits. — It  seems  that  a  di- 
rector of  an  insolvent  banking  corporation,  with  full  knowledge  that  the 
corporation  is  insolvent  and  must  close  its  doors,  can  not  withdraw  his  de- 
posits from  the  bank.^- 

§  73  (3c)  On  the  Venue  of  Suits  against  Bank. — Another  effect 
of  insolvency  is  to  confine  suits  against  the  bank  to  the  court  in  which  the 
insolvency  proceedings  have  been  instituted. ^'^ 

§  73  (4)  Rights  of  Correspondent  Bank. — A  correspondent  bank, 
indebted   to   an   insolvent  bank   on  open   account,   is  entitled   to  applv  the 


bank,  that  such  bill  was  acquired  by 
the  bank  bj'  discounting  it,  is  sufficient 
prima  facie  to  show  that  the  transac- 
tion was  unauthorized.  Saltmarsh  z'. 
Planters',  etc.,  Bank,  14  Ala.  668. 

50.  Jones  z:  Kilbreth,  49  O.  St.  401, 
31   N.   E.  346,   citing  :\Iorse   Bk.,  §  248a. 

Right  to  recover  interest.— Where  a 
bank  known  by  its  officers  to  be  in- 
solvent collected  money  for  a  cus- 
tomer and  mingled  the  same  with  its 
own  funds  which,  to  an  amount  larger 
than  the  sum  received,  passed  to  the 
bank's  receiver  in  insolvency,  the  cus- 
tomer, though  unable  to  trace  the 
identical  money  into  the  receiver's 
hands,  was  entitled  to  recover  from 
the  receiver  an  amount  equal  to  that 
collected  but  without  interest,  the  gen- 
eral creditors  of  the  bank  not  being- 
responsible  for  the  receiver's  error  of 
judgment  in  refusing  to  pay  the  claim 
on  demand.  Butler  v.  Western  Ger- 
man Rank,  S6  C.  C.  A.  .'i06,  1.59  Fed. 
116. 

51.  Mortgage  to  creditor  to  secure 
advances. — Creditors  and  stockhold- 
ers of  a  bank  in  the  hands  of  a  re- 
ceiver made  an  agreement  for  the  re- 
sumption of  business  by  it.  To  obtain 
funds  to  make  a  part  payment  to  the 
creditors,  a  loan  was  obtained  from 
one  of  the  creditors,  and  a  mortgage 
given  to  him  to  secure  his  pre-existing 
claim.  Held  that,  on  an  issue  of  the 
valiflity  of  the  mortgage  as  against 
the  other  creditors,  the  question  of 
the  bank's  insolvency  at  the  time  of 
its  execution  was  immaterial,  since 
the  receiver  had   been   discharged   with 


their  consent.  Bank  z:  Puget  Sound 
Loan,  etc.,  Co.,  20  Wash.  636,  50  Pac. 
395. 

52.  In  an  obiter  dictum  in  Lamb  v. 
Laughlin,  25  W.  Va.  300,  the  court 
after  an  exhaustive  review  of  many 
cases,  laid  down  the  rule  that  the  di- 
rectors of  an  insolvent  banking  cor- 
poration sustained  a  fiduciarj'  relation 
to  the  creditors,  and  therefore,  when 
the  directors  and  depositors  know  the 
bank  is  hopelessly  insolvent,  they  may 
not  make  a  rush  for  their  deposits  and 
delay  the  closing  of  the  doors  of  the 
bank  until  they  have  made  themselves 
safe. 

In  Lamb  v.  Laughlin,  25  W.  Va.  300, 
a  director  of  a  banking  corporation, 
knowing  the  institution  to  be  insolvent, 
availed  himself  of  his  superior  knowl- 
edge as  director  and  withdrew  all  the 
deposits  of  the  firm  of  which  he  was 
a  member.  The  court,  without  decid- 
ing the  point,  was  of  the  opinion  that 
such  assets  constituted  a  trust  fund 
for  the  creditors  of  the  bank  and 
ought  to  have  been  permitted  to  re- 
main in  the  bank  for  the  creditors 
generally:  and  that  the  defendant  be- 
ing a  director  and  trustee  for  the  cred- 
itors should  be  comi)cllcd  to  make 
good   the   amount   himself. 

53.  "Venue  of  suits  against  bank  aftei 
dissolution. — .\  bank  in  lif|uidation. 
under  Act  1SJ2,  No.  08.  §  H,  can  not  be 
sued  before  any  other  court  than  that 
before  which  it  is  ]i<|iii(Iated.  New 
Orleans  Imp.  Co.  :•.  Citizens'  Bank 
(La.),    10    Rob.    M. 


502 


BANKS  AND  BANKING. 


74  (1) 


amount  thereof  on  an  indebtedness  due  to  the  correspondent  bank  from  the 
insolvent  bank.-"''* 

§  73  (5)  Insolvency  of  Foreign  Banks. — The  insolvency  and  dis- 
solution of  a  foreign  bank  has  no  extraterritorial  operation  so  as  to  affect  the 
rights  of  domestic  creditors. ^^ 

§  74.  Transfers  and  Preferences  Affected  by  Insolvency^" — §  74 
( 1 )  In  General. — A  banking  corporation  in  failing  circumstances  may  as- 
sign its  property  to  trustees  for  the  benefit  of  preferred  creditors,  or  of  all 
the  creditors  equally,  unless  restrained  by  some  express  provision  in  its  act 
of  incorporation.^"  But  by  statute  in  most  jurisdictions  banks  are  now  for- 
bidden to  make  conveyances  when  insolvent  or  in  contemplation  of  insol- 
vency, with  a  view  to  prefer  one  creditor  to  another,  and  such  transaction 
is  void  and  may  be  set  aside  by  the  receiver,-^^  unless  the  conveyance  was 


54.  Rights  of  correspondent  bank. — 

The  S.  bank,  having  a  sufficient  de- 
posit in  the  B.  bank  for  that  purpose, 
directed  the  B.  bank  to  remit  a  sum  of 
money  to  the  N.  bank  to  cover  an 
overdraft  in  the  S.  bank's  deposit  ac- 
count. The  B.  bank  sent  a  draft  on 
the  M.  bank  to  the  N.  bank,  and  the 
draft  was  credited  on  the  deposit  ac- 
count of  the  S.  bank.  The  S.  bank 
having  failed  after  the  transmission  of 
the  draft,  the  B.  bank,  being  fearful 
that  collateral  security,  liekl  by  it  for 
a  loan  to  the  S.  bank,  would  prove  in- 
sufficient, requested  the  N.  bank  to  re- 
turn the  draft,  with  which  request  the 
N.  bank  complied,  but  immediately 
sent  its  agent  to  the  B.  bank,  and  se- 
cured a  redelivery  of  the  draft  on  the 
giving  of  an  indemnity  bond.  Held, 
that  the  duty  of  the  S.  bank  to  niain- 
tain  the  credit  side  of  its  deposit  ac- 
count in  the  N.  bank  was  a  sufificient 
consideration  for  its  direction  to  the 
B.  bank,  and,  that  the  bank  having  no 
authority  to  recall  the  draft,  the  sur- 
render of  the  draft  by  the  N.  bank  did 
not  affect  its  rights  as  against  the  S. 
bank,  and  therefore  the  receiver  of  the 
S.  bank  was  not  entitled  to  credit  for 
that  part  of  the  fund  represented  by 
the  draft  as  was  necessary  to  satisfy 
the  overdraft  in  the  N.  bank.  Brown 
7'.  Sheldon  State  Bank,  i:J9  Iowa  83, 
117  N.  W.  289. 

55.  Insolvency  of  foreign  banks. — 
The  aopointment  of  commissioners 
under  the  law  of  Louisiana,  to  admin- 
ister the  assets  of  the  M.  bank,  a 
Louisiana  institution,  in  liquidation, 
does  not  defeat  the  rio^hts  acquired  bv 
plaintiff  under  attachment  in  this 
state.  Hibernia  Nat.  Bank  v.  Lacombe. 
84  N.   Y.   367,  38  Am.   Rep.   518,  affirm- 


ing 21   Hun   166. 

A  creditor  of  an  insolvent  foreign 
bank  may  sue  and  obtain  judgment 
against  it  for  the  amount  of  his  claim 
and  enforce  the  same  against  any 
property  in  the  state  which  would  have 
belonged  to  it  had  it  not  gone  into 
liquidation.  State  Bank  v.  Corwith, 
6  Wis.  o.jI. 

56.  Preferential  assignments  for 
benefit  of  creditors,  see  post,  "Col- 
kiteral   Security,"  §    179. 

57.  Preferences  allowable  in  absence 
of  statute. — State  v.  Bank  (Md.).  6 
Gill   &  J.   205,   26  Am.   Dec.   561. 

An  incorporated  bank,  not  being  a 
person  capable  of  taking  the  benefit  of 
the  insolvent  laws  of  the  state  of 
Maryland,  is  not  within,  or  affected 
by,  Acts  1812,  c.  77,  §  1.  and  Acts  1816, 
c.  221.  §  6,  which  provide  that  deeds, 
etc.,  made  to  a  creditor  or  security 
"with  a  view  or  under  expectation  of 
becoming  an  insolvent  debtor,"  and 
with  intent  thereby  to  give  undue 
preference  to  such  creditor,  shall  be 
void.  State  v.  Bank  (Rid.),  6  Gill  &  J. 
20.-1.   26   Am.   Dec.   .i61. 

58.  Preferences  by  banks  generally 
forbidden  by  statute. — Robinson  v. 
Aird.  43  Fla.  30,  29  So.  633;  Hill  v. 
Western,  etc.,  R.  Co.,  86  Ga.  284,  12 
S.  E.  635;  Clarke  v.  Ingram,  107  Ga. 
565.  33  S.  E.  802;  Booth  v.  .\tlanta 
Clearing-House  Ass'n.  132  Ga.  100.  63 
S.  E.  907;  Roan  v.  Winn.  93  Mo.  503, 
4  S.  W.  736:  Gillet  v.  Moody,  3  N.  Y. 
479;  Leavitt  v.  Blatchford.  17  N.  Y. 
521;  Robinson  v.  Bank.  21  N.  Y.  406; 
Leavitt  V.  Tylee  (N.  Y.).  1  Sandf.  Ch. 
207. 

Construction  of  term  "effects." — 
The  term  "effects"  as  used  in  the  stat- 
ute of  1833  prohibiting  insolvent  banks 


§  74  (1) 


IXSOLVEXCV   AND   DISSOLUTION. 


503 


to  a  bona  fide  purchaser  without  notice  of  the  insolvency. ■"''•^     And  any  ad- 
vantages given  to  directors  or  officers  of  the  bank  are  particularly  obnoxious 


from  making  preferences  is  construed 
to  include  a  transfer  of  money  and 
promissory  notes  or  other  securities. 
Hill  r.  Western,  etc..  R.  Co.,  86  Ga. 
:.'S4.  12  S.  E.  635. 

Transfer  of  collaterals. — Where  a 
bank,  b\-  the  assignment  and  transfer 
to  plaintiff  of  a  note  in  suit,  was  sim- 
ply performing  that  which  it  had 
agreed  and  obligated  itself  to  do  in 
order  to  induce  plaintiff  in  the  first 
instance  to  loan  it  the  money,  and  the 
promise  or  agreement  to  assign  the 
notes  as  collateral  was  made  before 
plaintiff  had  actuallj-  become  a  creditor 
of  the  bank,  the  action  of  the  latter  in 
assigning  and  transferring  the  col- 
laterals to  plaintiff  in  no  sense  resulted 
in  an  unlawful  preference  within 
Burns'  Rev.  St.  1894,  §  2934  (Horner's 
Rev.  St.  1897,  §  2697),  though  the  bank 
was  insolvent  at  the  time  'the  col- 
laterals were  assigned.  Harris  v.  Ran- 
dolph County  Bank,  157  Ind.  120,  60 
X.    E.    1025. 

Pledge  of  collaterals. — A  bank,  aftei 
insolvency,  borrowed  monc}'  from 
plaintiff'  with  which  to  resume  busi- 
ness, and  pledged  collaterals  to  se- 
cure the  loan.  On  its  maturity  the 
bank  was  again  in  an  insolvent  con- 
dition, and,  in  order  to  secure  an  ex- 
tension of  the  loan,  paid  a  small  por- 
tion, and  pledged  further  collaterals,  to 
secure  it,  at  which  time  plaintiff  had 
knowledge,  or  at  least  constructive 
notice,  that  the  bank  was  insolvent. 
Held,  that  such  pledge  was  a  prefer- 
ence to  plaintiff  by  an  insolvent  corpo- 
ration, and  void  as  in  fraud  of  credit- 
ors. Burrell  v.  Bennett,  20  Wash.  644, 
56    Pac.  !!75. 

Payment  of  depositor's  check. — 
Payment  by  a  bank  known  by  its 
managing  officers  and  agents  to  be  in- 
solvent, but  continuing  in  business,  of 
the  check  of  a  depositor  wholly  igno- 
rant of  its  financial  condition,  is  not 
within  the  meaning  of  the  provision  of 
1  Rev.  St.  603,  §  4,  declaring  it  unlaw- 
ful for  any  incorporated  comi)any  to 
make  any  transfer  or  assignment 
in  contemplation  of  its  insolvency. 
Dutcher  v.  Importers',  etc.,  Nat.  Bank, 
59   X.   V.   5. 

Effect  of  conveyance. — Wlicn  tiie 
statute  declares  void  an  assignment  of 
evidence  of  debt  by  an  insolvent  bank, 
the  assignee  of  such  bank  of  a  note  and 
mortgage  acquires  no  title,  anrl  can 
not  sue  thereon.  Brighton  v.  White, 
128    Ind.    320,    27    X.    E.    620. 


Sufficiency  of  answer  setting  up  con- 
veyance.— In  a  suit  on  a  note  and 
mortgage  executed  to  a  bank,  and  by 
it  assigned  to  plaintiff,  an  answer  al- 
leging that  the  assignor  is  "a  bank  of 
deposit  and  discount  organized  under 
the  laws  of  the  state  of  Indiana,"  and 
that  it  assigned  the  mortgage  after  it 
and  plaintiff  knew  it  to  be  insolvent, 
is  not  demurrable  as  failing  to  show 
that  the  bank  is  within  the  provisions 
of  Rev.  St.,  §  2697,  declaring  that  as- 
signments and  transfers  of  evidences 
of  indebtedness  by  such  banks  when 
insolvent,  with  a  view  to  prefer  a 
creditor,  shall  be  void,  since  the  pre- 
sumption is  that  it  was  organized 
under  that  statute — the  only  general 
statute  of  the  state  relating  to  banks. 
Brighton  v.  White,  128  Ind.  320.  27 
X.   E.  620. 

Acts  1882,  c.  409,  §§  186,  187,  declare 
that  no  conveyance  of  the  effects  of 
a  bank  exceeding  in  value  $1,000,  ex- 
cept in  the  ordinary  course  of  busi- 
ness, shall  be  valid  unless  previously 
authorized  by  resolution  of  the  direct- 
ors, and  that  no  conveyance  or  trans- 
fer given  in  contemplation  of  insol- 
vency shall  be  valid.  A  bank  cashier, 
knowing  that  the  bank  was  insolvent 
and  was  to  suspend  business  the  next 
daj%  gave  a  depositor  drafts  belonging 
to  the  bank  amounting  in  the  aggre- 
gate to  more  than  $1,000.  Held,  in  an 
action  by  the  bank's  receiver  against 
the  transferee,  that  defendant  might 
show  that  he  had  brought  suit  on  the 
draft,  and  that  a  valid  defense  had 
been  interposed.  Atkinson  v.  Roches- 
'cr  Printing  Co.,  43  Hun  167,  5  N.  Y. 
St.    Rep.   470. 

Setting  aside  conveyance. — Code, 
§  4429,  provides  that  all  conveyances, 
etc.,  made  by  any  bank  in  contempla- 
tion of  insolvency,  or  after  insolvencj', 
shall,  unless  made  to  an  innocent  pur- 
chaser for  a  valuable  consideration, 
and  without  knowledge  or  notice  of 
the  condition  of  the  bank,  be  fraudu- 
lent and  void:  and  that  the  officers  of 
the  bank  making  or  consenting  to  such 
a  conveyance  shall  be  guilty  of  a  mis- 
demeanor, ileld,  that  an  action  to  set 
aside  such  a  conveyance  will  lie,  with- 
out first  prosecuting  the  oflicers  of  the 
bank  consenting  to  the  fraudulent  con- 
veyance. Hill  7'.  Western,  etc.,  R.  Co., 
SC)    Oa.    2S4,    12    S.    E.    635. 

59.  Rights  of  bona  fide  purchasers. — 
.\  comeyance  by  an  insolvent  i)ank, 
not     made     for     the    benelit    of    all     its 


504 


BANKS  AND   BANKING.' 


§  74   (1) 


to  this  statutory    prohibition.      All    such    moneys    and    securities    must  be 
promptly  refunded  or  surrendered.^'o     But  to  bring  a  case  within  the  pro- 


creditors  and  stockholders,  to  ont 
who,  at  the  time  of  receiving  the  in- 
strument, was  chargeable  with  notice 
of  the  bank's  insolvency,  though  he 
had  no  actual  knowledge,  is  void, 
under  Civ.  Code,  §  1979,  providing  that 
all  conveyances  by  a  bank  in  contem- 
plation of  insolvency,  or  after  insol- 
vency, except  for  the  benefit  of  all 
creditors  and  stockholders,  shall  be 
void,  unless  made  to  an  innocent  pur- 
chaser for  value,  without  notice  or 
knowledge  of  the  condition  of  the 
bank.  Clarke  v.  Ingram,  107  Ga.  565, 
33  S.  E.  802. 

Under  the  proviso  in  Act  April  15, 
1846,  §  2,  a  transfer  of  notes  or  prop- 
erty by  a  bank  prior  to  suspension  for 
a  valuable  consideration  to  a  bona  fide 
purchaser  without  knowledge  or  notice 
of  the  insolvency,  is  valid.  Kinsela  v. 
Cataract  City  Bank,  18  N.  J.  Eq.  158. 
An  associate  who  took  no  part  in 
the  transactions  of  the  bank,  after  he 
had  signed  the  certificate  for  organiza- 
tion required  by  the  sixteenth  section 
of  the  banking  Act  of  February  27, 
1850,  can  not  be  charged,  as  a  director 
or  manager,  with  iinplied  notice  of 
the  bank's  insolvency;  and  therefore 
a  bona  fide  assignment  to  him  for  a 
valuable  consideration  is  valid,  in  the 
absence  of  actual  knowledge  of  in- 
solvency. Kinsela  v.  Cataract  City 
Bank,  18  N.  J.  Eq.  158. 

But  in  New  York,  the  invalidity  of  a 
transfer  by  an  insolvent  bank  does  not 
depend  upon  the  knowledge  of  the 
transferee,  but  upon  the  fact  of  insol- 
vency. Dutcher  v.  Importers',  etc., 
Nat.   Bank.   59   N.  Y.   5. 

Knowledge  as  matter  of  law.^ 
Where  a  bank  had  been  insolvent  for 
several  years,  and  it  is  shown  without 
contradiction  that  at  the  time  pay- 
ments were  made  to  its  president  and 
directors,  or  the  way  thereafter,  it  be- 
came hopelessly  insolvent,  such  pay- 
ments, when  attacked  as  unlawful 
preferences,  can  not  be  defended  on 
the  ground  that  such  president  and 
directors  had  no  knowledge  of  the  in- 
solvency, since  such  knowledge  is  im- 
puted to  them  by  law.  James  Clark  v. 
Colton,  91  Md.  195,  49  L.  R.  A.  698, 
46  Atl.  386. 

Bona  fide  purchasers. — A  depositor 
or  other  bona  fide  creditor  who  draws 
his  check  upon  an  insolvent  bank  or 
one  contemplating  insolvency,  or  who 
receives  effects  therefrom  without 
notice   of   or   reason   to   suspect  its   in- 


solvent condition,  is  considered  a  bona 
fide  purchaser  under  the  statute  o'f 
1833  prohibiting  preferences.  Hill  v. 
Western,  etc.,  R.  Co.,  86  Ga.  284,  13 
S.   E.  635. 

"Under  our  statute.  Civil  Code,  p. 
1979,  'it  would  seem  that  if  the  de- 
positor, although  paid  not  in  the  usual 
course  of  business,  was  ignorant  of  the 
insolvency  and  of  the  intent  of  the 
bank  to  prefer  him,  he  would  be  pro- 
tected and  not  required  to  refund. 
However,  it  would  seem,  under  some 
circumstances,  that  payment  out  of 
the  usual  course  of  business  would  be 
a  circumstance  to  be  given  great 
weight  in  determining  whether  thert 
was  notice;  as  a  payment  made  with 
a  view  of  giving  a  preference  to  a 
particular  creditor  is  rarely,  if  ever, 
made  in  the  usual  course  of  business.'" 
McGregor  v.  Battle,  128  Ga.  577,  58 
S.    E.   2^8. 

60.  Preferences  to  directors. — A  di- 
rector of  and  depositor  in  a  bank, 
knowing  that  it  probably  was  insol- 
vent, obtained  from  the  cashier  bank 
securities  equal  to  the  amount  of  the 
deposit.  Held,  that  he  must  surrender 
them  for  the  benefit  of  depositors  and 
creditors  generally.  Lamb  v.  Cecil,  28 
W.   Va.   653. 

An  arrangement  between  the  cash- 
ier of  an  insolvent  bank  and  one  of 
its  creditors  having  knowledge  of  its 
insolvency,  whereby  a  check  is  to  be 
paid,  not  in  the  ordinary  course  of 
business,  but  is  to  be  held  by  the  cash- 
ier until  the  deposits  are  sufficient  to 
pay  it,  whereupon  the  money  is  laid 
aside  for  the  creditor,  is  fraudulent, 
and  the  creditor  will  be  compelled  by 
a  court  of  equity  to  refund  the  money. 
Lamb  v.   Cecil.   25   W.  Va.  288. 

A  bank  which  had  been  insolvent  for 
several  years  paid  its  president's  check 
for  a  large  amount,  and  retired  its 
note,  without  demand,  on  which  its 
officers  were  indorsers,  and  the  day 
thereafter  was  hopelessly  insolvent  on 
account  of  such  payments.  Its  disso- 
lution was  decreed,  and  receivers  were 
appointed  under  the  insolvent  law,  §  22 
of  which  prohibits  preferences  made 
either  in  actual  or  contemplated  insol- 
vency. Held  that,  though  the  bank 
was  a  going  concern  at  the  time  of  the 
payments,  they  were  unlawful  prefer- 
ences, and  acts  of  insolvency,  and  such 
payments  when  the  officers  must  have 
known  its  condition  were  a  fraud  on 
other    creditors    for    whom    the    officers 


§  74  (1) 


IXSOLVKXCV   AXn   DISSOLl'TKIX, 


505 


visions  of  these  statutes,  there  must  be  not  only  an  act  or  a  contemplation 
of  insolvency  and  a  payment  resulting  in  a  preference,  but  the  payment  must 
be  made  with  a  view  to  create  the  preference/"'^ 

In  a  few  jurisdictions,  however,  such  preferences  are  upheld  on  the 
ground  that  the  mere  insolvency  of  a  bank,  incorporated  with  the  usual 
powers  of  such  an  institution,  does  not  convert  its  effects  into  a  trust  fund 
for  its  creditors. ''- 

In  New  York  a  transfer  in  excess  of  a  certain  amount  is  expressly  for- 
bidden unless  authorized  by  the  board  of  directors/'^ 


held  its  property  in  trust,  and  recover- 
able b)'^  such  receivers.  James  Clark 
Co.  z\  Colton,  91  i\Fd.  195,  49  L.  R.  A. 
698,   46   A.    386. 

The  president  of  a  corporation,  who 
was  also  a  director  of  a  bank,  obtained 
knowledge,  as  director,  that  the  bank 
was  insolvent  and  would  close  the  next 
day.  He  thereupon  executed  a  check 
for  the  corporation's  deposit  in  the 
bank,  and  caused  it  to  be  collected 
through  the  clearing  house  from  the 
insolvent's  funds  which  he  knew  were 
in  the  possession  of  the  bank  through 
which  the  insolvent  cleared.  Held, 
that  the  transaction  was  an  attemjit 
by  the  bank  to  transfer  its  assets  "by" 
one  of  its  officers  with  intent  to  prefer 
a  creditor,  prohibited  by  Stock  Corpo- 
ration Law,  §  48,  and  hence  that  the 
receivers  of  the  bank  were  entitled  to 
recover  the  amount  of  the  check  from 
the  corporation.  O'Brien  v.  East 
River  Bridge  Co.,  36  App.  Div.  17,  55 
N.  Y.  S.  206. 

61.  vStone  r.  Jenison,  111  Mich.  592, 
70  N.  W.   149,  36   L.   R.  A.  675. 

Transfers  to  clearing  house. — Wliere 
a  bank  executed  its  notes  to  a  clearing 
house  association  in  return  for  clear- 
ing house  certificates  and  deposited 
collateral  to  secure  payment,  no  such 
preference  was  created  as  is  inhibited 
by  Civ.  Code,  1895,  §  1979,  making  any 
transfer  in  contemplation  of  insol- 
vency, except  for  benefit  of  creditors, 
fraudulent  and  void,  unless  made  to 
an  innocent  purchaser  for  value  with- 
out notice  of  the  condition  of  the  bank. 
Booth  V.  Atlanta  Clearing  House 
Ass'n,  132  Ga.  100.  63  S.  E.  907. 

The  fact  that  a  clearing  house  asso- 
ciation knew  that  a  bank  had  guar- 
anteed the  whole  amount  of  clearing 
house  certificates  issued,  and  that  the 
amount  of  its  guaranty  exceeded  all  of 
its  resources,  was  not  in  itself  suffi- 
cient to  charge  it  with  actual  knowl- 
edge of  insolvency,  for  such  liabi!it> 
wrtuld   at   most   be   contingent,  and,   un- 


less such  contingent  liability  of  the 
bank  as  guarantor  was  likely  to  be- 
come absolute,  it  could  not  be  con- 
sidered a  liability  in  determining  sol- 
vency or  insolvency.  Booth  v.  Atlanta 
Clearing  House  Ass'n.  132  Ga.  100  63 
S.   E.  907. 

62.  Preferences  upheld  in  some 
states.— Catlin  v.  Eagle  Bank,  6  Conn. 
233. 

The  fact  that  the  board  of  directors 
of  a  bank  had  resolved  to  go  into  liq- 
uidation does  not  render  invalid  an 
agreement  afterwards  made  by  which 
it  preferred  a  certain  creditor.  J^Ierced 
Bank  f.  Ivett,  127  Cal.  134.  59  Pac.  393. 

63.  New  York  rule.— The  General 
Banking  Act  (Laws  1882,  c.  409), 
§  186,  provides  that  no  transfer  of  its 
efifects  to  an  amount  exceeding  $1,000 
by  any  corporation  contemplated  by 
the  act  shall  be  made  unless  authorized 
by  a  previous  resolution  of  its  board 
of  directors.  Section  187  provides  that 
no  transfer,  etc.,  made  in  contempla- 
tion of  insolvency,  with  the  intention 
of  preferring  any  particular  creditor, 
shall  be  valid.  Two  days  after  the  re- 
ceiver of  an  insolvent  bank  was  ap- 
pointed, the  cashier,  unauthorized  by 
resolution  of  the  directors,  transferred 
securities  of  the  bank  to  secure  certain 
creditors.  Held,  that  such  transfer 
was  void,  and  it  is  immaterial  that  ar- 
rangements therefor  had  been  made 
several  days  before  the  receiver  was 
appointed.  Bradner  7'.  Woodruff.  52 
l-fun  214,  5  N.  Y.  S.  207,  23  N.  Y.  St. 
Rep.  365. 

Where  the  cashier  of  an  insolvent 
bank  transfers  to  a  depositor  securities 
of  the  bank  exceeding  in  value  $1,000 
in  payment  of  the  deposit,  the  trans- 
action not  being  in  the  usual  coin-se  of 
business,  and  for  a  valuable  considera- 
tion, the  transfer  is  illegal,  without  rc- 
garcl  to  defendant's  intt'iU  or  knowl- 
edge that  the  bank  was  insolvent.  At- 
kinson 7'.  Rochester  Printing  Co..  114 
N.  Y.  168,  21  N.  E.  178,  affirming  43 
]]uu    167. 


506 


BANKS  AND  BANKING. 


§  74  (1) 


Duty  of  Transferee. — A  transferee  of  the  assets  of  a  bank  at  the  time 
insolvent  will  be  required  to  deliver  them  up  to  the  receiver.^^ 

Knowledge  of  Insolvency. — And  with  regard  to  the  question  whether 
the  transferee  had  knowledge  of  the  bank's  insolvency  the  rule  is  that  what- 
ever is  sufficient  to  put  a  person  on  inquiry  is  notice.  Rumors  of  insolvency 
may  be  sufficient  when  brought  home  to  the  party  to  be  charged,  and  per- 
sonal knowledge  of  the  insolvency  of  the  bank  is  not  required.''^ 

Unincorporated  Banks. — An  unincorporated  bank  is  not  a  de  facto 
corporation,  and  its  president,  who  is  its  sole  owner,  may  transfer  any  of 
its  property  to  secure  a  bona  fide  creditor.*'*^ 


64.   Duty   of   depositor    to     refund. — 

The  defendant  was  a  depositor  in  a 
savings  bank,  and  purchased  of  the 
bank,  through  its  president,  a  bond 
and  mortgage,  the  defendant  paying 
for  said  bond  and  mortgage  partly  m 
cash  and  partly  by  being  debited  on 
the  books  of  the  bank  with  the  amount 
of  his  deposit.  At  the  time  of  the 
purchase  and  transfer  the  bank  was  in- 
solvent, but  the  purchaser  had  no 
knowledge  of  the  insolvency.  Held, 
that  the  defendant  should  assign  the 
bond  and  mortgage  to  the  receiver  of 
the  bank  on  having  returned  to  him 
the  amount  of  his  cash  payment,  with 
interest,  and  being  reinstated  as  a 
creditor  upon  the  books  of  the  bank 
in  the  amount  of  his  deposit.  French 
V.  O'Brien   (N.  Y.).  52   How.  Prac.  394. 

Duty  of  stockholder  to  refund. — 
Where  stockholders  in  a  bank  sold 
their  stock  to  an  officer  thereof  at  a 
time  when  the  bank  was  insolvent  and 
they  anticipated  its  suspension,  and 
the  funds  used  to  pay  for  the  stock  be- 
lons-ed  to  the  bank,  and  were  withdrawn 
to  prevent  such  funds  being  appro- 
priated to  the  payment  of  creditors, 
the  amount  so  paid  for  the  stock  was 
recoverable  by  the  receiver  of  the  bank 
for  the  benefit  of  creditors,  Kirby's 
Dig.,  §  861,  providing  that,  if  the 
capital  stock  of  anv  corporation  be  re- 
funded to  the  stockholders  before  the 
payment  of  the  corporation's  debts,  the 
stockholders  shall  be  liable  to  the 
amount  so  refunded,  and  §  6348,  pro- 
viding that  a  receiver  for  a  corpora- 
tion shall  have  the  right  to  colleci 
debts,  preserve  the  assets  for  the 
benefit  of  creditors,  and  that  he  may 
sue  in  his  own  name  for  such  pur- 
pose. Corn  z'.  Skillern,  7.5  Ark.  148, 
87    S.   W.   142. 

65.  If  a  bank  was  actually  insolvent 
at  the  time  it  conveyed  land  to  a  di- 
rector and  stockholder  in  exchange 
for  stock,  and  the  grantor  had  knowl- 
edge   of    such    insolvency,     the     deeds 


must  give  way  to  the  claims  of  a  cred- 
itor when  a  court  of  equity  is  asked 
by  him  to  avoid  them.  Roan  v.  Winn, 
<):!    j\Io.    503,   4   S.    W.   736. 

Sufficiency  of  evidence. — About  two 
hours  before  the  making  of  a  deed  of 
assignment  for  the  benefit  of  creditors 
by  an  insolvent  bank,  the  cashier  gave 
orders  for  the  transfer  of  moneys  be- 
longing to  the  bank  to  defendant  bank. 
This  was  done  without  any  under- 
standing with  defendant.  About  an 
hour  afterwards  and  before  tlie  assign- 
ment, the  cashier  transferred  to  de- 
fendant's president  in  person  certain 
notes,  and  the  latter  was  then  informea 
of  the  proposed  assignment.  The  cash- 
ier testified  that  he  considered  the 
bank  solvent  at  this  time,  and  the  con- 
sideration of  these  transfers  was  in- 
debtedness of  the  insolvent  bank  to  de- 
fendant, but  the  cashier  could  not  give 
the  exact  amount  of  the  debt,  nor  re- 
member whether  any  l^alance  was 
.':truck.  Held,  that  the  evidence  was 
sufificient  to  take  the  case  to  the  jury 
on  the  question  of  whether  such  trans- 
fers to  defendant  were  within  the  in- 
hibition of  Code,  §  4429,  providing  that 
all  conveyances  of  effects  made  by  any 
bank  in  contemplation  of  insolvency, 
or  after  insolvency,  except  for  the 
benefit  of  all  the  creditors,  shall,  un- 
less made  to  an  innocent  purchaser  for 
a  valuable  consideration,  and  without 
notice  of  the  condition  of  the  bank,  be 
void.  Hill  7'.  Western,  etc.,  R.  Co.,  86 
Ga.  284,  12  S.  E.  635. 

66.  Longfellow  v.  Barnard,  58  Neb. 
612,  79  N.  W.  255,  7fi  Am.  St.  Rep. 
117,  afifirmed  on  rehearing  in  59  Neb. 
455,  81  N.  W.  307. 

When  a  bank  is  unincorporated,  and 
is  ov/ned  exclusively  by  a  private  indi- 
vidual, although  the  business  is  con- 
ducted by  a  president  and  cashier,  the 
assets  of  the  bank  represent  merely 
the  portion  of  the  owner's  capital  in- 
vested in  banking,  and  he  may  lawfully 
dispose   of  them   to  pay  or   secure  the 


§  74  (3) 


IXSOLVEXCV    AND    DISSOLUTION. 


507 


§  74  (2)  Right  of  Directors  to  Prefer  Themselves.— In  those  ju- 
risdictions in  which  ihrectors  of  a  bank  are  regarded  as  trustees,  transac- 
tions whereby  directors  prefer  themselves  to  other  creditors  will  not  be 
upheld.*^"  But  in  others  this  trust  relation  is  repudiated,  and  preferences 
may  be  made  in  their  own  favor  provided  they  act  in  good  faith. '"''' 

§  74  (3)  Payments  to  Depositors.— Wliere  a  bank,  though  insolvent, 
is  still  conducting  its  business  and  pays  a  check  of  a  depositor  in  the  usual 
course  of  business,  and  the  depositor  has  no  notice  of  the  insolvency  of  the 
bank,  the  payment  is  good,  and  the  depositor  will  be  protected. ^^     But  if 


just  claims  of  anj'  of  his  creditors. 
Longfellow  Z-.  Barnard,  58  Neb.  612.  76 
Am.  St.  Rep.  117,  affirmed  on  rehear- 
ing in  79  X.  A\'.  ?o.5,  59  Xelx  455,  81 
X.    W.   307. 

67.  Right  of  directors  to  prefer 
themselves. — Lamb  z:  Laughlin,  25  W. 
Va.  ;ji)0;  Trustees  f.  Bosseiu.x,  3  Fed. 
817. 

The  assets  of  an  insolvent  bank  be- 
come a  trust  fund  to  be  managed  by 
the  directors  for  the  benefit  of  the 
creditors,  and  thereafter  the  directors 
can  not.  in  equity,  secure  any  ad- 
vantage to  themselves.  Roan  :■.  Winn, 
93    Mo    503,   4   S.   W.   736. 

When  the  directors  of  a  banking 
corporation  ascertain  that  it  is  hope- 
lessly insolvent,  so  that  individually 
they  are  unwilling  longer  to  aid  it, 
their  manifest  duty  is  to  close  its 
doors  at  once;  for  continuing  to  do 
business  then  (as  receiving  deposits) 
is  a  fraud  upon  the  public,  and  they 
should  not  receive  any  more  deposits 
nor  pay  any  more  checks,  but  should 
proceed  to  execute  their  trust,  either 
by  making  a  general  assignment  for 
the  benefit  of  creditors,  or  by  paying 
pro  rata  the  debts  of  the  corporation. 
""Whether  the  board  of  directors  could 
then  under  peculiar  circumstances 
make  preference  of  creditors,  as  was 
done  in  Burr  v.  McDonald.  44  Va.  (3 
Gratt.)  215,  it  is  unnecessary  to  de- 
cide in  this  case.  But  the  directors 
had  no  right  occupying  the  fiduciary 
relation  to  the  creditors  generally, 
which  they  did,  to  keep  the  doors  of 
the  W-heeling  Savings  Institution 
open,  until  they  could  get  out  their  de- 
posits, and  all  the  time  from  I-'ebruary 
21,  1871,  until  the  twenty-fifth  of  the 
said  month,  luring  depositors  to  give 
credit  to  the  insolvent  concern,  while 
some  of  them  at  least,  including  the 
defendant  in  this  cause,  were  receiv- 
ing their  money  from  deposits  thus  im- 
properly received.  Before  Laughlin 
received  his  money,  the  directors  under 
the  evidence  in  this  cause  should  have 


closed  the  doors  of  the  institution. 
Under  these  circumstances  he  had  no 
right  to  draw  his  money  and  thus  pre- 
fer himself  to  the  other  creditors,  for 
whom  he  was  acting  as  trustee.  To 
do  so  was  a  gross  breach  of  trust  ana 
was  also  fraud;  and  in  my  opinion  the 
decree  of  the  circuit  court  ought  to 
be  affirmed."  Lamb  v.  Laughlin.  25  W. 
Va.  300. 

68.  Directors  of  a  bank  are  bound  to 
discharge  their  duties  prudently,  dili- 
gently, and  faithfully,  and  apply  the 
assets,  in  case  of  insolvency,  for  the 
benefit  of  creditors  in  preference  to 
stockholders  and  other  persons.  But 
thej^  are  not  technically  trustees  nor 
bound  to  apply  the  assets  rateably 
among  the  general  creditors.  They 
ma3"  not  only  make  preferences  be- 
tween creditors,  but  such  preferences 
may  be  made  in  their  own  favor  if 
they  be  creditors.  But  in  such  cases 
they  must  act  with  the  utmost  good 
faith.  Planters'  Bank  z:  Whittle,  78 
Va.    737. 

69.  Payments  to  depositors Mc- 
Gregor z:  Battle,  12S  Ga.  577.  5S  S. 
E.  28. 

Money  paid  by  a  bank  to  a  depositor 
in  the  usual  course  of  business  while 
the  bank  is  a  going  concern,  although 
in  fact  insolvent,  is  not  impressed 
with  a  trust  in  favor  of  other  cred- 
itors, where  the  depositor  did  not 
know  the  fact  of  insolvency,  and  was 
assured  by  the  officers  tliat  the  bank 
had  money  to  pay  all  depositors,  even 
though  he  was  induced  to  withdraw 
the  money  Iiy  rumors  of  its  embar- 
rassment. Livingstain  T'.  Columbian, 
etc..  Trust  Co..  81  S.  C.  244.  62  S.  R. 
249.  22    L.   R.   A.,   X.   S..   445. 

Payments  to  a  depositor  during  a 
run  on  a  bank,  and  after  the  cashier 
has  persuaded  some  persons  not  to 
withdraw  their  depo-sits.  but  when  the 
bank  has  assets  sufficient  so  that  its 
officers  hope  and  expect  to  continue 
business  and  be  al)le  to  pay  nil  tlic 
<K-I)ts    111'    ihr    b.inU,   arc    nol    mi.'kIc    with 


508 


BANKS  AND  BANKING. 


§  74  (4) 


there  is  any  attempt  to  prefer  a  depositor  to  other  creditors  of  the  bank  he 
will  be  compelled  to  refund  the  payment,  in  accordance  with  the  well-settled 
general  rule  which  requires  the  assets  of  an  insolvent  corporation  to  be 
distributed  ratably  among  all,'*^  and  it  follows  a  fortiori  that  a  court  of 
equity  will  not  aid  him  to  enforce  his  unfair  advantage.' ^  Even  a  recovery 
in  a  separate  suit  against  the  common  assets  will  not  give  the  creditor  a 
preference  over  the  others  in  their  final  distribution.'^ 2 

§   74    (4)   Who  Is  Entitled  as  a  Preferred  Creditor. — One  who  is 

induced  by  the  officers  of  an  insolvent  bank  through  fraud  and  misrepre- 
sentation to  furnish  securities  to  the  institution  to  tide  it  over  its  period  of 
distress,  is  entitled  to  recover  from  the  receiver  as  a  preferred  creditor.'^ 


a  view  to  prevent  the  application  of 
the  assets  of  the  bank  in  the  manner 
prescribed  by  statute,  or  with  a  view 
to  the  preference  of  that  depositoi 
over  other  creditors,  within  the  mean- 
ing of  3  How.  St.,  §  3208e6.  Stone  v. 
Jenison,  111  Mich.  592,  36  L.  R.  A. 
675,   70    N.    W.    149. 

For  three  days  there  was  a  slight 
run  on  a  bank,  which  suspended  on  the 
third  day  at  3  p.  m.  The  cashier  be- 
lieved the  bank  had  sufficient  assets 
to  pay  all  depositors  could  it  avoid 
suspension,  and  in  the  forenoon  of  the 
third  dav  paid  defendant  his  deposit. 
He  testified  that  in  making  payments 
he  acted  to  protect  the  bank,  and  not 
with  a  view  to  making  preferences. 
During  the  run,  and  before  the  pay- 
ment to  defendant,  he  had  persuaded 
some  depositors  not  to  withdraw,  in 
one  instance  giving  as  a  reason  for 
the  request  the  closeness  of  the  money 
market.  Held,  that  a  receiver  of  the 
bank  could  not  recover  the  amount  so 
paid  defendant,  on  the  ground  that  it 
was  a  payment  after  an  act  of  insol- 
vency, or  in  contemplation  thereof, 
with  a  view  to  giving  a  preference  (b 
How.  Ann.  St.,  §  320Se6)— Grant,  ].. 
holding  that  there  was  no  act  of  in- 
solvency; Moore  and  Hooker,  JJ., 
holding  (Lone-,  C.  J.,  and  Montgomery, 
J.,  dissenting)  that  there  was  no  evi- 
dence that  the  payment  was  made  with 
a  view  to  create  a  preference.  Stone 
V.  Jenison,  111  Mich.  592,  36  L.  R.  A. 
675,  70  N.  W.   149. 

70.  Where  the  depositor  of  an  in- 
solvent bank  is  paid,  not  in  the  usual 
course  of  business  and  with  knowledge 
that  the  bank  is  insolvent  and  of  the 
intent  to  prefer  him,  the  payment  is 
not  good,  and  such  depositor  is  liable 
for  the  difiference  between  the  amount 
so  received  and  his  share  of  the  assets 
of  the  bank.  McGregor  v.  Battle,  128 
Ga.  577,  58  S.  E.  28. 


A  depositor  whose  account  was  over- 
drawn paid  the  balance  to  the  bank's 
receiver.  Afterwards  the  receiver  dis- 
covered that  such  depositor,  at  the 
time  the  bank  become  insolvent,  had 
a  deposit,  and  that  the  cashier  had 
fraudulently  delivered  to  him  certain 
l)ills  of  the  bank,  for  the  amount  of 
which  he  drew  a  check,  giving  it  a 
prior  date,  which  check  slightly  over- 
drew his  account.  The  receiver  then 
brought  action  to  recover  these  bills. 
Held,  that  the  payment  of  the  over- 
draft to  the  receiver  was  not  a  settle- 
ment which  would  relieve  the  depos- 
itor from  liability  to  account  for  the 
unlawful  preference.  Atkinson  v. 
Rochester  Printing  Co.,  114  N.  Y.  168, 
21  X.   E.  178. 

71.  An  insolvent  bank  drew  a  draft 
to  pay  a  depositor  on  a  bank  in  which 
it  had  as  a  deposit  the  proceeds  of  a 
note  secured  by  collateral;  the  note 
providing  that,  in  case  of  insolvency 
of  the  maker  bank,  it  should  become 
due  at  once,  and  the  note  could  be 
charged  to  the  account  of  the  bank  and 
the  collateral  sold.  On  notice  of  the 
insolvency  of  the  maker,  the  drawee 
bank  so  charged  the  note,  btit  refused 
to  pay  the  draft,  and  turned  over  the 
collateral  to  the  receiver  of  the  insol- 
vent bank.  Held,  that  the  holder  of  the 
draft  was  not  entitled  to  be  subro- 
gated to  the  rights  of  the  drawee  bank 
in  the  collateral  as  against  general 
creditors  of  the  drawer  bank.  Living- 
stain  7'.  Columbian,  etc..  Trust  Co.,  77 
S.  C.  305,  57  S.  E.  182,  122  Am.  St.  Rep. 
568,   5   L.   R.   A.,  N.   S.,  442. 

72.  Leipold  v.  Maroney,  75  Tenn.  (7 
Lea)   128. 

73.  Who  is  entitled  to  claim  as  a 
preferred  creditor. — A  woman  engaged 
to  marry  the  cashier  of  an  insolvent 
bank,  who  is  told  by  him  that  the  bank 
is  in  trouble  ?.nd  needs  money  or  se- 
curities immediately,  and  is  induced  by 


§  75  (1) 


INSOLVENCY    AND   DISSOLUTION. 


509 


§  74  (5)  Transfers  to  Pledgees. — The  officers  of  a  bank  in  process 
of  liquidation  may,  with  the  knowledge  and  acquiescence  of  the  bank  com- 
missioners, make  an  absolute  aissignment  of  pledged  securities  to  a  pledgee, 
in  a  final  settlement  of  the  bank's  transactions  with  such  pledgee  J"* 

§  74  (6)  Transfer  after  Appointment  of  Receiver. — A  transfer  of 
•assets  made  after  an  order  of  court  appointing  a  receiver  is  void."'^ 

§  74  (7)  Purchase  of  Its  Own  Stock  by  a  Bank. — If  a  banking 
corporation,  at  the  time  of  purchasing  its  own  shares  of  stock,  is  in  an  in- 
solvent condition,  the  transaction  can  not  be  sustained  as  to.  creditors,  and 
the  selling  stockholder  who  thus  receives  a  portion  of  the  cai)ital  holds  the 
same  subject  to  the  superior  equities  of  creditors.''"' 

§  75.  Rights  of  Persons  Making  Deposits  after  Insolvency — §  75 
(1)    In  General.'' — A  bank  should  not  continue  business  when  it  is  known 


him  to  furnish  securities  for  a  loan  to 
the  bank,  but  is  not  told  that  the 
bank's  capital  is  gone,  and  more,  as  a 
result  of  defalcations  by  the  cashier 
and  others,  is  entitled  to  recover  from 
the  receiver,  as  a  preferred  creditor, 
the  amount  of  the  loan  paid  by  her  to 
save  her  securities.  Hallett  v.  Fish, 
120   Fed.   986. 

Evidence  in  an  action  by  one  furnish- 
ing aid  to  an  insolvent  bank  (being  in- 
duced thereto  by  its  cashier)  to  re- 
cover from  the  receiver,  as  a  preferred 
creditor,  considered,  and  held  to  show 
that  the  aid  was  furnished  to  the  cash- 
ier in  hiis  official  capacity,  as  represent- 
ative of  the  bank,  and  not  as  an  indi- 
vidual.    Hallett  V.   Fish,   120   Fed.  986. 

74.  Preferential  transfers  to  pledgees. 
— Merced  Bank  r.  I'rice  (Cal. ),  US  Pac. 
383. 

Where  a  note  and  mortgage  pledged 
by  a  bank  were  assigned  to  the  pledgee 
while  the  bank  was  in  liquidation,  the 
mortgagor,  even  if  a  general  creditor 
of  the  bank,  could  not  attack  the  as- 
signment in  an  action  to  foreclose  the 
mortgage.  Merced  Bank  r.  Price 
(Cal),   98   Pac.  383. 

In  an  action,  by  the  pledgee  from  a 
bank  of  a  note  and  mortgage,  to  fore- 
close the  mortgage,  evidence  held  to 
show  that  an  absolute  assignment  of 
the  pledge  l)y  the  bank  to  the  pledgee, 
made  in  settlement  of  the  bank's  delit 
lo  the  pledgee,  and  while  the  l)ank  was 
ill  liquidation  unrlcr  the  I)ank  commis- 
sioners, was  not  fraudulent  as  against 
Ihe  bank's  creditors.  Merced  Bank  :'. 
I'rice  CCal.).  98  Pac.  383. 

75.  Validity  of  transfer  after  appoint- 
ment of  receiver. — A  transfer  of  assets 
by    an    insolvent     l)ank    to    one    of    its 


stockholders  to  secure  him  against  a 
lial)ility  previously  incurred  by  him  on 
account  of  the  bank,  made  after  an  or- 
der of  the  court  appointing  a  receiver 
on  motion,  of  which  motion  the  presi- 
dent had  received  notice,  is  a  fraud 
upon  the  court,  and  is  therefore  void, 
independent  of  tlie  statute.  Leavitt  t'. 
Tylee   ( N.  Y.),  1    Sandf.  Cli.  207. 

76.  Right  of  bank  to  purchase  its 
own  stock. — -A  solvent  stockholder  of 
an  insolvent  bank  delivered  to  it  his 
shares  of  stock  in  consideration  that 
his  note  held  by  the  l)ank,  secured  bj"- 
his  stock  as  collateral,  l)e  credited  with 
an  amount  considered  liy  him  and  the 
president  of  the  bank  as  a  fair  valua- 
tion of  the  stock.  .At  the  time  both  tlie 
stockholder  and  the  president  thought 
the  bank  solvent,  and  the  shares  were 
held  by  the  bank  until  it  made  an  as- 
sitrnment  for  the  lienefit  of  the  credit- 
ors within  a  month  or  two  thereafter. 
Held,  that  the  stockholder  received  the 
credit  subject  to  the  superior  equity  of 
creditors  of  the  liank,  and  that  the  credit 
would  be  canceled  at  the  instance  of 
a  receiver  for  the  liank,  and  tlie  stock- 
holder decreed  to  Iiold  the  amount  of 
such  credit  in  trust  for  the  creditors. 
Fitzpatrick  ?'.  McGregor.  133  Ga.  332, 
05  S.  F,.  8.")9.  See  ante,  "Reduction  of 
Capital   Stock,"  §  38. 

77.  Receiving  deposits  after  insol- 
vency, civil  lialiility  of  olVicers.  see 
post,    "Criminal     Prosecutions,"    §    204. 

Criminal  liability,  sec  post,  "Pen- 
alties for  Failure  in  Pay,  "  §  210;  "I, la- 
bility of  StockhohU-rs  or  Officers,"  § 
211.  Right  of  deposit  or  to  preference, 
see  post.  "Issue  and  I'ayment  of 
Drafts,"  §  189;  '•Petters  of  Credit."  § 
191. 

I  iiil)iitati<  m      III      bank      of      c;ishier's 


510 


JANKS  AND  BANKING. 


§    /"     (1) 


to  its  officers  to  be  insolvent,  and  more  especially  is  this  true  as  to  depositors, 
because  the  relation  between  a  bank  and  its  customers  is  such  that  great 
confidence  is  asked  and  reposed.  Accordingly  it  is  held  to  be  a  fraud  for 
the  bank  to  receive  deposits  from  an  innocent  depositor,  ignorant  of  the 
bank's  condition  ;'^'^  when  it  is  known  by  its  officers  to  be  insolvent  at  the 


knowledge  of  insolvency,  see  post,  "In 
Respect  to  Deposits,"  §  116  (3). 

Enforcement  of  liability  of  stock- 
holders, see  ante,  "Actions  and  Pro- 
ceedings to  Enforce,"  §  49. 

Of  national  banks,  see  post,  "Assets 
and    Receivers   on    Insolvency,"    §   287. 

Criminal  responsibility  of  officers, 
see     ante,     "Criminal     Responsibility," 

§  fiO- 

78.  Receiving  deposits  by  bank  af- 
ter knowledge  of  insolvency. — Peck  r. 
First  Nat.  Bank,  43  Fed.  357;  Wasson 
V.  Hawkins,  59  Fed.  233;  Philadelphia 
V.  Aldrich,  98  Fed.  487;  Richardson  v. 
New  Orleans  Debenture  Redemption 
Co.,  42  C.  C.  A.  619,  102  Fed.  780,  53 
L.  R.  A.  67;  St.  Louis,  etc.,  Co.  v. 
Johnston,  133  U.  S.  566.  33  L.  Ed.  683, 
K)  S.  Ct.  390;  American  Trust,  etc.. 
Bank  v.  Gueder,^  etc.,  Mfg.  Co.,  150  111. 
336,  37  N.  E.  227;  see  Fisse  :'.  Diet- 
rich, 3  Mo.  ApR.  584;  Higgins  v.  Hay- 
den,  53  Neb.  61,  73  N.  W.  280;  Perth 
Amboy  Gaslight  Co.  v.  Middlesex 
County  Bank,  60  N.  J.  Eq.  84.  45  .\tl. 
704;  Anonymous,  67  N.  Y.  59S;  Wil- 
liams V.  Van  Norden  Trust  Co.,  104 
App.  Div.  251,  93  N.  Y.  S.  821; 
Cragie  v.  Hadley,  99  N.  Y.  131,  1  N.  E. 
537,  52  Am.  Rep.  9;  Grant  v.  Walsh, 
145  N.  Y.  502,  40  N.  E.  209,  45  Am. 
St.  Rep.  626;  In  re  Assignment,  1 
N.  P.  358,  2  O.  Dec.  304;  Warner  v. 
Armstrong,  21  Wkly.  L.  Bull.  124,  10 
O.  Dec.  426;  see,  also,  Talcott  v.  Hen- 
derson, 31  O.  St.  162,  27  Am.  Rep.  501; 
Orme  v.  Baker,  74  O.  St.  337,  78  N.  E. 
439,  113  Am.  St.  Rep.  968;  Bruner  ?•. 
First  Nat.  Bank,  97  Tenn.  540,  37  S.  W. 
286.  34  L.  R.  A.  532;  Friberg  v.  Cox,  97 
Tenn.  550,  37  S.  W.  283;  Williams  v. 
Cox.  99  Tenn.  403,  42  S.  W.  3:  Parker 
V.  Crawford.  3  Tex.  App.  Civ.  Cases, 
§  365;  Hyland  v.  Roe,  111  Wis.  361,  87 
N.  W.  252,  87  Am.   St.  Rep.  873. 

When  a  bank  receives  a  deposit 
after  it  is  hopelessly  insolvent,  the  fraud 
avoids  the  implied  contract  between 
the  parties  by  which  the  relation  of 
debtor  and  creditor  would  ordinarily 
arise,  and  prevents  the  money  depos- 
ited from  becoming  the  property  of  the 
bank,  and  a  trust  is  the  equitable  re- 
sult. Richardson  v.  New  Orleans  De- 
benture Redemption  Co.,  42  C.  C.  A. 
619,  102  Fed.  780,  52  L.  R.  A.  67. 


It  is  a  fraud  on  a  depositor  for  a 
bank  to  permit  a  depositor,  in  reliance 
upon  the  supposed  solvency  of  the 
bank,  to  make  deposits  after  it  has  be- 
come irretrievably  insolvent,  and  such 
insolvency  is  known  to  the  bank  or 
its  agent,  and,  upon  the  discovery  of 
the  fraud,  the  depositor  may  rescind 
the  contract,  reclaim  the  check  or 
draft,  unless  it  has  come  into  posses- 
sion of  a  bona  fide  holder  tor  value. 
National  Citizens'  Bank  v.  Howard  (N. 
Y.),  3  How.  Prac.  N.  S.,  511. 

Checks  deposited  for  collection. — 
Checks  and  drafts  delivered  by  a  de- 
positor to  a  bank  for  collection  and 
deposit  at  a  time  when  the  bank  was 
insolvent,  and  known  to  be  so  by  its 
officers,  and  which  had  not  been  col- 
lected when  the  bank  closed  its  doors, 
remain  the  property  of  the  depositor, 
although  they  were  indorsed  to  the 
bank  without  qualification,  and  on  their 
subsequent  collection  by  the  receiver 
the  proceeds  may  be  recovered  froin 
him  by  the  depositor.  Richardson  v. 
New  Orleans  Coffee  Co.,  43  C  C.  A. 
583,   102   Fed.   7S.5. 

Where  a  debtor  tenders  a  bank  a 
draft  in  excess  of  his  debt,  and  re- 
quests that  the  balance  be  placed  to 
his  credit,  which  the  bank  does,  with- 
out disclosing  its  insolvency,  it  ac- 
quires no  title,  since  it  could  not  re- 
ceive the  draft,  or  any  part  of  it,  as  a 
loan,  without  making  such  disclosure. 
Spring  Brook  Chemical  Co.  v.  Dunn, 
39  App.  Div.  130,  57  N.  Y.  S.  100. 

Construction  of  Illinois  statute. — 
Act  June  4.  1879,  which  makes  it  em- 
bezzlement for  any  banker  to  receive 
on  deposit,  while  insolvent,  "any 
money,  check,  draft,  bill  of  exchange, 
stocks,  bonds,  or  other  valuable  thing 
which  is  transferable  by  delivery,"  ap- 
plies to  checks  payable  to  the  payee's 
order  as  well  as  to  those  payable  to- 
bearer.  American  Trust,  etc..  Bank  v. 
Gueder,  etc.,  Mfg.  Co.,  150  111.  336.  37 
N.  E.  227. 

Necessity  for  false  representations. 
■ — In  an  action  by  an  indorsee  of  a 
draft  deposited  by  defendants,  the 
drawers,  with  a  banker,  the  evidence 
showed  that  at  the  time  of  the  deposit 
the  banker  was,  and  for  a  long  time 
had  been,  to  his  knowledge,  utterly  in- 


(1) 


IXSOLVEXCV    AND   DISSOLUTION, 


11 


time  they  accepted  the  deposit  ;''*  and  the  depositor  may  rescind  the  con- 


solvent.  The  defense  alleged  that  the 
draft  was  obtained  by  the  banker  bj' 
fraudulent  misrepresentations.  Held, 
that  the  court  properly  refused  to 
charge  that  defendants  must  show  that 
the  banker  made  false  representations 
to  them  to  procure  the  draft;  that  they 
were  in  fact  deceived  thereby;  and 
that  representations  made  to  the  world 
were  not  sufficient,  and  that  they  must 
have  been  made  directly  to  defendants; 
that,  if  his  failure  was  caused  by  the 
unexpected  failure  of  another  bank, 
upon  which  he  depended  for  help,  and 
he  was  ignorant  of  the  latter's  failure 
when  he  received  the  draft,  the  defense 
could  not  be  sustained.  Rochester 
Printing  Co.  v.  Loomis,  45  Hun  93,  9 
X.  Y.  St.  Rep.  .592. 

Waiver  of  fraud. — Where  a  depositor 
in  a  bank  which  has  become  insolvent 
files  his  claim  with  the  trustee  in  in- 
solvency, it  is  an  acceptance  of  the 
contract  relation,  waiving  the  right  to 
rescind  on  the  ground  of  fraud,  in  that 
the  deposit  was  accepted  by  the  bank 
with  knowledge  of  its  insolvency. 
Potts  V.  Schmucker,  84  Md.  535,  35  L. 
R.  A.  392,  36  Atl.  592,  57  Am.  St.  Rep. 
4 1  .V 

79.  The  scienter  in  action  to  recover 
deposits  after  insolvency. — Xew  York 
P>reweries  Co.  z\  Hiscrins,  79  Hun  250, 
29  X.  Y.  S.  416;  Stapleton  z:  Odell.  21 
Misc.  Rep.  94,  47  X.  Y.  S.  13;  Williams 
z\  Van  Xorden  Trust  Co.,  104  App. 
Div.  251,  93   X.   Y.   S.   821. 

Where  plaintiff  deposits  money  with 
the  receiving  teller  of  a  bank,  a  few 
minutes  before  the  bank  closes  its 
doors,  to  be  credited  to  his  account, 
and  the  teller,  not  knowing  of  the  com- 
ing failure,  after  crediting  the  money 
in  plaintiff's  pass  book,  puts  the  money 
and  deposit  ticket  one  side,  and  before 
entry  is  made  in  the  books  of  the  bank, 
it  closes  its  doors,  and  the  money  is,  by 
order  of  the  directors,  placed  apart, 
and  in  that  condition  delivered  to  the 
receiver,  plaintiff  can  replevy  it.  Fur- 
ber  V.   Stephens.  35   Fed.   17. 

In  Wasson  z'.  Hawkins,  59  Fed.  2.33, 
the  circuit  court  held  that  "where 
money  and  checks  are  unsuspectingly 
deposited  in  a  bank,  which  is  known 
I'y  its  managing  officer  to  be  hope- 
lessly insolvent,  a  few  minutes  before 
I  he  closing  hour  on  the  last  day  on 
which  it  does  business,  and  the  checks 
are  subsequently  collected  by  the 
bank's  clerk,  the  whole  of  the  deposit 
is  charged  with  a  trust,  and  an  ecjual 
iimount  may  be  recovered  from  the  re- 


ceiver, who  retains  the  specific  money 
among  the  general  mass  of  the  bank's 
funds." 

But  the  mere  fact  that  a  bank  is  m- 
solvent  when  a  check  is  deposited  as 
cash  does  not  alter  the  relation  of 
debtor  and  creditor  between  the  cus- 
tomer and  the  bank  arising  out  of  the 
deposit,  and  the  customer  is  not  there- 
fore entitled  to  recover  the  proceeds 
of  the  check  as  his  own  money,  it  not 
appearing  that  the  officer  knew  of  the 
bank's  insolvency.  Williams  v.  Cox. 
97  Tenn.  555,  37  S.  W.  282;  Showalter 
f.   Cox,  97  Tenn.  547,  37  S.  W.  286. 

In  Cragie  z:  Hadley,  99  X.  Y.  131,  1 
X'.  E.  537,  52  Am.  Rep.  9,  a  distinction 
was  taken  between  the  actual  and  the 
hopeless  insolvency  of  a  bank. 

Where  checks  are  deposited  in  l)ank 
in  the  usual  course  of  business,  and 
credit  therefor  is  given  in  the  deposi- 
tor's pass  book,  the  title  to  such  checks 
vests  in  the  bank,  and  the  depositor 
can  not  recover  them  on  the  ground 
that  the  bank  was  insolvent  at  the 
time  of  the  deposit  without  showing 
that  the  officers  of  the  bank  knew  of 
its  insolvency,  and  received  the  depos- 
its fraudulently.  People  z\  St.  Xicho- 
ias  Bank,  77  Hun  159.  28  X.  Y.  S.  407, 
58  X.  Y.  St.  Rep.  712;  People  z:  St. 
Xicholas  Bank,  77  Hun  611,  28  X.  Y. 
S.  421.  59  X.  Y.  St.  Rep.  881;  In  re 
Beers.  77  Hun  611,  28  X.  Y.  S.  422,  59 
X.  Y.  St.  Rep.  881. 

Construction  of  Penal  Code. —  In 
view  of  Pen.  Code,  §  tioi,  providing 
that  one  who  receives  a  deposit  for  a 
l)ank,  which  he  knows  is  insolvent,  is 
guilty  of  a  misdemeanor,  proof  merely 
of  the  insolvency  of  a  bank  when' a  de- 
posit was  made  does  not  justify  an  in- 
ference that  the  officers  and  directors 
knew  of  such  insolvency,  so  as  to  per- 
mit the  depositor  to  recover  back  the 
deposit  as  for  fraud  of  the  iiank.  Sta- 
pleton z:  Odell,  21  Misc.  Rep.  94,  47  X. 
Y.  S.  13. 

Sufficiency  of  notice  or  knowledge 
of  insolvency. — Sonic  cases  liold  that 
to  constitute  fraud  in  receiving  a  de- 
posit when  insolvent,  which  will  au- 
thorize a  rescission  by  the  depositor, 
and  a  recovery  from  a  receiver  sul)sc- 
quently  appointed,  the  officers  of  the 
bank  must  have  known  or  believed 
that  it  was  insolvent  when  it  was  re- 
ceived; and  such  knowledge  can  not 
be  presumed.  The  fact  that  the  offi- 
cers knew  the  bank  to  l)e  embarrassed 
is  not  sufficient.  Quin  7'.  Karle,  95 
Fed.    72K;    P.aker   z:    Orme,   6    O.    C.    C. 


512 


BANKS  AND  BANKING. 


75  (1) 


tract  of  deposit  and  recover  back  the  deposit  or  its  proceeds, s^'  or  he  may 


N.   S.,   389,   298,   17-27   O.    C.   D.   465,   af- 
firmed in  74   O.   St.  3.37. 

But  in  other  cases  the  rule  is  that 
the  presumption  that  the  managing  of- 
ficers and  agents  of  an  insolvent  bank 
have  notice  of  its  condition  arises  from 
circumstances,  especially  when  the 
president  is  familiar  with  the  desperate 
condition  of  the  bank,  and  undertakes 
to  conduct  its  business.  Cragie  v. 
Hadley,  99  N.  Y.  131,  1  N.  E.  537,  52 
Am.  Rep.  9. 

On  Tuesday  the  directors  of  a  bank 
discovered  that  the  cashier  had  embez- 
zled the  funds,  but  not  to  such  an  ex- 
tent, as  they  then  supposed,  as  to 
render  the  bank  insolvent,  and  it 
continued  business.  On  Wednesday, 
complainant,  a  dealer  with  the  bank,  de- 
posited about  $60C  in  cash  and  checks, 
which  were  credited  in  his  bank  book, 
and  the  checks  duly  forwarded  for 
collection,  and  credited  to  the  bank  by 
Its  correspondent.  On  Thursday  the 
bank  suspended  through  insolvency. 
Held,  that  complainant's  deposit  was 
not  entitled  to  preference  in  payment 
over  those  of  other  depositors.  Ter- 
hune  V.  Bank,  34  N.  J.  Eq.  367. 

Where  the  cashier  of  a  bank  failed 
to  appear  during  business  hours,  and 
a  shortage  in  the  cash  was  discovered 
by  the  president,  and  the  cashier,  who 
for  years  had  the  perfect  confidence  of 
the  bank,  telephoned  that  the  balance 
was  in  another  compartment  of  the 
vault,  the  president  was  not  charge- 
able with  notice  of  the  bank's  insol- 
vency, and  hence  was  not  guilty  of 
fraud  in  subsequently  receiving  depos- 
its. Perth  Amboy  Gaslight  Co.  z:  Mid- 
dlesex County  Bank,  60  N  T  En  84 
45  Atl.  704. 

Where  a  president  of  a  bank  heard 
that  its  cashier  had  made  unauthorized 
drafts  on  another  bank,  and  appropri- 
ated the  proceeds,  to  an  amount  ex- 
ceeding the  capital  and  surplus  of  the 
bank,  and  proposed  to  a  bank  exam- 
iner to  close  the  bank,  but  was  advised 
by  him  to  first  verify  his  information, 
and  while  this  was  being  done  with  all 
possible  speed  the  bank  remained 
open,  for  one  hour,  the  president  was 
iiot  guilty  of  fraud  in  receiving  depos- 
its during  that  period.  Perth"  Amboy 
Gaslight  Co.  z'.  Middlesex  County 
Bank,  60  N.  J.  Eq.  84.  45  Atl.  704. 

Knowledge  on  the  part  of  the  cash- 
ier or  other  officer  of  the  liank's  insol- 
vency is  imputed  to  the  bank.  Orme 
z:  Baker,. 74  O.  St.  337,  78  N.  E.  439,  113 


Am.  St.  Rep.  968,  reviewing  many  cases. 
See  post,  "Xotice  to  Officer  or  Agent," 

Liability  of  directors. — A  part  of  the 
depositors  of  an  insolvent  banking 
corporation  in  the  hands  of  a  receiver 
may  sue  the  directors  for  deceit  in  in- 
ducing complainants  to  make  deposits 
when  they  knew  the  bank  was  insol- 
vent. Blumer  z\  Ulmer  (Miss.),  44  So. 
161. 

80.  Remedies  of  depositor. — Rich- 
ardson V.  New  Orleans  Coffee  Co.,  43 
C.  C.  A.  583,  102  Fed.  785;  Baker  v. 
Orme,  6  O.  C.  C,  N.  S.,  289,  17-27  O. 
C.  D.  465,  affirmed  in  74  O.  St.  337; 
Parker  z>.  Crawford,  3  Tex.  App.  Civ. 
Cases,  §  365;  Blake  v.  State  Sav.  Bank, 
12  Wash.  619,  41  Pac.  909;  Hyland  v. 
Roe,  111  Wis.  361,  87  N.  W.  252,  87  Am. 
St.   Rep.  873. 

A  depositor,  who  has  been  permitted 
by  an  insolvent  bank  to  deposit  a  draft 
with  it  immediately  before  the  closing 
of  the  doors  of  the  bank,  may  rescind 
the  contract  of  deposit  on  the  ground 
of  fraud,  and  reclaim  the  property. 
Cragie  z'.  Hadley,  99  N.  Y.  131,  1  N.  E. 
537.  52  Am.  Rep.  9,  followed  in  Import- 
ers', etc..  Nat.  Bank  z\  Peters,  123  N. 
Y.  272,  25  N.  E.  319. 

The  officers  of  a  bank,  knowing  the 
bank  to  1)e  hopelessly  insolvent,  ac- 
cepted a  deposit,  and  the  next  day 
closed  its  doors.  Held,  that  the  amount 
of  the  deposit  was  recoverable  against 
the  receiver.  Craigie  :■.  Smith,  14  Abb. 
N.   C.  409. 

Actual  receipt  of  funds  necessary. — 
In  an  action  by  a  depositor  to  recover 
frorn  the  assignee  for  the  l^enefit  of 
creditors  of  bankers  a  deposit  alleged 
to  have  been  received  by  the  bankers 
on  the  eve  of  their  insolvency,  plaintiff 
can  not  recover  without  proof  that  the 
proceeds  of  the  deoosit  actually  came 
into  the  hands  of  the  assignee.  Wil- 
liams 7'.  Van  Norden  Trust  Co.,  104 
Ann.  Div.  251.  93  N.  Y.  S.  821. 

Defenses. — Defendants,  directors  in  a 
private  corporation,  when  sued  for 
money  the  plaintiff,  a  stockholder,  had 
been  induced  to  deposit  with  the  com- 
panv,  then  insolvent,  by  the  represen- 
tations of  the  defendants,  thev  having 
accepted  the  deposits  and  applied  them 
to  the  payment  of  a  debt  for  wliich 
thev  were  sureties,  are  estopped  from 
setting  up  as  a  defense  in  a  suit  to 
rlTaroe  them  therefor,  their  want  of  au- 
thority to  receive  the  deposits.  Kink- 
ier 7'.  Jurica.  84  Tex.  116.  19  S.  W.  359. 

Plaintiff  brouQ-ht  an  action  to  re- 
cover    money     alleged     to     have     been 


§  75  (1) 


IXSOLVEXCV   AND   DISSOLUTION. 


513 


maintain  replevin  for  the  money, '^^  provided  the  deposit  or  its  proceeds  can 
be  distinguished  or  identified,  and  before  it  has  become  commingled  with 
the  general  funds  of  the  bank,'*-  and  to  this  end  he  is  entitled  to  a  prefer- 


fraudulently  received  by  defendant,  a 
banking  house,  while  proceedings  were 
pending  to  have  them  declared  bank- 
rupts, in  which  proceedings  an  injunc- 
tion had  been  issued  restraining  them 
from  doing  any  further  business.  The 
complaint  alleged  that  defendants  con- 
cealed these  facts,  and  opened  their 
banking  house  and  did  business  as 
usual,  with  intent  to  defraud,  and  plain- 
tiff, relying  on  the  appearances,  de- 
posited the  money  with  them,  and  re- 
ceived a  draft  on  C,  in  whose  hands 
they,  as  was  alleged,  had  no  funds,  and 
the  draft  was  not  paid.  The  answer 
denied  most  of  the  allegations  of  the 
complaint,  and  admitted  the  receipt  of 
the  money  and  the  giving  of  the  draft, 
but  alleged  that  when  the  draft  was  de- 
livered defendants  had  funds  in  C.'s 
hands,  and  that  the  draft  was  not  pre- 
sented until  a  number  of  days  after- 
wards. The  answer  also  alleged  that 
the  transaction  was  in  good  faith,  and 
that  the  reason  why  defendants  kept 
their  banking  house  open  was  chat  they 
expected  to  make  a  speedy  arrange- 
ment with  their  creditors,  and  have  the 
proceedings  discontinued.  Other  facts 
were  alleged,  tending  to  disprove 
fraudulent  intent.  Held,  that  the  an- 
swer constituted  a  defense  to  the  ac- 
tion. Van  Alstyne  z:  Crane  (X.  Y.),  4 
Thomp.  &  C.  113. 

Evidence. — Act  June  4,  1879,  making 
the  failure  of  a  banker  within  thirty 
days  after  receipt  of  a  deposit  prima 
facie  evidence  of  an  intent  to  defraud, 
applies  as  well  in  civil  actions  as  in 
criminal  prosecutions.  American  Trust, 
etc..  P.ank  r.  Gueder,  etc.,  Mfg.  Co., 
1.50   111.  :i3f).  37   X.   E.  227. 

When  a  l)ank  is  insolvent,  and  one  of 
the  managing  partners,  informed  of  its 
condition,  continues  to  receive  depos- 
its after  the  other  absconds,  it  is  not 
necessary  for  a  depositor,  seeking  to 
rescind  a  sale  of  paper  to  it,  to  show 
that  the  remaining  partner  was  privy 
to  the  flight  of  the  other.  The  fact 
that  the  managing  partner  must  have 
known  the  condition  of  the  bank,  and 
that  the  sum  credited  to  the  depositor 
could  not  be  paid  in  the  course  of 
business,  sufficiently  shows  the  fraud. 
First  Nat.  Bank  v.  Strauss,  GO  Miss. 
479.  6  So.  232,   14   y\m.   St.   Rep.   579. 

Amount  of  recovery. — Where  money 
;md  checks  are  .unsuspectingly  depos- 
ited in  a  bank,  which  is  Icnown  by  its 
1   P.  &  P.— 33 


managing  officer  to  be  hopelessly  in- 
solvent a  few  minutes  before  closing 
hour  on  the  last  day  on  which  it  does 
business,  and  the  checks  are  subse- 
quently collected  by  the  bank's  clerk, 
the  whole  of  the  deposit  is  charged 
with  a  trust,  and  an  equal  amount  may 
be  recovered  from  the  receiver,  who 
retains  the  specific  money  among  the 
general  mass  of  the  bank's  funds. 
Wasson  c'.  Hawkins,  59  Fed.  233. 

Title  of  assignee. — A  banker,  know- 
ing that  he  was  insolvent,  and  intending 
to  make  an  assignment  for  the  benefit 
of  his  creditors  in  a  day  or  two,  unless 
he  should  meanwhile  receive  financial 
assistance,  accepted  a  deposit,  without 
informing  the  depositor  of  his  insol- 
vency, but  kept  the  money  in  a  sepa- 
rate parcel,  marked  with  the  depositor's 
name,  intending  to  return  it  in  case  he 
made  a  general  assignment.  On  the 
same  day  he  made  such  assignment, 
and  delivered  the  parcel  to  the  as- 
signee, with  a  request  that  he  return 
it  to  the  depositor  if  he  could  legally 
do  so.  Held,  that  the  assignee  took  no 
title  to  the  deoosit.  Chaffee  v.  Fort 
(X.  Y.),  2  Lans.  81. 

81.  Replevin  by  depositor. — Bank  :■. 
Solicitors  Loan,  etc..  Co.,  188  Pa.  St. 
330,  41   At!.  .53(),  6S  Am.  St.   Rep.  S72. 

82.  Deposit  must  be  capable  of  iden- 
tification in  hands  of  receiver. — Illi- 
nois, etc.,  Sav.  Bank  r.  First  Nat. 
Bank.  15  Fed.  858,  21  Blatchf.  275; 
Philadelphia  Nat.  Bank  z:  Dowd,  38 
Fed.  172;  Somerville  v.  Beal,  49  Fed. 
790;  Case  v.  Beauregard,  Fed.  Cas.  No. 
2,487,  1  Woods  125;  Peters  v.  Bain,  133 
U.  S.  670,  33  L.  Ed.  696,  10  S.  Ct.  354; 
Maury  z:  Mason  (.A.la.),  8  Port.  212; 
Goldsmith  z\  Stetson  &  Co.,  30  Ala. 
164;  Parker  r.  Jones,  67  Ala.  234;  Mc- 
Call  V.  Rogers,  77  Ala.  349;  St.  Louis 
Brewing  Ass'n  z:  .Austin,  100  .Ala.  313. 
13  So.  908:  Wilson  z:  Coburn,  35  Neb. 
530,  53  N.  W.  466;  Higgins  z:  Hayden, 
53  Neb.  61.  73  N.  W.  280;  Tn  re  North 
River  Bank,  60  Hun  91,  14  N.  Y.  S.  261. 
37  N.  Y.  St.  Rep.  931;  Baker  z:  Orme, 
6  O.  C.  C,  N.  S.,  289,  17-27  O.  C.  D. 
465,  affirmed  in  74  O.  St.  337.  quoted 
from  Quin  7'.  F.arlc,  95  Fed.  Rep.  72S; 
In  re  Commercial  Bank,  4  O.  Dec.  108. 
2  N.  P.  170;  Belding  Bros.  iS:  Co.  z: 
Frankland,  76  Tenn.  (8  Lea)  67,  41 
.Am.  Rep.  630;  Akin  z:  Jones,  93  Tenn. 
353,  27  S.  W.  669,  25  L.  R.  .A.  523,  42 
Am.    St.    Rei).    921;   Savles    z:    Cox.    95 


514 


BANKS    AND    BANKING. 


§  75   (1) 


Tenn.  579,  32  S.  W.  626,  32  L.  R.  A. 
715,  49  Am.  St.  Rep.  940;  Bruner  v. 
First  Nat.  Bank,  97  Tenn.  540,  37  S.  W. 
286,  34  L.  R.  A.  532;  Friberg  v.  Cox,  97 
Tenn.  550,  37  S.  VV.  283;  Blake  v.  State 
Sav.  Bank,  12  Wash.  619,  41  Pac.  909; 
Nonutuck  Silk  Co.  v.  Flanders,  87  Wis. 
237,  58  N.  W.  383;  Burnham  v.  Barth, 
89  Wis.  362,  62  N.  W.  96;  Thuemmler 
V.  Barth,  89  Wis.  381,  62  N.  W.  94; 
Stevens  v.  Williams,  91  Wis.  58.  64  N. 
W.  422;  Dowie  v.  Humphrey,  91  Wis. 
98,  64  N.  W.  315. 

In  other  words  it  is  a  general  rule, 
as  well  in  a  court  of  equity  as  in  a 
court  of  law,  that  in  order  to  follow 
trust  funds,  and  subject  them  to  the 
operation  of  the  trust,  they  must  be 
identified.  Cavin  t.  Gleason,  105  N.  Y. 
256,  11  N.  E.  504. 

And  in  the  latter  case  of  Atkinson  v. 
Rochester  Printing  Co.,  114  N.  Y.  168, 
21  N.  E.  178,  the  court  used  this  lan- 
guage: "The  fact  that  the  defendant 
became  a  creditor  of  the  insolvent  bank 
through  the  fraud  of  its  officers,  and 
the  bank  a  trustee  ex  maleficio,  gave 
the  defendant  no  right  to  a  preference 
over  other  creditors,  unless  it  could 
trace  and  recover  its  property."  Blake 
V.  State  Sav.  Bank,  12  Wash.  619,  41 
Pac.  909. 

The  fact  that  a  bank  is  insolvent, 
within  the  knowledge  of  its  officers, 
and  receives  the  money  of  a  depositor 
under  circumstances  which  amount  to 
a_  fraud  upon  him,  is  not  of  itself  suffi- 
cient to  entitle  him  to  preference  from 
the  funds  of  the  bank  in  the  hands  of 
an  assignee;  for  although  he  may  fol- 
low his  money  while  he  can  trace  and 
distinguish  it,  or  the  proceeds  thereof, 
he  can  not  do  so  after  it  has  passed 
into  the  hands  of  the  assignee  mingled 
with  the  other  funds  of  the  bank.  Wil- 
son V.  Coburn,  35  Xeb.  530,  53  N.  W. 
466;  Lanterman  v.  Travous,  174  111.  459. 
51  M  E.  805. 

To  authorize  recovery  of  a  general 
deposit  from  a  receiver  on  the  ground 
that  the  bank  was  insolvent,  and  known 
to  be  so  by  its  officers,  when  it  was 
received,  and  that  the  fraud  authorized 
a  rescission  of  the  contract  by  the  de- 
positor, the  thing  deposited,  or  its  pro- 
ceeds, must  be  capable  of  identification 
in  the  receiver's  hands,  or  it  must  ap- 
pear that  the  funds  in  his  hands  were 
increased  by  that  amount.  Quin  v. 
Earle,  95  Fed.  728. 

The  fact  that  the  bank  had  no  right 
to  receive  defendant's  deposits  when 
known  to  be  insolvent,  and  committed 
a  fraud  by  so  doing,  thus  becoming  a 
trustee  ex  maleficio,  gave  defendant  no 
right  to  a  preference  over  other  cred- 


itors, unless  it  could  trace  and  recover 
its  own  property.  Atkinson  v.  Roch- 
ester Printing  Co.,  114  N.  Y.  168,  21  N. 
E.  178. 

Where  a  depositor  in  a  bank,  known 
at  the  time  by  its  oflicers  to  be  insol- 
vent, finding  a  mistake  in  the  amount 
which  he  intended  to  deposit,  told  the 
teller  to  "put  that  money  to  one  side" 
until  he  returned  from  his  office,  and 
the  teller  responded,  "All  right,"  but 
immediately  mingled  the  deposit  with 
the  other  funds  of  the  bank,  the  de- 
posit was  impressed  wih  a  trust,  and 
could  be  recovered  in  full,  though  not 
traceable  directly  into  the  hands  of  the 
assignee.  In  re  Commercial  Bank,  4 
O.  Dec.  108,  2  N.  P.  170. 

In  other  words,  a  party  who  deposits 
funds  in  a  failing  bank,  which  do  not 
become  mingled  with  other  funds,  but 
remain  in  a  separate  package,  can  re- 
cover the  same  from  the  assignee  of 
the  bank  after  it  has  made  an  assign- 
ment for  the  benefit  of  creditors.  In  re 
Assignment,  1  N.  P.  358,  2  O.  Dec.  304. 

Where  a  depositor  makes  a  deposit 
in  an  insolvent  bank,  and  at  the  same 
time  purchases  from  such  bank  a  draft 
en  another  bank,  and  subsequently  the 
bank  receiving  the  deposit  and  issuing 
the  draft  makes  an  assignment,  and 
the  draft  is  returned  unpaid,  the  depos- 
itor, if  he  be  unable  to  identify  the  de- 
posit, or  to  trace  it  into  the  hands  of 
the  trustees,  can  not  recover  it;  the 
fact  of  the  application  of  a  part  of  the 
deposit  to  the  purchase  of  a  draft  not 
being  sufficient  to  give  any  special 
rights  in  the  premises.  In  re  Commer- 
cial Bank,  2  N.  P.  170,  4  O.  Dec.  108. 

One  who  at  various  times  deposited 
moneys  with  a  bank,  not  knowing  of 
its  insolvency,  and  from  time  to  time 
drew  checks  on  the  amount,  can  not, 
after  the  bank  has  been  declared  insol- 
vent, recover  from  the  receiver  the 
amount  remaining  to  his  credit,  as  the 
fund  was  not  impressed  with  a  special 
trust  in  his  favor,  and  could  not  be 
identified  and  traced  into  the  hands  of 
the  receiver.  Blake  v.  State  Sav.  Bank, 
12  Wash.  619,  41  Pac.  909,  explaining 
Cragie  v.  Hadley,  99  N.  Y.  131,  1  N.  E. 
537.  52  Am.  Rep.  9. 

Deposit  with  and  without  instruc- 
tions.— There  is  an  evident  difference 
between  a  deposit  of  money  without 
instructions  and  a  paper,  such  as 
checks,  drafts,  etc..  without  such  instruc- 
tions. Accordingly,  where  a  check 
drawn  on  another  bank  is  deposited  in 
an  insolvent  bank  without  any  special 
instructions,  and  it  is  not  placed  to  the 
customer's  credit,  and  immediately 
thereafter  the  receiving  bank  fails,  and 


§  "5   {I) 


IXSOLVEXCV    AXD   DISSOLUTION. 


515 


the  check  goes  into  the  hands  of  the 
bank  examiner  and  is  afterwards  col- 
lected, the  proceeds  are  the  property  of 
the  customer,  and  not  of  the  bank. 
Showalter  i:  Cox,  97  Tenn.  547,  37  S. 
W.  2S6. 

Special  deposits. — If  a  deposit  is 
delivered  to  tiie  bank  for  a  particular 
purpose,  and  not  as  a  general  deposit, 
it  would  be  a  trust  fund  in  the  first 
instance,  and  the  title  would  not  pass 
to  the  bank;  but  even  then  it  could  not 
be  recovered  without  showing  that  it 
had  gone  into  the  hands  of  the  re- 
ceiver. Blake  z-.  State  Sav.  Bank,  12 
Wash.  619,  41  Pac.  909,  citing  with  ap- 
proval Cavin  f.  Gleason,  105  N.  Y.  256, 
II  N.  E.  504. 

Check  deposited  and  credited  as 
cash. — It  is  well  settled  where  a  check 
is  deposited  and  credited  on  the  cus- 
tomer's pass  book  as  cash,  the  pro- 
ceeds can  not  be  followed  and  re- 
claimed unless  the  fund  has  been  kept 
separate  and  may  be  identified.  Wil- 
liams V.  Cox,  97  Tenn.  555,  37  S.  W. 
282:  Friberg  v.  Cox,  97  Tenn.  550,  37 
S.  W.  283:  Klepper  v.  Cox,  97  Tenn. 
534,  37  S.  W.  284,  34  L.  R.  A.  536,  56 
Am.  St.  Rep.  823;  Bruner  v.  First  Nat. 
Bank,  97  Tenn.  540,  37  S.  W.  286,  34  L 
R.  A.  532. 

Sufficiency  of  identification. — The 
general  rule  that  where  the  money  de- 
posited is  indistinguishably  mingled 
with  the  other  funds  of  the  bank" the 
depositor  must  be  able  to  trace  and 
identify  his  particular  deposit  before  a 
trust  can  attach,  is  not  very  strictly 
applied.  Accordingly,  it  has  been  held 
that  even  though  there  are  no  ear- 
marks on  the  money,  yet  if  the  exact 
amount  deposited  is  known,  this  is  a 
sufficient      identification.  Orme      z>. 

Baker,  74  O.   St.  337,  78   N.   E.  439,  113 
Am.  St.   Rep.  968. 

And  if  it  appears  that  the  deposit 
was  in  cash  and  that  the  very  money 
deposited  was  in  the  vaults  of  the  bank 
at  the  time  it  closed  its  doors,  and 
came  necessarily  into  the  hands  of  the 
assignee  or  receiver,  the  depositor  may 
reclaim  it.  although  he  may  not  be  able 
to  identify  the  very  coin  or  bills  which 
composed  the  deposit.  The  reason  for 
this  is  that  the  assets  of  the  bank  are 
actually  increased  by  the  amount  of 
the  deposit,  and  the  very  cash  came  to 
tlic  hands  of  the  receiver  or  assignee. 
Perth  Amboy  Gaslight  Co.  r-.  Middle- 
sex County  Bank,  60  N.  J.  Eq.  84,  45 
Afl.  704,  opinion  of  Pitney,  Vice  Chan- 
cellor; Wasson  z'.  Hawkins,  59  Fed. 
233;  Cavin  v.  Gleason,  105  N.  Y.  256, 
11  N.  E.  504;  Atkinson  ?'.  Rochester 
Printing    Co.,    114    N.    Y.    168.    21    N.    E. 


178;     Compare     Frelinghuysen     r.     Nu- 
gent, 36   Fed.  229. 

Where  a  bank  receives  a  deposit  on 
the  day  of  its  suspension,  when  it  is 
known  by  its  officers  to  be  insolvent, 
and  mingles  the  money  with  its  own 
funds,  which,  to  an  amount  larger  than 
the  deposit,  pass  into  the  hands  of  a 
receiver,  it  is  not  essential  to  the  right 
of  the  depositor  to  recover  his  deposit 
from  the  receiver  that  he  should  be 
able  to  trace  the  identical  money  de- 
posited into  the  receiver's  hands,  but 
it  is  sufficient  that  the  amount  which 
went  into  his  hands  was  increased  by 
the  amount  of  the  deposit.  Richard- 
son V.  New  Orleans  Debenture  Re- 
demption Co.,  42  C.  C.  A.  619,  102  Fed. 
780,  52  L.  R.  A.  67. 

In  Massey  v.  Fisher.  62  Fed.  958.  the 
circuit  court  for  the  Eastern  District 
of  Pennsylvania  laid  down  the  follow- 
ing rule:  "The  fact  that  the  money  was 
not  marked  and  by  a  commingling 
with  other  funds  of  the  bank,  lost  its 
identity,  does  not  affect  the  right  to 
recover  in  full,  if  it  can  be  traced  to 
the  vaults  of  the  bank,  and  it  appears 
that  a  sum  equivalent  to  it  remained 
continuously  therein  until  removed  by 
the  receiver."  That  court,  in  the  opin- 
ion cites  many  supporting  cases. 

According  to  the  better  rule,  the 
fact  that  the  cash  deposited  during  the 
day  is  mingled  with  the  other  funds 
on  hand,  is  immaterial  if  tlie  cash  de- 
posited swells  the  assets  of  the  bank. 
And  while  in  theory  of  law  it  is  the 
duty  of  the  depositor  to  trace  his  own 
money,  he  complies  with  this  rule  by 
showing  that  his  money  was  mingled 
with  the  other  cash  on  hand  of  the 
bank  by  the  bank's  officers  and  em- 
ployees, and  that  the  entire  cash  de- 
posits for  the  day  were  less  than  the 
cash  on  hand  wlien  tlie  bank  closed 
its  doors.  Having  shown  this  state  of 
facts  it  will  be  presumed  that  the  bank 
used  its  own  cash  during  the  last  day 
it  transacted  business,  and  retained 
tliat  which,  under  the  law,  it  had  no 
right  to  use.  Willou.ghby  7'.  Weinlicr- 
ger,   15  Okla.  226,  79  Pac.  777. 

Identification  of  proceeds  of  check. 
— WHieri'  a  check  on  a  l);ink-  was  di'pos- 
ited  by  tiic  jKiyee  in  a  bank  which 
transmitted  it  for  collection  to  tlie  liank 
on  which  it  was  drawn,  and  tiie  follow- 
ing day  tlie  bank  receiving  the  deposit 
suspended,  owing  to  insolvency,  ami 
the  drawee  held  the  clieck.  at  the  re- 
quest of  the  payee,  for  some  time,  and 
eventually  delivered  it  to  the  receiver 
of  tlie  insolvent  l)ank.  a  contention 
that  a  petition  by  the  payee,  which 
stated  the  facts  and  prayed   for  an   or- 


516 


BANKS    AND    BANKING. 


§  75  (1) 


ence  over  the  general  creditors. ■''•^     In  other  words  the  deposit  is  impressed 


der  requiring  the  receiver  to  pay  over 
the  proceeds  ot  tne  check,  was  insuf- 
ficient, owing  to  there  being  no  suffi- 
cient identincation  of  the  proceeds 
of  the  check,  was  without  merit.  Hy- 
land  V.  Roe,  111  Wis.  361,  87  N.  W.  252, 
87  Am.  St.  Rep.  873. 

The  identical  proceeds  of  a  check  or 
draft  fraudulently  received  on  deposit 
by  an  insolvent  bank,  are  sufficiently 
traced  by  the  depositor  when  it  ap- 
pears that  they  are  included  in  a  fund 
paid  over  to  the  receiver  of  the  bank 
by  a  correspondent,  as  the  proceeds  of 
credits  made  after  the  bank  failed,  but 
notice  thereof  to  the  correspondent. 
Bruner  v.  First  Nat.  Bank,  97  Tenn. 
540,  37  S.  W.  286,  34  L.  R.  A.  532. 

Where  bank's  assets  not  increased. 
— Where  one  deposits  in  a  bank  the 
check  of  another  depositor  of  the  bank, 
and  is  given  credit  therefor,  the  assets 
of  the  bank  are  not  thereby  increased, 
and  hence  there  can  be  no  tracing  and 
reclaiming  of  the  deposit  on  the  in- 
solvency of  the  bank.  Perth  Amboy 
Gaslight  Co.  V.  Middlesex  County 
Bank,  60  N.  J.  Eq.  84,  45  Atl.  704. 

Burden  of  proof. — The  burden  is  on 
one  who  transferred  a  draft  to  a  bank 
prior  to  its  failure,  and  who  seeks 
to  follow  and  reclaim  the  proceeds  as 
against  a  receiver,  to  show  that  they 
were  not  received  and  mingled  with 
the  other  funds  of  the  bank  before 
the  failure;  and,  where  they  were 
placed  to  its  credit  by  a  correspondent 
on  the  same  day  the  receiver  was  ap- 
pointed, in  the  absence  of  further  proof 
as  to  the  exact  time  it  will  be  pre- 
sumed that  the  credit  was  given  be- 
fore the  receiver  was  appointed. 
Klepper  v.  Cox,  97  Tenn.  534,  37  S. 
W.  284,  34  L.  R.  A.  536,  56  Am.  St. 
Rep.    823. 

83.  Preference  to  depositors. — Perth 
Amboy  Gaslight  Co.  v.  Middlesex 
Counlv  Bank,  60  N.  J.  Eq.  84.  45  Atl. 
704;  Baker  v.  Orme.  6  O.  C.  C.  N.  S., 
289,  17-27  O.  C.  D.  465,  affirmed  in 
74  O.  St.  337;  Willoughby  v.  Wein- 
berger. 15  Okla.  226,  79  Pac.  777;  Com- 
pare Cavin  7'.  Gleason,  105  N.  Y.  256, 
11    N.    E.    504. 

A  depositor  is  entitled  to  a  prefer- 
ence where  the  deposit  was  made 
when  the  bank  was  hopelessly  in- 
solvent, which  fact  was  concealed  by 
the  bank;  and  an  equal  amount  may 
be  recovered  from  the  receiver,  who 
has  received  the  specific  money  among 
the  general  mass  of  the  bank's  funds. 
Lake   Erie,  etc.,  R.  Co.  v.   Indianapolis 


Nat.  Bank,  65  Fed.  690. 

Where  the  relation  of  loaner  and  bor- 
rower exists  between  a  bank  and  its 
depositor,  he  may  reclaim  his  deposit, 
as  against  the  general  creditors  of  the 
bank,  in  case  of  insolvency,  when  its 
officers  received  the  deposit  know- 
ing the  insolvency  at  the  time,  and 
were  guilty  of  actual  fraud  in  receiv- 
ing it,  and  he  is  able  to  trace  his  de- 
posit to  the  assets  which  came  into 
the  hands  of  the  receiver  or  assignee, 
though  he  need  not  identify  the  very 
coin  or  bills  deposited.  Perth  Am- 
ho}^  Gaslight  Co.  v.  Middlesex  County 
Bank,    60    N.   J.    Eq.    84,   45   Atl.   704. 

Where  funds  were  received  on  de- 
posit a  few  minutes  before  closing 
time  at  a  time  when  the  bank  was  in- 
solvent to  the  knowledge  of  the  cash- 
ier in  charge,  and  two  days  thereafter 
the  bank  passed  into  the  hands  of  a 
receiver,  the  deposit  having  been 
fraudulently  received,  no  title  vested 
in  the  bank,  and,  on  making  tiinely  de- 
mand upon  the  receiver,  the  depositor 
was  entitled  to  recover  the  full  amount 
of  the  deposit  in  preference  to  the 
claims  of  general  creditors.  Orme  v. 
Baker,  74  O.  St.  337,  78  N.  E.  439,  113 
Am.  St.  Rep.  968;  Baker  v.  Orme,  27 
O.    C.    C.    465. 

Fraud  in  receiving  a  deposit  of 
cash,  or  of  a  check  treated  as  cash, 
after  bank  officials  know  that  it  is 
hopelessly  insolvent,  will  not  give  the 
depositor  a  preferential  claim  against 
assets  in  the  hands  of  the  receiver  of 
the  bank,  if  the  bank,  before  its  fail- 
ure, had  commingled  the  cash  with  its 
general  funds  and  had  received  credit 
for  the  check  from  a  correspondent  to 
whom  it  had  been  forwarded,  although 
there  was  due  froin  the  correspond- 
ent more  than  the  amount  of  the 
check  which  went  into  the  hands  of 
the  receiver.  Klepper  i'.  Cox,  97  Tenn. 
534,  37  S.  W.  284,  34  L.  R.  A.  536,  56 
Am.   St.   Rep.  823. 

Where  a  bank,  knowing  its  in- 
solvency, receives  a  check,  which  it 
credits  to  the  depositor  as  cash,  and 
then  sends  to  a  correspondent,  who, 
after  the  failure  of  said  bank,  but  with- 
out notice  thereof,  credits  the  check 
to  it  as  cash,  and  subsequently  pays 
over  the  proceeds  to  the  receiver,  the 
depositor  mav  recover  such  proceeds 
as  a  preferred  claim.  Bruner  v.  First 
Nat.  Bank.  97  Tenn.  540,  37  S.  W.  286, 
34    L.    R.    A.    532. 

Deposits  by  county  treasurer. — 
Where   a   count}^   treasurer   deposits   in 


§  75  (2) 


INSOLVENCY    AND   DISSOLUTION. 


517 


with  a  trust  in  favor  of  the  depositor.''-*     A  return  of  this  deposit  can  not 
be  attacked  as  a  preference  to  creditors. ''^"' 

The  reason  for  the  foregoing  rule  is  that  a  deposit  in  a  bank  which 
is  insolvent  at  the  time  does  not  vest  title  thereto  in  the  bank  and  convert 

the  depositor  into  a  general  creditor. s*^ 

§  75  (2)  Deposits  for  Collection.— A  banker  who  receives  money  or 
drafts  for  collection  with  knowledge  that  the  institution  is  hopelessly  in- 
solvent gets  no  title  legal  or  equitable,  and  the  funds  or  proceeds  can  always 
be  claimed  and  recovered  by  the  owner  when  they  can  be  traced  and  identi- 
fied, regardless  of  the  form  of  indorsement."     But  where  a  bank,  knowing 


an  insolvent  bank  checks  received  for 
taxes  which  he  has  endorsed  in  blank, 
for  which  he  accepts  a  certificate  of 
deposit,  but  retains  no  memorandum 
of  the  checks  deposited,  he  can  not 
after  the  bank  has  gone  into  the  hands 
of  a  receiver  follow  the  checks  or  the 
money  collected  on  them  as  a  trust 
fund  and  claim  a  preference  over  other 
creditors  for  the  amount  so  received 
from  him  by  the  bank.  Towson  v. 
Cole.  6  X.  P..  X.  S.,  388,  17  O.  D.  N. 
P.    282. 

84.  A  petition  seeking  to  charge  a 
trust  on  property  in  the  hands  of  the 
defendant,  the  receiver  of  an  in- 
solvent bank,  may  allege  that  the  bank 
obtained  the  property  as  bailee,  and 
at  the  same  time  charge  that  it  was  ob- 
tained by  fraudulent  concealment  of 
insolvency,  and  relief  may  be  granted 
on  the  latter  ground,  although  the 
former  be  not  proved.  Higgins  v. 
Hayden,  53  Neb.  61,  73  N.  W.  280. 

85.  The  delivery  by  a  receiver  of  an 
insolvent  bank  to  its  owner  of  a  draft 
deposited  with  the  insolvent  through 
the  latter's  fraud  is  not  in  the  nature 
of  paying  a  preferred  creditor.  Cragie 
z:  Hadley,  99  N.  Y.  131,  1  N.  E.  537, 
52  Am.  Rep.  9.  This  case  is  reviewed 
and  explained  in  P>lake  f.  State  Sav. 
Bank,    12   Wash.    010,    41    Pac.    900. 

86.  Reason  of  rule. — Hyland  t'.  Roe, 
111  Wis.  3r,|,  87  \.  W.  252,  87  .^m.  St. 
K'c-j).    HT?,. 

87.  Deposits  for  collection  after  no- 
tice of  insolvency. — Richardson  c'. 
T_)cnegre,  35  C.  C.  A.  452,  03  Fed.  572; 
Commercial  liank  7:  .Armstrong,  148 
U.   S.  50,  37  L.   Ed.  3f)3,   13   S.   Ct.  533. 

Where  a  banker  knew  that  he  was 
hopelessly  insolvent  when  he  received 
for  collection  a  check  which  he  caused 
to  be  credited  to  him  in  a  correspond- 
ent bank,  his  failure  to  apprise  the 
owner  of  his  condition  made  the  ac- 
miisition  of  the  check  fraudulent,  even 
if  the  latter  knew  lie   was   to   use   it  as 


a  debt.  Judgnient,  63  N.  Y.  S.  070,  50 
App.  Div.  33.'  affirmed.  Blair  v.  Hill, 
105    N.    Y.    672,    59    N.    E.    1119. 

On  the  day  a  bank  closed  its  doors, 
and  when  it  was  known  by  its  ofilcers 
to  be  insolvent,  complainant,  a  customer 
made  a  deposit  of  money,  and  also  of 
certain  checks  and  drafts  for  collection 
and  credit,  all  of  which  were  credited, 
at  the  time,  to  its  account.  During 
the  day,  it  also  purchased  drafts  from 
the  bank,  for  which  it  gave  checks 
about  equal  in  amount  to  its  entire 
deposit,  but  such  drafts  were  returned 
unpaid,  and  were  tendered  back  to  the 
receiver.  Held,  that  the  purchase  and 
sale  of  the  drafts  was  a  separate  trans- 
action, which,  as  it  did  not  create  any 
liabilit}'  affecting  the  general  creditors, 
and  was  in  itself  fraudulent  on  the 
part  of  the  bank,  did  not  affect  com- 
plainant's right  in  equity  to  reclaim  the 
deposits  from  the  receiver.  Richard- 
son V.  New  Orleans  Coffee  Co.,  43  C. 
C.  A.  583,  102  Fed.  785. 

Where  defendant,  a  banker,  under  an 
agreement  with  plaintiffs  to  receive  de- 
posits, collect  bills,  pay  tlieir  drafts 
on  him  when  presented,  use  the  money 
in  his  hands  and  pay  interest  on  the 
same,  received  a  draft  from  plaintiffs 
to  be  collected  and  collected  the  same 
and  used  the  money,  when  lie  knew 
the  day  before  tlie  collection  th:it  lie 
was  insolvent,  and  suspended  payment 
on  the  same  day  he  made  the  cullec- 
tion,  his  failure  did  not  annul  ihe 
agreements,  or  make  him  a  trustee  for 
the  funds  c(^llocted.  Bussing  t'.  Thoini)- 
son,  15  llow.  Prac.  07,  i;i  .\'.  ^'.  Super. 
Ct.    000. 

A  regular  customer  of  ;i  liank  sent 
to  it  a  check  with  an  unrestricted  in- 
dorsement, and  directed  it  lo  be  placed 
to  his  credit.  The  check  was  received 
and  credited,  and  the  customer  so  ad- 
vised. On  the  day  of  receipt  tlie  l)ank 
sent  the  check  to  its  correspondent  for 
collection,    paid    a   clieck    drawn    I)y    the 


518 


BANKS    AND    BANKING. 


§  /5   (4) 


its  insolvency,  receives  from  a  customer,  as  cash,  a  check  on  a  foreign  bank, 
and  sends  the  paper  to  its  correspondent,  who,  before  the  faikire  of  the 
sending  bank,  credits  the  check  to  it  as  cash,  and  subsequently  pays  over 
the  proceeds  to  the  receiver,  the  right  of  the  customer  to  reclaim  the  pro- 
ceeds on  account  of  the  bank's  fraud  is  lost.^^ 

§  75  (3)  Special  Deposits. — If  the  deposit  be  a  special  one  the  bank 
is  merely  a  trustee  or  bailee,  and  the  general  funds  into  which  it  has  passed 
are  impressed  with  the  trust. '^^ 

§  75  (4)  Rights  of  Payee  of  Draft.— The  rights  of  the  payee  of  a 
draft  which  was  never  really  accepted  as  a  deposit  are  the  same,  on  the  in- 
solvency of  the  bank,  as  if  it  had  never  been  presented. ^^ 


customer  from  a  part  of  the  proceeds 
of  the  credit,  and  closed  its  doors  as 
insolvent.  Held,  that  the  check  was 
not  deposited  for  collection,  but  as 
cash,  for  immediate  use.  Williams  v. 
Cox,  97  Tenn.  555,  37   S.  W.  282. 

The  proceeds  of  a  check  received  for 
collection  by  a  bank  when  its  officers 
knew  that  it  was  hopelessly  insolvent, 
and  which  was  not  collected  until 
after  the  bank  had  failed,  belong  to 
the  customer,  although  the  check  was 
sent  for  collection  with  other  checks 
to  another  bank,  which  retained  from 
the  entire  amount  collected  an  amount 
exceeding  that  of  such  check,  for  its 
indemnity,  remitting  the  remainder,  ex- 
ceeding the  amount  of  the  check,  tp 
the  receiver  of  the  former  bank,  as  it 
will  be  presumed  in  such  case  that  the 
proceeds  of  such  check  were  remitted. 
Williams  v.  Cox,  99  Tenn.  403,  42  S. 
W.   3. 

However,  where  the  bank  has  failed 
when  the  checks  and  drafts  are  cred- 
ited, although  done  by  a  correspond- 
ent which  does  not  yet  know  of  the 
failure,  this  can  not  prejudice  the 
rights  of  persons  who  deposited  such 
paper  in  the  insolvent  bank  to  recover 
back  their  paper  or  its  proceeds,  when 
the  deposit  was  received  after  the  of- 
ficers of  the  bank  knew  it  to  be  in- 
solvent. Bruner?'.  First  Nat.  Bank,  97 
Tenn.  540,  37  S.  W.  286,  34  L.  R.  A.  532 ; 
Williams  v.  Cox,  99  Tenn.  403.  42 
S.  W.  3. 

88.  Where  a  bank  accepts  a  check- 
on  another  bank  as  cash,  giving  there- 
for a  sum  of  money,  a  certificate  of 
deposit,  and  the  balance  in  a  credit  to 
the  account  of  a  third  person,  such 
transaction  creates  merely  the  relation 
of  debtor  and  creditor  between  the 
bank  and  its  customer,  and  the  latter 
can  not,  on  the  insolvency  of  the  bank, 
follow    up    the    check,    or'  its    proceeds. 


as    his    property.      Friberg   v.    Cox,    97 
Tenn.   550,   37    S.   W.   283. 

Where  a  check  drawn  on  another 
bank  is  deposited  in  an  insolvent  bank 
without  any  special  instructions,  and 
it  is  not  placed  to  the  customer's 
credit,  and  immediately  thereafter  the 
receiving  bank  fails,  and  the  check 
goes  into  the  hands  of  the  bank  ex- 
aminer and  is  afterwards  collected,  the 
proceeds  are  the  property  of  the  cus- 
tomer, and  not  of  the  bank.  Showal- 
ter  c'.  Cox,  97  Tenn.  547,  37  S.  W. 
286. 

89.  Right  of  persons  making  special 
deposits  after  insolvency. — One  de- 
posited money  in  a  bank  under  _  an 
agreement  which  made  the  deposit  a 
special  one.  The  deposit,  without  the 
knowledge  of  the  depositor,  went  into 
the  general  funds  of  the  bank,  and  it 
subsequentlv  became  insolvent.  There 
was  more  than  the  amount  of  the  de- 
posit in  the  general  fund  at  the  time 
the  receiver  took  charge.  Held,  that 
the  depositor  was  entitled  to  follow 
the  fund  into  the  hands  of  the  re- 
ceiver, and  charge  the  same  with  the 
trust.  Shopert  v.  Indiana  Nat.  Bank, 
41    Ind.    App.    474,    83    N.    E.    515. 

90.  Rights  of  payee  of  draft. — A  con- 
struction company  drew  a  draft  m 
favor  of  a  subcontractor  on  a  bank, 
which  under  an  arrangement  with  a 
trust  companv  was  authorized  to  issue 
in  payment  of  drafts  for  labor  and  ma- 
terials exchange  on  the  trust  company 
which  paid  the  same  out  of  funds  de- 
posited by  the  holders  of  bonds  is- 
sued to  secure  money  to  pay  for  the 
work.  The  subcontractor  presented  the 
draft  to  the  bank  for  deposit  and  the 
amount  thereof  was  entered  on  his 
passbook,  but  not  actually  passed  to 
his  credit;  the  bank  being  in  a  failing 
condition.  It  failed  that  night,  and 
the  next  day  the  draft  was  returned  to 


§  76  (2a) 


IXSOLVEXCY   AND  DISSOLUTION. 


519 


§  75  (5)  Restoration  of  Consideration  on  Rescission. — A  deposi- 
tor in  an  insolvent  bank  who  has  received  part  of  the  deposit  in  money  and 
the  residue  in  a  certificate  of  deposit,  need  not  offer  to  return  the  amount 
actually  received  in  order  to  obtain  a  rescission  because  of  such  insolvei'.cy, 
where  he  seeks  to  recover  the  balance  only."^ 

§  75    (6)   Evidence. — The  burden  of  proof  is  on  the  depositor  to 

show  affirmatively  that  the  bank  was  insolvent  when  it  received  its  deposit 
and  that  the  officers  then  knew  it.^- 

§  76.  Remedies  and  Proceedings  on  Insolvency'^^ — §  76  (1) 
Right  of  Action. — The  fact  tliat  a  bank  is  in  process  of  liquidation  does 
not  protect  it  from  suits  by  its  creditors  or  depositors,  in  the  absence  of  a 
judicial  declaration  of  insolvency. ''■* 

§  76  (2)  Modes  of  Procedure— §  76  (2a)  In  General.— The  stat- 
utes in  the  various  jurisdictions  usually  prescribe  the  mode  of  procedure 
for  winding  up  the  affairs  of  an  insolvent  bank,^^  and  if  these  remedies  did 
not  exist  at  common  law,  are  exclusive  of  all  others. ^'^ 


the  payee.  Held  that,  the  draft  not 
having  been  accepted  as  a  deposit,  the 
payee  was  equally  entitled  with  the 
holders  of  similar  drafts  to  share  in 
the  fund  held  by  the  trust  company. 
McBride  v.  American  R.,  etc.,  Co.  (Tex. 
Civ.   App.),   3  27   S.   W.   229. 

91.  Restoration  of  consideration  by 
depositor  on  rescission.— Hyland  v. 
Roe,  111  Wis.  361.  87  N.  W.  252,  87 
Am.   St.   Rep.   873. 

92.  Burden  of  proof. — Furber  v. 
Dane,  204  Mass.  412,  90   X.   R.  359. 

93.  Proceedings  to  enforce  liability 
of  officers  in  insolvency,  see  post, 
"Taxation,"  §  205;  "From  Funds  De- 
posited as   Security,"   §  209. 

94.  Right  of  action  against  bank  in 
liquidation. — Tliat  the  bank  commis- 
sioners have  directed  a  bank  to  liqui- 
date, and  wind  up  its  affairs,  and  that 
this  is  being  done  entirely  by  its  own 
ofificers,  who  are  collecting  its  assets. 
and  disbursing  money  to  depositors, 
does  not  deprive  its  creditors  of  their 
right  to  commence  actions  against  it. 
Lanz  V.  Fresno,  etc.,  Sav.  Bank,  125 
Cal.  456,  58  Pac.  6.'.. 

95.  Statutory  proceedings  to  wind 
up  insolvent  banks.  'I'lic  mere  fact 
that  a  hank,  incor])f)ratcd  l)y  special 
act,  is  not  authorized  to  issue  notes 
as  currency,  docs  not  withdraw  it  from 
the  operation  of  the  general  banking 
act  of  April  16,  1850,  prescribing  the 
procedure  for  winding  up  the  affairs 
of  an  insolvent  bank.  In  re  .Shack- 
amaxon    P.ank    CPa.),   4.3    Leg.   Tnt.    138. 


Act  March  24,  1903,  §  10,  St.  1903,  p. 
368,  c.  266,  as  amended  by  Act  March 
20,  1905,  St.  1905,  p.  304,  c.  296,  au- 
thorizing the  bank  commissioners  to 
require  banks  to  discontinue  unsafe 
practices  and  upon  their  failure  to  do 
so,  or  if  it  appear  unsafe  to  allow  any 
bank  to  continue  business,  to  seize  the 
effects  of  the  bank  and  notify  the  at- 
torney general,  who  shall  commence 
suit  to  dissolve  the  corporation,  etc.. 
was  intended  to  supersede  the  general 
insolvency  act  so  far  as  it  applied  to 
l)anking  corporations.  People  v.  Bank, 
154    Cal.    194,    97    Pac.    306. 

Order  to  show  cause. — A  vice  presi- 
dent of  a  bank,  who  is  likewise  a  di- 
rector, is  a  proper  person  to  serve 
with  an  order  to  show  cause  why  the 
i)ank  should  not  be  declared  insolvent 
;ind  a  receiver  appointed.  People  v. 
Central  City  Bank  (N.  Y.),  53  Barb. 
412,    35    How.    IVac.    428. 

96.  Exclusiveness  of  statutory  rem- 
edies.— A  suit  under  Rev.  St.,  §§  3218- 
;!226,  by  a  creditor  <>l"  an  insolvent 
bank,  on  liehalf  of  all  tlie  creditors, 
to  close  up  the  bank's  business  and 
enforce  against  its  oflicers  and  stock- 
holders the  liabilities  created  by  stat- 
ute, is  exclusive  of  all  actions  on  be- 
half of  the  creditors,  and  all  are  com- 
lelled  to  seek  their  remedy  therein. 
Hurll)ut  7'.  Kellv,  62  Wis.  590,  22  N. 
W.   852. 

.\n  action  cnmmenci'd  by  a  creditor 
and  stockholder  against  an  insolvent 
I)ank.  alone,  for  the  appointment  of  a 
receiver    ;ind    llic    scttlcnicMt    of   its    af- 


520 


BANKS    AND    BANKING. 


§  76  (2b) 


§  76  (2b)  Injunction. — By  statute  in  some  jurisdictions  a  court  of 
equity,  upon  the  application  of  either  a  creditor  or  stockholder,  may  restrain 
by  injunction  an  insolvent  bank  from  the  further  exercise  of  any  of  the 
privileges  or  franchises  granted  by  its  charter  and  appoint  a  receiver  to 
take  charge  of  the  property  and  effects  of  the  corporation.  But  before  any 
such  injunction  will  issue,  the  insolvency  of  the  bank  must  be  clearly  made 
out.^"       The    issuance    of    the    writ    is,    however,    discretionary    with    the 


fairs  (Rev.  St.  1878,  §§  3218,  3219),  in 
which  the  complaint  does  not  allege 
that  it  is  brought  on  behalf  of  all 
creditors,  but  prays  that  they  may  be 
brought  in  and  made  parties,  is  the 
exclusive  action,  in  which  not  only  the 
assets  of  the  bank  are  to  be  adminis- 
tered, but  the  liabilities  of  the  officers 
and  stockholders  are  to  be  ascertained 
and  enforced,  since  the  complaint  is 
capable  of  being  ainended  so  as  to  jus- 
tify that  relief  on  motion  of  any  cred- 
itor who  has  proved  his  claim.  Gager 
V.  Bank,   101  Wis.  593,  77  N.  W.  920. 

97.  Injunction  against  insolvent 
banks. — Barnum  v.  Bank  (Mich.),  1 
Har.  116;  Oakley  v.  Paterson  Bank.  2 
N.  J.  Eq.  173;  Hurlbut  v.  Kelley,  62 
Wis.  590,  22  N.  W.  852. 

Where  suit  is  brought  by  a  credit jr, 
in  behalf  of  himself  and  other  creditors 
of  an  insolvent  banking  corporation, 
to  close  up  its  business,  and  charge 
the  directors,  trustees,  or  other  offi- 
cers or  stockholders,  on  account  of 
their  liability  created  by  law,  an  in- 
junction should  issue  to  restrain 
further  action  by  the  bank,  and  a  re- 
ceiver be  appointed.  Hurlbut  v.  Kelly, 
62   Wis.   590,   22   N.   W.   852. 

Construction  of  New  Jersey  statute. 
--Act  February  1,  1838.  restricting  the 
circulation  and  discounts  of  the  Pater- 
son Bank  for  the  time  being,  did  not 
exempt  that  bank  from  operation  of 
Act  February  16,  1829,  authorizing  the 
chancellor,  on  insolvency  of  any  cor- 
poration, to  restrain  the  corporation 
from  further  exercising  its  charter 
powers  on  application  of  a  creditor  or 
stockholder  and  to  appoint  receivers. 
Oaklev  v.  Paterson  Bank.  2  N.  T.  Eq. 
173. 

Notice. — Except  where  the  applica- 
tion is  made  by  the  bank  commissioner 
showing  fraud,  insolvency,  or  violation 
of  charter,  notice  should  be  given  of 
an  application  for  injunction,  and  a 
case  made  that  would  warrant  the 
court  to  wind  up  the  affairs  of  the 
bank.  Barnum  v.  Bank  (Mich.),  1  Har. 
116. 

Act  April  5,  1849,  concerning  the 
proceedings    against    insolvent    banks. 


provides  that,  upon  the  hearing  of  the 
parties  on  such  short  notice  as  the 
judge  shall  appoint,  he  shall  determine 
whether  such  corporation  and  associa- 
tion be  clearly  solvent  or  otherwise, 
and  that  he  may  require  the  officer 
thereof  to  exhibit  any  and  all  of  his 
books,  papers,  accounts,  assets,  and 
effects,  and  be  examined  on  oath 
touching  the  same.  Held  that,  where 
it  is  adjudged  that  a  bank  is  insolvent, 
the  act  requires  rapid  and  summary 
measures  for  the  payment  of  billhold- 
ers,  depositors,  and  other  bank  cred- 
itors, and  that  all  idea  of  increasing 
the  assets  for  the  benelit  of  the  stock- 
holders to  the  injury,  by  delay  or 
otherwise  of  the  billholders  and  depos- 
itors, is  repudiated  by  the  act.  In  re 
Knickerbocker  Bank  (N.  Y.\  10  How. 
Prac.   341. 

Ex  parte  hearing. — Under  the  liank 
commissioners'  act  (St.  1877,  p.  7-14), 
as  amended  l)y  St.  1886-87,  p.  90,  au- 
thorizing the  attorney  general,  upon  re- 
ceiving a  report  from  the  bank  com- 
missioners that  it  is  unsafe  for  a  cer- 
tain bank  to  continue  business,  to 
bring  an  action  to  enjoin  it  from  do- 
ing any  further  business,  and  authoriz- 
ing the  court,  if,  after  a  hearing,  it 
deems  it  necessary,  to  issue  the  in- 
junction, and  to  direct  the  commission- 
ers to  take  such  proceedings  against 
it  as  may  be  decided  upon  by  its  cred- 
itors, the  court  has  no  power,  on  an 
ex  parte  hearing,  to  enjoin  the  bank 
from  doing  business,  and  appoint  a 
receiver  therefor.  Murray  t'.  American 
Surety  Co.,  17  C.  C.  A.  138,  70  Fed.  341; 
People's  Home  Sav.  Bank  v.  Su- 
perior Court.  103  Cal.  27,  36  Pac.   1015. 

Necessity  for  bond. — Plaintiff,  a 
stockholder  in  defendant  bank,  brought 
an  action  against  the  bank  under  2 
Rev.  St.,  p.  461,  regulating  "proceed- 
ings against  corporations  in  equity," 
and  with  the  consent  of  defendant, 
represented  by  counsel,  an  order  was 
made  by  the  supreme  court,  at  gen- 
eral term,  enjoining  defendant  from  the 
exercise  of  its  corporate  functions,  and 
appointing  a  receiver  of  its  property. 
Held,   that   the  provision  of   the    statute 


§  76  (2b) 


INSOLVKNCV    AND  DISSOLUTION. 


52  L 


court. ''^  but  a  prima  facie  case  of  insolvency  is  usually  sufficient.'"'  And 
even  though  the  bank  be  solvent,  yet  if  the  proceedings  were  instituted 
against  the  bank  for  refusal  to  pay  a  debt  from  it,  the  injunction  may  be 
continued  until  the  debt  is  paid,i  unless  the  bank  has  a  good  defense  on 
the  merits  to  such  demand.- 

The  bill  for  the  injunction  must  set  forth  the  necessity  for  its  issuance/^ 


regulating  the  giving  of  a  bond  on  the 
injunction  was  waived  by  consenting 
to  the  injunction  without  requiring  a 
bond.  Ferry  v.  Bank  (N.  Y.).  15  Hovv". 
Prac.  445. 

Plaintifif.  a  stockholder  in  a  l)ank, 
brought  an  action  against  the  bank, 
under  2  Rev.  St.,  p.  461,  regulating 
"proceedings  against  corporations  in 
equity,"'  and,  with  the  consent  of  de- 
fendant, represented  by  counsel,  an  or- 
der was  made  by  the  supreme  court, 
at  general  term,  enjoining  defendant 
from  the  exercise  of  the  corporate 
functions,  and  appointing  a  receiver  of 
its  property.  Afterwards  the  defend- 
ant, on  statements  claiming  that  it  was 
solvent,  asked  the  court  that  such  or- 
der lie  discharged,  and  that  leave  be 
granted  it  to  resume,  etc.,  on  the 
ground,  among  others,  that  the  injunc- 
tion was  irregular,  having  been  granted 
without  the  giving  of  a  bond  or  un- 
dertaking. Held,  that  the  question 
whether  a  bond  was  necessary  was  not 
properly  before  the  court,  as  the  dis- 
solution of  the  injunction  would  not 
restore  defendant  to  its  property  or 
corporate  rights  without  a  discharge 
of  the  receivership,  and  so  would  af- 
ford no  substantial  relief  to  the  par- 
ties. Ferry  v.  Bank  (N.  Y.),  15  How. 
Prac.  445. 

Under  the  California  statute  the  in- 
junction of  the  trial  court  is,  in  effect, 
'<>n  order  throwing  the  bank  into  liqui- 
dation, and  imtil  the  bank  goes  into 
liquidation  under  such  order  it  is  not 
protected  from  the  suits  of  creditors. 
Until  such  time  it  is  acting  largely  in- 
dependent of  the  courts  and  of  the 
l)ank  commissioners.  Lanz  v.  Fresno. 
etc.,  Sav.  Bank,  125  Cal.  456,  58 
Fac.   6.3. 

98.  Act  January  21,  1837.  providing 
that  an  injunction  may  be  issued  when 
any  l)anking  institution  shall  refuse 
to  pay  its  debts,  is  not  imperative,  but 
leaves  it  to  the  sound  discretion  of  the 
court  on  a  proper  case  being  inade. 
I'ariuun   v.    Bank    (Mich.).    1    Har.    116. 

99.  Upon  a  proceeding  by  the  at- 
trirnev  general,  under  the  statute,  for 
the  dissolution  of  a  lianking  corpora- 
tion, it  is  r)nly  necessary  for  him  to 
make   f)Ut   a   jirima   facie   case   of  insol- 


vency, to  justify  the  issuing  of  an  in- 
junction to  restrain  the  bank  from 
disposing  of  its  effects.  Bank  v.  At- 
torney General   (X.   Y.),  3   Wend.   588.. 

1.  Laws  1849,  c.  226.  §  S,  provides 
that,  in  proceedings  against  a  bank  to 
have  it  declared  insolvent  upon  a  re- 
fusal to  pay  a  debt  due  from  it,  if  the 
judge  on  the  hearing  determine  that 
the  association  is  clearly  solvent,  he 
shall,  notwithstanding,  continue  the 
temporary  injunction,  if  one  has  been 
granted,  until  the  demand  of  the  ap- 
plicant has  been  fully  paid,  unless  it 
shall  have  appeared  that  it  has  a  good 
defense  on  the  merits  to  such  demand. 
Held,  that  the  fact  that  the  demand 
was  for  the  payment  of  a  sum  of  money 
held  by  the  bank,  but  claimed  also  by 
third  persons,  showed  a  good  defense 
to  the  claim,  within  the  meaning  of 
the  statute,  and  that  the  title  to  the 
fund  could  not  be  tried  in  proceedings 
against  the  liank.  In  re  Mechanics'^ 
Bank    (N.   Y.),   5   Abb.   Prac.  374. 

2.  Proceedings  under  Laws  1849,  c. 
226,  §  7,  providing  that,  after  ten  days 
from  the  refusal  of  a  bank  to  pay  a 
debt  due  from  it.  an  application  may 
lie  made  declaring  it  insolvent,  etc.. 
must  be  dismissed,  wherever  the  exist- 
ence of  a  good  defense  to  the  demand 
of  the  creditor  of  the  liank  is  made  to 
appear.  In  re  ]\Iechanics'  Bank  (X. 
Y.),  5  Abb.   Prac.  374. 

3.  Form  and  contents  of  bill  for  in- 
junction.— Under  .Act  Jan.  21.  1837, 
providing  that  an  injunction  may  be 
issued  when  any  banking  institution 
shall  refuse  to  pay  its  debts,  where 
a  liiM  alleged  merely  a  demand  and  re- 
fusal by  the  bank  to  jiay  its  notes, 
and  contained  no  allegations  of  any 
impending  misciiief,  danger,  or  hazard 
fif  the  rights  of  the  complainants,  an 
injtmction  was  properly  r<'fu«e(l.  I'ar- 
num    r.    Bank    CMich."),'l    liar.    M ,; 

.Act  March  24.  IllO.i.  §  lo.  .^t.  I'.l03. 
p.  368.  c.  266,  as  amended  by  .Act 
March  20.  1905.  St.  1<»05,  p.  304.  c.  296, 
provides  that  if  the  bank  comiuission- 
ers  find  that  a  bank  is  (biing  liusiness 
in  an  unsafe  manner,  they  ■-.hall  direct 
the  discuntinuance  of  such  uns;ife 
jiracMci's  ;ind  if  the  b.ink  fails  to  olx-v, 
or    if    the    eoinmissioiuTs    un;iniinously 


522 


BANKS    AND    BANKING. 


§  76  (2d) 


and  it  can  not  be  discontinued  by  one  of  the  creditors,  because  it  is  in  be- 
half of  all.4 

§  76  (2c)  Summary  Remedies. — A  statute  allowing  summary  reme- 
dies against  an  insolvent  bank  to  wind  it  up  is  strictly  construed  and  will 
not  be  extended  beyond  its  plain  terms. "^ 

§  76  (2d)  Creditors'  Suits.— Where  a  bank  has  become  insolvent  and 
ceased  to  do  business,  one  or  more  of  the  creditors,  stockholders  and  de- 
positors, may  bring  a  creditors'  suit  for  themselves  and  all  others  against 
the  bank  and  its  president  for  a  settlement  of  its  affairs  and  a  distribution 
of  its  assets,  for  which  purpose  the  court  will  appoint  a  receiver. '"'     Other 


decide  it  is  unsafe  for  the  bank  to 
continue  business,  they  shall  take  con- 
trol of  its  effects  and  notify  the  at- 
torney general  who  shall  commence 
suit  to  dissolve  it.  In  a  suit  by  the 
attorney  general  tlie  complaint  alleged 
that  the  commissioners  unanimously 
found  that  the  bank  was  insolvent  and 
■unable  to  pay  its  obligations,  and 
further  alleged  the  fact  of  insolvency. 
Held,  that,  though  there  was  no  aver- 
ment in  the  language  of  the  statute 
that  it  was  unsafe  for  the  o.-.nk  to  con- 
tinue business,  the  act  contemplated 
that  it  was  unsafe  for  an  insolvent 
bank  to  continue  business,  and  an  al- 
legation of  insolvency  was  equivalent 
to  an  allegation  that  it  was  unsafe  for 
ii  to  continue  business.  People  z'. 
Bank,    154    Cal.    194,    97    Pac.    306. 

4.  Discontinuance. — A  suit  in  equity 
to  obtain  an  injunction  against  the  of- 
ficers of  an  insolvent  bank,  and  to 
place  its  assets  in  the  hands  of  re- 
ceiver, though  brought  by  one  cred- 
itor, is  a  proceeding  in  behalf  of  all 
of  the  creditors,  and  can  not,  there- 
fore, be  discontinued  by  the  plaintiff. 
Atlas  Bank  r-.  Nahant  Bank  (Mass.), 
23  Pick.  480. 

5.  Summary  proceedings  against 
banks. — Laws  1882,  c.  409,  subc.  6, 
§  12.5.  renders  stockholders  individu- 
ally liable  for  the  debts  of  banks  "is- 
suing bank  notes  or  any  kind  of  pa- 
per credits  to  circulate  as  money." 
Section  134  gives  stockholders  in  such 
a  bank,  on  showing  its  insolvency,  a 
summary  remedy,  by  which  they  may 
enjoin  it  from  continuing  business,  and 
obtain  the  appointment  of  a  receiver. 
A  stockholder  in  a  bank  which  had 
not  issued  any  notes  or  credits  for 
twenty-four  years  applied  for  the  ap- 
pointment of  a  receiver  und,er  said 
§  134,  and  shortly  thereafter  the  at- 
torney general  also  instituted  proceed- 
ings   under    Code    Civ.    Proc,    §§    1785, 


1788,  to  dissolve  the  bank,  and  to  have 
a  temporary  receiver  appointed.  Held 
that,  as  there  was  serious  doubt 
whether  the  summary  remedy  given 
stockholders  by  Laws  1882,  c.  409,  §  134, 
applied  to  banks  which  did  not  issue 
notes  or  credits,  the  stockholder's  ap- 
plication would  be  denied,  and  that  of 
the  attorney  general  granted.  Tefft  v. 
Xbrth  River  Bank,  26  Abb.  N.  C.  189, 
14  N.  Y.  S.  8. 

The  fact  that  the  bank,  in  common 
with  all  other  banking  institutions  or- 
ganized under  the  state  law,  has  power 
to  issue  bank  bills  to  circulate  as 
money,  does  not  render  it  amenable 
to  the  summary  remedy'  given  the 
stockholders  by  the  above  section  134, 
where  it  is  conceded  that  it  has  in 
fact  issued  no  such  bills  for  twenty- 
four  years.  Tefft  v.  North  River  Bank, 
26  Abb.  N.  C.  189,  14  N.  Y.  S.  8. 

6.  Creditors'  suits  against  insolvent 
banks. — Finney  v.  Bennett,  68  Va.  (27 
Gratt.)    365. 

Under  Gen.  St.  1894,  §§  5900-5903,  a 
creditor  of  a  corporation  having  bank- 
ing powers  may,  without  having  ob- 
tained a  judgment  at  law  against  it, 
maintain  an  action,  in  behalf  of  him- 
self and  all  other  creditors  w^ho  may 
choose  to  become  parties  thereto, 
against  the  corporation,  to  obtain  the 
relief  provided  by  said  sections.  Ameri- 
can Sav.,  etc.,  Ass'n  v.  Farmers',  etc.. 
State  Bank,  65  ?klinn.  139,  67  N.  W. 
800. 

The  bank  of  P.  was  ruined  by  the 
late  war;  and  no  officers  of  the  bank 
have  been  elected  nor  has  there  been 
a  meeting  of  the  board  since  April, 
1865,  and  it  has  done  no  business  since, 
and  in  fact  it  had  been  abandoned  and 
ceased  to  exist.  In  April,  1866,  H.  and 
]\I.  suing  as  well  for  themselves  as  for 
all  the  other  stockholders,  creditors 
and  depositors,  etc.,  filed  their  bill 
against  the  bank  and  the  president,  for 


§  76  (3) 


IXSOLVEXCY   AND   DISSOLUTION. 


523 


creditors  may.  however,  come  into  the  proceeding  hy  intervention." 

§  76  (3)  Parties. — Every  one  interested  in  the  tinal  closing  up  of  tlie 
business  of  the  bank  is  a  proper  party  to  a  creditor's  suit  for  that  purpose 
and  must  be  joined  with  the  other  creditors  in  the  suit.'^  But  after  com- 
missioners have  been  appointed  to  wind  up  the  affairs  of  a  bank,  stockhold- 
ers are  no  longer  necessary  parties  to  a  suit  affecting  their  holdings.^    Where 


a  settlement  of  its  affairs  and  a  dis- 
tribution of  its  assets.  The  court  ap- 
pointed a  receiver  in  the  case,  and  in 
June,  1866.  there  was  a  decree  for  an 
account.  Held,  it  is  a  proper  case  for 
a  creditor's  suit.  Finney  '■.  Bennett, 
68  Va.   (27  Gratt.)   365. 

7.  Intervention  in  suits  against  in- 
solvent banks. — \Miere  creditors  of  an 
insolvent  banking  corporation,  in  ac- 
cordance with  the  terms  of.  and  in  re- 
sponse to,  an  order  of  the  court,  made 
and  published  imder  the  provisions  of 
§  5911,  have  filed  their  claims  in  the 
shape  of  an  intervener's  com.plaint, 
made  under  oath,  they  become  parties 
to  the  proceeding  or  action,  and  no 
formal  order  of  court  making  them 
parties  is  required.  Palmer  z'.  Bank, 
65    Minn.    90,    67    N.   W.    893. 

When  a  creditor  has  been  allowed, 
upon  application,  and  by  order  of  the 
court,  to  intervene  and  file  a  com- 
plaint, and  to  bring  stockholders  into 
an  action  instituted  under  the  pro- 
visions of  §§  5900,  5901,  relating  to  in- 
solvent banking  corporations,  and  they 
have  been  brought  in,  there  is  but  one 
action  or  proceeding  pending;  and  as 
the  insolvent  corporation  is  already  a 
defendant  therein,  it  need  not  be 
named  as  a  defendant  in  said  com- 
plaint, nor  again  lie  seived  with  a  sum- 
mons. Palmer  v.  Bank,  65  Minn.  90, 
67  N.  W.  893. 

8.  Parties  to  suits  and  proceedings 
against  insolvent  banks. — Under  Rev. 
St.,  §§  3218-3226,  allowing  a  creditor  to 
bring  an  action  in  behalf  of  all  the 
creditors  to  close  up  an  insolvent 
bank's  business,  and  enforce  against  its 
officials  and  stockholders  liabilities 
created  by  statute,  or  growing  out  of 
unlawful  declaration  of  dividends,  the 
creditor  instituting  the  suit  need  not 
have  been  a  creditor  at  the  time  unlaw- 
ful dividends  were  declared.  Hurlbut 
V.    Kelly,    62   Wis.   590,   22   N.   W.   852. 

Stockholders. — Where  a  creditor  of 
an  insolvent  banking  corporation  in- 
stitutes an  action  against  it  under  the 
provisions  of  Gen.  St.  1894,  c.  76, 
§§  5900,  5901,  and  secures  the  appoint- 
ment   of   a    receiver,    but    fails    to    take 


any  steps  towards  bringing  the  stock- 
holders of  the  insolvent  into  the  ac- 
tion, any  other  creditor  may,  upon  an 
ex  parte  application  to  the  court, 
showing  the  necessity  of  enforcing  the 
statutory  liability  of  such  stockhold- 
ers, obtain  an  order  allowing  him,  in 
his  own  behalf,  and  in  behalf  of  all 
other  creditors,  to  intervene  and  file  a 
complaint  making  the  stockholders 
parties  defendant,  and  to  bring  them 
into  the  action  for  the  purpose  of  as- 
certaining and  determining  their  statu- 
tory liability  in  the  same  proceeding. 
Palmer  r.  Bank,  65  Minn.  90,  67  X.  W. 
893. 

Amendment  to  bring  in  parties. — 
Where  a  creditor  of  an  insolvent  liank- 
ing  corporation  institutes  an  action 
against  it  under  Gen.  vSt.  1894,  c.  76, 
§§  5900,  5901,  and  secures  the  appoint- 
ment of  a  receiver,  but  fails  to  take 
steps  towards  bringing  the  stockhold- 
ers into  the  action,  and  another  cred- 
itor is  permitted  to  file  a  complaint 
which  lirings  the  stockholders  in,  the 
original  plaintiff  can  not  then  be  al- 
lowed to  amend  his  complaint  to  the 
same  end.  Palmer  v.  Bank,  65  Minn. 
90.   67   N.  W.   893. 

Harmless  error. — In  the  interlocu- 
tory decree  made  upon  default  in  a 
]rroceeding  instituted  by  a  creditor  of 
an  insolvent  banking  corporation  im- 
dcr  Gen.  St.  1894.  c.  76,  §§  5900,  5901. 
the  receiver  appointed  therein  was  di- 
rected to  proceed  by  suit  against  the 
stockholders  of  the  bank  to  ascertain 
r.nd  determine  their  statutory  liability. 
Thereafter,  by  a  cross  bill,  the  stock- 
holders of  the  company  were  made 
parties  to  the  action.  Held,  that  the 
error  in  the  interlocutory  decree  was 
thereby  rendered  harmless.  Palmer  7'. 
Bank,  65   Minn.  90.  67  N.  W.  89.1. 

9.  Where  a  bank  has  forfeited  its 
rliarter,  and  commissioners  appointed 
to  wind  up  its  affairs,  in  a  bill  in  equity 
against  them  liy  a  creditor  of  a  stock- 
holder to  subject  (he  hitter's  slock  to 
payment  of  the  del)t,  the  stockholders 
are  not  necessary  parties,  their  interest 
being  fully  represented  by  thc^  com- 
missifiners.  Dana  r.  Brown  (Ky.).  1 
J.  J.    Marsh.   304. 


524 


BANKS    AND    BANKING. 


76  C4) 


a  forthcoming  bond  is  given  by  a  bank  to  secure  a  return  of  its  assets  pend- 
inii  a  receivership,  any  creditor  may  sue  on  the  bond  without  joining  the 
others. ^'^' 

Relators. — By  statute  in  some  states  an  injunction  against  the  trans- 
action of  any  further  business  by  an  insoh'ent  bank  is  brought  on  the  re- 
lation of  the  attorney  general. ^^ 

§  76  (4)  Evidence.^- — Insolvency  of  a  bank  to  justify  the  issuance  of 
an  injunction  may  be  shown  by  presumptive  evidence, ^-'^  by  general  reputa- 
tion^^  or  by  the  fact  of  its  refusal  to  pay.^^  But  the  mere  fact  that  a  bank 
has  suspended  specie  payment  is  not  proof  of  its  insolvency. ^'^ 

The  sufficiency  of  evidence  to  prove  insolvency  depends  largely  on  the 
facts  in  each  case.^'^ 


10.  Where,  pending  an  application 
for  the  appointment  of  a  receiver,  a 
bond  conditioned  for  the  payment  of 
all  claims  against  the  bank  is  given  to 
procure  the  return  of  the  assets  of  the 
bank,  under  provisions  of  Comp.  St. 
1901,  c.  8,  §  35,  a  creditor  can  maintain 
an  action  on  such  bond,  though  there 
are  also  other  unpaid  creditors  of  the 
bank  not  parties  to  the  action.  Rawson 
V.  Taylor,  69   Neb.  473,  95   N.  W.   1033. 

11.  Relators. — People  v.  Bank,  154 
Cal.    194,    97    Pac.    306. 

The  state  is  a  proper  party  plaintiff 
to  the  action  w^hich  Act  March  26,  1907 
(St.  1907,  p.  232,  c.  119),  §  10,  provides 
the  attorney  general  shall  bring  to 
prohibit  doing  of  business  by  a  bank- 
ing corporation  reported  vmsafe  by  the 
bank  examiner  and  commissioners. 
Sparks  V.  State  Bank,  etc.,  Co.  (Nev.), 
103  Pac.  406,  407,  rehearing  denied  in 
lOo  Pac.  567. 

12.  What  constitutes  insolvency,  see 
post,  "Action  by  Depositors  or  Others 
for   Deposits,"   §    154. 

13.  Presumption  of  insolvency. — In 
a  proceeding  against  a  bank  by  the  at- 
torney general  under  the  "Act  to  pre- 
vent fraudulent  bankruptcies  by  incor- 
porated companies,  and  to  facilitate 
proceedings  against  them,"  if  in  the 
bill  filed  by  way  of  information  facts 
are  stated,  verified  by  afiidavit  express- 
ing belief  in  the  truth  of  those  facts, 
and  they  are  of  such  a  character  as  to 
raise  a  fair  presumption  that  the  bank 
proceeded  against  is  insolvent,  and  are 
not  contradicted  or  explained  by  the 
bank,  on  a  motion  for  the  appointment 
of  a  receiver  after  due  notice,  the  fact 
of  insolvency  will  be  considered  as 
proved  within  the  meaning  of  the  act. 
Bank  v.  Attorney  General  (N.  Y.),  3 
Wend.   588. 


14.  General  reputation. — In  a  pro- 
ceeding against  a  bank  by  the  attorney 
general  under  the  "Act  to  prevent 
fraudulent  bankruptcies,"  etc.,  the  oath 
of  the  attorney  general,  with  the  affi- 
davit of  the  comptroller,  that  the  bank 
was  generally  reputed  to  be  insolvent,, 
and  to  have  suspended  payment  for  ten 
days,  and  of  their  belief  to  the  same 
efifect,  were  held  to  be  sufficient  evi- 
dence of  insolvency  to  authorize  an 
injunction;  the  suspension  not  being 
denied  by  the  bank,  and  the  insolvency 
having  been  presented  to  the  court  by 
the  affidavits  of  creditors  in  a  sepa- 
rate proceeding.  Bank  v.  Attorney 
General    (N.   Y.),   3   Wend.    588. 

15.  Refusal  to  pay  evidence  of  in- 
solvency.— Laws  1849,  c.  226,  §  7,  pro- 
vides that,  after  ten  days  from  the 
time  of  refusal  of  a  bank  to  pay  a 
debt  due  from  it,  an  application  can 
be  made  for  an  order  declaring  it  in- 
solvent. Held,  that  the  fact  of  refusal 
to  pay,  continued  after  the  ten  days,, 
is  not  conclusive  evidence  of  insol- 
vency, but  only  shifts  the  burden  of 
proof  from  the  applicant  to  the  bank. 
In  re  Mechanics'  Bank  (N.  Y.),  5 
Abb.    Prac.   374. 

16.  Suspension  of  specie  payment. — 
Where  a  suspension  of  specie  payment 
by  banks  is  general,  and  nearly  univer- 
sal, the  mere  fact  that  a  bank  has  sus- 
pended its  circulation  is  not  proof  of 
its  insolvency.  Livingston  7'.  Bank  (N. 
Y.),    5    Abb.    Prac.    338,   26    Barb.    304. 

17.  Sufficiency  of  evidence  of  in- 
solvency.— Evidence  held  to  sustain  a 
finding  that  a  bank  was  insolvent  within 
the  banking  Act  of  1903  (St.  1903,  c. 
266),  authorizing  the  people  on  the  re- 
lation of  the  attorney  general  to  pro- 
ceed in  equity  to  have  a  bank  declared 
insolvent.  People  v.  Bank,  159  Cal.  65„ 
112   Pac.   866. 


§  77  (i^aa) 


IXSOLVEXCY   AND   DISSOLUTION. 


525 


§  76  (5)  Accounting. — In  Louisiana  oppositions  to  the  final  account 
of  administration  by  the  Hquidators  of  a  bank  are  Hmited  to  their  actions 
as  Hquidators.  and  their  acts  as  directors  of  the  bank  previous  to  the  passing 
of  the  bank  into  hquidation.  if  subject  to  attack  by  the  stockholders,  should 
be  attacked  in  some  other  proceeding. ^^ 

§  76  (6)  Reference. — In  proceedings  under  Laws  of  New  York  1849, 
c.  226.  relative  to  closing  up  the  affairs  of  insolvent  banks,  it  is  not  neces- 
sary that  the  referee  should  ascertain  preliminarily  whether  the  officers  were 
not  liable  under  Laws  1852,  c.  7\,  §  4.^^ 

§  76  (7)  Costs. — In  an  action  by  stockholders  to  make  the  directors 
liable,  and  to  wind  up  the  affairs  of  the  bank,  each  stockholder  should  con- 
tribute to  pay  the  costs  in  proportion  to  the  amount  of  stock  held  by  him.-'^ 

§  76  (8)  Supplying  Vacancies  in  Board  of  Directors. — Under  the 
California  statute  where  vacancies  occur  in  the  board  of  directors  after  the 
commencement  of  the  action  to  wind  up  the  affairs  of  the  bank,  the  court 
on  application  may  fill  the  vacancy.-^ 

§  77.  Assets  and  Receivers  on  Insolvency--— §  77  (|)  Assets— 
§  77   (ia)  What  Constitutes— §  77   (^aa)   In  General.— The  capital 

stock-'^  and  assets  of  an  insolvent  banking  corporation  constitute  from  the 


18.  Accounting  by  liquidators  of  bank. 

— In    re    Liquidation,    118    La.    664,    43 
So.  270. 

19.  Reference. — In  re  Empire  City 
Bank,  6  Abb.  Prac.  38.5. 

Act  1849,  relating  to  insolvent  bank- 
ins:  associations,  authorizes  the  re- 
ceiver to  ascertain  the  debts  and  lia- 
bilities of  the  bank,  and  report  the 
same  to  a  justice  of  the  supreme  court, 
who  is  then  to  refer  the  matter  to  a 
referee,  "with  directions,  after  giving 
notice  to  all  persons  concerned,  to 
apportion  the  debts  and  liabilities 
*  *  *  among  the  stockholders  ratably," 
and  then  report  his  proceedings  to  said 
justice.  Held,  that  the  referee,  in  ap- 
portioning such  debts  and  liabilities, 
is  not  bound  by  the  report  of  the  re- 
ceiver. In  re  Empire  City  Bank,  8 
Abb.   Prac.   102,   18   X.   Y.   199. 

20.  Costs. — Dunn  7'.  Kyle,  77  Ky.  Cl4 
Bush)  i:i4. 

21.  Notice  of  application. — In  pro- 
ceedings \()\  llic  li(|ut(lalion  of  a  bank, 
notice  of  an  application  to  the  court 
to  appoint  a  director  to  take  place  of 
one  who  has  resigned  pendente  lite 
need  not  be  given  a  person  claiming 
to  have  been  elected  to  such  office, 
where  he  has  given  no  notice  to  the 
court  of  his  incumbency,  the  statute 
not    requiring   any    notice.      Braslan    v. 


Superior    Court,    124    Cal.    123,    56    Pac. 
792. 

Burden  of  proof. — On  application, 
in  proceedings  to  liquidate  a  bank,  for 
the  appointment  of  a  director  to  take 
the  place  of  one  who  has  resigned,  the 
liurden  is  on  the  one  claiming  to  have 
been  elected  to  the  office  to  show  such 
election,  and  where  there  is  no  evidence 
of,  but  merely  an  answer  to  the  peti- 
tion alleging,  such  appointment,  the 
court  is  authorized  to  appoint  another. 
Braslan  v.  Superior  Court,  124  Cal.  123, 
.'iC    Puc.   792. 

22.  Assets  and  receivers  on  insol- 
vency.— Liability  of  stockholders  fcr 
del)ts  and  acts  of  bank,  see  ante,  "Xa- 
lure  and  Extent,"  §  47;_  ".-\ctions  and 
Proceedings   to   Enforce,"   §   49. 

Right  of  receiver  to  set  aside  mort- 
gage illegally  executed  by  cashier,  sec 
]iost,  "Bills,  Xotes  and  Securities,"  § 
1 09. 

In  dissolution  proceedings,  see  |)Ost, 
"Liability  of  Bank  to  Drawer  for  Re- 
fusal to  Pay,"  §  143;  "Payment  of  Lost 
or    Stolen    Paper,"    ;^    I  H>. 

23.  Capital  stock  a  trust  fund  for 
all  creditors. —  I'>ank  Comm'r.s  f  Se- 
curity Trust  Co.,  7,'>  X.  H.  107.  71  Atl. 
377;  In  re  Columbian  I'.aiik,  M7  I'a. 
422,  23   Atl.   62(5. 

"  Tiic    capital    stock    «>f    an    incorpo- 


526 


BANKS    AND    BANKING. 


77   (,>2aa> 


date  of  insolvency  a  trust  fund  for  the  payment  of  the  debts  of  the  bank, 
in  the  order  prescribed  by  law,  or  otherwise  pro  rata,-^  and  may  be  followed 


rated  bank  is  deemed  a  trust  fund  for 
all  the  debts  of  the  corporation;  and 
no  stockholder  can  entitle  himself  to 
any  dividend  or  share  of  such  capital 
stock,  until  all  the  debts  are  paid,  and 
if  the  capital  stock  should  be  divided, 
leaving  any  debts  unpaid,  every  stock- 
holder, receiving  his  share  of  the  capi- 
tal stock,  would,  in  equity,  be  held 
liable  pro  rata  to  contribute  to  the 
discharge  of  such  debts  out  of  the  fund 
in  his  own  hands.'  In  conformity  with 
this  is  the  doctrine  held  by  this  court 
in  Mumma  v.  Potomac  Co.  (U.  S.),  8 
Pet.  281,  8  L.  Ed.  945."  Curran  v.  Ar- 
kansas (U.  S.),  15  How.  304,  14  L. 
Ed.    705. 

No  power  to  increase  or  diminish  it 
belongs  inherently  to  the  bank.  It  is  a 
trust  fund,  held  by  the  corporation  as 
a  trustee.  It  is  subject  to  taxation 
like  other  property.  If  the  bank  fail, 
equity  may  lay  hold  of  it,  administer 
it,  pay  the  debts,  and  give  the 
residuum,  if  there  be  any,  to  the  stock- 
holders. If  the  corporation  be  dis- 
solved by  judgment  of  law,  equity  may 
interpose  and  perform  the  same  func- 
tions. Farrington  v.  Tennessee.  95  U. 
S.  679,  24  L.  Ed.  558. 

24.  Assets  are  trust  fund  for  cred- 
itors.— Curran  v.  Arkansas  (U.  S.),  15 
How.  304,  14  L.  Ed.  705;  Baring  v.  Dab- 
ney  (U.  S.),  19  Wall.  ],  22  L.  Ed.  90; 
Nevitt  V.  Bank  (Miss.),  6  Smedes  & 
M.  513;  State  v.  Commercial  State 
Bank,  28  Neb.  677.  44  N.  W.  998;  Ex 
parte  Sav.  Bank,  73  S.  C.  393,  53  S.  E. 
014.  5  L.  R.  A.,  N.  S.,  520n;  State  v. 
Bank,  64  Tenn.  (5  Baxt.)  101;  Marr  v. 
Bank,  44  Tenn.  (4  Coldw.)  471;  Com- 
fort V.  Patterson,  70  Tenn.  (2  Lea) 
670;  Leipold  v.  Maroney,  75  Tenn.  (7 
Lea)  128;  Hewitt  v.  Trader^'  Bank, 
18  Wash.  326.  51  Pac.  468;  Lamb  v. 
Laughlin.    25   W.   Va.    300. 

After  the  insolvency  of  a  bank,  and 
the  nonuser  of  its  franchises,  the  offi- 
cers or  agents  of  the  corporation,  in 
whose  hands  the  assets  remain,  hold 
them  as  quasi  trustees  for  the  cred- 
itors, and,  as  such,  may  defend  the 
right  of  title  thereto,  of  all  the  cred- 
itors of  cestui  que  trusts;  otherwise, 
they  would,  after  a  payment  to  a 
single  creditor  of  all  the  assets,  be  with- 
out remedy.  State  v.  Bank,  64  Tenn. 
(5  Baxt.)  101;  Marr  v.  Bank,  44  Tenn. 
(4  Coldw.)  471;  Smith  v.  St.  Louis, 
etc.,  Life  Ins.  Co.,  2  Tenn.  Ch.  727; 
Moseby  v.  Williamson,  52  Tenn.  (5 
Heisk.)    278;   Comfort  v.   Patterson,   70 


Tenn.  (2  Lea)  670;  Lamb  v.  Pannell, 
28  W.  Va.  663,  approving  Lamb  v. 
Cecil,  28  W.  Va.  653. 

The  assets  of  an  insolvent  banking 
corporation  are  a  fund  for  the  payment 
of  its  debts.  If  they  are  held  by  the 
corporation  itself,  and  so  invested  as 
to  be  subject  to  legal  process,  they 
may  be  levied  on  by  such  process.  If 
they  have  been  distributed  among 
stockholders,  or  gone  into  the  hands 
of  others  than  bona  fide  creditors  or 
purchasers,  leaving  debts  of  the  cor- 
poration unpaid,  such  holders  take  the 
property  charged  with  the  trust  in 
favor  of  creditors,  which  a  court  of 
equity  will  enforce,  and  compel  the 
application  of  the  property  to  the 
satisfaction  of  their  debts.  Curran  v. 
Arkansas  (U.  S.),  15  How.  304,  14  L- 
Ed.  705. 

Notes  to  bank. — The  superintendent 
of  banking,  upon  finding  a  bank  re- 
duced in  its  capital,  required  the  de- 
ficit to  be  promptly  supplied,  and,  upon 
negotiation,  accepted  a  note  from  one 
of  the  directors  as  sufficient  therefor. 
Upon  the  subsequent  failure  of  the 
bank,  the  receiver  brought  suit  on  said 
note.  Held,  that  the  note  was  an  asset 
of  the  bank,  and  not  mere  collateral, 
and  was  therefore  primarily  available 
to  creditors.  Sickles  v.  Herold,  11 
Misc.  Rep.  583,  32  N.  Y.  S.  1083,  66 
N.  Y.  St.  Rep.  337. 

Defendant  and  another  made  a  note 
payable  to  a  bank  under  an  agreement 
that,  if  defendant  would  assign  to  the 
bank  a  judgment  owned  by  him,  he 
should  not  be  liable  on  the  note.  On 
the  death  of  the  other  maker,  the  note 
was  proven  as  a  claim  against  his  es- 
tate, and  defendant  assigned,  in  ac- 
cordance with  the  agreement,  the  iudg- 
ment  held  by  him  to  the  bank.  Held, 
that  the  note  ceased  to  be  an  asset  of 
the  bank.  First  Nat.  Bank  7'.  New.  146 
Ind.    411,    45    N.    E.    597. 

Note  given  in  payment  for  stock. — 
Where  one  selling  the  charter  of  a 
bank  agrees,  after  its  reorganization, 
to  surrender  a  note  for  part  of  the 
purchase  price,  and  accept  stock  for 
his  debt,  whereupon  the  note  is  can- 
celed without  payment,  and  the  amount 
thereof,  together  with  the  amount  paid 
in  cash,  cliarged  to  the  bank,  the  note 
so  transferred  is  assets  of  the  bank, 
and  liable  for  its  debts,  and  not  sub- 
ject to  cancellation:  and  the  stockhold- 
ers for  whose  benefits  the  charter  was 
purchased    are    pro    rata    liable    for    its 


§  77  (/.aa) 


IXSOLVEXCV   AND  DISSOLUTION. 


■■>27 


wherever  traceable.-^  Accordingly,  it  is  held  that  a  conveyance  thereof  is 
fraudulent  and  void.-*^  It  should  be  observed,  however,  that  the  assets 
would  only  be  the  balance  of  debt  due  from  the  debtor,  at  the  date  of  in- 
solvency, after  deducting  any  just  credit  or  setoff.  It  is  only  what  remains 
after  a  just  settlement  of  mutual  debts,  which  becomes  a  trust  fund  for  dis- 
tribution.-^ The  fact  that  the  state  is  sole  stockholder  in  a  banking  corpora- 


satisfaction.     Moses  c'.  Ocoee  Bank,  09 
Tenn.    (1    Lea)    398. 

Discounts. — Where  one  rediscounted 
at  a  certain  bank  tlie  notes  of  another, 
who  conveyed  property  to  the  one  so 
discounting-  in  satisfaction  of  the  debt, 
the  receiver  of  the  bank  is  not  thereby 
entitled  to  such  property  as  purchased 
with  money  of  the  bank.  Peters  v. 
Bain,  133  U.  S.  670,  33  L.  Ed.  696,  10 
S.    Ct.    354. 

Dividends  paid  out  of  capital  stock. 
— The  receiver  of  an  insolvent  bank 
may  recover  of  stockholders  the  divi- 
dends paid  them  out  of  the  capital 
stock  of  the  bank.  Corn  v.  Skillern, 
75    Ark.    148,    87    S.    W.    142. 

Claim  against  third  person. — A  de- 
mand held  by  an  insolvent  bank 
against  a  third  person  is  an  asset  of  the 
bank  only  in  so  far  as  there  may  be 
a  balance  due  upon  the  same  after 
deducting  whatever  the  bank  may  be 
owing  the  person  against  whom  the 
demand  is  held.  State  v.  Brobston,  94 
Ga.  95,  21  S.  E.  146,  47  Am.  St.  Rep. 
138. 

Money  paid  depositor  by  insolvent 
bank. — Money  paid  by  a  bank  to  a  de- 
positor in  the  usual  course  of  business 
while  the  bank  is  a  going  concern,  al- 
though in  fact  insolvent,  is  not  im- 
pressed with  a  trust  in  favor  of  other 
creditors,  where  the  depositor  did  not 
know  the  fact  of  insolvency,  and  was 
assured  by  the  officers  that  the  bank 
had  money  to  pay  all  depositors,  even 
though  he  was  induced  to  withdraw 
the  money  by  rumors  of  its  embarrass- 
ment. Livingstain  v.  Columbian,  etc.. 
Trust  Co.,  81  S.  C.  244,  62  S.  E.  249,  22 
L.   R.   A.,    N.   S.,   445. 

Case  contra. — In  Catlin  v.  Eagle 
Bank.  6  Conn.  233,  it  was  held,  that 
the  mere  insolvency  of  a  bank  incor- 
porated with  the  usual  powers  of  such 
an  institution  does  not  convert  its 
effects  into  a  trust  fund  for  its  cred- 
itors-, therefore  when  the  Eagle  Bank 
"f  New  Haven  became  insolvent,  and 
the  directors  afterwards  mortgaged  its 
real  estate,  assigned  sundry  promis- 
sory notes  and  paid  a  sum  of  money 
to  the  Savings  Bank  in  security  and 
payment  of  a  debt  due  from  the 
former     to     the     latter     institution     for 


inoneys  deposited,  it  was  held  on  a  bill 
in  chancery  brought  by  another  cred- 
itor of  the  Eagle  Bank  to  have  these 
conveyances  set  aside  and  all  the  funds 
of  the  bank  distributed  ratably  among 
its  creditors,  that  such  bill  could  not 
be   sustained. 

25.  Following  trust  fund. — Johnston 
V.  Lafiin,  103  U.  S.  800,  26  L.  Ed.  .')32; 
State  V.  Bank,  64  Tenn.   (5  Baxt.)   101. 

If  such  assets  "  'have  been  distributed 
among  stockholders,  or  given  in  the 
hands  of  other  than  bona  fide  cred'tors 
or  purchasers,  leaving  debts  of  the 
corporation  unpaid,  such  holder.:  take 
the  property  clothed  with  the  trust  in 
favor  of  the  corporation  creoitori-;  and 
a  court  of  equity  wiil  follow  the  prop- 
erty and  enforce  and  compel  its  ap- 
plication to  the  corporation  debts.' 
Citing  2  Story's  Eq.  Jur.,  §  1252;  Cur- 
ran  V.  Arkansas  (U.  S.),  15  How.  304, 
14  L.  Ed.  705;  Mumma  v.  Potomac  Co. 
(U.  S.),  8  Pet.  281,  8  L.  Ed.  945;  3 
Mason  308;  Miss.  R.  319;  Hightower 
V.  Thornton,  8  Ga.  486;  3  Edwards  C. 
R.,  affirmed  in  9  Paige  152."  State  v. 
Bank,  64  Tenn.   (5   Baxt.)   101. 

Notes  and  mortgages. — Where  a 
bank  has  used  general  assets,  consist- 
ing of  notes  and  mortgages,  held  by 
it  as  a  trust  for  general  creditors,  as 
a  consideration  for  the  purchase  of 
lands  deeded  in  trust  for  depositors 
in  the  bank,  and  the  amount  used  is 
definite  and  certain,  and  the  bank  be- 
comes insolvent,  equity  will  follow  the 
notes  and  mortgages,  and  require  the 
amount  to  be  treated  as  a  trust  fund 
for  the  general  creditors.  vSadler's  Ap- 
peal, 87  Pa.   154. 

26.  Conveyance  of  bank  assets 
fraudulent. — Swepson  v.  Exchange, 
etc..    I'.ank,   77  Tenn.   (9  Lea)   713. 

The  rule  applies  to  the  property  of 
a  foreign  corporation  doing  l)usincss 
in  the  state.  Leipold  v.  Marony,  75 
Tenn.   (7  Lea)   128. 

27.  Moseby  v.  Williamson,  52  Tenn. 
(5  Heisk.)  278;  Comfort  v.  Patterson. 
70  Tenn.   ('2  Lea)   070. 

It  has  been  held,  "in  cases  of  cross 
indebtedness,  the  assets  of  the  l)ank 
consist  only  of  the  balance  of  (he  ac- 
counts. That  is,  all  the  fund  which 
the     bank     itself    would     have     had     to 


528 


BANKS    AND    BANKING. 


§  77  (>^aa) 


tion  does  not  prevent  the  assets  from  becoming,  in  case  of  insolvency,  a 
trust  fund  for  the  creditors. -^  And  property  conveyed  away  under  an  in- 
vaHd  assignment  for  creditors  is  an  asset  and  may  be  recovered  by  the  re- 
ceiver.-^ But  the  receiver  can  not  seize  and  hold  as  a  part  of  the  assets  of 
the  bank,  the  individual  property  of  one  of  its  ofificers.^'^ 

Drafts  given  a  depositor  to  keep  him  from  withdrawing  his  money 
from  a  bank  in  failing  circumstances  is  not  a  trust  fund  in  favor  of  other 
creditors.'^i 


satisfy  its  creditors,  in  case  no  re- 
ceiver had  been  appointed."  Nix  v. 
Ellis,  118  Ga.  345,  45"S.  E.  404,  98  Am. 
St.   Rep.   111. 

28.  Effect  where  state  owns  bank. — 
State  V.   Bank,  64  Tenn.    (5   Baxt.)    1. 

"That  a  state,  by  becoming  in- 
terested with  others  in  a  banking  cor- 
poration, or  by  owning  all  the  capital 
stock,  does  not  impart  to  that  corpora- 
tion any  of  its  privileges  or  preroga- 
tives, that  it  lays  down  its  sovereignty, 
so  far  as  respects  the  transactions  of 
the  corporation,  and  exercises  no 
power  or  privilege  in  respect  to  those 
transactions  not  derived  from  the  char- 
ter, has  been  repeatedly  affirmed  by 
this  court,  in  the  Bank  :'.  Planters' 
Bank  (U.  S.),  9  Wheat.  904,  6  L.  Ed. 
244;  Bank  v.  Wistar  (U.  S.),  3  Pet. 
431,  7  L.  Ed.  731;  Briscoe  v.  Bank  (U. 
S.),  11  Pet.  257,  324,  9  L.  Ed.  709; 
Darrington  v.  Bank  (U.  S.),  13  How. 
12,  14  L.  Ed.  30.  And  our  opinion  is, 
that  the  fact  that  the  capital  stock  of 
this  corporation  came  from  the  state 
which  was  solely  interested  in  the 
profits  of  the  business,  does  not  af- 
fect the  complainant's  right,  as  a  cred- 
itor, to  be  paid  out  of  its  property;  a 
right  which,  as  we  have  seen,  follows 
the  fund  into  the  hands  of  every  per- 
son, save  a  bona  fide  creditor  or  pur- 
chaser, and  which  a  court  of  equity  is 
bound  to  enforce  by  its  decree  against 
any  party  except  such  a  creditor  or 
purchaser  capable  by  law  of  being 
i^rought  within  its  jurisdiction."  Cur- 
ran  V.  Arkansas  (U.  S.),  15  How.  304, 
14   L.    Ed.    705. 

"So  far,  therefore,  as  the  property 
of  this  bank  has  become  vested  in  the 
state  or  gone  to  its  use,  it  is  so  vested 
and  used,  charged  with  a  trust  in  favor 
of  this  complainant,  as  an  unpaid  cred- 
itor, unless  there  is  something  in  the 
character  of  the  parties,  or  the  con- 
sideration upon  which,  or  the  opera- 
tion of  the  laws  by  force  of  which,  it 
has  been  transferred,  taking  the  case 
out  of  the  principles  above  laid  down." 
Curran  v.  Arkansas  (U.  S.),  15  How. 
304,    14    L.    Ed.    705. 


Where  the  state  was  the  sole  stock- 
holder, the  bank,  as  a  corporation, 
could  not  complain  of  any  course  of 
action  which  the  legislature  saw  fit  to 
adopt  or  prescribe.  In  relation  to  the 
state,  it  was  alter  et  idem.  In  this 
respect  its  position  was  very  different 
from  that  of  private  corporations.  The 
action  of  the  legislature  could  only  be 
questioned  by  the  creditors  of  the 
bank.  As  to  the  bank  itself,  the  wishes 
of  the  legislature  were  commands. 
Baring  v.  Dabney  (U.  S.),  19  Wall.  1, 
22   L.    Ed.   90. 

29.  Receivers  appointed  to  receive, 
take,  and  hold  all  the  property  and  ef- 
fects conveyed  by  an  insolvent  bank 
acquire  all  the  rights  of  the  assignee; 
accordingly  if  the  bank  has  made  any 
preferred  assignments  in  contravention 
of  the  Act  of  1833,  while  insolvent  or 
in  contemplation  of  insolvency,  such 
transfer  being  void  except  as  to  bona 
fide  purchasers  without  notice,  the  ef- 
fects so  fraudulently  transferred  be- 
come a  trust  fund  in  the  hands  of  the 
transferees,  which  may  be  recovered 
hy  the  receivers.  Plill  v.  Western,  etc., 
R.  Co.,  SG  Ga.  284,  12  S.  E.  635. 

30.  Individual  property  of  officers. — 
Where  a  receiver  of  an  insolvent  bank, 
under  an  order  of  the  court  to  open 
a  safety-deposit  vault  belonging  to  the 
president  of  the  bank,  and  get  bank 
property,  seized  individual  property  of 
the  president,  the  bank  did  not  ac- 
quire an  equitable  lien  thereon,  good 
against  a  subsequent  transfer  of  the 
property  by  the  president.  University 
V.  Globe  Sav.  Bank,  185  111.  514.  57  N. 
E.    417. 

When  lands  conveyed  by  the  presi- 
dent of  an  insolvent  bank  had  been 
purchased  with  bank  funds,  which  he 
had  misappropriated,  but  which  were 
afterwards  replaced  by  him,  the  bank 
has  no  claim  upon  such  property.  Uni- 
versitv  v.  Globe  Sav.  Bank,  185  111.  514, 
57  N.   E.  417. 

31.  Petitioner  made  a  check  on  a 
bank  for  the  amount  of  his  deposit 
therein,       and      received      payment      in 


§  77  fK-cc) 


IX SOLVE XCY    AND   DISSOLUTION. 


;2o 


Secret  agreements  that  assets  carried  as  such  and  on  whicli  creditors 
have  a  right  to  rely  sliall  not  he  so  treated  or  regarded  are  of  no  avail.^- 

§  77  (ibb)  Surplus  from  Sale  of  Collateral.— The  well-settled 
general  rule  that  property  pledged  as  security  for  a  deht  can  not  be  ap- 
propriated by  the  pledgee  to  other  debts,  applies  to  securities  pledged  as  col- 
lateral for  a  loan  from  a  bank.  Accordingly,  upon  the  insolvency  of  the 
pledgor  bank  the  pledgee  has  no  right  to  hold  the  ]:)roperty  for  any  other 
debt  than  that  for  which  it  was  pledged.  Accordingly  the  surplus  must  be 
returned  to  the  receiver  for  the  benefit  of  general  creditors.^^ 

§  77  (ice)  Unpaid  Subscriptions  and  Statutory  and  Other  Lia- 
bilities of  Stockholders. ^Undoubtedly  unpaid  subscriptions  to  stock  are 
assets,  and  have  frequently  been  treated  by  courts  of  equity  as  if  impressed 
with  a  trust  sub  modo.  in  the  sense  that  neither  the  stockholders  nor  the 
corporation  can  misappropriate  such  subscriptions  so  far  as  creditors  are 
concerned.  Creditors  have  the  same  right  to  look  to  them  as  to  anything 
else,  and  the  same  right  to  insist  upon  their  payment  as  upon  the  payment 
of  other  debt  due  to  the  corporation.  The  shareholder  can  not  transfer  his 
shares  when  the  corporation  is  failing,  or  manipulate  a  release  therefrom, 
for  the  purpose  of  escaping  his  liability.  And  the  principle  is  the  same 
where  the  shares  are  paid  up,  but  the  shareholder  is  responsible  in  respect 
thereof  to  an  equal  additional  amount. ^^     A  recovery  against  bank  stock- 


money  in  the  usual  course  of  business. 
He  was  induced  to  withdraw  his  de- 
posit by  rumors  that  the  bank  was  in 
ciifficuky.  and  the  knowledije  that  there 
liad  been  a  run  on  it  for  the  previous 
two  days.  He  inquired  of  the  officers, 
however,  and  was  told  that  the  bank 
was  solvent,  and  would  pay  all  checks 
as  presented.  After  receiving  and 
countin.Gf  the  money,  believinj?  such 
statements  in  good  faith,  he  returned 
it,  and  took  drafts  for  the  amount. 
The  bank  was  in  fact  insolvent,  and 
was  declared  insolvent  the  next  day. 
The  drafts  were  not  paid  because  the 
bank  on  which  they  were  drawn  ap- 
plied the  fund  to  the  Dayment  of  notes 
of  the  insolvent  bank,  which  it  held, 
3nd  wiiich  were  secured  l)v  collateral. 
Held,  that  the  money  which  petitioner 
received  was  not  impressed  with  any 
trust  in  favor  of  other  creditors,  and 
that  he  stood  in  the  same  position  as 
any  purchaser  of  the  drafts  for  cash, 
and  was  entitled  in  equity  to  l)c  sub- 
rotratcd  to  the  rij?hts  of  the  liank  on 
which  thev  were  dr^wn  in  the  col- 
l.Ttf-ral  which  it  held.  T,ivinestait\  7'. 
Columbipn,  etc..  Trust  Cr.,,  81  S.  C. 
244.  r,2  S.  K.  249,  22  L.  R.  A..  N.  S., 
44.'). 

1    B   &  B— 34 


32.  Validity  of  agreements  as  to 
what  constitutes  assets. — W'liere  a 
liank  transfers  to  a  director  shares  of 
its  stock  it  had  taken  in  payment  of 
a  del)t.  but  which  it  was  not  permitted 
by  law  to  retain,  and  receives  in  ex- 
changre  the  director's  note,  which  is  re- 
newed, and  held  by  the  bank  as  an  as- 
set for  several  years,  upon  the  failure 
of  the  l)ank  the  maker  of  the  note  can 
not  nlcad  a  secret  agreement  with  an- 
other director  vv'hich  nullifies  the  note. 
Atwater  v.  Smith,  7.".  ATinn.  507.  7fi  N. 
W.  253 

33.  Surplus  from  sale  of  collateral. 
— Tn  a  receivershii)  i)r<)ceeiliii.L;  to  wind 
up  the  aflfairs  of  an  insolvent  bank, 
evidence  considered,  and  held  to  sup- 
r>ort  a  finding-  that  collateral,  given  Ily 
the  insolvent  bank  to  a  correspondent 
bank  as  security  for  loans,  coveroil 
such  loans  only,  and  did  not  apply  to 
subsequentlv  accruinq;  indebtedness. 
Brown  v.  Sheldon  State  Bank,  139 
Towa   S3.   117   X.   W.  2S0. 

34.  Unoaid  subscriptions  and  statu- 
tory liability  of  stockholders  as  assets. 
—Peters  7'.  Bain.  133  U.  S.  r,70,  33  I,. 
F,d.    flOfi,    10    S.    Ct.    354. 

C)w  the  question  whether  the  statu- 
tory   liability   of   stockholders    is    or   is 


530 


BANKS    AND    BANKING. 


§  77  (/.b) 


holders  on  the  ground  of  illegal  payment  of  dividends,  the  publishing  of 
false  reports,  the  unlawful  permitting  of  excessive  loans,  or  the  acceptance 
of  deposits  while  insolvent  would  be  an  asset  of  the  bank,  and  the  action 
therefor  should  be  brought  by  the  receiver. ^^ 

§  77  (l^d)  Credits. — Credits  allowed  a  stockholder  on  his  note  given 
in  payment  of  the  stock  issued  to  him  by  the  bank  may  be  recovered  by  the 
receiver  for  the  benefit  of  creditors.-"^*^ 

§  77  (iee)  County  Money  Wrongfully  in  Bank. — Where  a  county 
treasurer  deposited  county  funds  in  a  bank  and  failed  to  withdraw  the  ex- 
cess of  the  deposit  over  the  amount  secured  by  the  indemnity  bond,  required 
by  Rev.  Codes,  §  3003,  no  one  would  be  heard  to  say  that  the  funds  wrong- 
fully in  the  bank  should  not  be  withdrawn  on  its  insolvency.'^' 

§  77  ( gb)  Distribution  of  Assets. — General  Rules  for  Distribution 
of  the  Assets. — An  examination  of  the  authorities  indicates  that  the  rule 
applicable  to  the  distribution  of  an  estate  assigned  for  the  benefit  of  the 
creditors  of  an  insolvent  govern  in  the  distribution  of  the  estate  of  an  insol- 
vent corporation  in  the  hands  of  a  receiver. ^^ 


not  a  corporate  asset,  there  is  consid- 
erable conflict.  In  some  jurisdictions 
it  is  not  so  regarded.  McLaughlin  t'. 
Kimball,  20  Utah  254,  58  Pac.  685.  77 
Am.  St.  Rep.  908. 

But  in  others  a  contrary  rule  has  ap- 
parently been  adopted.  Wilson  v. 
Book,  13  Wash.  676,  43  Pac.  939;  Wat- 
terson  t'.  Masterson,  15  Wash.  511,  46 
Pac.  1041;  Gushing  v.  Perot.  175  Pa. 
66,  34  Atl.  477,  34  L.  R.  A.  737,  52  Am. 
St.  Rep.  835. 

Rule  in  Georgia. — Under  the  Act  of 
1894  (Civil  Code,  §  1890),  the  individual 
liability  of  the  stockholder  under  a 
charter  im^posing  such  liability  is  de- 
clared to  be  an  asset  of  the  corpora- 
tion, subject  to  be  enforced  by  the  as- 
signee, receiver,  or  other  officer,  hav- 
ing the  legal  right  to  collect,  marshal, 
and  distribute  the  assets  of  the  in- 
solvent corporation.  Wheatley  v. 
Glover,   125   Ga.   710.   54   S.   E.   626. 

Where  an  act  incorporating  a  bank 
provides  that  each  stockholder  shall 
be  individually  liable  for  the  ultimate 
payment  of  the  debts  of  said  corpora- 
tion to  an  amount  equal  to  the  amount 
of  stock  held  by  him,  such  liability, 
since  the  passage  of  the  act  of  1894, 
may  be  enforced  by  the  receiver  of  an 
insolvent  corporation,  notwithstanding 
the  act  was  passed  subsequently  to  the 
act  of  incorporation  which  fixed  the 
liability.  The  provision  of  the  subse- 
quent act  that  such  liability  shall  be 
considered  as  an  asset  of  the  bank  and 
enforced   by   the    receiver,    is    remedial 


in  its  nature,  does  not  affect  any 
vested  right  of  the  creditor,  and  is  ap- 
plicable in  this  case.  Moore  v.  Rio- 
ley,   106  Ga.   556,   32   S.   E.   647. 

Rule  in  Kentucky. — The  double  lia- 
bility of  stockholders  in  an  insolvent 
hanking  corporation  to  creditors,  im- 
posed by  Ky.  St.  1903.  §  547,  does  not 
constitute  assets  of  the  corporation 
subject  to  administration  by  a  re- 
ceiver, under  §  616.  Conway  v.  Owens- 
boro  Sav.,  etc..  Trust  Co.,  165  Fed. 
822. 

35.  McTamany  v.  Day  (Idaho),  128 
Pac.  563. 

36.  Credits  allowed  a  stockholder. — 
Fitzpatrick  v.  McGregor,  133  Ga.  332, 
65   S.   E.   859. 

Interest  on  credits. — In  an  action  to 
hold  defendant,  a  stockholder  of  the 
bank  of  which  plaintiff  was  receiver, 
liable,  for  the  benefit  of  creditors  of 
the  bank  for  the  amount  of  a  credit 
allowed  defendant  by  the  bank  while 
insolvent,  on  a  note  held  against  him 
by  the  bank  in  consideration  of  a  sale 
by  him  to  the  bank  of  his  shares  of 
stock,  the  receiver  may  recover  in- 
terest on  the  credit  received  at  the 
same  rate  the  note  bore.  Fitzpatrick 
V.  McGregor,  133  Ga.  332,  65  S.  E.  859. 

37.  County  money  wrongfully  in 
bank. — Yellowstone  County  r.  First, 
etc.,   Sav.    Bank    (Mont.).   128   Pac.   596. 

38.  Rules  for  distribution  of  assets. 
— Citizens"  Bank  v.  State.  8  Kan.  App. 
468,  54  Pac.  510. 


§    77    {  Ice)  INSOLVENCY  AND  DISSOLUTION.  531 

Compelling  Election  between  Securities. — In  the  distribution  of  the 
estate  of  an  insolvent  banking  corporation  in  the  hands  of  a  receiver,  the 
assets  of  the  estate  should  be  distributed  upon  equitable  principles.  Ac- 
cordingly, where  there  are  two  funds  to  which  a  creditor  can  resort,  and 
other  creditors  are  limited  to  one  of  them,  the  former  will  be  compelled  to 
exhaust  the  fund  upon  which  he  has  an  exclusive  lien,  and  will  be  permitted 
to  resort  to  the  other  for  the  deficiency  only.-''^ 

Right  of  Stockholders  to  Interpose  Objections. — In  distributing  the 
assets  between  creditors  and  stockholders,  the  stockholders  can  insist  on 
excluding  the  creditors  as  to  all  demands  against  the  corporation  which  are 
barred  by  the  statute  of  limitations.'*'' 

Costs  of  Administration. — The  general  rule  that  the  expense  incident 
to  administering  a  special  fund  is  a  charge  upon  it.  applies  in  the  case  of 
funds  created  by  banks  for  the  special  benefit  of  a  class  of  their  creditors.-*^ 

§  77  (1)  Appointment  and  Removal  of  Receiver — §  77  (la) 
Purpose  of  Appointment. — The  appointment  of  a  receiver  is  only  a  pro- 
visional appointment  for  the  more  speedy  getting  in  of  the  estate  or  assets, 
in  relation  to  which  the  appointment  extends,  and  for  the  better  securing 
the  same  for  their  safety  and  the  benefit  of  those  who  may  be  entitled 
thereto.-* - 

§  77  (lb)  Selection,  Qualification  and  Compensation — §  77  (laa) 
In  General. — A  person  appointed  as  a  receiver  of  a  bank  should  be  an  im- 
partial and  disinterested  person. "*•'* 

§  77  (Ibb)  Oath. — A  statute  requiring  a  receiver  of  an  insolvent  bank 
to  take  an  oath  of  office  is  merely  directory,  and  the  omission  to  take  it 
before  the  commencement  of  a  suit  does  not  incapacitate  him  to  sue.'*'* 

§  77  (Ice)  Bond. — The  rules  as  to  the  liability  of  sureties  on  the 
official  bond  of  a  receiver  are  in  no  wise  dififerent  from  the  rules  applving 
to  other  official  bonds. •*-'^ 

39.  Compelling  election  between  tive  participant  in  such  transaction.s, 
securities. — Citizens'  Bank  v.  State,  s  was  cosfnizant  of  and  consented  to 
Kan.  App.  468,  54  Pac.  510.  them,   should   not   be  appointed  or  con- 

40.  Johnston  v.  Talley,  f)0  Ga.  540.  tinned    as    its    receiver.      Coy   v.    Title, 

41.  Costs    of    administering     fund. —       etc..  Trust  Co.,  1.")7  Fed.  T'.it. 

Bank    Comm'rs   v.    Security   Trust    Co.,  Bank   officer  should  not  be  receiver. 

75    X.    H.    107.    71    Atl.    :')77.  — On   a  i)rocee(lin>4-  a.irainst   a   hank    for 

42.  Purpose  of  appointment  of  re-  the  appointment  of  a  receiver  imdcr 
ceivers. — l^afayette  I'ank  x'.  Bucking-  the  statute,  on  account  of  insolvency, 
ham,    12    O.    St.    419.  an   ofricer  of  the  hank   is   not   a  proper 

43.  Qualification  of  receivers. — Cun-  person  to  l)e  appointed  receiver.  .At- 
ningham  v.  United  States  Nat.  Bank,  torney  General  v.  I'.aiik  (N.  Y.),  1 
6  Okl.   184,  51   Pac.   119.  Paitre  5!)(; 

Where  a  larpc  part  of  the  assets  of  44.  Oath  of  receiver. — Dayton  v. 
an  insolvent  banking  corporation  con-  P.orst,  ;?n  X.  \.  Super.  Ct.  11."). 
sist.s  of  obligations  of  subsidiary  com-  45.  Liabilities  of  sureties  on  receiv- 
panies  and  firms  formed  by  its  officers  er's  bond. —  Tlic  legislature  liaving  al- 
and largely  financed  by  it.  an  officer  lowed  the  assignees  apiminted  to  wind 
and  director  who,   although   not   an   ac-  u()    the   afTairs   of   the    Bank   of    Illinois 


532 


BANKS  AND  BANKING. 


§  77  (Iff) 


§  77  (Idd)  Number  of  Receivers. — The  number  of  receivers  to  be 
appointed  is  usually  left  to  the  discretion  of  the  court.'*'^ 

§  77  (lee)  Compensation. — A  receiver  of  an  insolvent  bank  may  be 
allowed  compensation  for  his  services,  to  be  fixed  by  considering  the  re?- 
sponsibility  assumed,  the  skill  and  labor  expended,  and  the  rate  of  pay 
usually  allowed  for  similar  work ;  and  not  to  be  determined  by  a  percentage 
on  collections  and  for  commissions  for  services  rendered  by  him  as  broker 
in  raising  money  for  mortgage  debtors  to  the  bank  to  enable  them  to  dis- 
charge their  debts.'*' 

§  77  (Iff)  Temporary  Receivers. — By  statute  in  New  York,  in  an 
action  brought  by  the  attorney  general  to  dissolve  a  banking  corporation 
because  of  its  insolvency,  the  court  may  appoint  a  temporary  receiver  until 
final  judgment  is  entered,  with  power  to  collect  and  receive  the  debts,  de- 
mands and  other  property  of  the  corporation,  to  preserve  the  property  and 
the  proceeds  of  the  debts  and  demands  collected,  and  to  sell  or  otherwise 
dispose  of  the  property  as  directed  by  the  court.  And  this  receiver  is  at 
all  times  entitled  to  the  advice  and  protection  of  the  court.-* ^ 


four  years  to  discharge  their  duties, 
requiring  a  bond  for  the  faithful  per- 
formance thereof,  it  was  held  that  a 
subsequent  extension  of  the  term  for 
two  years,  without  the  assent  of  the 
sureties,  operated  as  a  discharge  of 
the  sureties  as  to  all  acts  of  a  principal 
done  after  the  expiration  of  the  four 
years.  But  the  sureties  were  liable  for 
moneys  received  by  the  principal,  and 
not  paid  over  as  required  by  law,  dur- 
ing the  said  four  years.  Thomas  v. 
Lagow,  43  111.  134;  Thomas  v.  Bow- 
man,  44   111.   499. 

Though  Comp.  St.  1901.  c.  8,  §  35, 
provides  for  the  delivery  of  the  assets 
of  an  insolvent  bank  to  the  officers  or 
owners  furnishing  a  bond,  a  delivery 
to  one  of  several  parties  entitled 
thereto  under  the  statute  does  not  re- 
lieve the  sureties  on  the  bond  from  lia- 
bility, where  by  their  acts  they  assent 
to  such  deliverv.  Taylor  t'.  Weckerly, 
G9    Xeb.    739,    9G    N.    W.    618. 

46.  Number  of  receivers  to  be  ap- 
pointed.— By  §  62,  Rev.  St.  of  Maine, 
1841,  the  number  of  receivers  to  be  ap- 
pointed by  the  court,  to  take  posses- 
sion of  the  property  of  a  bank  on  ap- 
plication of  the  bank  commissioners, 
in  case  they  deem  the  bank  unsafe,  is 
left  to  the  discretion  of  the  court,  or 
of  the  justice  by  whom  the  appoint- 
ment is  made.  Wiswell  v.  Starr,  50 
Me.  381. 

47.  Compensation  of  receivers. — A 
S^ratuity  paid  by  him  to  a  policeman 
for   assisting   in    keeping   order    during 


dividend  payments  will  be  disallowed. 
Special  Bank  Comm'rs  v.  Franklin  Sav. 
Inst.,    11    R.    I.    5.37. 

Partial  compensation. — In  a  suit  by 
the  state  to  dissolve  a  bank  under  Rev. 
St.  1899,  §  3101,  a  stockholder  was  ap- 
pointed receiver.  It  appeared  that 
there  was  an  understanding  between 
the  receiver  and  other  stockholders 
and  creditors  that,  when  the  work  was 
done  and  the  afifairs  of  the  bank  com- 
pleted, the  court  should  fix  a  reason- 
able compensation,  depending  on  the 
outcome  of  the  affairs  of  the  bank. 
Held,  that  the  understanding  did  not 
preclude  the  court  from  allowing  par- 
tial compensation  from  time  to  time 
for  services  rendered  and  less  than  the 
value  thereof,  but  the  court  could  not 
fix  the  entire  compensation  until  all 
the  services  had  been  performed  and 
his  final  report  approved.  Riordan  v. 
Horton    (Wyo.),    94    Pac.    448. 

48.  Temporary  receivers  under  New 
York  statute. — People  v.  St.  Nicholas 
Bank.  76  Hun  522.  28  N.  Y.  S.  114,  58 
X.  Y.   St.   Rep.  843. 

Notice  of  an  application  for  appoint- 
ment of  temporary  receivers  of  a  bank, 
as  authorized  by  Laws  1902,  p.  113,  c. 
60,  §  1.  having  been  improperly  dis- 
pensed with,  it  was  proper  for  the 
judge  who  granted  the  order  of  ap- 
pointment, to  thereafter  grant  an  or- 
der, on  application  by  the  bank,  to 
show  cause  why  the  order  appointing 
receivers  should  not  be  set  aside,  and 
thus   give    the   bank   an   opportunity   to 


(Ic 


IXSOLVEXCV    AND   DISSOLUTION'. 


553 


§  77  (Ic)  Grounds  for  Appointment  of  Receiver. — While  the  ap- 
pointment of  a  receiver  for  a  bank  is  in  the  sound  discretion  of  the  court 
or  judge,-*'^  a  receiver  should  be  appointed  where  a  banking  corporation  has 
ceased  to  exercise  its  corporate  functions, s*^*  or  where  its  capital  has  be- 
come seriously  impaired, ^^  even  though  the  bank  makes  an  assignment  for 


be  heard  to  set  aside  the  order  im- 
providently  granted  without  notice, 
and  the  effect  of  the  order  to  show 
cause  was  not  to  review  the  former 
order,  but  rather  to  grant  a  hearing 
on  the  propriety  of  appointing  receiv- 
ers at  all,  and  to  advance  the  hearing 
on  the  original  order  to  show  cause 
why  the  receivers  should  not  be  made 
permanent,  embraced  in  the  order  for 
temporary  receivers.  People  v.  Orien- 
tal Bank,  124  App.  Div.  741,  109  N.  Y. 
S.  oOl). 

Order  of  court. — An  order  to 
show  cause  why  a  bank  should 
not  be  dissolved,  and  appoint- 
ing temporary  receiver,  may  be 
granted  on  application  of  the  directors, 
though  the  superintendent  of  banks 
has  previously  taken  possession  of  the 
bank's  property  and  business  under 
Laws  1802,  c.  689,  §  17  (Banking  Act), 
as  such  statute  authorizes  him  only  to 
hold  the  property,  and  not  to  manage 
the  bank's  concerns,  or  act  for  it  in 
any  way.  Williams,  J.,  dissenting.  In 
re  Murray  Hill  Bank,  9  App.  Div.  546, 
41    N.    Y.    S.    914. 

In  an  action  commenced  by  the  at- 
torney general  for  the  dissolution  of  a 
banking  corporation  on  the  ground  of 
insolvency,  an  ordei  appointing  tem- 
porary receivers  was  reversed  on  ap- 
peal because  receivers  had  previously 
l)cen  appointed  for  the  property  of  the 
bank,  by  another  branch  of  the  court, 
in  a  pending  action  commenced  for  its 
voluntary  dissolution  by  the  directors. 
Afterwards  a  judgment  of  dissolution 
was  entered  in  the  action  by  the  peo- 
ple. Held,  that  an  order  of  the  court 
in  which  rhe  action  for  voluntary  dis- 
solution was  pending,  thereafter  made 
on  motion  of  its  receivers,  requiring 
the  former  receivers  of  the  other  court 
to  turn  over  the  property  remaining  in 
their  hands  to  its  own  receivers,  was 
without  jurisdiction.  In  re  Murray 
Hill  Bank.  14  App.  Div.  .318,  43  N.  Y. 
S.  836,  affirmed  in  1.53  N.  Y.  199,  47  N. 
E.  298. 

49.  Grounds  for  appointment  of  re- 
ceiver.—  In  an  action  by  the  attorney 
general  against  a  bank  under  the  gen- 
<Tal  statutes  of  Minnesota  for  the  ap- 
pointment of  a  receiver,  the  rule  is  as 
follrjws:     Before   the   formal   detcriniii.-i- 


tion  of  any  issue  upon  tlie  plaintiff's 
allegations  essential  to  sustain  the  ac- 
tion, or  upon  facts  alleged  in  defense, 
it  is  discretionary  with  the  court  to  ap- 
point a  receiver  or  not,  yet  before  such 
formal  determination,  if  it  is  admitted 
that  the  facts  which  give  the  right  of 
action  exist,  and  there  is  no  defense, 
it  will  be  an  abuse  of  discretion  to  re- 
fuse to  appoint  a  receiver.  State  c'. 
Bank,  55  Minn.  1.39.  56  X.  W.  575. 

50.  Failure  to  exercise  corporate 
functions. — A  creditors'  bill,  brought 
l)y  certain  creditors  of  a  bank  which 
had  never  been  organized  under  the 
terms  of  its  charter,  against  the  execu- 
trix of  S.,  the  deceased  owner,  who  had 
operated  the  bank  under  its  corporate 
name,  and  certain  creditors,  who,  after 
the  death  of  S.,  had  obtained  judg- 
ments against  the  bank  and  were  seek- 
ing to  enforce  them,  prayed  to  have 
the  judgments  in  favor  of  the  defend- 
ants declared  void,  and  the  supposed 
assets  of  the  bank  declared  a  part  of 
the  estate  of  S.,  and  for  the  taking  of 
an  account,  etc.  It  appeared  that,  if 
the  bank  ever  had  any  corporate  ex- 
istence as  to  those  who  had  done  busi- 
ness with  it  in  good  faith,  it  had  vol- 
untarily dissolved;  that  no  one  claimed 
the  stock;  and  that  all  the  supposed 
officers  disclaimed  their  offices.  Held 
a  proper  case  for  the  appointment  of 
a  receiver.  Dobson  7'.  Simmonlon,  78 
N.   C.  63. 

51.  Impairment  of  capital  as  ground 
for  appointment  of  receiver. —  In  a  pro- 
ceeding l)y  the  connnonwealtii  for  the 
appointment  of  a  receiver  for  a  l)ank 
on  the  ground  of  impairment  of  its 
capital,  insolvency,  and  violation  of 
the  law,  evidence  held  to  show  that  the 
bank's  capital  was  seriously  impaired 
when  the  proceeding  was  begun.  Ini- 
perial  Bank  ?'.  Conmionwi  altli,  l  H)  Ky. 
210,   130   S.  W.   1074. 

A  l)ill  filed  by  a  stockholder  on  l)c- 
lialf  of  herself'  and  others  who  may 
choose  to  join,  against  a  banking  cor- 
poration, which  charges  (hat  (he  as- 
sets thereof  have  been  wrongfully  con- 
verted, can  be  traced  by  a  receiver,  if 
appointed,  and  will  l>e  dissip.'ited  if  a 
receiver  is  not  appointed,  and  which 
likewise  charges,  among  oilier  tilings, 
tli;it    tlie    principal    of    tlie    olTcnding   of- 


534 


BANKS   AND   BANKING. 


§  y^  (ic) 


creditors  after  the  commencement  of  the  action  for  the  appointment  of  the 
receiver.^-  But  no  appointment  should  be  made  unless  it  appears  that  there 
is  danger  of  loss  of  or  injury  to  the  property.^"  Moreover,  to  justify 
the  appointment  of  a  receiver  of  a  bank,  the  facts  on  which  such  relief  is 
granted  must  be  proved  by  competent  legal  evidence.^-* 


ficers  of  such  corporation  has  been 
discharged  in  bankruptcy,  that  the 
complainant  stockholder  has  been  paid 
nothing  on  account  of  her  investment, 
and  that  no  account  has  been  made 
with  her  or  her  fellow  stockholders, 
makes  a  proper  case  for  the  appoint- 
ment of  a  receiver  for  such  corpora- 
tion. Chandler  Mortg.  Co.  v.  Loring, 
113   111.   App.  423. 

52.  Effect  of  assignment  by  bank. — 
After  the  institution  by  a  creditor  of 
an  action  against  an  insolvent  banking 
corporation,  under  Gen.  St.  1878,  c.  76, 
his  right  to  the  appointment  of  a  re- 
ceiver and  to  an  injunction  under  such 
chapter  can  not  be  affected  by  an  as- 
signment made  by  the  corporation  un- 
der the  insolvent  law  of  1881.  State 
V.  Bank,  55  Minn.  139,  56  N.  W.  575. 

53.  In  a  proceeding  by  the  attorney 
general  for  appointment  of  a  receiver 
of  a  bank,  it  was  alleged  that  the  pres- 
ident had  obtained  proxies  from  eighty 
per  cent  of  the  stockholders,  couched 
in  such  terms  as  to  be  dangerous  to 
the  health  of  the  bank.  It  was  also 
charged  that  the  promotion  expenses 
were  charged  to  the  bank  without  be- 
ing allowed  by  its  board  of  directors, 
and  that  a  note  for  such  expense, 
signed  by  the  president  and  certain 
other  individuals,  should  be  paid.  It 
was  also  contended  that  L.,  was  chosen 
president  and  director,  though  he  was 
not  the  bona  fide  owner  of  two  shares 
of  stock,  as  required  by  Rev.  St.  1899, 
§  1281.  Held,  that  all  of  such  objec- 
tions were  curable  by  proceedings 
which  the  secretary  of  state  was  au- 
thorized to  take  by  §  1305,  and  were 
therefore  not  grounds  for  the  appoint- 
ment of  a  receiver  to  wind  up  the  af- 
fairs of  the  bank.  Hadley  c'.  People's 
United  States  Bank,  197  Mo.  574,  94  S. 
W.  953. 

Issuance  of  fraud  order  against  bank. 
— Where  a  bank  was  incorporated  for 
the  purpose  primarily  of  doing  a  mail 
order  banking  business,  the  issuance 
of  a  fraud  order  against  it  by  the  post 
office  department,  in  the  absence  of  the 
facts  on  which  such  order  was  based, 
could  not  operate  as  a  ground  for  the 
appointment  of  the  receiver  of  the 
bank,  nor  as  proof  in  itself  that  the 
bank  was  organized  for  the  purpose  of 


furthering  a  fraudulent  scheme.  Had- 
ley V.  People's  United  States  Bank,  ]97 
Mo.  574,  94  S.  W.  953. 

Failure  of  stock  books  to  reveal 
stockholders. — Where  subscriptions  to 
the  stock  of  a  bank  were  received  in 
small  amounts  by  its  president,  and  in 
some  instances  not  fully  paid  for,  the 
fact  that  the  stock  was  carried  in  the 
name  of  the  president,  and  that  the 
stockbooks  did  not  show  the  names 
of  the  actual  stockholders,  was  not 
ground  for  the  appointment  of  a  re- 
ceiver of  the  bank;  a  bona  fide  effort 
having  been  made  to  remedv  such  de- 
fect on  demand  of  the  secretary  of 
state.  Hadley  v.  People's  United 
States  Bank,  197  Mo.  574,  94  S.  W.  953. 

Unlawful  purchase  of  stock. — Where 
a  bank  purchased  certain  stock  in  other 
corporations  in  violation  of  Rev.  St. 
1899,  §  1276,  which  was  also  a  violation 
of  its  charter,  but  a  demand  of  the  sec- 
retary of  state  that  the  stock  be  im- 
mediately disposed  of  was  promptly 
complied  with,  such  misconduct  was 
not  ground  for  the  appointment  of  a 
receiver  to  wind  up  the  bank's  affairs, 
as  provided  by  §§  1305,  1307.  Hadley 
V.  People's  United  States  Bank.  197 
:\Io.   574,  94  S.  W.  953. 

Election  of  dummy  directors. — Un- 
der Rev.  St.  1899,  §§  1305,  1307,  grant- 
ing to  the  secretary  of  state  visitorial 
powers  over  banks,  to  be  exercised 
and  enforced  by  the  attorney  general, 
the  fact  that  a  bank  after  its  organiza- 
tion wrongfully  elected  certain  direct- 
ors who  were  mere  dummies  to  the 
president,  who  was  its  chief  promoter, 
and  thereafter  loaned  large  sums  to 
corporations  controlled  by  such  presi- 
dent, in  violation  of  representations 
made  by  him,  which  defects  were  cor- 
rected on  objections  by  the  secretary 
of  state,  constituted  no  ground  for  the 
interposition  of  equity  and  the  appoint- 
ment of  a  receiver  to  wind  up  its  affairs 
on  a  petition  filed  by  the  attorney  gen- 
eral on  behalf  of  the  state.  Hadley  v. 
People's  United  Slates  Bank.  197  Mo. 
574,  94   S.   W.   953. 

54.  Showing  as  to  grounds  for  ap- 
pointment of  receiver. — This  require- 
ment is  not  met  by  a  verified  complaint 
alone,  though  the  allegations  are  posi- 
tively made,   and  especially  where   the 


§  77  (laa) 


INSOLVEXCV  AND  DISSOLUTION. 


535 


§  77  (Id)  Proceedings  for  Appointment  of  Receiver— §  77  (laa) 
In  General. — The  statutory  provisions  prescribing  proceedings  for  the 
appointment  of  a  receiver  must  be  complied  with.^^  By  the  statute  of  Cal- 
ifornia, the  court  is  authorized  to  appoint  a  receiver  as  a  part  of  the  relief 
sought  in  the  action  to  enjoin  the  bank  from  the  transaction  of  any  fur- 
ther business,  without  any  allegation  of  the  necessity  therefor  in  the  com- 
plaint. The  appointment  of  a  receiver  for  the  purpose  of  liquidation  is  a 
part  of  the  method  provided  by  the  act  for  the  winding  up  of  the  affairs  of 
the  corporation  and  under  the  terms  of  the  act  necessarily  follows  the  ad- 
judication of  the  insolvency.^*' 


allegations  of  the  complaint  are  on  in- 
formation and  belief,  or  such  as  can 
only  come  from  information.  People 
V.  Oriental  Bank,  124  App.  Div.  741, 
109  X.  Y.   S.  509. 

55.  Ex  parte  petition. — Neither  Code 
Civ.  Proc,  §§  141,  142,  providing  for 
the  appointment  of  a  receiver  in  cer- 
tain cases  "by  the  court  in  which  the 
action  is  pending;"'  nor  Gen.  St.,  §  258, 
providing  that,  when  suits  are  brought 
against  stockholders,  "courts  of  equitj' 
shall  have  full  power,  on  good  cause 
shown,  to  dissolve  the  corporation  and 
appoint  a  receiver,"  authorize  the  ap- 
pointment of  a  receiver  on  an  ex  parte 
petition  by  an  insolvent  bank,  in  which 
it  asks  to  be  dissolved,  if  at  the  time 
no  action  is  pending.  Jones  v.  Bank, 
10  Colo.  464,  17  Pac.  272. 

Notice. — Under  Kurd's  Rev.  St.  1905, 
c.  16a,  §  11,  which  provides  that  the 
auditor  of  state  shall  give  thirty  day's 
notice  to  the  president  of  a  bank  to 
iiave  the  impairment  of  its  capital  stock 
made  good  by  the  stockholders,  or  a 
reduction  of  the  stock,  and  that,  should 
neither  be  done,  the  auditor  shall  sue 
the  stockholders,  or,  if  the  conditions 
so  warrant,  have  a  receiver  appfMntcd 
to  wind  up  the  affairs  of  the  bank,  a 
I)ill  by  the  auditor  for  the  appointment 
of  a  receiver  is  insufficient  if  it  does 
not  allege  that  the  auditor  gave  the 
proper  thirty  days'  notice,  since  the 
giving  of  the  notice  is  a  condition  pre- 
cedent to  both  the  suit  against  the 
stockholders  and  the  bill  for  a  receiver. 
People  z'.  Milwaukee  Ave.  State  Bank, 
2.'!0   111.   .505,   82   N.   R.  85.'!. 

Rule  in  Louisiana. — On  the  same 
day  that  a  holder  of  a  bank  Inll  filed 
in  court  a  notice  f)f  its  protest  for  non- 
payment a  sequestration  was  ordered 
to  issue,  a  receiver  was  appointed,  and 
the  l)ank  was  ordered  to  show  cause 
within  ten  days  why  the  said  note  was 
not  paid  on  presentation.  Held,  that 
under  Act  March  15,  1855,  as  amended 
by  .Act   March   18,   1858,   it  was  errone- 


ous to  make  the  order  for  a  sequestra- 
tion and  appointment  of  a  receiver 
without  a  previous  judgment  by  de- 
fault. Huntington  v.  Crescent  City 
Bank,  18  La.   .Ann.  350. 

Rule  in  Kansas. — Under  chapter  43, 
Laws  1891,  requiring  the  bank  com- 
missioner to  "take  charge"  of  the  as- 
sets and  aftairs  of  an  insolvent  bank, 
it  was  necessary  for  the  bank  commis- 
sioner to  take  actual  personal  posses- 
sion of  the  property  and  assets,  as  a 
condition  precedent  to  the  institution 
of  an  action  by  the  attorney  general 
for  the  appointment  of  a  receiver  for 
such  bank;  and  the  property  of  an  in- 
solvent bank,  prior  to  the  taking  of 
such  actual  possession  by  the  commis- 
sioner, was  subject  to  seizure  b}'  at- 
tachment or  other  legal  process  at  the 
suit  of  its  creditors.  Dodson  :•.  Wiglit- 
man,  6  Kan.  App.  S'i5,  49  Pac.  790. 

An  order  of  court  directing  money 
to  be  deposited  with  a  banker  upon 
condition  lliat  he  pay  interest  thereon 
as  long  as  it  is  in  his  hands,  does  not 
constitute  him  a  receiver  so  that  his  as- 
signees are  subject  to  a  rule  for  its 
payment  to  the  receiver  appointed. 
Coleman  7'.   Salisl)ury,   52   Ga.   470. 

56.  Rule  in  California. — In  a  suit  by 
an  attorney  general  under  Act  March 
24,  190.-J,  §  10,  St.  190;{,  p.  ,308,  c.  266.  au- 
thorizing a  suit  to  enjoin  a  bank  from 
continuing  business  if  it  fails  to  oliey 
the  order  of  the  bank  commissioners 
as  to  the  manner  of  doing  business,  or 
if  the  commissioners  decide  it  is  un- 
safe for  the  l>ank  to  continue  l)usiness, 
the  attorney  general,  on  being  notified, 
shall  commence  an  action  to  enjoin 
ihe  l)ank  from  transacting  further  Inisi- 
ness,  and  tlie  court,  if  it  finds  it  in.-^ol- 
vent,  shall  order  the  commissioners  to 
surrender  the  pro])erty  to  a  receiver 
appointed  by  the  court,  it  was  unnec- 
essary to  make  an  issue  as  to  the  ap- 
l)ointment  of  a  receiver  or  to  pray  for 
such  relief,  since  the  statute  autliorizod 
such    ai)poinlmcnl.    upon    a    finding    of 


536 


BANKS  AND  BANKING. 


§  77  (Icc) 


§  77  (Ibb)  Jurisdiction  and  Powers  of  the  Court. — The  particular 
judge  or  court  to  whom  the  appHcation  for  the  appointment  of  a  receiver  is 
to  be  presented  is  governed  by  statute  in  the  various  jurisdictions  and  these 
acts  should  always  be  consulted  first. ^^  But  ordinarily  this  appointment  may 
be  made  in  vacation. ^^  If  the  judge  making  the  order  appointing  a  receiver 
is  a  debtor  of  the  bank  this  disqualifies  him.*^^  However,  the  court  appoini- 
ing  the  receiver  acquires  plenary  powers  over  the  entire  subject  matter  of 
the  receivership.^^ 

§  77  (Ice)  The  Petitioner. — As  to  who  is  the  proper  petitioner,  the 
statutes    in   the    different    jurisdictions    vary.'^^      But    such    appointment    is 


insolvency,  as  a  part  of  the  relief 
sought  by  the  action.  People  v.  Bank, 
154  Cal.  194,  97  Pac.  306. 

St.  Cal.  1877-78,  p.  740,  as  amended 
by  St.  1887,  p.  90,  creating  a  board  of 
bank  commissioners,  and  authorizing 
(section  11)  the  attorney  general,  on 
their  request,  to  commence  suit  to  en- 
join any  bank  which  is  violating  its 
charter  from  transacting  further  busi- 
ness, and  cause  its  affairs  to  be  wound 
up  under  the  direction  of  the  commis- 
sioners, does  not  authorize  the  court, 
in  such  a  proceeding,  to  appoint  a  re- 
ceiver. Murray  v.  American  Surety 
Co.,  17  C.  C.  A.  138,  70  Fed.  341;  S.  C, 
61  Fed.  273;  People's  Home  Sav.  Bank 
v.  Superior  Court,  103  Cal.  27,  36  Pac. 
1015. 

57.  Jurisdiction  and  power  to  ap- 
point receiver. — Const.,  art.  6,  §  2,  con- 
fers original  jurisdiction  on  the  su- 
preme court  in  all  civil  cases  in  which 
the  state  is  a  party.  Banking  Law,  § 
14  (Laws  1889,  p.  397),  provides  that, 
in  certain  contingencies,  the  attorney 
general  shall  apply  to  the  supreme 
court,  or  to  the  district  court  of  the 
county  where  the  bank  carries  on  busi- 
ness, ,for  the  appointment  of  a  re- 
ceiver to  take  charge  of  and  wind  up 
the  business  of  a  bank  which  is  insol- 
vent or  carrying  on  its  business  in  an 
unsafe  manner,  etc.  Held,  that  the  su- 
preme court  had  jurisdiction  of  such 
application.  State  v.  Commercial  State 
Bank.  28  Neb.  677,  44  N.  W.  998. 

The  power  of  the  circuit  court  to  ap- 
point a  receiver,  under  the  Act  of  1869, 
to  place  insolvent  banks  in  liquidation, 
held  not  to  lie  superseded  by  an  order 
— under  a  bill  filed  by  the  president  and 
directors  to  wind  up  the  affairs  of  the 
bank  "according  to  the  course  they  had 
been  pursuing" — directing  payment  of 
creditors'  claims  at  the  banking  house, 
out  of  the  assets,  "the  president  and 
cashier  acting  as  receivers,"  etc.  Don- 
aldson V.  Johnson,  3  S.  C.  216. 

Acts  1891,  c.  155,  as  amended  by  Acts 


1893,  c.  478,  requires  the  state  treasurer 
to  appoint  some  one  to  examine  and 
report  on  the  condition  of  the  state 
banks,  and,  if  it  appears  that  a  bank  is 
insolvent,  or  in  immediate  danger  of 
becoming  so,  the  treasurer  is  to  insti- 
tute proceedings  in  the  superior  court 
of  Wake  county  for  winding  up  the 
bank  and  appointing  a  receiver.  Held, 
tliat  an  application  by  the  treasurer  for 
the  appointment  of  a  receiver  can  be 
made  to  the  resident  judge,  or  the 
judge  holding  the  courts  by  assign- 
ment or  by  exchange,  of  the  judicial 
district  in  which  Wake  county  is  situ- 
ated. Worth  V.  Piedmont  Bank,  121  N. 
C.  343.   28   S.   E.  488. 

58.  Power  of  court  in  vacation. — 
In  the  absence  of  any  statute,  the  cir- 
cuit court  has  power  in  vacation  to  ap- 
point a  receiver  of  an  insolvent  bank, 
and  to  confirm  the  provisional  appoint- 
ment on  the  assembling  of  court,  and 
this  power  is  not  abridged  by  Rev.  St. 
1889,  §  2193,  providing  that  the  court 
or  any  judge  in  vacation  shall  have 
power  to  appoint  a  receiver,  whenever 
it  shall  be  deemed  necessary,  whose 
duty  it  shall  be  to  keep  any  money  or 
other  thing  deposited  in  court,  or  that 
may  be  the  subject  of  a  tender,  and  to 
keep  all  property  and  protect  any  busi- 
ness intrusted  to  him  pending  any  pro- 
ceeding concerning  the  same.  Greeley 
%'.  Provident  Sav.  Bank,  103  Mo.  212,  15 
S.   W.    429. 

59.  Qualification  of  judge  appointing 
receiver. — United  States  Nat.  Bank  v. 
National  Bank,  6  Okl.  163,  51  Pac.  119. 

60.  Where  a  court  in  a  suit  by  the 
state  appoints  a  receiver  of  a  banking 
corporation,  it  secures  full  jurisdiction 
to  adjust  all  interests  and  demands, 
legal  or  equitable,  and  to  control  all 
controversies  affecting  the  receiver- 
ship. State  V.  State  Bank,  84  Kan.  366, 
114  Pac.  381. 

61.  Who  may  petition  for  receiver. 
— In  West  Virginia  the  commissioner 
of  banking,  by  and  with  the  consent  of 


(kUI) 


INSOLVENCY   AND   DISSOLUTION. 


537 


usually  made  on  petition  of  the  creditors/^'-  or  stockholders.*'^ 

§  77  (Idd)  Notice.— Although  the  hanking  act  makes  no  provision 
with  regard  to  notice  of  proceedings  for'the  appointment  of  a  receiver,  such 
notice  must  be  given,  otherwise  all  proceedings  of  the  court  in  the  matter  of 
the  receivership  will  be  void  for  want  of  jurisdiction."-*     But  by  statute  in 


the  governor  and  attorney  general,  is 
allowed  to  petition  a  court  of  compe- 
tent jurisdiction  to  appoint  a  receiver 
for  an  insolvent  bank  or  any  such  in- 
stitution refusing  to  make  special  re- 
ports. West  Virginia  Code,  1906,  § 
2418. 

Appointment  by  legislature. — The  ap- 
pointment of  a  receiver  by  the  legisla- 
ture, to  settle  the  affairs  of  an  insol- 
vent bank,  is  not  a  judicial  act.  Carey 
z:  Giles.  9  Ga.  253. 

Directors.— Under  St.  1903,  p.  155,  c. 
88,  §  94,  providing  that,  v^'henever  the 
assets  of  a  corporation  are  in  danger 
of  waste  from  litigation,  holders  of 
one-tenth  of  the  capital  stock  may  ap- 
ply for  an  order  dissolving  the  corpo- 
ration and  appointing  a  receiver,  and 
Comp.  Laws,  §  3212,  providing  that  an 
injunction  suspending  the  business  of 
a  corporation  shall  not  be  granted 
without  notice,  in  a  proceeding  by 
stockholders  to  appoint  a  receiver  for 
a  bank  and  to  enjoin  its  further  oper- 
ation, the  directors  must  be  made  par- 
ties, and  notice  commanding  an  ap- 
pearance forthwith  to  show  cause  why 
a  receiver  should  not  be  appointed  is 
not  a  sufficient  notice.  Golden  v.  Ave- 
rill  (Nev.),  101  Pac.  1021. 

62.  Creditors  are  usually  the  peti- 
tioners.— Creditors  of  an  insolvent 
bank  petitioned  to  be  substituted  as 
idaintiffs,  instead  of  a  stockholder  who 
bad  commenced  an  action  for  the  ap- 
pi/intment  of  a  receiver;  alleging  that 
the  bank's  money  had  been  wasted 
through  fraudulent  practices  of  the  di- 
rectors, and  that  plaintiff  was  one  of 
the  guilty  parties.  Held,  that  the 
creditors  were  competent  to  prosecute 
such  an  action.  Gagcr  t'.  Marsden,  101 
Wis.  598,  77   N.  W.  922. 

The  North  Carolina  statutes  (Acts 
1891,  c.  155.  as  amended  l)y  acts  1893, 
c.  478),  do  not  give  the  treasurer  ex- 
clusive right  to  institute  proceedings 
b)r  a  receiver,  so  as  to  take  away  the 
nght  of  a  creditor  of  the  bank  to  sue 
for  that  purpose  in  the  superior  court 
f'f  the  county  where  the  bank  is  situ- 
ated. Worth  7'.  Piedmont  Bank,  121  N. 
C.  343,  28   S.   K.   488. 

Tt  can^  make  no  difference  in  the 
treasurer's  right  to  make  such  applica- 
tion   tliat    the    examiner    did    not    make 


his  report  until  the  insolvency  of  the 
l)ank  was  pul)licly  known.  Worth  z: 
Piedmont  llank,  121  X.  C.  343,  28  S  E 
488. 

63.  Stockholders  may  petition  for 
receiver.— Where  a  bank  has  ceased  to 
exercise  its  corporate  rights  for  three 
years,  while  the  directors  have  had 
charge  of  its  assets  without  accounting 
to  the  stockholders,  the  latter,  in  a  suit 
against  the  former  for  neglect  and 
waste  of  the  assets,  are  entitled  to  the 
appointment  of  a  receiver  ex  parte. 
Warren  7-.  Fake  (N.  Y.).  49  How.  Prac. 
430. 

All  the  stockholders  of  an  insolvent 
bank  are  not  necessary  parties  to  an 
application  for  appointment  of  a  re- 
ceiver for  the  bank.  Judgment,  57  N. 
Y.  S.  187,  39  App.  Div.  151,  affirmed. 
Howarth  z'.  Angle,  162  N.  Y.  179,  56  X. 
E.  489.  47  L.  R.  A.  725. 

The  right  of  a  stockholder  to  obtain 
the  appointment  of  a  receiver  of  a 
state  banking  corporation  is  not  pro- 
hibited by  Code  1873,  §  1572,  providing 
that  the  auditor,  when  satisfied  from 
its  report  that  such  corporation  is  in- 
solvent, shall  direct  the  attorney  gen- 
eral to  commence  proper  proceedings 
to  have  a  receiver  appointed;  or  by 
Code,  tit.  20,  c.  6,  providin.g  for  oust- 
ing corporations  from  their  franchises 
and  windin.fT  up  their  affairs.  Dicker- 
son  7'.  Cass  County  Bank,  95  Towa  392, 
64  X.  W.  395. 

Code  1873,  §  2903,  provides  that,  on 
petition  of  either  party  to  a  civil  pro- 
ceeding, wherein  he  shows  that  he  has 
a  probable  right  or  interest  in  the 
property  which  is  the  suliject  of  tlie 
controversy,  and  that  such  property  or 
its  use  is  in  danger  of  being  injured, 
the  court,  if  satisfied  that  tlie  interests 
of  one  or  l)oth  parties  will  lie  therel>y 
promoted,  and  tlie  substantial  rights 
of  neither  unduly  injured,  may  appoint 
a  receiver.  Hchi,  tliat  a  court  of  equity 
has  jurisdiction  to  appoint  a  receiver 
of  a  state  banking  corporation  on  the 
petition  of  a  stockliolder.  Dickorson 
7'.  Cass  Comity  Bank,  95  Iowa  392,  64 
N.   W.   395, 

64.  Notice  of  receivership  proceed- 
ings.—  llolciiinb  7'.  Tierney,  79  Ncl). 
660.    I  13   X.  W.  204. 

Wlicre,    in    :in    action    against    an    in- 


538 


BANKS  AND  BANKING. 


§  77  (Iff) 


some  jurisdictions  such  notice  may  be  dispensed  with  in  cases  of  urgent 
necessity.'"'^ 

§  77  (lee)  Petition  and  Answer.— In  petition  for  receiver  to  wind 
up  the  affairs  of  a  trust  company,  a  traverse  to  the  averment  of  insolvency  is 
ineffectual  which  admits  that  the  institution  has  closed  its  doors.^^ 

§  77  (Iff)  Hearing  and  Determination  of  Motion. — A  motion  for 
the  appointment  of  a  receiver  to  take  control  of  the  assets,  and  wind  up  the 


solvent  bank  to  wind  up  its  affairs,  a 
receiver  is  appointed  without  notice  to 
the  bank  except  such  as  is  implied  from 
being  dispossessed  of  its  property,  and 
the  receiver  proceeds,  without  objec- 
tion, to  convert  the  assets  into  cash, 
and  pays  the  proceeds  out  to  the  cred- 
itors, the  proceeding  is  not  void  to  the 
extent  that  the  status  of  the  property 
involved  is  open  to  collateral  attack. 
Holcomb  V.  Tierney,  79  Neb.  660,  113 
N.  W.  204. 

Under  Laws  1902,  p.  113,  c.  bO,  ^  1, 
authorizing  the  court  to  appomt  a  re- 
ceiver of  a  bank,  and  in  its  discretion 
to  dispense  with  notice  of  application 
therefor,  where  the  only  proof  before 
the  court  was  that  contained  in  the 
complaint  by  the  attorney  general  to 
dissolve  a  bank  because  insolvent, 
which  showed  that  the  funds  of  the 
bank  were  in  the  hands  of  the  superin- 
tendent of  banks,  notice  of  the  applica- 
tion for  appointment  of  receivers 
ought  to  have  been  given,  the  law  con- 
templating the  giving  of  notice  unless 
facts  are  presented  showing  a  neces- 
sity for  instant  action  to  prevent  im- 
pending wrong.  People  v.  Oriental 
Bank,  124  App.  Div.  741,  109  N.  Y.  S. 
509. 

Appointment  on  court's  own  motion. 
— The  appointment  of  the  receiver  on 
the  court's  own  motion,  upon  a  finding 
of  insolvencv.  is  not  an  appointment 
without  notice  to  the  corporation,  as 
the  act  itself  constituted  full  notice 
that  such  appointment  would  be  made 
upon  a  finding  of  insolvency  in  such  an 
action.  People  v.  Bank,  154  Cal.  194, 
97  Pac.  306. 

Petition  as  sufficient  notice. — Ky. 
St..  §  616  (Russell's  St.,  §  2256).  per- 
mits the  secretary  of  state,  when  any 
bank  has  become  insolvent,  or  its  cap- 
ital has  become  impaired,  or  it  has  vio- 
lated any  provision  of  law,  with  the  at- 
tornev  general's  approval,  to  apply  to 
the  circuit  court  for  the  appointment 
of  a  receiver.  Section  586  (§  2175)  pro- 
vides that,  if  the  capital  stock  of  any 
bank  become  impaired,  the  secretary 
of  state  shall  give  notice  to  the  presi- 
dent   to    have     the    impairment    made 


good,  and,  if  the  bank  fail  for  thirty 
days  after  such  notice  to  do  so,  the 
secretary  of  state  may,  with  the  attor- 
ney general's  advice,  institute  proceed- 
ings to  wind  up  its  affairs.  Held,  that 
while  thirty  days'  notice  should  be 
given  as  required  by  §  586  before  ap- 
pointing a  receiver  under  §  616,  in  an 
action  for  the  appointment  of  a  re- 
ceiver for  a  bank,  both  on  the  ground 
that  its  capital  had  become  impaired 
and  because  it  was  insolvent  and  had 
violated  the  law,  where  the  receiver 
was  not  appointed  until  thirty  days 
after  the  petition  therefor  was  filed, 
and  no  effort  was  made  to  replace  the 
impaired  capital,  a  receiver  could  be 
appointed  without  other  notice;  the 
petition  being  sufficient  notice.  Impe- 
rial Bank  v.  Commonwealth.  140  Ky. 
210.  130  S.  W.  1074. 

A  bill  was  filed  in  the  court  of  chan- 
cery in  New  Jersey  against  a  bank, 
subpoena  ad  respondendum  was  issued, 
iind  returned  by  the  officer,  "Not 
served,"  with  his  affidavit  that  he  could 
not  find  and  believed  no  such  bank  or 
l>ank  officer  to  be  in  his  county,  and 
thereupon  a  receiver  was  appointed. 
T^eld,  that  the  return  and  affidavit  left 
the  court  at  liberty  to  appoint  a  re- 
reiver  without  notice  to  the  bank. 
Dayton  %'.  Borst.  20  N.  Y.  S.  Ct.  115. 

65.  When  notice  of  appointment  of 
receiver  dispensed  with. — A  bill  by  de- 
Dositors  and  creditors  of  a  bank,  al- 
leging the  insolvency  of  the  bank 
caused  by  the  fraud  and  mismanage- 
ment of  the  directors  then  in  charge 
of  it,  justified  the  immediate  appoint- 
ment of  a  receiver  without  notice,  un- 
der Ann.  Code  1892.  §  574.  providing 
that  a  receiver  shall  not  be  appointed 
without  notice  of  the  application,  un- 
less an  immediate  appointment  is  nec- 
essary, and  the  appointment  without 
notice  would  be  proper  on  the  emer- 
crencv,  independent  of  the  statute. 
Benjamin  v.  Staples.  93  ^^liss.  507,  47 
So.  425. 

66.  Petition  and  answer. — Bell  v. 
Tradesmen's  Trust  Co.  (Pa.),  85  Atl. 
363. 


§  //    (2a) 


IXSOLVEXCY    AND  DISSOLUTION. 


539 


affairs  of  a  bank,  will  be  denied  as  irregular,  if  it  appears  tbat  the  order  to 
show  cause  against  the  appointment  was  served  before  the  action  was  com- 
menced.'^' 

§  77  (Igg)  The  Order  of  Court.— An  order  appointing  a  receiver 
for  a  bank,  no  appeal  having  been  taken  therefrom,  is  conclusive  against  the 
bank  on  the  question  of  insolvency. "^^ 

§  77  (le)  Removal  and  Discharge.— A  receiver  of  a  bank  may  be 
removed  for  cause."''  On  the  discharge  of  a  bank  receiver  the  management 
of  its  affairs  reverts  to  the  directors,  who  have  full  authority  to  enter  into 
any  lawful  arrangement  to  meet  its  obligations.'*^ 

A  temporary  receiver  may  be  discharged  and  the  bank  permitted  to 
resume  business  with  consent  of  the  depositors  upon  a  proper  resort  from 
the  banking  department  showing  a  sufficiency  of  assets."^ 

Filling  Vacancies. — If  one  of  several  receivers  is  removed,  or  resigns, 
it  is  discretionary  with  the  court  to  appoint  another  person  in  his  stead,  or 
allow  the  remaining  ones  to  act  without  the  appointment  of  another." - 

§  77    (2)   Operation  and  Effect— §   77    (2a)   In  General.— After  a 

receiver  has  been  appointed  for  a  bank  it  is  virtually  dissolved  and  must 


67.  Hearing  and  determination  of 
motion. — Kattenstrotli  f.  Astor  Bank, 
9  N.  Y.  Super.  Ct.  G32. 

68.  Order  of  court  appointing  re- 
ceiver.— State  z'.  German  Sav.  Bank,  59 
Xeb.  292,  80  X.  W.  901. 

69.  Removal  of  receiver. — If  the  re- 
ceiver of  a  bank  has  failed  to  do  his 
duty,  application  should  be  made  to  the 
court  to  compel  him  to  do  so,  or  to  re- 
move him,  as  he  ought  to  proceed  and 
recover  all  the  assets  and  distribute 
them  as  provided  by  law.  McTamany 
V.  Day  (Idaho),   128  Pac.  563. 

A  receiver  of  the  assets  of  an  insol- 
vent bank,  appointed  pursuant  to  the 
provisions  of  §  41,  Act  Feb.  24,  1845, 
"to  incorporate  the  State  Bank  of  Ohio 
and  other  banking  companies"  (1  Swan 
&  C.  St.,  p.  131),  can  not.  under  exist- 
ing laws,  be  removed  from  his  office 
at  the  pleasure  of  the  state  officers  by 
whom  he  was  appointed.  State  v. 
Claypool,  13  O.  St.  14. 

70.  Effect  of  discharge  of  receiver. — 
Approval  in  the  order  discharging  the 
receivers,  of  an  agreement  between  the 
bank  and  another,  whereby  the  latter 
was  to  advance  a  sufficient  amount  to 
pay  all  depositors  and  creditors,  was 
unnecessary,  as  was  also  the  direction 
to  the  superintendent  of  banks  to  re- 
lease the  assets  in  his  hands,  and  to 
that  extent  the  order  will  l)c  modified. 
People  7'.  Oriental  Bank.  124  .\pp.  Div. 
741.  109  X.  Y.  S.  509. 


71.  Discharge  of  temporary  receiver. 

— On  motion  for  an  order  discharging 
a  temporary  receiver  of  an  embarrassed 
bank,  and  directing  that  the  property 
in  the  receiver's  hands  be  turned  over 
to  the  bank,  and  permitting  it  to  re- 
sume business,  it  was  shown  that  about 
ninety  per  cent  of  the  depositors  had 
signed  an  agreement  looking  toward  a 
resumption  of  the  bank.  The  report 
of  the  banking  department  showed  that 
on  the  close  of  business  of  the  bank  it 
had  sufficient  assets,  after  making  vari- 
ous deductions,  to  pay  its  depositors 
in  full,  provide  for  its  capital  stock  of 
?200.000,  and  have  a  surplus  of  over 
$250,000.  Affidavits  of  officers  of  the 
bank  and  depositors  tended  to  show 
that  the  inventory  and  appraisal  of  the 
banking  department  was  well  made, 
that  the  property  owned  by  the  bank 
was  worth  the  amount  there  set  down, 
and  that  collateral  iield  as  security  for 
the  various  loans  was  of  ample  margin 
to  provide  for  their  prompt  payment 
on  Iiecoming  due.  The  superintondont 
of  l)anks  did  not  oppose  application, 
and  the  attorney  general  was  satisfied 
to  have  the  bank  reopened  if  in  a 
proper  condition  to  l)e  opened,  lleld, 
tliat  the  1)ank  was  entitled  to  the  re- 
lief asked.  People  ?'.  Hamilton  Hank. 
57  Misc.  Rep.  3-15,  108  X.  Y.  S.    HW. 

72.  Filling  vacancies  in   office  of  re- 
ceiver.—  W'iswcll    ?•.    Starr.    50    Me.    381. 


540 


BANKS  AND  BANKING. 


§  77  (2b) 


thereafter  act  through  him.'-^  And  the  right  to  secure  the  satisfaction  of 
demands  by  the  usual  processes  of  the  laws  is  suspended.'^^  After  the  court 
in  the  receivership  proceedings  obtains  jurisdiction  of  the  assets  of  the  bank, 
a  creditor  can  not  commence  an  action  and  obtain  a  judgment  which  would 
be  a  lien  and  interfere  with  the  ratable  distribution  of  the  assets  to  all  the 
creditors." 5  But  the  appointment  of  a  receiver  for  a  bank,  after  it  has  made 
an  assignment  for  the  benefit  of  creditors,  does  not  supersede  and  vacate  the 
assignment  and  impose  upon  the  property  and  assets  of  the  bank  a  different 
rule  of  distribution  from  the  one  prescribed  by  the  assignment.''- 

Rule  in  Louisiana. — Both  in  the  cessio  bonorum,  and  the  liquidation  of 
banks,  under  acts  of  1842,  the  property  vests  in  the  creditors,  and  the  former 
owner  has  no  longer  any  but  a  residuary  right,  and,  to  secure  it,  that  of 
coercing  a  final  settlement  by  the  commissioners  or  syndic.  Neither  the  insol- 
vent nor  the  stockholders  can  appear  in  court  to  control  the  administration 
of  the  assets."" 

§  77  (2b)  On  Rights  of  Attaching  Creditors. — The  property  of  an 
insolvent  bank,  prior  to  the  appointment  of  a  receiver  therefor,  is  not  ex- 
empt from  seizure  at  the  suit  of  its  creditors."^  Accordingly,  the  appoint- 
ment of  receivers  for  a  bank  does  not  necessarily  dissolve  an  attachment  of 
the  assets  of  the  bank  previously  made."'^     But  assets  in  a  receiver's  hands 


73.  Effect  of  appointment  of  re- 
ceiver.— Davenport  7'.  Citj'  Bank  (N. 
Y.),  9  Paige  12;  Miami  Exporting  Co. 
7'.  Gano,  13  O.  269. 

Where  the  court  appoints  a  receiver 
for  a  bank,  it  may  refuse  to  allow  a 
claim  on  the  assets  in  its  custody  to  be 
litigated  in  an  independent  action,  and 
may  adjust  the  matter  in  tlie  receiver- 
ship proceeding.  State  v.  State  Bank, 
84  Kan.  366,  114  Pac.  381. 

A  chancery  order  placing  a  bank's 
assets  in  the  hands  of  a  receiver  sus- 
pends the  bank's  corporate  functions, 
and  statute  damages  for  allowing  bills 
to  be  protested  can  not  be  recovered 
after  that  time.  Sanford  v.  Kentucky 
Trust  Co.  Bank  (Ky.),  1  Mete.  106. 

But  the  appointment  of  a  receiver 
for  an  insolvent  bank  does  not  revoke 
the  bank's  charter  nor  terminate  its 
corporate  existence,  so  as  to  enable  it 
to  plead  that  fact  in  bar  of  an  action 
pending  against  it  when  the  receiver 
was  appointed.  Ahrens  7'.  State  Bank, 
3  S.  C.  401. 

74.  State  -c.  State  Bank,  84  Kan.  366, 
114  Pac.  381. 

75.  Richards  r.  Osceola  Bank,  79 
Iowa    707,    45    N.    W.    294. 

76.  Effect  on  previous  assignment. — 
Where  a  bank  has  made  a  voluntary 
assignment,  the  court,  on  application 
of  a  judgment   creditor,  can  not,  under 


Sandb.  &  B.  Ann.  St..  §§  3216.  3217, 
providing  that  on  judgment  against  a 
corporation,  and  execution  returned 
unsatisfied,  the  circuit  court  may,  upon 
petition,  sequester  the  assets  of  a  cor- 
poration and  appoint  a  receiver  thereof, 
sequester  the  assets  in  the  hands  of 
the  assignee,  and  appoint  a  receiver 
therefor,  so  as  to  supersede  the  as- 
signment, and  change  the  rule  for  the 
distribution  of  assets  to  the  rule  pre- 
scribed by  statute  in  receivership 
cases.  Garden  City  Banking,  etc.,  Co. 
V.   Geilfuss,  86  Wis.  612,  57   N.   W.  349. 

77.  Rule  in  Louisiana. — Mudge  v. 
Commissioners    (La.)    10    Rob.   460. 

78.  Effect  of  receivership  on  attach- 
ing creditors. — Arnold  v.  Weimer,  40 
Neb.  216,  58  N.  W.  709;  Arnold  v. 
Globe  Invest.  Co.,  40  Neb.  225,  58  N. 
W.   712. 

79.  The  issuance  of  an  injunction 
and  the  appointment  of  receivers  of 
a  bank  for  the  purpose  of  distributing 
its  assets  among  creditors  pro  rata,  in 
proceedings  instituted  under  St.  1838, 
c.  14,  §  5,  does  not  dissolve  the  lien  on 
bank  property  acquired  by  attachment 
prior  to  institution  of  the  proceedings. 
Hubbard  v.  Hamilton  Bank  (Mass.), 
7   Mete.   ?40. 

An  attachment  of  the  property  of_  a 
bank,  made  before  the  bank  commis- 
sioners   applied    for    an    injunction,   un- 


§  77  (2c) 


IXSOLVKXCY   AND   DISSOLUTION, 


541 


are  in  custodia  legis  and  not  subject  to  attachment  by  a  creditor.^*^  And 
where  creditors  of  the  bank  attach  the  assets  after  proceedings  to  wind  up 
the  bank  have  commenced,  a  separate,  distinct  proceeding  unconnected  with 
the  original  suit  against  the  bank,  to  dissolve  the  attachments  will  be  dis- 
missed;   he  may  obtain  relief  by  petition  tiled  in  the  original  suit.'^i 

§  77  (2c)  On  Right  to  Sue  the  Bank.— The  general  rule  is  that,  so 
long  as  the  corporation  over  which  a  receiver  has  been  appointed  has  not 
been  dissolved,  and  no  order  of  injunction  exists  restraining  suits  against 
it,  it  may  still  be  sued  and  defend  in  its  own  name."'-     But  after  a  bank  has 


der  St.  1838.  c.  14,  §  5.  to  restrain  the 
bank  from  further  proceeding  with  its 
business,  was  not  dissolved  by  the  sub- 
sequent appointment  of  receivers,  pur- 
suant to  the  provisions  of  that  statute, 
to  take  possession  of  the  property  and 
effects  of  the  bank.  Hubbard  v.  Ham- 
ihon   Bank    (Mass.).   7   Mete.   340. 

The  suspension  of  a  national  bank 
and  the  appointment  of  a  receiver  do 
not  defeat  a  right  previously  acquired 
ty  service  of  an  attachment  against 
the  bank  as  garnishee,  but  the  assets 
pass  to  the  receiver  burdened  with  a 
lien  in  favor  of  the  plaintiff  in  the  at- 
tachment, which  can  not  be  disre- 
garded or  displaced  by  the  comptroller 
of  the  currency.  Earle  v.  Pennsyl- 
vania, 178  U.  S.  449,  44  L.  Ed.  1146,  20 
S.  Ct.  91.5. 

80.  Assets  of  receivership  in  custodia 
legis.— Under  Comp.  St.  c.  8,  §  24,  de- 
fining the  powers  of  the  state  bank 
examiner,  when  an  examiner,  under 
authority  of  the  banking  board,  has 
taken  possession  of  the  assets  of  an 
insolvent  bank,  such  assets  are  not 
subject  to  attachment  at  the  suit  of  a 
creditor  of  the  bank  while  possession 
is  so  retained.  Andrews  v.  Steele  City 
Bank,   57   Neb.   173,   77   N.   W.   342. 

The  bank  commissioners'  act  (St. 
1877-78,  p.  740,  as  amended  by  St.  1887, 
p.  90,  et  seq.)  provides  that  the  board 
of  bank  commissioners  may  examine 
into  the  solvency  of  any  bank,  and  if 
it  finds  that  the  bank  is  violating  its 
charter  or  the  laws  of  the  state,  or  is 
in  an  unsafe  condition,  it  may  order 
the  bank  to  discontinue  its  unsafe 
practices,  and,  on  its  refusal  the  attor- 
ney general  may  commence  suit  to  en- 
join the  transaction  of  further  busi- 
ness; and  that  if  the  court  finds  that 
the  I)usiness  is  carried  on  in  an  unsafe 
manner,  and  that  the  hank  is  insol- 
vent, lie  shall  grant  liu-  injunction,  and 
direct  the  commissioners  to  take  such 
proceeflings  against  the  bank  "as  may 
be  decidefl  iii)on  by  its  creditors." 
Held,    that    the    act     was    iiUended     for 


the  equal  benefit  of  all  creditors,  and 
that  no  attachment  can  be  levied  on 
the  assets  of  a  bank  after  the  date  of 
its  insolvency,  as  decreed  in  proceed- 
ings under  the  act.  Crane  v.  Pacific 
Bank,  106  Cal.  64,  39  Pac.  215,  27  L. 
R.  A.  562;  Murphy  v.  Pacific  Bank,  106 
Cal.  xvii,  39   Pac.  218. 

The  sequestration  intended  to  be 
made  by  force  of  Rev.  St.  c.  44,  of  the 
property  of  an  insolvent  bank  whose 
charter  has  expired,  is  for  the  benefit 
of  all  the  creditors  of  the  bank,  and 
takes  effect,  not  merely  from  the  time 
of  the  appointment  of  the  receivers, 
but  from  the  filing  of  the  bill,  or  at 
least  from  the  issuing  of  the  injunc- 
tion. Atlas  Bank  v.  Nahant  Bank 
(Mass.).  23  Pick.  480.  See  Davenport 
V.    Tiltnn    (Mass.).    10    Mete.    320. 

81.  Suits  to  dissolve  attachments. — 
After  the  granting  of  an  injunction 
against  the  officers  of  an  insolvent 
bank  in  a  suit  to  wind  up  its  affairs, 
and  before  the  appointment  of  a  re- 
ceiver, certain  creditors  attached.  Held, 
that  the  receiver  could  not  bring  a 
separate  proceeding  to  dissolve  the  at- 
tachment, and  enjoin  the  creditors 
from  further  attaching,  as  the  relief 
must  be  obtained  by  petition  in  the 
original  suit.  .\tlas  Bank  v.  Nahant 
Bank   (Mass.)   23   I'ick.  4S0. 

82.  On  right  to  sue  the  bank. — 
Warner  v.  Ini])eau,  (■>:!  Kan.  41,j.  63 
Pac.  648. 

Laws  1891,  c.  43.  §  2G,  providing  for 
the  appointment  of  a  receiver  of  a 
l)anking  corporation,  who  shall  wind 
11])  its  business  for  the  benefit  of  the 
depositors,  creditors,  and  stockhold- 
ers, before  its  repeal,  did  not  inhibit 
the  bringing  of  an  action  .against  an 
incorixirated  bank  .after  tlir  aiMioint- 
nienl  of  a  receiver  to  uiin!  up  its  al- 
fairs,  as  the  general  rule  is  that,  so 
long  as  a  corporation  ol  which  a  re- 
ceiver li.as  been  ajjpointod  has  not  !)ecn 
dissolved,  and  no  order  of  injunction 
exists  restraining  tiie  bringing  of  suits 
.against     it,     sucli     corpor.ation     ni.ay     be 


542 


BANKS  AND  BANKING. 


§  71  (3b) 


been  placed  in  the  hands  of  a  receiver,  it  can  not  sue  in  its  own  right,  but 
must  sue  by  the  receiver. •'^^ 

§  77  (3)  Title,  Rights,  Powers  and  Duties  of  Receivers— §  77  (3a) 
In  General. — It  may  be  stated  at  the  outset  that  the  receiver  stands  in  the 
place  of  the  bank  whom  he  represents,  and  has  only  such  rights  as  it  had, 
"so  that  the  rights  of  third  parties  are  not  increased,  diminished,  or  varied 
by  his  appointment."'"'-*  In  other  words,  he  takes  only  such  title  to  the  assets 
as  the  bank  itself  had,  subject  to  all  equities  which  existed  against  the  as- 
sets in  the  hands  of  the  bank.^s  Therefore,  a  bank  receiver  can  not  repu- 
diate contracts  and  obligations  entered  into  by  the  bank,  and  at  the  same 
time  retain  the  fruits. s*"^  Nor  can  a  bank  receiver  ordinarily  repudiate  the 
acts  of  a  trustee  who  was  previously  in  charge  of  the  affairs  of  the  bank.^'^ 

§  77  (3b)  Relation  of  Receiver  to  Bank  and  Creditors. — A  re- 
ceiver of  a  bank  appointed  represents  both  the  bank  and  its  creditors,  and 
can  look  behind  its  acts  in  the  assertion  of  their  rights. ^■'* 

far  as  their  assets  are  concerned,  and 
take  same  subject  to  set-offs,  liens,  and 
incumbrances  as  they  existed  at  the 
time  of  their  appointment  and  there- 
fore the  appointment  of  a  receiver  of 
an  insolvent  bank  did  not  deprive  a 
depositor  of  the  right  to  set  off  his 
general  deposit  against  a  note  given 
by  him  to  the  bank.  Steelman  v. 
Atchley,  98  Ark.  294,  135  S.  W.  902. 

The  receiver  derives  his  rights  to 
the  bank's  contracts  from  the  bank  it- 
self, and  is  affected  by  them  as  the 
bank  w^ould  be.  Armstrong  v.  National 
Bank.  U   Ky.   L.   Rep.  90. 

86.  The  receiver  of  a  bank  can  not 
repudiate  a  pledge  of  its  assets  made 
by  the  bank,  for  advances  to  it,  either 
on  the  ground  that  the  pledge  was 
not  formally  executed,  or  that  the 
contract  was  void,  because  not  author- 
ized by  the  charter  of  the  bank,  so 
long  as  he  retains,  as  assets,  the  ad- 
vances to  secure  repayment  of  which 
the  pledge  was  given.  Casey  v.  La 
Societe  De  Credit  Mobilier,  Fed.  Cas. 
No.  2,496,  2  Woods,  77,  reversed  in  96 
U.   S.  467,  24  L.   Ed.   779. 

87.  The  trustees  of  a  bank  the  af- 
fairs of  which  were  embarrassed,  and 
which  afterwards  passed  into  the 
hands  of  a  receiver,  assented  in  good 
faith  to  an  arrangement  with  a  debtor 
of  the  bank  whereby  his  property  was 
conveyed  to  trustees  for  his  creditors, 
and  he  procured  an  extension.  Held,, 
that  the  receiver  could  not  repudiate 
the  transaction.  Greene  v.  Sprague 
Mfg.    Co.,    52    Conn.    HHO. 

88.  Relation  of  receiver  to  bank  and 
creditors. — Hayes  v.  Kenyon,  7  R.  I. 
136. 


sued  and  defend  in  its  own  name. 
Warner  %'.  Imbeau,  63  Kan.  415,  65 
Pac.   648. 

The  receiver  of  an  insolvent  bank 
can  not  defeat  claims  against  the  bank 
because  of  the  receivership".  Jordan  v. 
Harris,    98    Ark.    200,    135    S.    W.    830. 

On  the  other  hand,  some  cases  hold 
that  no  action  can  be  maintained 
against  a  bank  after  the  appointment 
of  receivers  thereof.  Leathers  v. 
Shipbuilders'  Bank,  40  Me.  386;  and 
hence,  where  a  bill  has  been  filed  for 
the  purpose  of  obtaining  a  decree 
against  the  receiver,  as  such,  the 
answer  of  the  bank,  under  its  corpo- 
rate seal,  can  not  affect  the  question 
between  the  complainant  and  receiver. 
Davenport  v.  City  Bank  (N.  Y.),  9 
Paige   12. 

83.  Miami  Exporting  Co.  v.  Gano, 
13    O.    269. 

84.  Nature  and  extent  of  receiver's 
title.— Jordan  v.  Harris,  98  Ark.  200. 
135   S.   W.   830. 

85.  Casey  v.  La  Societe  De  Credit 
Mobilier,  Fed.  Cas.  No.  2,496,  2  Wbods 
77;  National  Life  Ins.  Co.  v.  Mather, 
118   111.   App.   491. 

Receivers,  for  the  purpose  of  closing 
its  concerns,  have  no  rights  superior 
to  those  which  the  bank  would  have 
had,  if  the  management  of  its  affairs 
had  continued  with  its  directors,  and 
the  liabilities  of  third  parties  are  not 
changed  by  their  appointment.  Lin- 
coln V.   Fitch,   42   Me.  456. 

Assignees  and  receivers  of  insol- 
vents are  not  regarded  as  purchasers 
for  value  without  notice,  but  rather 
as  personal  representatives  of  the  in- 
solvents,   and    stand    in    their   shoes    so 


(3e) 


IXSOLVENCY    AND   DISSOLUTION. 


>43 


§   77    (3c)    Conflicting   Receiverships. — And   in   case   of   conflicting 

receiverships,  he  who  is  prior  in  time  is  prior  in  right."''' 

§  77  (3d)  Title  and  Rights  as  to  Assets. — The  powers  of  the  re- 
ceivers of  an  insolvent  bank  whose  charter  has  expired  extends  to  all  the 
property  of  the  bank,  real  as  well  as  personal.'-'"^  Ordinarily,  a  receiver  of  a 
bank  does  not  become  vested  with  the  title  to  the  property  or  assets  which 
he  administers.  His  relation  to  the  property,  like  that  of  a  constable,  sher- 
iti'  or  master  in  chancery,  is  merely  that  of  a  ministerial  officer.'^^  But  in 
some  jurisdictions  a  receiver  seems  to  be  vested  with  title  to  the  assets.^- 
The  receiver  has  no  title  to  real  estate  owned  by  the  bank  in  another  state.'-*^ 

§   77    (3e)   Powers  of  Receiver  in  General. — A  receiver  has  implied 


89.  Conflicting  receiverships. — Where 

two  persons  are  on  the  same  day  ap- 
pointed receivers  of  an  insolvent  bank 
by  different  justices,  it  was  held  that 
both  could  not  act,  and  that  the  ques- 
tion which  of  them  was  entitled  to 
the  assets  of  the  bank  must  be  de- 
termined as  a  legal  right,  and  depended 
on  the  priority  of  judicial  action  on 
the  petitions  for  the  appointment  of 
a  receiver,  without  regard  to  the  time 
of  fie  verification  of  the  papers,  or 
the  time  of  actually  getting  possession 
of  the  assets.  People  z'.  Central  City 
Bank.  .53  Barb.  412,  35   How.   Prac.  428. 

90.  Title  and  right  with  respect  to 
assets. — Atlas  Bank  v.  Xahant  Bank 
(Mass.),  23   Pick.  480. 

Where  the  owners  of  a  private  bank. 
after  having  appropriated  certain  of 
its  assets,  sold  the  bank  and  its  exist- 
ing assets  to  T.  and  his  associates, 
their  receiver  in  insolvency,  not  hav- 
ing succeeded  to  the  rights  of  credit- 
ors of  the  bank,  was  not  entitled  to 
sue  their  vendors  to  recover  such  as- 
sets. Harrington  v.  First  Nat.  Bank 
(Tex.   Civ.  App.),   125   S.   W.   598. 

Rights  of  action  vested  in  stockhold- 
ers.— A  receiver  of  an  insolvent  bank- 
becomes  vested  with  the  property  and 
rights  of  action  that  had  theretofore 
vest.^d  in  the  bank,  but  not  so  with 
respcn  to  the  righ.t  of  action  vested 
in  the  stockholders  as  such  or  in  the 
creditors  as  such;  they  still  retain  the 
cause  of  action  tiiat  they  had  against 
the  officers  or  directors  of  the  b;ink 
prior  to  its  dissolution  and  it  is  for 
them  to  enforce  such  cause  or  causes 
of  action,  and  not  the  receiver.  Hig- 
gins  V.  Tefft,  4  App.  Div.  G2.  38  X.  Y. 
S.    710.    74    N.    Y.    St.    Rep.    100. 

91.  The  receiver's  title. — Lafayette 
B;ink    ?•.    liuckin^'ham,    12    O.    St.    410. 

92.  On  the  appointment  of  a  receiver 
for    an    insolvent    bank,    the    title    of    a 


note  secured  by  mortgage  owned  by 
the  bank  passed  to  the  receiver,  and 
by  a  subsequent  sale  by  him  of  the  as- 
sets o^  the  insolvent  bank  to  the  pur- 
chaser. Brynjolfson  v.  Osthus,  12  N. 
Dak.  42,  96  X.  W.  261. 

.\  warranty  deed  of  land  covered  by 
a  mortgage,  executed  by  the  president 
of  the  mortgagee  bank  before  its  in- 
solvency, but  delivered  after  its  in- 
solvency, and  after  the  appointment  of 
a  receiver,  did  not  operate  as  an 
equitable  assignment  of  the  mortgage, 
as  the  title  had  already  passed  to  the 
receiver,  and  the  president  had  no 
authority  to  make  such  delivery. 
Brynjolfson  7'.  Osthus,  12  X.  Dak.  42, 
96   X.   W.   201. 

Title  of  receiver  to  drafts. — ^Where 
defendant  drew  drafts  which  were  dis- 
counted by  a  bank,  when  it  was  in- 
solvent to  the  knovVledge  of  its  offi- 
cers, and  the  bank  failed  and  was 
placed  in  the  hands  of  a  receiver, 
whereupon  defendant  brought  suit  in 
another  state  against  the  bank  to  re- 
cover the  amount  of  the  drafts,  as 
"due  and  owing  for  a  balance  on  de- 
posit to  plaintiff's  credit  in  the  hands 
of  the  bank,"  and  garnished  the 
drawee  who  had  accepted  the  drafts, 
such  action  constituted  an  election  to 
affirm  the  discount,  and  defendant  was 
not  entitled  to  recover  the  amount  of 
the  drafts  on  the  ground  that  they  had 
l)een  olitained  by  the  bank's  officers 
l)y  fraud.  Davis  v.  Butters  Lumber 
Co.,    132    N.    C.    233,    43    S.    K.    050. 

93.  Title  to  foreign  assets.— The 
judgment  of  a  court  of  tlie  state  wlierc 
a  bank  is  located,  restraining  the  lat- 
ter from  doing  business,  and  appoint- 
ing a  receiver,  does  not  translc-r  to 
the  receiver  title  to  real  estate  owned 
by  the  bank  in  another  state.  City 
Ins.  Co.  r.  Commercial  i5ank,  OS  III. 
348. 


544 


BANKS  AND  BANKING. 


§  77  (3e) 


■as  well  as  express  powers.^'*  But  ordinarily  his  authority  is  defined  in  the 
order  appointing  him.'^s  A  receiver  of  an  insolvent  bank  may  compro- 
mise doubtful  claims,^*''  employ  real  estate  agents  to  dispose  of  the  assets,'^'^ 
and  transfer  the  assets  of  the  bank  in  discharge  of  claims  against  it.^^     But 


94.  The  extent  of  the  powers  pos- 
sessed by  receivers  of  a  bank  ap- 
pointed in  proceedings  instituted  by 
the  bank  commissioners  under  St. 
1838,  c.  14,  §  5,  not  being  clearly  de- 
fined by  that  act,  may  be  inferred 
from  Rev.  St.  c.  44,  §  8,  authorizing  the 
appointment  of  receivers  for  banks 
whose  charters  have  expired.  Hub- 
bard z\  Hamilton  Bank  (Mass.),  7 
Mete.    340. 

95.  An  insolvent  bank,  in  a  proceed- 
ing under  Comp.  St.  c.  8,  to  wind  up 
its  business,  remains  an  interested 
party  even  after  the  appointment  of 
a  receiver,  and  may  resist  an  applica- 
tion for  an  order  conferring  on  the 
receiver  authority  not  granted  by  the 
order  appointing  him.  State  v.  Ger- 
man Sav.  Bank,  50  Neb.  734.  70  N.  W. 
2S1. 

96.  Power  of  receiver  to  compro- 
mise claims. — The  powers  conferred 
on  a  receiver  of  an  insolvent  bank  by 
Comp.  St.  c.  8,  §  35,  to  compound  all 
bad  or  doubtful  debts,  when  approved 
by  the  court,  includes  the  right  to 
compromise  doubtful  claims  against 
stockholders  of  a  bank  for  the  double 
liability  imposed  upon  them  by  Const, 
art.  lib,  §  7.  State  v.  German  Sav. 
Bank,   65    Neb.  416,   91   N.   W.   414. 

\\'here,  after  the  insolvency  of  a 
bank,  the  receiver  was  ordered  to  sue 
the  stockholders  for  their  liability, 
and  it  appeared  that  a  considerable 
number  of  the  stockholders  had  died, 
that  many  had  moved  beyond  the  ju- 
risdiction of  the  court,  and  that  others 
were  insolvent,  and  that  others  de- 
nied their  liability  on  various  grounds, 
an  order  by  the  court  approving  a 
compromise  of  doubtful  claims  on  the 
part  of  the  receiver  against  such 
stockholders  was  not  an  abuse  of  dis- 
cretion. State  z'.  German  Sav.  Bank, 
65    Neb.   416.   91    N.    W.   414. 

A  court  appointing  a  receiver  for  an 
insolvent  bank  may  authorize  the  re- 
ceiver to  settle  suits  brought  by  him- 
self in  behalf  of  the  estate,  where  for 
the  best  interests  of  the  estate.  State 
V.   Bank,   57   Neb.   608,  78   N.   W.   281. 

But  whether  a  receiver  has  the 
power  to  eflfect  a  compromise  with 
the  bank's  debtors,  or  not,  the  bank 
may  elect  to  affirm  the  transaction  by 
electing  to  charge  the  receiver  with 
the  value   of  securities   surrendered  by 


him  under  such  compromise.  Brown 
V.  Bass  (U.  S.),  4  Wall.  262,  18  L.  Ed. 
330,  reaffirmed  in  Brown  v.  Johnson, 
154  U.  S.  551,  18  L.  Ed.  333,  14  S.  Ct. 
1197. 

97.  Employment  of  real  estate 
agents. — A  receiver  of  an  insolvent 
bank  emploj^ed  an  agent  to  sell  real 
estate  upon  commissions  of  ten  per 
cent.  It  was  not  agreed  whether  the 
commissions  should  be  paid  out  of 
cash  payment  or  out  of  the  entire 
price  when  paid.  The  agent  sold  for 
$85,000,  whereof  $10,000  was  paid  and 
default  made  as  to  residue.  Held,  that 
the  agent  was  entitled  to  ten  per  cent 
only  on  such  sum  as  had  been  or 
should  be  paid.  Peters  v.  Anderson, 
88    Va.    1051,    14    S.    E.    974. 

Receiver  reported  sale  to  court  stat- 
ing agreement  as  to  commissions,  and 
procured  a  decree  for  payment  thereof, 
"whenever  whole  price  should  be  fully 
paid."  Agent,  who  was  no  party  to 
the  suit,  drew  an  order  on  receiver  for 
a  sum  out  of  any  funds  payable  to  him 
as  commissions  under  the  court's  de- 
cree. Held,  the  order  did  not  estop 
agent  from  denying  correctness  of  the 
decree.  Peters  z'.  Anderson.  88  Va. 
1051,    14    S.    E.    974. 

98.  Power  of  receiver  to  transfer  as- 
sets.— Receivers  of  a  bank  transferred 
to  plaintiff  a  negotiable  note  against 
third  persons,  which  was  part  of  the 
assets,  in  payment  of  a  demand  which 
he  had  against  it.  Held  that,  in  the 
absence  of  anything  to  show  the  ex- 
tent of  the  receivers'  authority  under 
their  appointment,  or  that  other  cred- 
itors of  the  bank  had  not  been  paid, 
or  of  fraud  or  unfair  dealing  in  the 
transaction,  it  would  be  presumed  that 
they  acted  within  the  scope  of  their  au- 
thority, and  that  the  legal  title  to  the 
"ote  passed  to  plaintiff.  .A.tchison  z'. 
Davidson    (Wis.),    2    Pin.   48. 

The  receivers  of  a  bank  transferred 
to  plaintiff  a  negotiable  note  against 
third  persons,  which  was  part  of  the 
assets,  in  payment  of  a  demand  which 
he  had  against  it.  Held,  that  the 
transfer  was  presumptively  legal, 
though  other  creditors  had  not  been 
paid  in  full;  since,  in  such  case,  the 
receivers  would  be  liable  for  misap- 
plication of  assets,  and  the  transfer 
was  at  the  risk  of  the  receivers. 
Atchison  z\  Davidson  (Wis.).  2  Pin.  48. 


§  77  (3f) 


INSOLVENCY    AND   DISSOLUTION. 


545 


a  receiver,  either  general  or  special,  whether  appointed  at  the  suit  of  a  stock- 
holder or  at  the  suit  of  a  creditor,  has  no  power  to  bring  an  action  to  re- 
cover the  statutory  liability  of  a  stockholder  of  an  insolvent  banking  cor- 
poration.»»  Xor  will  a  motion  be  allowed  to  require  a  receiver  of  a  bank  to 
do  an  impossible  act.^ 

Temporary  Receivers  under  New  York  Statute.— The  New  York 
statute  does  not  confer  general  powers  upon  the  temporary  receiver,  but  en- 
ables the  court  to  enlarge  his  powers  and  give  him  additional  authorit\ 
when  in  a  given  case  it  is  shown  to  be  necessary  for  the  wise  and  proper 
administration  of  the  afifairs  of  such  insolvent  corporation.-  Where  tem- 
porary receivers  have  been  appointed,  a  reversal  of  the  order  appointing 
them  does  not  deprive  them  of  the  right,  nor  relieve  them  from  the  duty,  of 
holding  and  protecting  such  property  as  has  come  into  their  hands  until  it 
is  taken  from  their  possession  by  order  of  the  court.-"^ 

§  77  (3f)  Duties  of  Receiver  in  General.— It  is  the  duty  of  the 
receiver  appointed  for  an  insolvent  bank  to  take  immediate  possession  of  all 
the  real  estate  as  well  as  the  personal  estate.-*  Comp.  Laws  of  Michigan, 
§  6144,  which  requires  receivers  of  state  banks  to  pay  over  all  money  col- 
lected or  received  by  them  to  the  State  Treasurer,  is  not  ambiguous,  and  it 
is  the  duty  of  a  court,  to  see  that  its  receiver  complies  with  such  require- 
ment.5     It  is  also  the  duty  of  a  receiver  to  allow  set-offs  in  a  proper  case." 


99.  Action  by  receiver  to  enforce 
statutory     liability     of     stockholders.^ 

Stcinke  r.  Loofl)ourov.  17  Utah  252, 
54  Pac.  120;  McLaughlin  7'.  Kimball, 
20  Utah  254,  58  Pac.  685,  77  Am.  St 
Rep.   908. 

The  authority  for  the  appointment  of 
a  receiver,  conferred  by  Rev.  St.  1898, 
§  :5114.  subd.  6,  does  not  extend  to  the 
appointment  of  a  receiver  of  a  bank 
for  the  purpose  of  enforcing  stockhold- 
ers' statutory  lial)ilities  over  and 
above  the  amount  of  their  stock.  Mc- 
Lauglin  f.  Kimball,  20  Utah  254,  58 
Pac.   f>85,   77   .Am.    St.    Rep.   908. 

1.  Return  of  property  not  in  his  pos- 
session.— Wlierc  petitioner,  h  a  \-  i  n  g* 
tliree  checks  in  possession  against  a 
bank,  sent  them  to  the  bank  for  collec- 
lion,  and  the  checks  were  received  by 
the  Ij^irk,  who  delivered  to  the  peti- 
tioner its  check  on  another  bank  to 
pay  those  checks,  and  the  l)ank  on 
which  the  check  was  drawn  refused  to 
honor  it,  and  on  the  insolvency  of  the 
first  bank  the  petitioner  asked  for  a 
'•ct-.irn  of  the  three  checks  which  it 
had  presented  for  payment  and  in  pay- 
ment o''  which  it  Iiad  received  the 
check  drawn  by  the  insolvent  bank, 
the  receiver  of  such  insolvent  bank  will 
not  be  ordered  to  deliver  sucli  checks 
1    n  &  R_r{5 


t(^  the  petitioner  when  they  are  not  in 
his  possession,  but  have  been  returned 
as  paid  to  the  depositors,  who  drew 
them.  People  z:  Federal  Bank,  107 
App.    Div.    611,    94    N.    Y.    S.    7.'32. 

2.  Powers  of  temporary  receiver. — 
^eople  :•.  St.  Nichols  Bank.  76  Ilun. 
522,  28  N.  Y.  S.  114,  58  N.  Y.  St.  Rep. 
84.-]. 

3.  In  re  Murray  Hill  Bank,  14  App. 
Div.   318,  4.3   N.   Y.   S.   836. 

4.  Duties  of  receiver  in  general. — 
Baker   v.    Cooper,    57    Me.    388. 

5.  Duty  to  pay  over  money. — Moore 
V.  Donovan,  141  Mich.  398,  104  N.  VV. 
665. 

6.  Duty  to  allow  set-offs.— The  re- 
ceiver of  an  insolvent  hank  has  all  the 
powers  and  authority  of  trustees  of 
insolvent  debtors,  and  is  subject  to  ail 
the  duties  and  oI)ligations  imposed  on 
them  by  Laws  1849,  c.  26,  §  11  (2  Rev. 
St.,  pp.  469,  470.  §§  68.  74),  one  of 
which  is  that,  where  mutual  credits 
have  been  given  by  a  debtor  and  any 
other  person  or  mutual  (lel)ts  have 
subsisted  between  such  debtor  and 
another,  to  set  off  sucli  credits  or 
debts,  and  pay  the  proportion  or  re- 
ceive the  balance  due.  In  re  Van  Allen 
(N.   Y.).   37    Barb.   225. 


546 


MANKS    AND    BANKING. 


77  (3g) 


§  77  (3g)  Liabilities  of  Receivers  in  General. — A  receiver,  no  mat- 
ter how  appointed,  is  the  ministerial  officer  and  servant  of  those  from  whom 
he  receives  the  appointment ;  and  he  is  responsible  for  the  exercise  of  good 
faith  and  reasonable  diligence  in  the  discharge  of  his  duties^  Under  the 
peculiar  provisions  of  the  Ohio  statute,  a  receiver  of  an  insolvent  bank  can 
not  be  held  liable  for  delinquencies  in  the  discharge  of  his  duty,  provided 
he  has  acted  under  the  directors  of  the  board  of  control.*^ 

Liability  for  Fraud  of  Bank. — Nor  is  a  receiver  liable  to  an  action  by 
a  stockholder  for  the  fraud  of  the  bank  or  its  officers  in  inducing  him  to 
purchase  stock."' 

For  Failure  to  Enforce  Stockholder's  Liability. — But  a  receiver  is 
liable  for  a  failure  to  proceed  with  diligence  to  enforce  a  stockholder's  statu- 
tory liability.^'* 

For  Penalties. — In  some  jurisdictions  statutory  penalties  are  recoverable 
in  actions  against  receivers. ^^ 

Accountability  for  Moneys  Received  and  Disbursed. — The  fact  that 
an  instrument  by  virtue  of  which  money  has  been  received  by  the  receiver 
and  disbursed  according  to  law,  is  subsecjuently  declared  invalid  by  decree 
of  court,  does  not  make  the  receiver  liable  to  refund  the  money.^- 


7.  Liabilities  of  receivers  in  general. 

— Lafayette    Bank    z\    Buckingham.    12 
O.   St.   419. 

8.  Liability  for  negligence. — Act 
1845,  incorporating-  the  State  Bank  of 
Ohio  and  other  banking  companies 
(§  16),  provides  that  the  board  of  con- 
trol shall  be  a  body  corporate.  Sec- 
tion 24  provides  that,  upon  an  act  of 
insolvency  by  any  branch  bank,  all  its 
property,  credits,  securities,  liens,  and 
assets  of  every  description  shall  forth- 
with vest  in,  and  be  the  property  of, 
the  board  of  control  for  the  uses  de- 
clared in  this  act.  Section  25  makes 
it  the  duty  of  the  board  of  control,  in 
such  a  case  of  insolvency,  to  appoint 
a  receiver  to  take  immediate  posses- 
sion of  the  assets  of  the  bank,  and  holfi 
the  same  for  the  benefit  of  other 
branches  of  the  State  Bank  and  the 
creditors  of  such  failing  branch.  Sec- 
tion 27  provides  that  the  receiver, 
under  the  direction  of  said  board,  shall 
proceed  to  settle  up  the  affairs  of  the 
bank.  Held,  that  a  creditor  of  such 
insolvent  bank  can  not  recover  against 
the  receiver  for  delinquency  in  the 
discharge  of  his  duty,  so  long  as  he 
has  acted  under  and  in  accordance  with 
the  direction  of  the  board.  Lafayette 
Bank  r.   Buckingham,  12   O.  St.  419. 

9.  Liability  of  receiver  for  bank's 
fraud.— Lantry  v.  Wallace,  182  U.  S. 
5.3fi,  45   L.   Ed   1218,  21   S.   Ct.   878. 

10.  Failure  to  enforce  stockholder's 
liability.— A    receiver    of    an     insolvent 


state  bank,  who  fails  to  enforce  a 
stockholder's  liability  created  by 
Const.,  art.  8,  §  7,  and  Banking  Law 
(Consol.  Laws,  c.  2)  §  52,  while  the 
stockholder  was,  for  two  years  subse- 
quent to  the  dissolution  of  the  bank, 
financially  responsible,  is  liable  for  the 
loss  sustained.  People  v.  Bank,  70 
Misc.    Rep.   633,    127    N.    Y.    S.   908. 

11.  Suit  against  assignee  by  bill 
holder. — Carey  z\   Greene.   7   Ga.   79. 

After  the  assignment  of  a  bank  and 
the  forfeiture  of  its  charter  by  a  judg- 
ment of  the  proper  court,  the  legisla- 
ture authorized  the  assignee  to  act  as 
receiver.  Held,  that  the  holder  of  bills 
of  the  bank  is  not  entitled  to  damages 
on  account  of  the  failure  of  the  as- 
signee to  pay  the  bills  on  demand, 
under  the  Act  of  1832,  requiring  banks 
that  fail  to  pay  their  bills  on  demand 
to  pay  ten  per  cent  damages  on  a  suit 
to  collect  the  bills.  Carey  v.  Greene, 
7   Ga.   79. 

12.  Accountability  for  rent  received 
under  mortgage  subsequently  declared 
void. — \\'here  a  husband  and  his  wife 
mortgaged  property  belonging  to  the 
wife  to  secure  notes  which  passed  into 
the  hands  of  an  insolvent  national 
bank,  it  was  held  that,  for  rents  re- 
ceived from  such  property,  with  the 
consent  of  the  husband,  by  the  re- 
ceiver of  the  bank  appointed  by  the 
comptroller  of  the  currency,  from  the 
time  of  his  appointment  to  the  date  of 
a  decree  declaring  such  mortgage  void 


§  77   (4a~) 


INSOLVENCY   AND    DISSOLUTION. 


^47 


§  77  (3h)  Instructions  from  Court. — A  receiver  of  an  insolvent 
bank  is  an  officer  of  the  court,  and  may  properly  apply  to  it  on  suitable 
occasions  for  instructions.^-^ 

§  77  (4)  Collection  and  Protection  of  Assets— §  77  (4a)  In 
GeneralJ-* — The  statutes  in  most  states  confer  upon  the  trustee  appro- 
])riate  powers  to  realize  and  protect  the  assets.^"'  In  winding  up  the  affairs 
of  an  insolvent  bank  the  receiver  of  such  bank,  when  so  authorized  by  the 
court,  may  take  such  steps  as  shall  be  necessary  to  enable  him  to  secure 
possession  of  the  assets  of  the  bank  of  their  value. ^"  But  he  is  usually  en- 
titled to  exercise  a  sound  discretion  in  the  matter  of  collecting  its  assets.^" 
In  collecting  the  assets  of  an  insolvent  bank,  the  receiver  may  set  aside 
fraudulent  or  improper  conveyances  by  it  of  its  assets.^''' 


as  to  the  wife,  and  paid  by  him  into 
the  treasury  of  the  United  States  sub- 
ject to  the  order  of  the  comptroller, 
as  required  by  §  5234,  Rev.  Stat.,  ot 
the  United  States,  and  distributed 
among  the  creditors  of  the  bank,  such 
receiver  is  not  to  be  held  accountable 
in  equity  at  the  instance  of  the  wife. 
Hitz  V.  Jenks,  123  U.  S.  297,  31  L.  Ed. 
1:j6,   8    S.   Ct.   143. 

13.  Instructions  from  court. — In  re 
Van    Allen    (X.    Y.),    37    Barb.    225. 

Code  Civ.  Proc,  §  1788,  authorizes 
a  temporary  receiver  to  collect  debts 
and  to  preserve  the  property  of  the 
corporation,  and  to  sell  and  otherwise 
dispose  of  property  as  directed  by  the 
court,  and  provides  that,  unless  addi- 
tional powers  are  specially  conferred 
on  him,  he  has  only  those  specified. 
Section  1789  provides  that  the  court 
may  confer  on  a  temporary  receiver 
the  powers  of  a  permanent  receiver. 
Held  that,  where  a  depositor  in  an  in- 
solvent bank  was  indebted  to  the  bank 
on  a  note  secured  by  collaterals,  a 
temporary  receiver  could  not  allow 
the  deposit  as  a  set-off  against  the 
note,  and  therefore  he  was  entitled  to 
instructions  from  the  court  on  an  ap- 
plication by  the  depositor  to  surren- 
der the  collaterals  on  payment  of  the 
balance  due  on  the  note  after  deduct- 
ing the  amount  of  the  deposits.  Peo- 
ple V.  St.  Nicholas  Bank.  7(5  llun  522, 
28  N.  Y.  S.  114,  58  N.  Y.  St.  Rep.  843. 

14.  Actions  by  or  against  receiver, 
see  post,  "Power  to  Make  Loans  in 
("-cncral,"  §   \~i\. 

15.  Collection  and  protection  of  as- 
sets.—State  V.  I'.ank,  f)4  Tenn.  (5  Baxt.) 
101. 

16.  Proceedings  by  receiver  to  col- 
lect assets. — State  v.  Commercial,  etc., 
I'.ank,  37   .Veb.  174,  55   N.   W.  040. 

The    section    of    the    Georgia    Code 

regulating  the  collection  and  (listril)u- 
tion   of   the   assets   of   a   bank   bv   a   re- 


ceiver appointed  upon  a  judgment 
forfeiting  its  charter,  does  not  apply 
in  the  case  of  a  voluntary  assignment 
by  the  bank  of  its  assets  to  pay  its 
debts  according  to  the  requirements 
of  law.  Fouche  v.  Brewer,  74  Ga.  251. 
Under  the  statute  of  Mississippi,  ap- 
proved February  28,  184G,  authorizing 
the  trustee  of  an  insolvent  bank  to 
collect  the  debts  due  the  latter  and 
distribute  the  proceeds  in  paj^ment  of 
its  debts,  the  trustee,  in  coHectinir  the 
(lel)ts,  is  not  limited  to  just  what  is 
sufficient  to  pay  ofif  liabilities,  but  may 
collect  all  debts  due.  Davis  v.  Robert- 
son, 11   La.   Ann.  752. 

17.  Discretion  of  receiver. — It  is 
v,rithin  the  sound  discretion  of  the  re- 
ceiver of  an  insolvent  bank  when  to 
prosecute  suits  on  its  claims,  and  to 
dispose  of  its  real  estate  for  the  pur- 
pose of  collecting  assets,  with  which 
the  court  will  not  interfere,  except  in 
special  cases.  In  re  Van  Allen  (N.  Y^), 
37    Barb.    325. 

18.  Authority  of  receiver  to  set  aside 
conveyances. — 'i'he  receiver  of  an  in- 
solvent bank  may  maintain  a  l)ill  t<> 
set  aside  a  trust  deed  made  by  the 
bank,  where  it  appears  that  the  trus- 
tee in  such  deed  was  interested  in  sus- 
taining the  same.  Leavitt  v.  Yates 
(N.  Y.),  4  Edw.  Ch.  134. 

Where  the  manager  of  a  bank  who. 
at  the  bank's  request,  with  others,  be- 
came its  surety  for  money  deposited, 
purchased  in  his  own  name  real  estate 
mortgaged  to  the  bank,  using  the 
])ank's  funds  to  pay  his  bid,  and  in- 
tending to  hold  the  proi)erty  for  the 
security  of  himself  and  iiis  co-sureties, 
and  the  bank  afterwards  became  insol- 
vent, it.'S  receiver  could  not  compel  a 
conveyance  of  such  property^  without 
indemnifying  the  sureties.  Smith  v. 
Lansing,  22  N.  Y.  520. 

Evidence. —  In    an    aelinii    liy    tin-    re- 


548  BANKS    AND    BANKING.  §    77    (4bb) 

§  77  (4b)  Surrender  of  Assets  to  Receiver. — Where  parties  have, 
by  the  fraudulent  conduct  of  themselves  or  their  agents,  obtained  possession 
of  the  assets  of  an  insolvent  bank,  and  are  unable  to  return  them  to  the 
receiver  in  kind,  such  parties  will  be  held  to  strict  accountability  for  the 
value  thereof. ^^  A  bank  officer  wrongfully  withholding  the  assets  of  the 
bank  can  not  impose  conditions  to  the  delivery  of  the  possession  of  such 
assets.-*^ 

§  77  (4c)  Compromise  of  Claims. — In  an  action  by  a  receiver  of  an 
insolvent  bank  against  the  managers  to  compel  them  to  make  good  to  de- 
positors losses  sustained  by  their  misconduct,  the  court  will  not  advise 
acceptance  of  an  offer  of  compromise  made  by  some  of  the  defendants, 
where  the  receiver  submits  the  question  without  recommendation,  and  a 
large  portion  of  the  depositors  who  have  expressed  a  preference  are  op- 
posed to  its  acceptance.-^  But  a  court  which  is  administering  the  aft'airs 
of  a  defunct  bank  may  entertain  a  petition  filed  against  the  receiver  by  a 
creditor  suggesting  a  plan  of  compromise  to  avoid  litigation,  and  the  judge 
may  order  the  receiver  to  accept  the  oft'er  of  compromise.-- 

§  77  (4d)  Proceedings  to  Collect— §  77  (4aa)  Form  of  Pro- 
ceedings.— In  the  event  a  bank  refuses  to  comply  with  an  order  of  the 
court,  to  pay  money  to  a  receiver,  the  court  has  no  power  to  imprison  its 
officers  as  for  contempt,  but  the  receiver  must  resort  to  his  remedy  by  action 
against  the  bank.-^ 

§  77  (4bb)  Jurisdiction  and  Power  of  Courts. — A  chancery  court 
or  other  court  with  equitable  powers,  acquiring  jurisdiction,  may  administer 
the  assets  and  enjoin  separate  creditors  from  prosecuting  independent  suits 

ceiver  of  a  bank  whose  charter  had  22.  Suit  to  enforce  a  compromise. — 
been  forfeited  to  set  aside  an  assign-  When  a  court  of  competent  jurisdic- 
ment  of  efifects  made  by  that  bank  tion  has  undertaken  to  exercise  exclu- 
for  fraud,  evidence  is  admissible,  under  sive  control  over  the  winding  up  of 
the  allegations  of  fraud  in  the  bill,  to  the  afif?irs  of  a  defunct  bank,  a  cred- 
prove  that,  before  the  assignment  of  itor  may,  in  behalf  of  himself  and 
such  effects,  the  board  of  directors  other  persons  at  interest,  file  an  inter- 
had  resigned,  and  that  the  office  of  vention  praying  leave  to  effect  a  set- 
presidency  had  been  usurped  bv  a  per-  tlcment  with  the  receiver  of  a  valid 
son  who  was  neither  an  officer  nor  a  chi'm  held  against  the  bank;  and  if 
director.  Carey  v.  Giles,  10  Ga.  9.  the  receiver,  as  the  representative  of 
19  Surrender  of  assets  wrongfully  its  stockholders  and  other  creditors, 
withheld.— State  v.  Commercial,  etc.,  fails  to  show  cause,  upon  bemg  cited 
Bank,  37  Neb.  174,  55  N.  W.  640.  to    do    so,    why    the    proposed    settle- 

20.  In  proceedings  to  obtain  pos-  ment  should  not  be  authorized  the 
session  of  the  assets  of  an  insolvent  court  may  m  its  discretion,  order  him 
bank,  wrongfully  withheld  by  one  of  to  accept  the  terms  of  settlement  of- 
its  former  officers,  the  latter  can  not  fered  by  the  intervening  creditor,  tp 
require  the  allowance  of  a  set-off  or  the  end  that  long  and  expensive  liti- 
counter  claim  as  a  condition  prece^  Ration  may  be  rendered  unnecessary, 
dent  to  the  delivery  of  the  possession  McGregor  r.  Third  Nat.  Bank,  124  Ga. 
of    such    assets.      State   v.    Commercial,  557,  53  S.  E.  93. 

etc..  Bank,  37  Neb.  174,  55  N.  W.  640.  23.    Proceedings    to    collect    assets. — 

21.  Compromises  by  receiver. — Wil-  First  Nat.  Bank  v.  Clauss,  16-26  O.  C. 
Hams  V.  Halliard  (N.   T.),  14  Atl.  880.  D.   107. 


§  17  (4cc) 


INSOLVENCY    AND   DISSOLUTION. 


549 


against  the  common  trust  assets.-'* 

§   77    (4cc)    Parties. — A  recovery  against   bank  stockholders  on 

the  ground  of  illegal  payment  of  dividends,  the  publishing  of  false  reports, 
the  unlawful  permitting  of  excessive  loans,  or  the  acceptance  of  deposits 
while  insolvent  being  an  asset  of  the  bank,  the  action  therefor  should  be 
brought  by  the  receiver.-'' 

Parties  to  Proceedings  to  Collect. — It  is  not  necessary,  in  proceedings 
to  obtain  possession  of  the  assets  of  an  insolvent  bank,  wrongfully  with- 
held by  one  of  its  former  officers,  to  join  as  parties  to  the  proceedings  other 
individuals,  for  whose  benefit  the  misappropriation  took  place. ^'^ 

Parties  to  Proceedings  to  Protect. — The  minority  stockholders  are 
entitled  to  a  remedy  against  persons  who  act  in  bad  faith  or  mismanage  the 
aflfairs  of  the  bank  in  liquidation.-'^  And  one  depositor  may  sue  on  behalf 
of  himself  and  other  depositors  to  assert  the  title  of  the  bank  to  assets 
against  adverse  claimants  after  its  insolvency.-''' 


24.  Jurisdiction  and  powers  of  court. 

■ — Leipold  V.  Marony,  75  Tenn.  (7  Lea) 
128. 

A  creditor  of  an  insolvent  bank, 
whose  charter  has  been  forfeited,  who 
has  exhausted  the  legal  remedies 
against  it,  may  sue  in  chancery  for 
the  assets  of  the  bank  and  have  them 
applied  in  payment  of  its  debts.  High- 
tower  V.  Mustian,  8  Ga.  506. 

25.  Recovery  against  stockholders. — 
McTamany  v.  Dav  (Idaho),  128  Pac. 
563. 

26.  Parties  to  proceedings  to  collect 
assets. — State  v.  Commercial,  etc., 
Bank,  37  Neb.  174,  55   N.  W.  640. 

27.  If,  in  the  liquidation  of  a  bank, 
the  minority  stockholders,  by  misman- 
agement, fraud,  or  otherwise  on  the 
part  of  the  liquidating  committee,  are 
deprived  of  any  part  of  the  full  amount 
to  which  they  are  entitled  as  the  value 
of  their  stock  in  liquidation,  they  have 
a  remedy  against  the  persons  so  of- 
fending in  a  suit  against  them  for 
damages.  Green  v.  Bennett  (Civ. 
App.),   110   S.   W.   108. 

The  dissenting  minority  stockhold- 
ers of  a  bank  in  process  of  liquidation 
have  a  right  to  demand  that  the  as- 
sets be  so  disposed  of  that  the  full 
value  thereof  may  be  received  for  dis- 
tribution among  the  shareholders,  so 
that  they  shall  receive  the  full  value 
of  their  shares,  not  in  a  prosperous 
and  going  concern,  but  in  a  bank  in 
liquidation.  Green  v.  Bennett  (Civ. 
App.),  110  vS.  W.  108. 

28.  In  an  action  by  a  bank  depositor 
against  the  bank  and  its  president  to 
establish  the  equitable  title  of  the  bank 
to  certain   shares  of  railrcjad  stock,  the 


bank  filed  a  cross  complaint,  and  judg- 
ment was  rendered  in  favor  of  plaintiff 
and  the  bank,  directing  a  sale  of  the 
stock,  and  the  distribution  of  the  pro- 
ceeds to  the  president,  in  the  amount 
of  his  disbursements,  with  interest,  and 
to  the  bank  the  balance  after  payment 
of  plaintiff's  costs  and  expenditures 
for  counsel  fees.  Held,  that  a  conten- 
tion of  the  president  that  the  judg- 
ment was  inequitable  to  him,  because, 
in  taking  the  bonds  and  the  stocks, 
which  he  was  required  to  take  with 
them,  he  incurred  obligations  by  which 
he  might  have  been  damnified,  was 
untenable,  where  he  made  no  claim 
that  he  was  in  fact  in  any  way  injured, 
and  made  no  attempt  to  show  that 
there  were  any  existing  liabilities 
against  which  he  should  be  indemni- 
fied. Dundon  v.  McDonald,  146  Cal. 
585,    80    Pac.    10.34. 

The  oI)jection  that  a  l)ank  depositor 
could  not  maintain  an  action  against 
the  bank  and  its  president  to  cstal)lish 
ihe  equital)lo  title  of  tlio  liank  to  cer- 
tain shares  of  railroad  stock  alleged 
to  have  been  received  by  the  president 
to  the  use  of  the  Ijank  in  lieu  of  other 
shares,  until  after  demand  on  the  di- 
rectors to  bring  suit,  was  obviated  Iiy 
tlu-  fijing  of  a  cross  complaint  by  the 
bank,  in  whose  favor  judgment  was 
rendered.  Dundon  v.  McDonald,  146 
Cal.  585,  80   Pac.   1034. 

In  a  suit  by  a  bank  dei)osilor  against 
the  bank  in  process  of  licjuidation  and 
its  president  to  estal)lish  the  equitable 
title  of  the  bank  to  certain  shares  (if 
railroad  stock  claimed  I)y  tlie  presi- 
dent as  '.lis  individual  property,  evi- 
dence  hold   sufVicient   to   sustain   a   find- 


550 


BANKS    AND    BANKING. 


§  77  (5b) 


§  77  (4e)  Retention  of  Assets  by  Bank.— By  statute  in  some  juris- 
dictions, an  insolvent  bank  may  execute  a  bond  to  the  state  and  thereby 
secure  a  return  of  its  assets.-" 

§  77  (5)  Sale  or  Other  Disposition  of  Assets— §  77  (5a) 
Marshaling  the  Assets.— If  there  be  sufficient  assets  to  pay  creditors  in 
full,  the  resident  creditors  should  not  be  forced  to  tirst  resort  to  the  deposit 
before  looking  to  the  general  assets  of  the  corporation,  since  this  would 
operate  to  deprive  the  resident  shareholders  of  the  protection  the  statute 
gives  them  by  allowing  them  to  participate  in  the  deposit.--" 

§  77  (5b)  Sale  of  Assets.— After  a  proper  appraisal  of  the  assets  of 
the  bank,"-i  ^^gy  j-nay  be  sold  by  the  receiver,  acting  under  an  order  of  the 
court/'2  and  such  sale  may  not  be  impeached  in  the  absence  of  fraud  or 
bad  faith.3'^     i,-,  making  this  sale  the  trustees  may  exercise  a  broad  discre- 


ing  that  a  purported  purchase  of  the 
stock  was  foi  tiie  use  of  the  president, 
though  :n  the  name  of  another  per- 
son. Dundcn  v.  McDonald,  146  Cal. 
585,  80  Pac.   1034. 

The  ev'donce  was  also  sufficient  to 
sustain  a  Pnding  that  the  purchase  of 
the  stock  by  tne  president  was  not 
ratified  by  the  bank.  Dundon  v.  Mc- 
Donald,   146    Cal.    585,   80    Pac.    1034. 

29.  Forthcoming  bonds. — W  here, 
pending  an  application  for  the  appoint- 
ment of  a  receiver,  under  Comp.  St. 
1901,  c.  8,  a  bond  conditioned  for  the 
payment  of  all  just  claims  of  the  bank 
is  given  to  procure  the  return  of  the 
assets  of  such  bank  under  the  provi- 
sions of  §  35  of  said  chapter,  the  exe- 
cution of  such  bond  is  not  a  dissolu- 
tion of  the  bank.  Rawson  v.  Taylor, 
69   Neb.   473,   95    N.   W.   1033. 

Where,  pending  application  for  the 
apoointment  of  a  receiver  for  an  in- 
solvent bank,  under  Comp.  St.  1901,  c. 
8,  a  bond  is  given,  conditioned  for 
the  settlement  in  full  of  all  the  liabili- 
ties of  said  bank,  to  procure  the  re- 
turn of  the  assets  of  such  bank,  under 
the  provisions  of  §  35  of  said  chapter, 
and  said  proceedings  are  dismissed  and 
the  assets  returned,  any  creditor  nvho 
•  is  a  beneficiary  of  such  bond  may 
maintain  an  action  at  law  thereon, 
after  the  condition  is  broken  to  his 
damage.  Rawson  v.  Taylor,  69  Neb. 
473,   95    N.    W.    1033. 

30.  Marshaling  assets. — People  v. 
Granite  State  Provident  Ass'n,  41  App. 
Div.  257.  58  N.  Y.  S.  510,  affirmed  in 
161    N.    Y.   492,   55    N.    E.    1053. 

31.  Appraisal  of  property. — A  re- 
ceiver of  the  property  of  an  insolvent 
bank    was    ordered    to    sell    its    banking 


house  and  the  furniture  and  fixtures 
therein.  The  order  did  not  require  an 
appraisal,  but  the  receiver  caused  it  to 
be  appraised  and  the  appraisers  fixed 
the  value  at  a  lump  sum  for  the  build- 
ing, the  ground,  and  the  furniture^  and 
fixtures  in  the  building,  and  the  prop- 
erty was  sold  for  a  lump  sum.  Held, 
that  the  real  property  should  have  been 
appraised  as  a  right  of  redemption  ex- 
isted as  to  such  property,  but  appraisal 
was  unnecessary  as  to  the  personal 
property,  and  that  the  real  estate 
should  have  been  appraised  separately 
in  order  to  preserve  the  right  of  re- 
demption, and  that  such  irregular  ap- 
praisement vitiated  the  sale.  Vaughn 
V.   Pedley.  137   Ky.  737,   126  S.  W.  1093. 

32.  Effect  of  order  of  court. — An 
order  authorizing  the  assignment  by 
the  receiver  of  a  bank  of  certain  judg- 
ments held  by  it,  duly  made  in  the 
dissolution  proceedings  of  the  bank,  is 
prima  facie  binding  upon  all  its  stock- 
holders, and  the  title  of  the  assignee 
can  only  be  assailed  by  a  direct  pro- 
ceeding to  which  he  is  made  a  party. 
In  re  Grand  Cent.  Bank,  27  Misc. 
Pep.  116,  57  N.  Y.  S.  418;  In  re  Volun- 
tary Dissolution,  42  App.  Div.  157, 
affirmed  in  58  N.  Y.  S.  1022;  Treacy 
V.  Ellis,  45  App.  Div.  492,  61  N.  Y.  S. 
600. 

33.  Where  the  liquidation  of  a  bank 
pursuant  to  the  decision  of  a  duly 
called  stockholders'  meeting  sold  the 
assets  at  auction  at  a  fair  price,  and 
there  is  no  fraud,  nor  bad  faith,  and 
opponents  made  no  objection  to  the 
sale  at  the  stockholders'  meeting  nor 
until  after  it  took  place,  and  do  not 
seek  to  have  the  sale  set  aside,  their 
demand  to  charge  the  liquidators  with 
the  face  value  of  the  assets  is  not  well 


§  /7  {5d) 


IXSOLVEXCY   AND   DISSOLUTION. 


551 


tion.'^^ 

Conduct  of  Sale, — Postponements  of  the  sale  are  determined  by  the  court 
that  ordered  the  sale.''-"" 

§   77    (5c)    Purchaser   of  Notes.— A   receiver  of   an   insolvent   bank 

has  power  to  sell,  under  order  of  the  court  by  which  he  was  appointed, 
notes  of  the  bank  and  thereby  confer  on  purchasers  the  right  to  enforce 
payment  of  such  evidences  of  indebtedness  In-  suits  in  their  own  name.""' 

§  77    (5d)   Right  of  Receiver  to  Purchase  at  His  Own  Sale.— As 
a  general  rule  a  receiver  can  not  purchase  at  his  own  sale.-'' 


grounded  and  will  be  rejected.  In  re 
Liquidation,    lis    La.   664,   43    So.   270. 

Action  by  purchaser  of  note. — In  a 
suit  against  the  makers  of  negotiable 
paper  bought  by  plaintifif  at  a  sale  ot 
an  incorporated  bank's  assets,  made 
by  its  trustees,  where  the  declaration 
alleges  that  "the  charter  was  surren- 
dered," but  was  continued  by  virtue  of 
the  several  statutes  for  the  settlement 
of  the  bank's  affairs,  and  that  the  trus- 
tees appointed  thereunder  assigned  the 
paper  to  plaintiff,  a  plea  averring  "that 
the  charter  of  the  bank  was  not  for- 
feited, and  its  corporate  existence  was 
not  dissolved,"  is  fatally  defective  on 
demurrer.  The  first  allegation  is  no 
answer  to  the  declaration,  which  al- 
leges that  "the  charter  was  surren- 
dered," and  the  second  is  an  allegation 
of  matter  of  law.  Savage  7'.  Walshe, 
26   .Ala.    619. 

34.  Public  or  private  sale. — Tlie  laws 
for  the  liquidation  of  the  Bank  of  Illi- 
nois were  designed  to  vest  the  as- 
signees with  authority  to  sell  the  real 
estate  of  the  bank  at  public  or  private 
sale,  and  they  are  not  bound  to  sell  to 
the  person  who  first  offers  to  pay  the 
apj)raised  value.  .At wood  7'.  Caldwell, 
12    111.   1)6. 

35.  Postponement  of  sale. — It  is  for 
the  judge  alone  to  determine,  upon  an 
application  for  a  sale  by  the  receivers 
of  demands  due  to  the  bank,  that  it 
ought  to  be  postponed.  In  re  Hollis- 
ter  P.ank,   23    X.   Y.   .")()S. 

36.  Defense  to  purchase-money  note. 

— In  an  action  by  the  purchaser  of  a 
note  sold  to  him  by  the  receiver  of  an 
insolvent  bank  under  an  order  of  court 
directing  such  sale,  the  fact  that  the 
entire  capital  stock  of  such  bank  was 
held  by  its  cashier  at  the  time  of  the 
making  of  such  note  or  thereafter  con- 
stitutes no  defense.  vShabata  7-.  lohn- 
son,  .53   Neb.   12,   73   N.   W.  278. 

37.  Purchase  of  bank's  assets  by  liq- 
uidating  officers. — One    of   the    li(|ui(lal- 


ing  trustees  of  a  bank  which  is  en- 
tirely solvent  is  not  incapacitated  to 
become  a  purchaser  at  a  sale  of  the 
assets  of  the  bank  by  such  trustees, 
made  at  auction  to  the  highest  bidder 
after  giving  notice.  Shappard  v.  Cage, 
19  Tex.  Civ.  App.  206,  46  S.  W.  839. 
affirmed  in  93  Tex.  656.  no  op. 

Where  the  liquidating  committee, 
composed  of  the  directors  owning  two- 
thirds  of  the  stock  of  the  bank  in  proc- 
ess of  liquidation,  disposed  of  its  as- 
sets by  sale  and  transfer  to  another 
bank  organized  and  controlled  by 
them,  it  was  held  that  although  this 
was,  in  some  sort,  a  sale  to  them- 
selves, this  would  not  avoid  such  sale, 
but  only  subject  it  to  the  closest  scru- 
tiny on  the  part  of  a  court  of  equity, 
and  subject  it  to  be  set  aside  and  an- 
nulled if  it  was  not  conducted  with 
the  utmost  fairness,  to  the  end  that 
full  value  and,  in  fact,  the  best  price 
obtainable,  were  realized  for  the  prop- 
erty sold.  Green  7'.  Bennett  (Civ. 
-App.),  110  S.  W.   lOS. 

Purchase  by  bank  in  which  receiver 
interested. — Rev.  Civ.  Code,  §  1619, 
]3rovidcs  that  a  beneficiary,  having 
capacity  to  contract,  with  full  knowl- 
edge of  the  motives  of  the  trustee,  and 
of  all  the  facts  concerning  the  trans- 
action, and  without  the  use  of  any  in- 
fluence on  the  part  of  the  trustee,  may 
permit  the  latter  to  take  part  in  a 
transaction  concerning  the  trust  i)rop- 
crty  in  which  the  trustee  has  an  in- 
terest adverse  to  the  beneficiary,  and 
§  2431  declares  that  the  law  neither 
''oes  nor  requires  idle  acts.  lield 
that  where  the  purchase  of  a  bank's  as- 
sets from  a  receiver,  by  a  hank  in 
which  the  receiver  was  interested,  was 
permitted  by  the  insolvent  bank's 
stockholders,  or  they  were  not  injuretl 
thereby,  the  sale  would  not  be  vacated 
because  of  the  receiver's  interest.  Jack- 
son V.  First  State  I?.-ink,  21  S.  Dak. 
484,    113    N.   W.   876. 


552 


BANKS    AND    BANKING. 


§  77  (6bb) 


§  77  (5e)  Interest  on  Purchase  Money.— If  payment  of  the  pur- 
chase money  is  deferred,  interest  may  be  recovered.-"^'^ 

§  77(6)  Actions  by  or  against  Receiver "•—§  77  (6a)  Actions 
by_§  77  (6aa)  Jurisdiction.— Receivers  appointed  by  state  courts  can 
not  sue  in  the  courts  of  the  United  States,  unless  the  jurisdiction  of  the  lat- 
ter courts  is  shown. ^'^ 

§  77  (6bb)  Right  of  Action.— The  receiver  may  sue  the  directors  for 
negligence.-*  1  And  he  may  also  sue  to  recover  funds  misappropriated  by  its 
cashier  from  one  receiving  them  with  knowledge  of  the  misappropriation,42 
or  to  set  aside  fraudulent  transfers  of  the  assets.^^  if  ^  bank  issues  certifi- 
cates of  deposit  to  its   stockholders  without  consideration,   and  thereafter 


38.    Interest    on    purchase    money. — 

Where  a  creditor  of  an  insolvent  bank 
bid  off  property  of  the  bank  at  an  auc- 
tion sale,  and  gave  to  the  receiver  of 
the  bank  a  receipt,  which  stated  an 
agreement  that  the  amount  of  the  bid 
should  stand  unpaid  until  a  dividend 
should  be  declared,  and  should  then  be 
applied  as  an  advance  dividend  to  the 
creditor,  of  the  date  of  the  receipt,  and 
that,  for  the  amount  not  so  applied,  he 
should  account  to  the  receiver  as  for 
"so  much  money  advanced  by  him  to 
my  use  on  this  date,"  it  w^as  hekl  that 
the  receiver  should  recover  interest 
upon  the  full  amount  of  the  receipt 
from  its  date,  and  not  merely  from  the 
time  that  the  dividend  was  declared. 
Gillet  7'.  Van  Rensselaer,  15  N.  Y.  397. 
39.  Actions  by  or  against  receiver. 
— Action  to  have  proceeds  of  collec- 
tions declared  a  preferred  claim,  see 
post,  "Holding  Bank  as  Trustee," 
§  166  (1). 

Collection  and  protection  of  assets, 
see  ante,  "Collection  and  Protection  ol 
Assets,"  §  77   (4). 

Enforcement  of  liability  of  bank  offi- 
cers, see  ante,  "Actions  and  Proceed- 
ings to  Enforce,"  §  58. 

Enforcement  of  stockholder's  liabil- 
ity, see  ante,  "Actions  and  Proceedings 
to  Enforce,"  §  49. 

Right  to  sue  depending  on  plaintiff's 
title  to  character  of  receiver,  see  ante, 
"Appointment  and  Removal  of  Re- 
ceiver," §  77   (1). 

40.  Jurisdiction  of  federal  courts. — 
Where  a  receiver  appointed  under  the 
Michigan  statute  for  the  dissolution  of 
banking  corporations  brings  an  action 
in  his  own  name  in  behalf  of  the  bank 
in  the  federal  court,  he  must  show  that 
the  court  would  have  jurisdiction  as 
between    the    defendant    and   the    bank. 


Bradford  v.  Jenks,  Fed.  Cas.  No.  1,769, 
2    McLean    130. 

41.  Right  of  action  by  receivers. — 
Burns  Supp.  1897,  §  2938,  provides  that- 
where  a  bank  is  insolvent  the  auditor 
of  state  shall  apply  for  a  receiver. 
Burns'  Rev.  St.  1901,  §  1242,  empowers 
such  receiver,  under  the  control  of  the 
court,  to  take  and  keep  possession  of 
the  property,  collect  debts  in  his  own 
name,  and  generally  to  do  such  acts 
respecting  the  property  as  the  court 
may  authorize.  A  bank  organized 
under  the  laws  of  the  state  became  in- 
solvent, and  on  the  application  of  the 
auditor  the  court  appointed  plaintiff 
receiver,  and  he  accepted  the  appoint- 
ment, gave  bond,  and  took  the  oath  re- 
quired. The  order  authorized  him  to 
take  charge  of  and  reduce  to  his  pos- 
session all  the  bank's  property,  credits, 
etc.,  of  every  description,  and  to  prose- 
cute in  his  own  name,  as  such  receiver, 
all  actions  necessary  in  the  discharge 
of  his  duties  whenever  he  deemed 
proper.  Held,  that  there  was  no  defect 
of  plaintiff's  title  to  the  character  of 
receiver,  so  as  to  prevent  him  suing 
the  directors  of  the  bank  for  negli- 
gence. Coddington  v.  Canaday,  157 
Ind.  243,   61   N.   E.   567. 

42.  Kitchens  v.  Teasdale  Comm.  Co., 
105   Mo.   App.   463,   79   S.   W.   1177. 

43.  Transfer  of  securities  for  worth- 
less obligations.— Sayle  v.  Guarantee 
^av..  etc.   Co.   15-25   O.   C.  D.  503. 

Criminal  prosecution  not  prereq- 
uisite.— In  order  for  receivers  to 
maintain  suits  against  the  preferred 
creditors  of  an  insolvent  bank,  it  is 
not  necessary  as  a  condition  prece- 
dent, that  the  president,  directors  or 
other  officers  consenting  to  such 
fraudulent  transfers,  should  first  be 
prosecuted.  Hill  v.  Western,  etc.,  R. 
Co.,   86   Ga.   284,   12   S.   E.   Rep.   635. 


§  '^7  (6cc) 


INSOLVENCY   AND   DISSOLUTION. 


555 


goes  into  the  hands  of  a  receiver,  the  latter  can  maintain  an  action  to  re- 
cover payment  on  such  certificates. ■*■* 

§  77  (6cc)  In  Whose  Name  Action  to  Be  Brought. — As  the  legal 
title  to  the  assets  is  in  the  hank  a  receiver  in  the  absence  of  statute,  must 
sue  in  the  name  of  the  bank  to  collect  them  but  it  is  no  objection  to  the 
action  that  the  usee  is  not  named  because  the  debtor  is  protected  by  the 
judgment  and  the  question  of  beneficial  interest  does  not  concern  him.-*-"*  But 
by  statute  in  many  jurisdictions  a  bank  receiver  is  authorized  to  sue  in  his 
own  name.'**'    And  in  such  case  the  proceedings  should  be  so  entitled.-*" 

Suits  by  Successors  of  Original  Receivers. — Though  the  rule  at  law 
is  different,  in  equity,  the  successors  of  the  receivers  originally  appointed 
may  sue  in  their  own  names. '^^ 


44.  State  v.  Bank.  65  Neb.  20,  90  N. 
W.  961.  91  N.  W.  497. 

A  bank  having  a  nominal  capital  of 
$25,000  and  an  indebtedness  besides  to 
the  amount  of  about  $14,000,  its  entire 
assets  being  only  about  $21,400.  issued 
certificates  of  deposits  for  $12,500  to 
its  several  stockholders,  and  $12,500 
of  new  capital  stock  to  take  up  the 
former  capital  stock.  Held,  that  the 
certificates  of  deposit  were  without 
consideration  as  against  a  receiver  and 
creditors  of  the  bank.  State  v.  Bank, 
90  N'.  \V.  961.  65  Xeb.  20,  91   X.  W.  497. 

45.  In  whose  name  action  by  re- 
ceiver to  be  brought. — Chicago  Fire 
Proofing  Co.  v.  Park  X'^at.  Bank.  44 
111.  App.  150;  Burnap  v.  Cook,  32  111. 
168;  Bank  v.  Pahquioque  Bank  (U.  S.), 
14   Wall.    383,   20   L.    Ed.   840. 

Where  a  receiver  for  a  bank  has 
been  appointed,  the  legal  title  to  notes 
held  by  it  remains  in  the  bank,  and 
the  receiver  may  sue  on  the  notes  in 
the  name  of  the  bank.  Chicago  Fire 
Proofing  Co.  v.  Park  Nat.  Bank.  44 
111.  App.  150,  affirmed  on  another 
point  145  111.  481,  32  N.  E.  534;  S.  C, 
145   111.  487,  32   X.   E.   536. 

Action  on  note  payable  to  bearer. — 
A  receiver  appointed  under  the  Michi- 
gan statute  for  the  dissolution  of  bank 
corporations  can  not  sue  as  bearer  in 
an  action  brougl-t  by  him  on  a  note 
payable  to  bearer,  but  must  sue  as  as- 
signee. Bradford  v.  Jenks,  Fed.  Cas. 
Xo.   1.769.  2  McLean   130. 

Rule  in  New  York. — The  superin- 
tendent of  banks,  through  whom  the 
affairs  of  an  insolvent  bank  in  New 
York  are  liquidated,  may  sue  at  law 
in  the  name  of  the  corporation  to  col- 
lect moneys  due  the  bank.  Union 
Bank  v.  Kanturk  Realty  Corp.,  72 
Misc.  96.  129  X.  Y.  S.  635.  citing  Lafay- 
ette Trust  Co.  V.  Higginbotham,  136 
App.   Div.    747.   J 21    X.   Y.   S.   489. 


In  Connecticut  bank  receivers  are 
authorized,  "in  the  corporate  name  of 
the  bank,  or  in  their  own  names,  as 
receivers,  to  commence  and  prosecute 
any  suits  in  law  or  equity,  and  generally 
to  do  and  perform  all  other  acts,  nec- 
essary and  proper,  in  the  execution  of 
their  trust.  Stat.,  title  3.  chap.  15." 
Eastern  Bank  v.  Capron.  22  Conn.   639. 

46.  Receiver  may  sue  in  his  own 
name. — Ueland  v.  Haugan,  70  Minn. 
349,  73  N.  W.  169;  Davis  v.  Industrial 
Mfg.  Co.,  114  N.  C.  321.  19  S.  E.  371, 
23  L.  R.  A.  322;  De  Wolf  v.  Sprague 
Mfg.  Co..  n  R.  I.  380. 

Prior  to  the  enactment  of  N.  C. 
statute  (Code,  §  668)  and  tlic  merging 
of  the  courts  of  law  and  the  courts  of 
equity  into  one  tribunal,  having  juris- 
diction of  both  legal  and  equitable 
rights,  a  receiver  appointed  by  a  court 
of  equity,  and  holding  the  relation  that 
plaintifif  holds  to  the  corporation,  its 
assets,  and  its  debtors  and  creditors, 
could  not  maintain  in  his  own  name  a 
suit  on  a  note  due  to  the  bank,  and 
in  h's  han'^'s  a  rf^f^e'ver.  Rattle  7'.  M-^'m, 
66  N.  C.  252;  Davis  v.  Industrial  Mfg. 
Co.,  114  N.  C.  321,  19  S.  E.  371.  23 
L.   R.   A.   322. 

47.  Entitling  the  proceedings. — 
Where  a  receiver  has  been  aj^pi 'iiited 
in  a  suit  l^y  the  bank  commissioner, 
and  the  office  of  bank  commissii>ner 
was  abolished  before  the  termination 
of  the  suit,  an  order  to  the  master,  to 
whom  the  claims  of  creditors  had  been 
referred,  to  proceed  in  the  reference, 
was  directed  to  be  entitled  as  in  the 
original  suit,  but  the  subsequent  pro- 
ceedings were  to  be  entitled  "In  the 
Matter  of  the  Receiver  of"  the  bank 
against  which  the  proceedings  were 
instituted.     In  re  City  Hank  (.\.  ^■.).  10 

48.  Suits  by  successors  of  original 
receiver. — .\  l)on<l  and  mortgaKc  c.xe- 
Paigc  378. 


554 


BANKS    AND    BANKING. 


§  77  (6aa) 


§   77    (6dd)   Representative    Capacity    of   Plaintiff.— The   capacity 
in  which  the  receiver  sues  must  appear.-*-* 

§    77     (6b)    Actions    against.— Action    to    Recover    Deposits.— 

Where  a  receiver  of  a  bank  has  been  appointed  at  the  instance  of  crechtors, 
an  action  can  not  be  maintained  against  him  to  recover  a  deposit ;  the  remedy 
being  by  petition  in  the  receivership  action. •'*** 

§  77    (6c)   Defenses— §  77    (6aa)   In  Actions  by  Receivers.— A 

defendant  in  a  suit  brought  by  the  receiver  of  an  insolvent  bank  may  take 
advantage  of  any  defense  that  might  have  been  made  if  the  suit  had  been 
brought  by  the  corporation  before  its  insolvency. ^^  But  where  an  act  has 
been  done  in  fraud  of  the  rights  of  creditors  of  an  insolvent  bank,  the  re- 
ceiver may  sue  for  their  benefit,  even  though  the  defense  set  up  might  be 
valid  as  against  the  corporation  itself. ^- 


cuted  to  the  receivers  of  an  insolvent 
bank  may  be  sued  upon  in  equity  by 
their  successors  in  their  own  names 
as  equitable  assignees  of  all  their 
rights  under  the  same.  Iglehart  v. 
Bierce,  36  III.  133. 

49.  Representative  capacity  of  plain- 
tiff.— In  a  suit  by  the  receivers  of  a 
dissolved  corporation,  appointed  by  the 
Act  of  February  13,  1842,  it  was  nec- 
essary that  the  receivers  should  show 
the  capacity  in  which  they  prosecuted 
the  suit.  Miami  Exporting  Co.  v. 
Gano,   13   O.  269. 

Action  on  notes  due  bank.--Re- 
ceivers  are  trustees  for  the  creditors 
of  the  bank,  and  not  for  the  bank;  and 
their  appointment  and  possession  of 
notes  due  to  the  bank  is  an  assign- 
ment of  the  notes  for  the  benefit  of  all 
creditors;  and  the  receivers  may  main- 
tain an  action  in  their  proper  names,  as 
indorsers,  without  specifying  their 
capacity  as  receivers,  on  a  note  be- 
longing to  the  bank,  and  indorsed  in 
blank.  Haxton  v.  Bishop  (N.  Y.),  3 
Wend.   13. 

50.  Action  against  receiver  to  re- 
cover deposit. — Crutchfield  v.  Hunter, 
138   N.   C.   54.   50   S.   E.   557. 

51.  Defenses  available  in  suit  by  re- 
ceiver.— Franklin  Nat.  Bank  v.  White- 
head, 149  Ind.  560,  49  N.  E.  592,  39  L. 
R.    A.    725,   63   Am.    St.    Rep.    302. 

Defense  to  suit  on  note  by  receiver. 
— Where  the  property  and  effects  of  a 
bank  have  passed  into  the  hands  of  a 
receiver,  the  receiver  has  not  the  rights 
of  a  bona  fide  purchaser  of  notes  held 
by  the  bank,  but  as  to  defenses  he 
stands  precisely  in  the  original  posi- 
tion of  the  bank.  Bank  v.  Demmon 
(N.  Y.),  Talor's  Supp.  (Hill  &  Denio) 
398. 


Where  notes  are  given  a  bank  as 
an  accommodation  for  the  purpose  of 
swelling  its  apparent  assets,  the  de- 
fense of  no  consideration  is  good  as 
against  the  receiver  of  the  bank.  Chi- 
cago, etc..  Trust  Co.  v.  Brady,  165  Mo. 
197,  65   S.  W.  303. 

An  agreement  by  the  officers  of  a 
bank  holding  notes  of  defendant  to 
accept  from  a  corporation  satisfactory 
securities  in  substitution  for  such  notes 
constitutes  no  defense  to  an  action  on 
the  notes  by  a  receiver  for  the  bank, 
where  no  substitute  securities  were 
presented  by  the  corporation  prior  to 
the  bank's  failure.  Fowler  v.  Peet,  170 
Fed.    620. 

Defendants,  in  a  judgment  by  con- 
fession, alleged  as  ground  for  opening 
it  that  they  were  induced  to  execute 
the  note  with  the  understanding  on 
the  part  of  the  bank  owning  it  that  it 
would  not  be  enforced,  but  would  be 
used  as  an  asset  to  enable  it  to  con- 
tinue business,  and  that  it  would  re- 
lieve the  maker  of  the  note  ori  collec- 
tion of  certain  outstanding  obligations. 
Held,  that  such  a  defense  would  not 
prevail  as  against  the  receiver  of  the 
bank  on  its  subsequent  insolvency. 
People's  Bank  v.  Stroud,  223  Pa.  33,  72 
Atl.  341. 

52.  In  an  action  on  a  nt)te  by  the  re- 
ceiver of  an  insolvent  bank,  an  affidavit 
of  defense  alleging  that  defendant 
made  and  delivered  the  note  to  the 
bank  as  part  of  a  scheme  to  deceive 
the  bank  examiner,  upon  the  bank's 
promise  that  defendant  would  not  be 
held  liable  thereon,  is  insufficient. 
Lyons  v.  Benney,  230  Pa.  117,  79  Atl. 
250. 


§  77  (6aa) 


IXSOLVEXCV   AND   DISSOLUTION. 


555 


In  an  action  by  a  receiver  against  a  bank  officer  to  recover  assets 
misappropriated  by  him.  he  can  not  set  up  the  defense  that  no  one  was 
injured  by  his  act.^-''  Xor  is  the  negligence  or  gross  neglect  of  a  bank  di- 
rector any  defense  to  an  action  by  a  receiver  to  recover  funds  misappro- 
priated by  the  cashier  from  one  receiving  them  with  knowledge  of  the 
misappropriation.''"* 

§  77  (6bb)  In  Actions  against  Receivers. — Usury. — in  some  juris- 
dictions a  receiver  is  forbidden  by  statute  to  set  up  the  defense  of  usury.^^ 

Statute  of  Limitations. — Where  a  court  undertakes  to  wind  up  the  af- 
fairs of  a  bank  through  a  receiver,  the  statute  of  limitations  against  ordi- 
nary actions  does  not  apply,  and  lapse  of  time  before  proceeding  against 
funds  in  the  receiver's  hands  is  important  only  as  indicating  laches  or  un- 
reasonable delay. ^5^  And  a  receiver  of  a  bank  is  estopped  to  set  up  the 
statute  of  limitations  against  the  beneficiaries  of  the  trust  fund.''" 

§  77  (6d)  Set-Offs— §  77  (6aa)  Set-Offs  by  Receivers.— Claims 
that  are  mutual  and  due  from  the  same  person  in  the  same  capacity  mav 
be  set  ofif  by  the  receiver.^^ 


53.  Action  by  receiver  for  misappro- 
priation for  assets. — In  an  action 
brought  by  a  receiver  of  a  bank,  ap- 
pointed under  Rev.  St.  c.  146,  against 
the  president  of  the  bank,  to  recover 
the  value  of  certain  securities  fraudu- 
lently appropriated  by  him  to  his  own 
use,  it  can  not  be  objected  that  it  is 
not  shown  that  some  bill  holder,  de- 
positor, or  other  creditor,  or  some 
stockholder,  has  been  injured  by  the 
defendant  act,  or  that  the  parties, 
the  bank  and  the  defendant  are  in  pari 
delicto,  or  that  certain  shares  given  by 
the  defendant  in  consideration  of  the 
securities  have  not  been  tendered  to 
him.      Hayes  v.   Kenyon,   7   R.   I.   136. 

54.  The  fact  that  directors  of  a  bank 
were  culpably  negligent  in  the  super- 
vision of  the  bank's  business,  and  per- 
mitted the  cashier  to  have  exclusive 
management  of  its  affairs,  is  no  de- 
fense to  an  action  by  the  receivers  of 
the  bank  to  recover  from  a  commis- 
sion company  funds  of  the  bank  trans- 
mitted to  such  company  by  draft  on 
its  correspondent,  over  the  cashier's 
official  title,  to  be  used  in  the  cashier's 
private  speculation.  Kitchens  v.  Teas- 
dale  Comm.  Co.,  105  Mo.  App.  46:5,  79 
S.  W.   1177. 

55.  Right  of  receiver  to  set  up  usury. 
— Xo  receiver  of  any  free  l)anking  as- 
sociation, since  the  Act  of  1850,  can 
plead,  or  set  up,  or  prove,  or  in  any 
manner  "interpose,"  the  defense  of 
usury;  and  the  act,  being  in  the  nature 
of  a  repeal  of  penalties  and  forfeitures, 


and  containing  no  reservation,  express 
or  implied,  operates  as  well  on  exist- 
ing as  subsequent  suits,  extinguishing, 
not  only  the  right  of  pleading  such 
defense  thereafter,  but  of  urging  oi 
maintaining  the  plea,  although  pre- 
viously put  in,  if  not  already  allowed 
and  established.  Curtis  v.  Leavitt 
(N.  Y.),  17  P.arb.  ;{09. 

56.  Right  of  receiver  to  set  up  limita- 
tions.— Stale  V.  State  Bank,  S4  Kan. 
366,  114  Pac.  381. 

57.  Effect  of  adverse  possession  by 
trustee  or  receiver. — The  statutes  vest- 
ing title  to  personal  property  in  the 
adverse  holder  thereof  in  three  years, 
and  to  such  holder  of  realty  in  seven 
years,  can  have  no  application  to  this 
case;  besides,  it  is  held,  that  the  trus- 
tee, having  failed  to  execute  the  re- 
quired bond,  was  appointed  a  -receiver 
of  the  court,  and.  as  such,  held  the 
assets  of  the  bank  for  the  bcnetit  of 
those  to  whom  the  court  might  award 
them,  and  he  is,  therefore,  estopped 
from  setting  up  the  statute  of  limita- 
tions, either  for  himself  or  any  persons 
other  than  those  ultimately  entitled. 
State  V.   Rank.  64  Tenn.    (.->   Haxt.)    101. 

58.  Set-offs  by  receiver. — .\  receiver 
of  an  insolvent  bank  has  no  right  to 
set  off  a  claim  due  from  the  b.-ink  to 
one  member  of  a  firm  in  his  individual 
capacity  against  a  debt  of  the  lirm  to 
the  l)ank.  In  such  case  the  claims  arc 
not  mutual,  nor  due  it  from  the  same 
persons  in  the  same  capacity,  and 
Iicnce     the     right    of     set-off    <l.>c<     not 


556 


BANKS    AND    BANKING. 


§  71  (6bb) 


§  77  (6bb)  Set-Offs  against  Receivers. — In  General.— A  receiver 
takes  choses  in  action  of  a  bank  in  the  same  plight  in  which  they  existed  at 
the  time  of  the  fiHng  of  the  proceedings  under  which  he  was  appointed,  and 
subject  to  all  set-offs  which  might  have  been  pleaded  thereto  in  a  suit  by 
the  bank  itself.^^ 


exist.      In    re    Van    Allen    (N.    Y.),    37 
Barb.  225. 

Bill  of  exchange  as  set-off. — A  bank 
discounted  a  bill  of  exchange,  passed 
the  amount  to  the  drawer's  credit,  and 
soon  after  failed.  Acceptance  was 
stopped,  and  his  claim  against  the 
bank  assigned  by  the  drawer.  Mean- 
while the  bill  came  into  the  possession 
of  a  second  bank,  which  had  a  lien 
thereon  for  general  balance.  The  re- 
ceiver of  the  insolvent  bank  satisfied 
this  lien,  took  up  the  bill,  .and  can- 
celed the  credit  given.  In  an  action 
by  the  assignees  of  the  claim  against 
the  receiver,  no  notice  of  the  assign- 
ment having  been  given,  he  was  held 
to  be  entitled  to  avail  himself  of  the 
draft  as  a  set-off,  although  it  was  not 
in  the  possession  or  control  of  the 
bank  when  the  assignment  was  made. 
Robinson   v.   Howes.   20   N.   Y.   84.  _ 

Action  for  conversion  of  deposits. — - 
In  an  action  against  a  bank  and  its  offi- 
cers and  receivers  for  the  conversion 
of  a  special  deposit,  a  set-off  will  be 
allowed  for  the  payment  of  part  of 
the  deposit  by  an  agent  bank  in  a 
foreign  country,  also  in  the  hands  of 
a  receiver,  to  which  the  deposit  had 
been  transferred.  El  Paso  Nat.  Bank 
V.  Fuchs  (Tex.  Civ.  App.),  34  S.  W. 
208. 

Debts  of  a  partner  and  his  firm  to  a 
bank  can  not  be  set  off  by  a  receiver 
of  the  bank  against  trust  moneys  which 
the  partner,  after  the  debts  were  con- 
tracted, mingled  with  the  firm  deposits, 
without  the  bank's  knowledge  and  the 
whole  amount  of  which  remained  in 
the  bank  until  it  failed.  Knight  v. 
Fisher,  .-jS  Fed.  991,  affirmed  in  9  C.  C. 
A.  .582.  61   Fed.  491. 

59.  Set-offs  against  receiver. — Nix  v. 
Ellis,  118  Ga.  :!45,  45  S.  E.  404,  98  Am. 
St.  Rep.  Ill,  opinion  of  Lamar,  J.,  now 
of   the    federal    supreme    court. 

The  right  to  a  set-off  against  the  re- 
ceiver of  a  bank  is  to  be  governed  by 
the  state  of  things  existing  at  the 
moment  of  insolvency,  and  not  by  con- 
ditions thereafter  created.  Yardley  v. 
Philler,  167  U.  S.  344,  42  L.  Ed.  192, 
17  S  Ct.  835,  reversing  decree  Philler 
V.  Yardley,  10  C.  C.  A.  5*32,  62  Ped.  645, 
25   L.   R.  A.  824. 

Claimant    bank,     having    received     a 


New  York  draft  from  the  M.  bank  in 
settlement  of  a  clearance,  on  June  6, 
1905,  forwarded  the  same  for  collec- 
tion. On  the  9th  a  preliminary  clear- 
ance showed  the  M.  bank  indebted  to 
claimant  for  a  clearance  balance  for 
that  day  of  $1,462.  A  duebill  was  given 
for  this  amount,  but  later  in  the  day 
the  M.  Bank  returned  claimant's 
checks,  surrendered  on  the  preliminary 
clearance,  because  of  an  assignment 
for  the  benefit  of  its  creditors,  where- 
upon claimant  executed  to  the  M. 
Bank's  assignee  a  credit  slip  for 
$964.59,  to  which  such  items  amounted, 
before  it  was  advised  of  the  protest 
of  the  draft  given  on  the  6th.  Held,^ 
that  claimant  was  entitled  to  have  such 
credit  set  off  against  its  claim  on_  the 
draft  as  against  the  M.  Bank's  receiver, 
under  the  rule  that  a  receiver  occupies 
no  better  position  than  the  insolvent,. 
and  takes  the  latter's  property  subject 
to  the  same  equities  as  existed  at  the 
time  of  his  appointment.  Citizens' 
Bank  v.  Kretschmar,  91  Miss.  608,  44 
So.   930. 

Where  a  depositor  is  sued  by  the 
temporary  receiver  of  a  bank  on  a 
note  payable  thereto,  set-off  to  the 
amount  of  his  deposit  may  be  allowed 
defendant,  on  application  to  the  court. 
Sickels  V.  Herold,  15  Misc.  Rep.  116, 
36  N.  Y.  S.  488;  People  v.  St.  Nicholas 
Bank,  76  Hun  522.  28  N.  Y.  8.  114, 
58   X.   Y     St.   Rep.  843 

Allowing  set-off  against  debts  due 
bank. — Under  an  order  of  the  court  di- 
recting the  receiver  of  a  bank  "to  al- 
low parties  indebted  to  said  bank, 
where  their  promissory  notes  or  other 
evidences  of  indebtedness  are  held  by 
said  bank,  to  set  off  and  credit  upon 
such  evidences  of  indebtedness  what- 
ever sums  may  be  to  the  credit  of  said 
parties  upon  the  books  of  said  bank 
at  the  date  of  the  closing  thereof,"  he 
will  act  at  his  peril  as  to  the  real  ex- 
istence and  rightfulness  of  any  demand 
he  may  allow  as  a  set-off.  State  v. 
Brobston,  94  Ga.  95,  21  S.  E.  146,  47 
Am.   St.   Rep.   138. 

When  bank  A  failed  it  was  carry- 
ing on  its  books  an  indebtedness 
against  bank  C  for  an  overdraft,  and 
at  the  same  time,  bank  A  owed  the 
trustee    of    bank    C,    v.iiich    had    failed 


§  y7  (6bb) 


INSOLVENCY   AND   DISSOLUTION. 


557 


But  unaccepted  or  unpresented  checks  can  not  be  used  as  set-offs  or 
counterclaims  in  actions  by  receivers  of  insolvent  banks/''*  And  tlie  fact  that 
the  bank  bas  failed  and  closed  its  doors  before  the  holder  bas  an  opportu- 
nity to  present  tbe  check  for  acceptance  and  payment  is  of  no  consequence 
and  does  not  relieve  the  situation  for  tbe  defendant/^  Claims  against  or 
liabilities  of  a  bank  obtained  after  insolvency  can  not  be  set  off  by  tbe 
holder  thereof  against  demands  of  the  bank.''-  And  since  the  appointment 
of  receivers  of  a  bank  that  has  failed,  constitutes  them  trustees,  not  for 
the  bank,  but  for  its  creditors,  it  is  held  that  in  a  suit  brought  by  them  in 
their  names,  upon  a  negotiable  promissory  note,  against  the  maker,  which 
note  became  payable,  after  the  failure  of  the  bank  and  the  appointment  of 
the  receivers,  the  defendant  can  not  set  oft",  against  the  note,  the  bills  of 


on  a  deposit  by  him  as  such  trustee, 
the  sum  of  $2,440.30.  It  was  held,  that 
this  debt  which  the  trustee  holds 
against  the  bank  A  is  not  the  subject 
of  set-ofif  with  the  debt  v/hich  the  bank 
A  holds  against  the  bank  C.  The  as- 
sets of  the  bank  C  had  come  to  his 
hands  charged  with  no  right  of  ofif- 
set  in  favor  of  bank  A,  but  only  with 
the  duty  of  pro  rata  distribution  to 
that  bank,  along  with  other  creditors. 
If,  subsequently,  he  changed  that  re- 
lation, so  that,  instead  of  paying  the 
bank  A  only  a  pro  rata,  he,  by  the 
operation  of  the  law  of  offsets,  pays 
said  bank  in  full  to  the  detriment  of 
other  creditors,  it  is  a  matter  affect- 
ing his  personal  responsibility.  When 
he  deposited  the  money  in  the  bank  A. 
it  was  not  then  subject  to  an  ofifset 
in  favor  of  that  bank,  and  did  not  sub- 
sequently become  so.  Akin  v.  Wil- 
liamson   (Tenn.),   :!5    S.   W.    569. 

Right  of  executor  to  set-off  deposit 
against  his  own  note. — The  maker  of  a 
promissory  note  held  by  the  receiver 
of  an  insolvent  bank  has  no  right  to 
set  ofif  a  deposit  in  the  bank  standing 
in  his  name  as  executor.  Stasel  v. 
Daughertv,  7  N.  P.,  N.  S.,  424,  19  O.  D. 
N.  P.  720. 

Rule  to  compel  allowance  of  set-of¥. 
— In  proceedings  to  liquidate  a  bank 
under  Act  March  14,  1842,  No.  98, 
which  are  to  be  conducted  as  in  a 
voluntary  surrender,  a  debtor  can  not 
by  rule  compel  the  commissioners  to 
allow  an  offset  against  his  obligation, 
and  surrender  the  evidence  of  it.  White 
V.   Commissioners    fl.a.),   4    Rob.    '.\<n\\. 

60.  Unaccepted  checks  as  set-offs. — 
An  unpresented  and  unaccepted  check 
gives  the  holder  no  right  against  the 
bank  upon  which  it  is  drawn,  though 
the  drawer  have  sufficient  funds  there 
to   pay   it,  and   hence,   in   an   action   by 


the  receiver  of  an  insolvent  bank  on 
a  note,  the  defendant  can  not  set  up 
such  a  check  as  a  valid  counterclaim. 
Le  Brenton  v.  Stanley  Contracting 
Co.,    15    Cal.   App.   429,   114  Pac.   1028. 

"To  allow  it  would  be  to  open  the 
door  to  the  commission  of  fraud  on 
the  great  body  of  the  creditors  of  the 
insolvent  bank,  and  would  practically 
defeat  the  great  object  of  the  insol- 
vent law,  which  is  the  equal  distribu- 
tion of  the  assets  of  the  insolvent 
company  among  the  creditors.  In 
every  case  where  a  bank  failed,  hav- 
ing a  large  number  of  both  creditors 
and  debtors,  it  would  be  the  easiest 
matter  in  the  world  for  a  number  of 
each  class  to  collude  together,  and, 
by  the  former  giving  antedated  checks 
to  the  latter,  to  absorb  all  the  assets 
of  the  bank  to  the  exclusion  of  the 
other  creditors."  Northern  Trust  Co. 
c'.  Rogers,  60  Minn.  208,  62  N.  W. 
273,    51    Am.    St.    Rep.    526. 

61.  Le  Breton  v.  Stanley  Contract- 
ing Co.,  15  Cal.  App.  429,  114  Pac. 
1028. 

62.  Claims  acquired  after  insolvency. 
— Where,  between  suspension  l)y  a 
bank  and  commencement  of  an  action 
for  and  resulting  in  its  dissolution  and 
appointment  of  a  receiver,  one  liable  to 
it  as  indorser  on  notes  takes  assign- 
ments of  deposit  accounts,  he  may  off- 
set   them    against    his    liability,    in    an 

,  action  by  the  receiver,  unless  it  be 
shown  that  the  bank  was  insolvent  at 
the  time  of  the  assignment  of  the  ac- 
counts; and  this  is  not  shown  by  the 
recital  in  an  agreed  statement  of  facts 
that,  at  the  commencement  of  the  ac- 
tion to  dissolve,  the  bank  "was  insol- 
vent, and  having  susi)en(led  its  busi- 
ness" on  a  certain  day.  lliggins  v. 
Worthington,  90  Hun  430.  35  N.  Y. 
S.  815.  70   N.   Y.  St.   Rep.  300. 


558 


BAXKS    AXD    BANKIKG. 


§  77  (6g) 


Counterclaim. 


receivers  to  collect  debts  due  the  bank 
- .  _^. r.'xS  against  the  corporation    must   be    al- 


^-    7  7    ''6'i/    Pl«ia,  Ansvrer  and  Reply. — As  a  snrj>erintendent  of  banks 

:  New  York  sta  er  to  cc  assets,  he  is  by 

_-.-:,,.;—  -, . ,.  to  be  exercised 

r  to  interpose  a 
verified  reply  in  an  action  brought  by  iiim  in  ;  duty  in  liq- 

'        :     '  '  :rs  of  the  bank>^ 

7  7      ::,   I    :r--    Proof  arid  V^riar.ce. —  i  re  .,  ell-settled  general  rule 

z^i\A\ts  strictly  in  actions  by  re- 
ceivers to  recover  :  bank.**® 

§  77    ''6g;   Parties. — In  a  suit  by  a  bank  receiver  to  set  aside  convey- 
;  -sons  interested  :        '     r.iade  parties  and  are  en- 

::  introduce  evi*^:-:  that  point,  but  the  court 

can  not  decree  for  or  '^^    The  stete  treasurer  is  a  proper  party 


63.  Set-off  of  bills  of  bank. — Eastern 
Bank  t.  Capron,  22  Conn.  639;  Haxton 
'.',  VMhfutt  iS.  Y.L  .1i  Wend.  13. 


k,  an«J 


£. 


indorser  of  a  note,  w? 


mand,  al' 

were  hoi..        , 

time  of  the  I'aiitire  of 

when   the   note   becatr.  >-* 

Bank  t'.   Csipron,  22  Conn.   N.ij 

64.  Counterclaims* — Davis    r. 
rial  Mfj?.  Co..  114  X.  C.  321,  1&  S. 
71,  23  L.  R.  A.  322. 

In  an  aiction  on  a  note  payable  t' 
bank,  brong^ht  by  its  receiver,  evH-^ 
held  not  to  snstain  the  maker's  *■ - 
claim    based    on  i  deposit  at  tr. 
the  bank  passed  into  the  hands  of  a  r^;- 
ceiver.     Rhodes   v.   Gohman,   156   Mo. 
App.  344,  137  S.  W.  H9i. 

65.  Verified  reply  by  receiver^ — Un- 
der Bankinj?  Law  CCor 

c.  2>,  I  VJ),  providinj?  f 


r   to   collect   mor 
'  b  he  can  do  by  a' 
the  name  of  the  bank,  a  verified  coun- 
terclaim,    reqnirins'    »     v-rrf"'?     r'-ply, 
beinj?  interposied,  is 

vested  with  power  he 


bank,  for  verifyine^  and  interposing  the 
reply.     Unio:    '  Kanturk  Realty 

Corp.,  72   3.:  Cj(6,   129  X.   Y.   S- 

^.6.     Corf'.:-'     :       .etween    pleadings 
% '  '!    r.  r  ^. '.  f  -  '  ':    by    the    re- 

r  funds  mis- 

;  r   from   one 

;  of  the 

answer 

;  was  no 

of  a  se- 

,;e  g^vc.   ;>y  t.'.c   caihier  after 

ipprrjrpriation,    and    of    its    ac- 

'    directory  in  set- 

/  excluded.     Kit- 

..•i,-.   ,.    J -.i -..-.-    '^omm.  Co.,  10.5  Mo. 

App.  463,  7a  S.  W.  1177. 

«57       f'      -     --•■■'*     '  V     *''■     -^-<-<^.-vr.r     of    a 

r'or- 
•    of 
by   that   i>ank,   for    fraud, 
-ible  to  make  it  a  party,  it 
BfjinK  'extinct.     Carey  ^'.  Gile*.  10  Ga.  9. 
Bill  by  receiver  to  set  aside  assign- 
ment— Parties. — In   a  bill   filed   by  the 
receiver  of  a  bank  to  set  aside  an  as- 
"ain    notes,    it   is   held 
Je   upon   those   notes, 
i..;  1    .  -  n  sued  thereon  by  the 
and  who  were  made  parties 
.'.t  to  the  bill,  have  an  interest 
-'nt  question  of  title  to  their  notes, 
:   upon  the  trial  may  introduce  evi- 
dence, and  be  \\f:zrA  as  to  that  ques- 
tion,   but   no   decree   can    be    rendered 
for  or  against  them.     Carey  v.  Giles, 
10  Ga.  &. 


§  //   (6j) 


IXSOLVEXCV   AXD   DISSOLUTIOX. 


559 


defendant  to  a  bill  by  tlie  receiver  of  an  insolvent  bank  to  charge  tlie  bank 
fund/'*  But  the  bill  in  an  action  by  the  receiver  of  a  bank  against  directors 
for  losses  occasioned  by  their  wrongful  acts  need  not  include  all  of  the 
directors  who  participated  in  any  of  such  acts/*'^ 

§  77  (6h)  Evidence. — In  actions  by  or  against  receivers  of  banks  the 
same  general  rules  apply  with  respect  to  the  relevancy,  competency  and  ad- 
missibility of  e\ide!ioo  :^.<  obtain  in  other  civil  actions. "^^ 

§  77  (6i)  Judgment.— Operation  and  Effect  of  Judgment. — A  judg- 
ment against  a  rcooivor  of  a  bank  operates  only  as  an  established  claim 
against  the  assets  of  the  bank  held  by  him  as  receiver  and  it  is  error  to  di- 
rect execution  to  issue  thereon."^ 

§  77  (6j)  Costs. — Right  to  and  Liability  for  Costs. — If  the  receiver 
is  cast  in  the  suit  the  defendant  is  entitled  to  his  costs  payable  out  of  the 
fimd  in  the  receiver's  hands." - 


68.  State  treasurer. — Danby  Bank  c. 
State   Treasurer.  ;>7   \"t.  541. 

69.  Parties  to  actions  against  direct- 
ors.— Gaitlier  r.  Bauornschmidt.  lOS 
Md.  1.  r^;>  Atl.  425. 

70.  Relevancy. — Where,  in  an  action 
by  a  corporation  against  a  bank  and  its 
receiver  to  compel  the  payment  ot  a 
certain  claim,  the  question  in  issue  was 
whether  the  transaction  between  the 
corporation  and  the  bank  was  such 
that  the  relation  of  debtor  and  creditor 
existed,  it  was  not  error  to  sustain  an 
objection  to  a  question  as  to  whether 
the  corporation  kept  or  authorized  a 
general  account  WMth  any  bank  outside 
of  certain  ones.  McCormick  Harvest- 
ing Mach.  Co.  r.  Yankton  Sav.  Bank, 
1.=.  S.  Dak.  H)t>,  87  N.  W.  074. 

Record  in  chancery  cause. — The 
bank  of  P.  was  ruined  by  the  late  war; 
and  no  officers  of  the  bank  have  been 
elected  nor  has  there  been  a  meeting" 
of  the  board  since  April,  ISfi.'S,  and  it 
has  done  no  business  since,  and  in  fact 
it  liad  been  abandoned  and  ceased  to 
exist.  In  April.  iSfifi.  H.  and  M.  suing 
as  w-ell  for  themselves  as  for  all  the 
other  stockholders,  creditors  and  de- 
positors, etc.,  filed  their  bill  against  the 
bank  and  the  president,  for  a  settle- 
ment of  its  affairs  and  a  distribution  of 
its  assets.  The  court  appointed  a  re- 
ceiver in  the  ca.sc,  and  in  June,  1866, 
there  was  a  decree  for  an  account. 
Held,  in  an  action  by  the  receiver 
asainst  a  debtor  of  the  bank,  the  rec- 
ord in  the  chancery  cause  is  evidence 
for  the  plaintiff,  Finney  v.  Bennett, 
68  V.-\.  (27  Gratt.)  :^G5. 

Banking  customs. — Tn  an  action  by 
the  receiver  o1  a  bank  to  recover  funds 


misappropriated  by  the  cashier,  from 
one  receiving  them  wnth  knowledge  of 
the  misappropriation,  testimony  of  a 
banking  expert  that  it  was  a  general 
custom  for  bank  cashiers  to  dra\v 
drafts  on  their  own  banks  in  pajiiient 
of  their  own  indebtedness  was  not  ad- 
missible, where  the  drafts  received  by 
defendant  were  not  drawn  in  that  fomi, 
but  were  drawMi  on  the  banks  corre- 
spondent by  the  cashier  over  his  official 
signature.  Kitchens  r,  Teasdale 
Comm.  Co..  105  Mo,  App.  463.  79  S.  W. 
1177. 

Presumptions. — On  a  showing  that 
ever  since  complainant's  wife  depos- 
ited his  money  in  a  bank,  w^ithout  his 
know^ledge  or  consent,  the  general 
funds  of  the  bank  have  exceeded  the 
amount  of  the  deposit,  he  establishes 
a  presumption  that  the  money  is  still 
in  the  bank,  as  affecting  his  right  to  re- 
cover against  the  receiver  thereof. 
Patek  r.  Patek.  166  Mich.  446,  131  X. 
\V.  1101. 

Where  a  bank,  knowing  its  insol- 
vency, receives  from  a  customer,  as 
cash,  a  check  on  a  foreign  bank,  and 
sends  the  paper  to  its  correspondent, 
who  credits  the  check  to  it  as  cash, 
and  subsequently  pays  the  proceeds 
thereof  to  a  receiver  appointed  for  it 
in  the  meantime,  it  is  presumed,  in  an 
action  by  the  depositor  .^gainst  the  re- 
ceiver to  recover  the  proceeds,  that  the 
correspondent  credited  the  check  to 
the  bank  before  its  failure.  Friberg  r. 
Cox.  ;>7  Tenn.  .'S.^O,  P.7  S.  W.  2S:^. 

71.  Effect  of  judgment  against  re- 
ceiver.— Arnold  r,  Penn,  11  Tex.  Civ. 
App.  IV^.^,  32  S,  W.  S.IS. 

78.  Liability  of  receiver  for  costs. — 
Where    the    receivers   in    insolvency   of 


560 


BANKS    AND    BANKING. 


§  78  (1) 


Security  for  Costs. — Nonresidents  desiring  to  come  into  receivership 
proceedings  must  give  security  for  costs.'^ 

§  78.  Assignments   for   Benefit   of   Creditors'^— §  78    (1)   Right 

to  Make.— Unless  restrained  by  its  charter  or  by  express  statute,  an  in- 
solvent banking  corporation  may  make  an  assignment  for  the  benefit  of 
creditors,  as  a  natural  person  may  do,  by  virtue  of  its  general  power  to 
contract,  acquire  and  transfer  property.'^     In  other  words,  the  right  of  a 


a  bank  proceeded  in  a  suit  at  law  com- 
menced by  the  bank,  and  upon  trial 
the  plaintiffs  were  nonsuited,  it  was 
held  that  the  defendant  was  entitled  to 
all  his  costs  out  of  the  fund  in  the  re- 
ceiver's hands,  down  to  the  time  of 
the  nonsuit.  Camp  v.  Niagara  Bank 
(N.  Y.),  2  Paige  283. 

73.  Security  for  costs  by  nonresi- 
dents.— Where  nonresident  stockhold- 
ers of  an  insolvent  bank  moved  to  set 
aside  a  receiver's  sale  of  its  assets  and 
for  the  appointment  of  a  new  receiver, 
it  was  error  to  deny  the  motion  with- 
out prejudice  to  another  application 
for  the  same  relief,  provided  the  mov- 
ing parties  within  thirty  days  depos- 
ited $500  with  the  clerk  to  abide  the 
orders  of  the  court;  the  only  protec- 
tion the  receiver  was  entitled  to  being 
security  for  costs  as  provided  by  Rev. 
Code  Civ.  Proc,  §  433.  Jackson  v. 
First  State  Bank,  21  S.  Dak.  484,  113 
N.  W.  876. 

74.  Representation  of  bank  by  offi- 
cers in  making,  see  post,  "Rights  and 
Liabilities  of  Stockholders  in  General," 
§  246. 

Civil  liability  on  insolvency,  see  post. 
"Civil  Liability  on  Insolvency," 
§   82. 

Presentation  and  payment  of  claims, 
see  post,  "Presentation  and  Payment  of 
Claims,"  §  80. 

Rights  of  persons  making  deposits 
after  insolvency,  see  ante,  "Rights  of 
Persons  Making  Deposits  after  Insol- 
vency," §  75. 

75.  Banks  may  assign  assets  for 
creditors. — Lenox  v.  Roberts  (U.  S.), 
2  Wheat.  373;  Pope  v.  Brandon  (Ala.), 
2  Stewart  401.  20  Am.  Dec.  49;  Catlin 
V.  Eagle  Bank,  6  Conn.  233;  McCallie 
V.  Walton.  37  Ga.  611,  95  Am.  Dec.  369; 
Gresham  v.  Crossland.  59  Ga.  270;  Seay 
V.  Bank,  66  Ga.  609;  Fouche  v.  Brower, 
74  Ga.  251;  Wright  v.  Rogers,  26  Ind. 
218;  State  v.  Bank  (Md.),  6  Gill  &  J. 
205,  26  Am.  Dec.  561  ;  Union  Bank  v. 
Ellicott  (Md.),  6  Gill  &  J.  363;  Town 
V.  Bank  CNIich.).  2  Doug.  530;  Arthur 
V.  Commercial,  etc..  Bank  (Miss.).  9 
Smedes    &    M.    394,    48    Am.    Dec.    719; 


Grand  Gulf  R.,  etc.,.  Co.  v.  State 
(Miss.),  10  Smedes  &  M.  428;  Chew  v. 
Ellingwood,  86  Mo.  260,  56  Am.  Rep. 
429;  People  v.  Hudson  Bank  (N.  Y.),  6 
Cow.  217;  Haxton  v.  Bishop  (N.  Y.), 
3  Wend.  13;  Commonwealth  v.  Bank 
(Pa.),  3  Watts  &  S.  205;  Dana  v.  Bank, 
(Pa.),  5  Watts  &  S.  223;  Dabney  v. 
Bank,  3  S.  C.  124;  Parker  v.  Carolina 
Sav.  Bank.  53  S.  C.  583,  31  S.  E.  673,  69 
Am.  St.  Rep.  888;  Farmers'  Bank  v. 
Willis,  7  W.  Va.  31;  Lamb  v.  Cecil,  25 
W.  Va.  288;  Garden  City  Banking, 
etc.,  Co.  V.  Geilfuss,  86  Wis.  612,  57 
N.  W.  349. 

Act  1840,  declaring  that  no  bank 
shall  transfer  any  note,  bill  receivable, 
or  other  evidence  of  debt,  does  not 
take  from  a  bank  the  right  to  make 
an  assignment  for  the  benefit  of  cred- 
itors. Montgomery  t'.  Commercial 
Bank  (Miss.),  1  Smedes  &  M.  Ch.  632. 
Right  of  insolvent  bank  to  assign. — 
Rev.  St.  1899,  §§  976,  1305,  1306,  rela- 
tive to  the  dissolution  of  corporations, 
declaring  that  it  shall  be  unlawful  for 
a  bank  or  trust  company  to  make  a 
voluntary  assignment,  and  that  if  it 
finds  itself  to  be  in  a  failing  condition, 
it  shall  place  itself  in  the  hands  of  the 
secretary  of  state  and  defining  the 
duties  of  that  officer  in  case  he  shall 
believe  that  the  capital  stock  of  any 
l^anking  corporation  or  individual 
banker  is  reduced  by  impairment  be- 
low the  amount  required  by  law,  etc., 
have  no  application  to  the  settlement 
of  the  affairs  of  a  banking  corporation 
which  is  perfectly  solvent  at  the  time 
its  existence  terminates  by  the  limita- 
tions of  its  charter.  Clifford  Banking 
Co.  V.  Donovan  Comm.  Co.,  195  Mo. 
262,    94    S.    W.    527. 

Sess.  Laws  1835-36,  p.  162,  provid- 
ing that,  where  a  state  bank  has  be- 
come insolvent,  the  bank  commissioner 
shall  proceed  to  wind  up  its  affairs 
through  a  receiver  appointed  by  a 
court  of  chancery,  prescribes  the  ex- 
clusive mode  by  which  such  banks 
shall  be  dissolved  and  their  effects  ad- 
ministered, and  hence  a  deed  of  as- 
signment   by    an    insolvent    state    bank 


§  78  (3aa) 


IXSOLVEXCV    AND   DISSOLUTIUX. 


561 


banking  corporation  to  make  such  an  assignment,  if  not  expressly  or  im- 
pliedly forbidden  by  its  charter  or  other  positive  law.  must  be  regarded  as 
clear  and  undoubted  as  that  of  a  natural  ])erson.'"= 

§  78  (2)  Involuntary  Assignments.— By  statute  in  some  jurisdic- 
tions banks  may  be  comi)elled  by  the  proper  authorities  to  make  an  as- 
signment."' 

§  78  (3)  Requisites  and  Validity— §  78  (3a)  Requisites— §  78 
(3aa)  In  General. — The  deed  of  assignment  must  bear  the  corporate 
seal,"''  and  be  for  a  sufficient  consideration."" 


to  a  trustee  for  the  benefit  of  its  cred- 
itors is  void.  Bank  Comm'rs  z\  Bank 
(Mich.),    1    Har.    106. 

Rule  in  Alabama. — In  the  absence  of 
authority  by  its  charter,  the  president 
and  directors  of  a  banking  corporation 
can  not  use  its  cash  or  credits,  etc., 
for  the  purpose  of  effecting  a  settle- 
ment of  the  demands  of  its  creditors; 
and  an  assignment  by  them  of  prop- 
erty of  the  bank  to  a  third  person  for 
that  purpose  will  not  be  valid,  though 
the  seal  of  the  corporation  be  affixed. 
Gibson  z\  Goldthwaite,  7  Ala.  281,  42 
Am.  Dec.  592. 

76.  Garden  City  Banking,  etc.,  Co. 
7'.   Geilfuss,  86  Wis.   612,  57   N.  W.  34'.». 

The  provision  of  1  Rev.  St..  p.  791, 
that  no  assignment  by  any  moneyed 
corporation  giving  preferences  shall  he 
valid,  implies  that  an  assignment  witli- 
out  preference  is  valid.  In  re  Bowery 
Bank  (N.  Y.).  5  Abb.  Prac.  41.5,  16 
How.    Prac.    56. 

77.  Involuntary  assignments. — "The 
state  being  the  only  stockholder,  the 
legislature  might  direct  the  l^ank  to 
make  an  assignment,  and  give  any 
other  direction  not  in  conflict  with  the 
existing  laws  and  the  vested  rights  of 
others,  as  the  stockholders  of  any 
other  bank  might  do."  State  z'.  Bank, 
64    Tcnn.    ('>    Baxt.)    1. 

Necessity  for  order  of  court. — .\ct 
1850,  §  27,  relating  to  the  assignment 
of  insolvent  l)anks,  provides  that,  upon 
complaint  of  a  creditor  that  the  liank 
has  refused  to  pay  its  liabilities  in  gold 
and  silver  coin,  the  court  may.  upon 
being  satisfied  of  the  truth  of  the  com- 
plaint, compel  the  directors  to  make 
an  assignment.  TIeld,  that  an  assign- 
ment by  an  insolvent  bank,  by  the 
voluntary  direction  of  its  directors, 
was  not  void,  on  the  ground  that  it 
was  not  made  pursuant  to  an  order  of 
court,  as  such  order  could  only  have 
compelled  the  action  which  the  direct- 
ors voluntarily  took.    News  T'.   Shacka- 

]    B   &  B— .'56 


rnaxon      Bank     (Pa.),     16  Wkly.   Notes 
Cas.    207. 

Effect  of  national  bankrupt  law. — 
Since  Act  April  16,  1850,  providing 
that,  where  an  insolvent  state  bank 
had  failed  to  pay  a  depositor  on  de- 
mand, it  might  be  compelled,  by  pro- 
ceedings before  a  tribunal,  to  assign 
all  its  property  for  distribution  among 
its  creditors,  was  suspended  by  the  na- 
tional bankruptcy  law.  a  deed  of  as- 
signment made  under  the  Act  of  1850, 
after  its  suspension,  was  void.  Shryock 
f.  Bashore  (Pa.),  11  Phila.  565,  33  Leg. 
Int.   56. 

78.  Seal  of  corporation. — Where  a 
deed  of  assignment  from  a  banking 
corporation  has  affixed  to  it  the  com- 
mon seal  of  the  corporation,  and  the 
signature  of  the  proper  officer  is 
proved,  courts  are  to  presume,  that  the 
officer  did  not  exceed  his  authority, 
and  the  seal  itself  is  prima  facie  evi- 
dence, that  it  was  affixed  by  proper 
authority.  The  contrary  must  lie 
shown  bv  the  obiecting  party.  Lamb  7'. 
Cecil,  25  W.  Va.  288;  Hopkins  :■.  Galla- 
tin Turnpike  Co..  23  Tenn.  (4  Humph.) 
403. 

79.  Consideration. — Generally.  a 
bank  may  convey  or  transfer  its  prop- 
erty in  possession,  or  choses  in  action, 
either  for  a  new  consideration,  or  to 
satisfy  or  secure  a  pre-existing  debt. 
When  a  bank  is  insolvent,  or  in  danger 
of  insolvency,  the  just  principle  of 
ermality  in  part  payment  of  creditors, 
alike  entitled  to  satisfaction,  suggests 
not  only  the  legal  right,  but  the  moral 
duty  of  an  assignment,  or  other  meas- 
ure, to  secure  and  effect  a  ratable  dis- 
1riI)ntion  of  its  assets  among  such 
creditors.  Whe^n  the  assiL'iiment  is  to 
trustees  to  secinx-  anteccd'-tit  d(l)(s. 
these  constitute  a  valualde  considera- 
tion entirely  adc(|uate  to  sustain  tiip 
assiLMiment.  which  becomes  con)iile(e!y 
effcrtual  to  nrotect  the  creditors 
against    demands     thereafter      acquired 


562 


BANKS    AND    BANKING. 


§  78  (3cc) 


§  78  (3bb)  Execution  of  Assignment.— The  assignment  should  also 
be  actually  executed  by  the  directors  of  the  bank^o  q^  by  gome  other  officer 
acting  under  authority  from  the  board  of  directors,si  but  it  is  not  necessary 
that  the  officer  act  under  power  of  attorney;  the  affixing  of  the  corporate 
seal  to  the  instrument  of  assignment  is  prima  facie  evidence  of  authority 
and  regularity.s2 

§  78  (3cc)  Assent  of  Stockholders.— And  this  assignment  may  be 
made  without  the  authority  or  consent  of  the  stockholders,^^  or  at  least 
with  the  assent  of  a  bare  majority .^^ 


by  any  one.  Farmers'  Bank  v.  Willis, 
7  W.  Va.  31;  Wickham  v.  Martin  & 
Co.,  54  Va.  (13  Gratt.)  427;  Evans  v. 
Greenhow,   56   Va.    (15    Gratt.),   153. 

80.  Execution  of  assignment. — Until 
the  appointment  of  a  receiver  and  the 
award  of  the  injunction,  the  manage- 
ment of  the  afifairs  of  a  bank  remanis 
in  the  hands  of  the  directors,  and  as- 
signments by  them  in  payment  of  the 
company's  debt  may  be  lawfully  made. 
Planters'  Bank  v.  Whittle,  78  Va.  737. 
Assignment  by  majority  of  directors. 
— Where  three  of  the  seven  directors 
of  a  bank  were  out  of  the  state,  inac- 
cessible, and  beyond  the  reach  of  any 
notice  of  a  meeting  of  the  board  that 
would  have  been  available  at  the  time 
the  bank  became  insolvent,  and  two  of 
them  afterwards  ratified  the  acts  of 
the  other  directors  at  such  meeting, 
the  fact  that  the  directors  were  not 
notified  under  such  circumstances  is 
not  sufificient  to  render  void  a  deed 
of  assignment  authorized  by  a  ma- 
jority of  the  directors  present  at  the 
meeting.  National  Bank  v.  Shumway, 
49  Kan.  224,  30  Pac.  411. 

81.  Authority  of  officer  to  execute 
assignment.— Since  the  bank,  as  a  cor- 
poration, acts  through  its  governmg 
body,  the  board  of  directors,  unless 
otherwise  provided  by  law,  an  assign- 
ment executed  by  the  proper  officers 
by  authority  of  the  directors  is  valid. 
Parker  v.  Carolina  Sav.  Bank,  53  S.  C. 
583,  31  S.  E.  673,  69  Am.  St.  Rep.  888. 
Assignments  by  bank  officers  after 
expiration  of  term. — A  deed  of  assign- 
ment executed  by  certain  officers  of  a 
bank  after  their  term  of  office  has  ex- 
pired, is  valid  where  such  officers  were 
expressly  authorized  to  make  the  as- 
signment by  the  stockholders,  they  be- 
ing for  that  purpose  officers  de  facto 
if  not  de  jure.  Milliken  v.  Steiner,  56 
Ga.  251;  Gresham  v.  Crossland,  59  Ga. 
270;  Mechanics'  Bank  v.  Heard,  37  Ga. 

401. 

82.    Necessity  for  power  of  attorney. 

—Darnell    r.    Dickens,     12      Tenn.      (4 


Yerg.)  7;  Union  Bank  v.  United  States  . 
Bank,  23  Tenn.   (4  Humph.)   369;   Hop- 
kins V.  Gallatin  Turnpike  Co.,  23  Tenn. 
(4    Humph.),    403. 

83.  Necessity  for  assent  of  stock- 
holders.— The  president  and  directors 
of  a  bank  have  a  right  to  assign  for 
the  payment  of  its  debts,  without  the 
assent  of  the  stockholders.  Merrick 
V.    Bank    (Md.),    8    Gill   59. 

The  directors  of  a  bank  have  the 
power  to  assign  its  property  in  trust 
for  the  payment  of  preferred  creditors, 
without  the  authority  or  consent  of 
the  stockholders.  Dana  :■.  Bank  (Pa.), 
5  Watts   &  S.  223. 

A  bank  chartered  by  act  of  assembly, 
not  being  a  bank  of  issue,  but  of  de- 
posit, and  therefore  not  subject  to  the 
provisions  of  the  Banking  Act  of  April 
16,  1850,  has  power  to  make  a  general 
assignment  for  the  benefit  of  creditors; 
and  this  power  may  be  exercised  by 
the  board  of  directors,  without  obtain- 
ing the  consent  of  a  majority  of  the 
stockholders.  In  re  Miners'  Bank 
(Pa.),    13   Wkly.    Notes    Cas.   370. 

84.  An  assignment  by  a  bank,  made 
by  the  directors  with  the  assent  of  a 
majority  of  the  stockholders,  but  with- 
out the  knowledge  of  some  stockhold- 
ers, is  valid.  Town  z'.  Bank  (Mich.), 
2  Doug.  530. 

The  consent  of  all  the  stockholders 
of  a  savings  bank  need  not  be  first  ob- 
tained to  the  bank's  assignment  for 
benefit  of  creditors,  if  such  assignment 
is  made  in  good  faith.  Descombes  v. 
Wood,  91  Mo.  196,  4  S.  W.  52,  60  Am. 
Rep.  239. 

But  it  has  been  held  that  a  bank 
president  can  not  make  the  assign- 
ment without  consulting  the  directors 
or  stockholders.  Thus,  after  an  in- 
solvent bank  was  sued,  its  president, 
without  consulting  its  directors  or 
stockholders,  executed,  in  its  behalf, 
a  conveyance  for  the  benefit  of  cred- 
itors. Held,  that  this  conveyance- 
should    be    deemed    made    without    au- 


§  78  (,3aa) 


IXSOLVEXCV   AND  DISSOLUTION. 


563 


§  78    (3dd)   Acceptance  of  Trust  by  Assignee. — But  an  assignment 

for  creditors,  to  be  valid,  must  be  assented  to  by  tbe  assignee.'"'' 

§  78  (3b)  Validity— §  78  (3aa)  In  General.— An  assignment  of  its 
assets  by  a  bank  with  intent  to  hinder,  delay  or  defraud  creditors  is  fraudu- 
lent and  void.^^  In  some  jurisdictions  an  assignment  to  an  officer  or  stock- 
holder, or  an  assignment  to  any  person  in  contemplation  of  insolvency, 
is  forbidden.^'     And  an  assignment  bv  the  directors  of  a  bank  to  a  trustee 


ihority,  and  that,  in  the  absence  of 
evidence  of  ratification,  ratification 
could  not  be  presumed.  McKeag  v. 
Collins,    87    Mo.    164. 

85.  Acceptance  of  assignment. — The 
Chattahoochee  Railroad  &  Banking 
Company  made  an  assignment,  in  1841, 
to  Van  Leonard,  W.  P.  Yonge,  and 
John  Bethune,  of  its  effects,  to  collect 
and  pay  its  debts.  There  is  no  evi- 
dence that  Van  Leonard  ever  accepted 
the  trust.  There  is  no  proof  that  the 
other  two  did.  In  December,  1843,  the 
legislature  passed  an  act,  in  which  it 
is  recited  that  an  assignment  had  been 
made  by  said  railroad  and  banking 
company,  to  John  Bethune.  and  con- 
firming and  making  valid  said  assign- 
ment for  all  purposes,  both  in  law  and 
equity;  and  declaring  that  said  as- 
signee might  sue  and  be  sued  in  his 
said  character  of  assignee  for  any  de- 
mand due  to  and  from  said  banking- 
institution.  Held,  that  said  act  is  con- 
stitutional and  valid,  and  that  the  sub- 
sequent renunciation  by  John  Bethune, 
in  December.  1844,  of  this  legislative 
ratification  of  his  appointment  by  the 
bank,  does  not  discharge  him  from  lia- 
bility. Bethune  v.  Dougherty,  30  Ga. 
770. 

86.  Fraudulent  assignment  by  bank. 
— An  assignment  of  assets  of  a  bank, 
insolvent  at  the  time,  and  about  mak- 
ing a  general  assignment,  and  against 
which  proceedings  are  pending  to  re- 
voke its  charter,  made  to  a  creditor 
cognizant  of  these  things,  and  by  col- 
lusion with  him  to  defraud  other  cred- 
itors, is  void,  and  the  assets  so  as- 
signed to  him  is  a  trust  fund,  to  be 
applied  to  the  payment  of  the  debts 
of  the  corporation.  Hightower  v.  Mus- 
tian,  8  Ga.  .^Ofi. 

But  a  trust  deed  is  not  fraudulent  on 
its  face  because  no  time  is  specified 
for  the  sale  of  the  property  conveyed: 
and  the  trustee,  a  young  man  without 
property,  and  excused  from  bond,  is 
authorized  to  rent  until  sale;  and  al- 
lowed to  sell  on  credit  in  his  discre- 
tion; and  to  compromise  or  arbitrate 
any  matter  of  litigation;  and  to  do  all 
other    proper    and    necessary     acts      as 


fully  as  could  the  grantor;  and  the 
amount  of  the  preferred  debts  is  not 
specified.  Swepson  v.  Exchange,  etc., 
Bank,    77    Tenn.    (9    Lea)    713. 

Allowing  trustee  to  sell  or  pledge 
assets. — A  clause,  in  an  assignment  by 
a  bank  for  the  benefit  of  its  creditors, 
permitted  the  trustees  "to  sell  or 
pledge  any  of  the  property  or  effects 
conveyed,  including  the  notes  of  the 
bank,  in  case  any  pressing  emergency 
not  otherwise  provided  for  should  ren- 
der it  necessary  to  so  employ  said 
bank  notes."  Held  that,  since  the  pro- 
vision was  not  in  itself  an  improper 
appropriation  of  the  assets,  it  did  not 
vitiate  the  assignment,  or  render  it 
fraudulent  in  law,  though  it  might  lead 
to  such  a  result.  Montgomery  v.  Gal- 
braith    (.Miss.),  11    Smedes  &   M.   .5.^.5. 

87.  Assignments  in  contemplation  of 
insolvency. — Armstrong  v.  Grannis,  4 
O.  Dec.  54,  Cleve.  L.  Rec.  71;  Appeal 
of  Scranton  Trust  Co.  (Pa.\  4  Walk. 
208,    (assignment   to   president). 

An  assignment  for  the  benefit  of 
creditors,  made  by  a  bank  incorporated 
tmder  the  Ohio  general  banking  law 
of  1845,  is  not  void,  although  made  in 
contemplation  of  general  insolvency, 
if  it  is  not  made  in  contemplation  of 
suspending  specie  payments  on  its  cir- 
culating notes.  Armstrong  i\  Grannis, 
4  O.   Dec.  54,  Cleve.   L.  Rec.  71. 

An  assignment  of  its  property  by  a 
bank,  after  it  had  stopped  paying  to 
persons  other  than  officers  or  stock- 
liolders,  in  trust  for  the  benefit  of 
creditors,  is  valid,  and  not  prohil)ite(l 
by  the  act  to  prevent  fraudulent  liank- 
ruptcy;  7  St.,  p.  540a,  §  G,  prohibiting 
an  assignment  of  any  property  to  an 
officer  or  stockholder  of  a  corporation 
for  the  payment  of  any  debt,  and  as- 
signment to  any  person  in  contempla- 
tion of  insolvency.  ITaxton  r'.  Bishop 
(X.   v.),  3  Wend.   13. 

Assignment  by  director  to  pay  in- 
dividual debt. — C)l)ji'ctii>ii  that  assign- 
ments of  assets  made  by  the  directors 
of  a  bank  to  pay  del)ts  for  which  tliey 
are  individually  bound,  are  void,  under 
Va.  Code,  1H73,  cli.  57,  §  18,  which  pro- 
vides   tliat    '"S.O    mcmlicr    of    tlic    Ixi.ird 


564 


BANKS    AND    BANKING. 


§  78  (3aa) 


for  the  benefit  of  creditors,  with  a  view  to  evade  the  statute  prescribing 
the  mode  in  which  the  affairs  of  banking  associations  established  under  the 
general  law  shall  be  wound  up  in  case  of  insolvency,  is  void,  as  being  against 
the  policy  of  the  law.'''''  But  the  fact  that  a  private  banking  firm  may  have 
violated  their  fiduciary  relations  to  a  national  bank,  of  which  they  were  also 
officers,  or  have  not  done  their  duty  by  their  own  depositors,  does  not  in 
itself  render  an  assignment  by  them  for  the  benefit  of  creditors,  fraudulent.^^ 
Nor  is  an  assignment  for  creditors  by  a  bank  invalid  because  it  contains  an 
express  reservation  of  the  surplus,  after  payment  of  the  debts  specified,^^ 
or  because  the  amount  of  effects  assigned  is  larger  than  would  be  reasonably 
sufficient  to  pay  the  debts,'^i  or  because  it  is  made  to  avoid  the  consequences 
of  pending,  hostile  legislation. ^^  ^q,-  ^g  ^j^g  assignment  invalid  for  want  of 
the  vote  of  the  stockholders  therefor.^^ 

By  statute  in  Ohio  if  any  banking  institution  makes  an  assignment  with 
intent  to  prevent  or  hinder  such  institution  from  being  closed  up  by  the 
bank  commissioner,  such  bank  commissioner  may  take  possession  of,  col- 
lect and  distribute  the  assets,  as  if  no  such  assignment  had  been  made.^^ 


shall  vote  on  a  question  in  which  he 
is  interested,  otherwise  than  as  a  stock- 
holder," must  be  made  in  the  court 
below,  and  can  not  be  raised  for  the 
first  time  in  an  appellate  court.  Plant- 
ers'   Bank  v.   Whittle,   78   Va.   737. 

88.  Bank  Comm'rs  z'.  Bank  (Mich.), 
1   Har.  106. 

89.  Where  the  members  of  a  private 
banking  firm  who  controlled  the  man- 
agement of  a  national  bank,  being 
heavily  indebted  to  the  bank  and  also 
to  their  depositors,  made  a  general  as- 
signment of  all  their  property  to  secure 
their  creditors  in  classes,  and  it  is  said 
that  they  indulged  in  wild  speculations 
in  real  and  personal  estate,  stocks, 
bonds,  mines,  railroads,  etc.;  that  ap- 
plies as  well  to  the  squandering  of  the 
seven  hundred  thousand  dollars  and 
upwards  of  deposits  with  them  as  a 
banking  firm,  as  it  does  to  the  money 
that  they  absorbed  from  the  bank;  and 
in  any  view,  the  violation  of  their 
fiduciary  relations  to  the  bank,  of 
which  they  were  officers,  or  their 
treatment  of  the  depositors  in  the 
banking  firm  of  which  they  were  mem- 
bers, does  not  render  the  assignment 
of  all  their  property  for  the  benefit  of 
their  creditors  therefore  fraudulent. 
Peters  v.  Bain,  133  U.  S.  670,  33  L.  Ed. 
096,   10   S.    Ct.   354. 

90.  Dana  v.  Bank,  5  Watts  &  S. 
(Pa.).    323. 

Validity  of  reservations  in  assign- 
ment.— An  assignment  made  by  an  in- 
solvent bank  to  pay  an  existing  debt  to 
a  creditor,  is  not  void  in  law  by  the 
general  law,   or  under   the   act   of   1S18, 


because  there  is  a  stipulation  that  the 
excess  shall  be  returned  to  the  bank. 
Such  a  transfer  is  valid  in  law,  per  se. 
The  excess  in  this  case,  is  not  even  a 
badge  of  fraud  in  fact,  but  a  reason- 
able allowance  to  cover  bad  debts  and 
the  expense  of  collection,  and  the 
stipulation  that  the  excess  shall  be 
returned  upon  the  face  of  this  assign- 
ment tc  the  bank,  does  not  create  such 
a  trust  as  is  condemned  by  the  act  of 
1818.     Carey  v.  Giles,  10  Ga.  9. 

91.  Carey  z'.  Giles,  10  Ga.  9. 

92.  After  an  act  had  passed  both 
houses  of  the  legislature,  and  while  it 
was  before  the  governor  for'  his  ap- 
proval, compelling  all  assignees  of  the 
Bank  of  the  United  States  to  accept  its 
notes  in  payment  of  debts  assigned,  the 
l)ank  made  an  assignment  for  the  bene- 
fit of  certain  preferred  creditors.  Other 
creditors  claimed  that  the  assignment 
vv-as  hurried  in  order  to  evade  the  act, 
and  should  therefore  be  held  to  be 
void.  Held,  that  such  olijection  was 
no  ground  for  defeating  the  assign- 
ment. Dana  v.  Bank,  5  Watts  &  S. 
(Pp.)    223. 

93.  A  general  assignment  by  a  bank 
for  benefit  of  creditors  executed  by 
proper  officers  by  resolution  of  the  di- 
rectors is  not  governed  by  Rev.  St., 
§  1524  (19  St.  at  Large,  p.  543),  pro- 
viding for  a  corporation's  securing 
debts  by  mortgage  by  vote  of  the 
stockholders.  Parker  v.  Carolina  Sav. 
Bank,  53  S.  C.  583,  31  S.  E.  673.  69  .\tTi. 
St.   Rep.  888. 

94.  Right  of  assignee  who  was 
maker  of  note  to  sue  surety. — In  1S42, 


§  78  (3bb 


I.XSOLVEXCV   AND   DISSOLUTION. 


§  78  (3bb)  Preferences.— At  common  law  and  in  the  absence  of  re- 
strictions in  its  charter  a  bank  in  failing  circumstances  may  make  an  assign- 
ment for  creditors  preferring  some  over  others,  provided  there  is  no  fraudu- 
lent intent ;  the  insolvency  of  the  bank  at  the  time  of  such  assignment  does 
not  impair  its  power  to  assign  for  the  benefit  of  preferred  creditors.^^  Rut 
preferences  by  insolvent  debtors  have  never  been  favored;  accordingly  in 
most  jurisdictions  there  are  statutes  forbidding  preferences  among  creditors 
of  the  bank  and  providing  that  assignments  infringing  these  statutes  are  in- 
valid or  void.-'«  and  in  some  states  the  statutes  even  make  it  a  crime  for 


the  Bank  of  Hamilton  assigned  all  its 
effects  to  three  trustees,  McC,  M.  and 
C,  among  which  was  a  joint  and  sev- 
eral note  of  McC.  &  J.  as  principals, 
and  R.  as  surety,  for  $900.  After  its 
maturity,  the  makers  gave  a  new  note 
of  like  character,  and,  by  way  of  re- 
newal, to  assignees,  at  ninety  days. 
The  last  note  was  not  paid  at  maturity, 
and  was  retained  by  the  assignees  for 
several  years,  during  which  period  the 
principals  became  insolvent.  The  as- 
signees then  transferred  it  to  F.,  for 
collection  merely.  F.  brought  suit 
thereon  against  R.,  and  it  was  held  that 
an  action  might  be  maintained  on  said 
note,  in  the  names  of  the  assignees, 
against  R.,  although  one  of  them  was 
also  a  maker  of  the  note,  there  being 
no  such  suspension  of  a  right  of  ac- 
tion upon  the  note  in  the  hands  of  the 
assignees  as  authorizes  the  court  to 
hold  the  note  assets  in  the  hands  of 
the  trustees,  or  either  of  them.  Ross- 
man  v.   McFarland,  9   O.   St.  369. 

Under  the  bank  Acts  of  3  839  and 
1840,  providing  that  no  bank  shall 
make  assignments  in  favor  of  their 
creditors,  and  authorizing  the  commis- 
sioners to  take  possession  of  alf  the 
assets  in  insolvency,  an  assignment  by 
a  bank  for  the  benefit  of  its  creditors 
is  not  wholly  void,  but  only  void  in 
so  far  as  it  conflicts  with  the  action  of 
the  commissioners.  Rossman  t'.  Mc- 
Fariand,   9   O.    St.   309. 

95.  Validity  of  preferences  by  bank. 
—Peters  v.  P.ain.  133  U.  S.  070,  33  I^. 
Ed.  690,  10  S.  Ct.  3.54;  Catlin  r.  Eagle 
Bank,  6  Conn.  233;  Dana  v.  Bank,  5 
Watts  &  S.  (Pa.)  223;  Planters'  Bank 
V.   Whittle,   78   Va.   737. 

Though  the  assets  of  an  insolvent 
bank  are  a  trust  fund  for  creditors  to 
the  extent  that  they  can  not  be  di- 
verted from  the  cretlitors,  yet  no  defi- 
■  nite  trust  attaches  in  favor  of  any  one 
creditor  to  the  exclusion  of  others,  so 
as  to  prevent  the  bank  preferring  some 
of  its  creditors.  Arthur  v.  Commercial, 
etc..  Bank  (Miss.),  9  Smedes  &  M. 
394,  48   .-\m    Dec.  719. 


The  Real-Estate  Bank,  in  making  its 
assignment  for  creditors,  might  well 
prefer  those  holders  of  its  notes  who 
were  willing  to  come  forward  and  de- 
posit them,  and  accept  certificates, 
with  6  per  cent  interest;  but  it  could 
not  compel  any  creditor,  who  chose  to 
run  the  risk  of  a  failure  of  assets  by 
payment  of  lawfully  preferred  cred- 
itors, to  forego  any  part  of  his  claim 
or  demand  against  the  assets  of  the 
bank.  He  might  be  postponed,  but 
could  not  be  deprived  of  any  claim  on 
the  surplus  assets.  Ringo  'z\  Biscoe, 
13  Ark.  563. 

96.  Preferences  by  banks  not  favored. 
— State  7:  Bank.  64  Tcnn.  (5  Baxt.)  101, 
Robinson  z\  Gardiner,  59  Va.  (IS 
Gratt.)  509;  Exchange  Bank  v.  Knox, 
00  Va.  (19  Gratt.)  739,  reaffirmed  in 
Saunders  z:  White,  61  Va.  (20  Gratt.) 
327;  Bank  v.  Marshall,  66  Va.  (25 
Gratt.)  378;  Garden  City  Banking, 
etc.,  Co.  V.  Geilfuss.  86  Wis.  612,  57 
N.  W.  349.  See  Peters  7-.  Bain,  133  U. 
S.   070,   33   L.   Ed.  696,   10  S.   Ct.   354. 

"Generally,  a  bank  may  convey  or 
transfer  its  property  in  possession,  or 
choses  in  action,  either  for  a  new  con- 
sideration, or  to  satisfy  or  secure  a 
pre-existing  debt.  When  a  bank  is  in- 
solvent, or  in  danger  of  insolvency, 
the  just  principle  of  equality  in  part 
payment  of  creditors,  alike  entitled  to 
satisfaction,  suggests  not  only  the 
legal  right,  but  the  moral  duty  of  an 
assignment,  or  other  measure,  to 
secure  and  effect  a  ratable  distribution 
of  its  assets  among  such  creditors. 
When  the  assignment  is  to  trustees  to 
secure  antecedent  dcl>ts,  these  con- 
stitute a  valuable  consideration  on- 
tirely  adequate  to  sustain  the  assign- 
ment, which  becomes  completely  ef- 
fectual to  protect  the  creditors  against 
demands  thereafter  acquired  by  any 
one.  Wickham  r-.  Martin  &  Co..  54  Va. 
(13  Gratt.)  427;  Evans  7'.  Greenhow. 
56  Va.  (15  Gratt.)  153."  I'armcrs' 
Bank  T.   Willis,   7   W.   Va.   37. 

Set-OfT    against    stockholder's    statu- 
tory liability. — Since   tiie   statute   creat- 


566 


BANKS    AND    BANKING. 


§  78  (4a) 


banks  to  prefer  its  creditors.-''  However,  the  fact  that  a  preference  is  given 
to  some  creditors  over  others  does  not  afifect  the  assignee's  title. ^^  Nor  does 
the  mere  fact  that  the  preferred  creditor  is  a  director  of  the  bank  render 
the  transaction  fraudulent,  though  in  such  case  they  must  act  in  the  utmost 
good  faith. 9'''  Nor  can  a  bank  by  making  an  assignment  prevent  such  prefer- 
ence amongst  its  creditors  as  the  law  gives. ^ 

§  78  (4)  Operation  and  Effect  of  Assignment — §  78  (4a)  In  Gen- 
eral.— An  assignment  by  a  bank  for  the  benefit  of  its  creditors  will  not 
have  the  effect  of  discharging  it  from  an  obligation  once  assumed  by  its 
own  act.^  But  the  drawee  of  a  draft  may  refuse  to  pay  it  upon  learning 
of  the  insolvency  of  and  assignment  by  the  drawer  bank.-^ 


ing  a  stockholder's  statutory  liability 
thereby  creates  a  fund  for  distribution 
among  all  the  creditors,  to  allow  a 
stockholder  in  an  insolvent  bank  to 
set-off  his  claims  against  the  bank 
against  his  statutory  liability  would 
give  him  a  preference.  Parker  v. 
Carolina  Sav.  Bank,  53  S.  C.  583,  31 
S.   E.   673,   69   Am.   St.   Rep.   888. 

97.  Preferences  by  banks  a  crime. — 
Curtis  V.  Leavitt   (N.  Y.),  17  Barb.  309. 

98.  Preference  of  school  fund. — 
Act  Feb.  16,  1866,  ordered  the  presi- 
dent and  directors  of  the  Bank  of  Ten- 
nessee to  make  an  assignment  for  the 
benefit  of  the  school  fund  and  of  all 
creditors  of  the  bank  whose  claims 
arose  before  May  6,  1861,  "excluding 
all  claims  or  demands  of  all  kinds  after 
May  6,  1861,  as  absolutely  null  and 
void."  Held,  in  an  action  in  the  name 
of  the  state  and  the  assignee  to  ef- 
fectuate such  assignment,  pursuant  to 
such  statute,  that  though  such  statute 
and  the  assignment  were  void,  so  far 
as  a  preference  of  the  school  fund  was 
concerned,  the  statute  vesting  title  to 
personal  property  in  the  adverse  holder 
in  tliree,  and  to  real  estate  in  seven 
years,  did  not  apply  to  the  title  of  the 
assignee  of  the  assets  of  such  bank. 
State  r.  Bank,  64  Tenn.   (5  Baxt.)   101. 

99.  Buell  V.  Buckingham  &  Co.,  16 
Iowa  284,  85  Am.  Dec.  516;  Stratton  v. 
Allen  (N.  J.),  1  C.  E.  Green  232;  Rail- 
road V.  Clayborn  (S.  C),  1  Speers  562; 
Planters'   Bank  v.  Whittle,   78  Va.   737. 

Preferences  to  directors. — When  a 
director  of  a  bank,  who  is  also  a  de- 
positor, has  knowledge  that  the  bank  is 
probably  insolvent  and  will  likely  be 
unable  to  continue  its  business  or  pay 
its  depositors,  in  order  to  avoid  the 
loss  of  his  deposits,  obtains  from  the 
cashier,  without  authority  from  the 
board  of  directors,  discounted  bills 
and    notes    of    the    bank    equal    to    the 


amount  of  his  deposits,  the  transaction 
will  be  held  invalid  and  the  assignee 
of  the  bank  may  recover  the  amount  of 
said  bills  and  notes  from  him.  Lamb 
V.  Cecil,  28  W.  Va.  653,  approved  in 
Lamb  V.   Pannell,   28  W.   Va.   663. 

1.  Fouche  7'.   Brower,  74   Ga.  251. 

2.  Operation  and  effect  of  assign- 
ment— Effect  on  pre-existing  obliga- 
tions.— By  the  charter  of  the  Bank  of 
the  United  States  (Laws  1835,  p.  36) 
it  oliligated  itself  to  pay  to  the  state 
of  Pennsylvania  an  annual  bonus  of 
$100,000  for  twenty  years.  In  1841  the 
bank  became  insolvent,  and  executed 
three  assignments  for  the  benefit  of  its 
creditors.  It  continued  its  existence, 
however,  electing  officers  and  directors 
annually  thereafter,  but  exercised  no 
further  banking  privileges  except  those 
necessary  to  close  its  business.  Held 
that,  since  the  failure  of  the  bank  was 
due  to  no  act  of  the  state,  its  nonuser 
of  its  corporate  privileges  for  which 
it  had  obligated  itself  to  pay  was  no 
defense  to  an  action  by  the  state  to 
recover  the  unpaid  balance  of  the 
bonus.  Bank  v.  Commonwealth,  17 
Pa.   400. 

3.  Checks  drawn  by  assignor  may  be 
refused. — Where  a  depositor  bank 
makes  a  draft  on  a  bank  in  which  it 
has  funds  to  its  credit,  and  afterwards 
makes  a  general  assignment  for  the 
benefit  of  creditors,  and  the  holder  of 
such  draft  presents  the  same  to  the 
drawee  for  payment  after  such  assign- 
ment is  made,  and  payment  is  refused, 
he  can  not  maintain  an  action  against 
the  drawee,  although  at  the  time  the 
draft  was  presented  for  payment  the 
drawee  did  net  know  of  the  assign- 
ment, but  learned  of  such  assignment 
before  making  payment,  and  by  reason 
of  such  knowledge  refused  pavment. 
Guthrie  Nat.  Bank  v.  Gill.  6  Okl.  560, 
54  Pac.  434. 


§  78  (4b) 


INSOLVENCY   AND  DISSOLUTION. 


567 


§  78  (4b)  What  Passes  by  Assignment.— In  determining  what  an 
assignment  inchides,  the  intention  of  the  assignors  must  be  ascertained.'*  But 
the  rule  is  well  settled  that  under  a  general  assignment  by  a  bank,  all  its 
property  capable  of  assignment  will  pass  to  the  assignee.^  And  if  the  deed 
of  assignment  by  the  bank  does  not  refer  to  the  schedule  of  assets  accom- 
panying it.  it  will  not  be  limited  in  its  operation  to  the  assets  embraced  in 
the  schedule,  but  transfers  all  assets  which  come  within  its  terms."  But 
trust  property  is  not  included  in  the  assignment." 


4.  What  passes  by  assignment — 
"Post  notes." — The  Bank  of  the  United 
States  made  an  assignment  to  pay  de- 
positors and  holders  of  notes  of  the 
bank  of  the  ordinary  kind,  payable  on 
demand,  and  '"commonly  used  in  cir- 
culation," and  also  holders  of  notes  of 
the  bank  commonly  called  "post  notes" 
(other  than  post  notes  issued  to  banks 
in  P.,  for  which  security  had  been 
given),  and  to  provide  security  for  the 
payment  of  said  deposits,  notes,  and 
post  notes,  except  post  notes  provided 
for  as  above.  Held,  that  the  post 
notes  entitled  to  participate  in  the  as- 
signment were  such  notes  as  were 
designated  as  a  "part  of  the  circulat- 
ing medium,"  and  that  notes  of  the 
bank  under  seal,  which  were  issued 
for  a  loan  to  the  bank  and  secured  by 
the  hypothecation  of  collaterals,  and 
not  designated  as  "part  of  the  circu- 
lation of  the  bank,"  were  not  entitled 
to  take  under  the  assignment.  Appeal 
of  Hogg,   22    Pa.   479. 

5.  Money  deposited  with  a  private 
banker  to  secure  liim  from  liability  on 
a  bond,  and  mingled  by  him  with  the 
other  funds  of  the  bank,  with  the 
knowledge  of  the  depositor,  passes  to 
the  banker's  assignee,  under  a  general 
assignment.  Mutual  Acci.  Ass'n  z'. 
Jacobs,  141  111.  261.  .31  N.  E.  414,  33 
Am.   St.   Rep.   302,   16   L.   R.   A.   516. 

Money  of  correspondent  bank. — A 
county  l)ank  requested  its  Kansas  City 
correspondent  to  remit  to  its  New 
York  correspondent  $5,000  for  its  ac- 
count and  credit,  and,  the  New  York 
bank  l)eing  also  the  correspondent  of 
the  Kansas  City  bank,  the  latter  ac- 
cordingly drew  an  order  on  the  New 
York  bank  to  "pay  to  the  order  of 
credit  the  [country  bank!  $5,000," 
which  it  sent  by  mail,  accompanied  by 
a  letter  saying,  "Please  find  inclosed 
for  the  credit  of  [the  country  bank] 
$5,000."  Before  the  order  and  letter 
reached  New  York,  the  Kansas  City 
bank  had  made  an  assignment,  and  the 
assignee  had  notified  the  New  York 
bank  thereof.  Held,  that  the  order 
operated  to  transfer  the  amount  called 


for  to  the  countrj'  bank,  and  that, 
therefore,  the  assignee  was  entitled  to 
the  fund  attempted  to  be  drawn  on. 
Coates  f.  First  Xat.  Bank,  91  N.  Y.  20. 

Deposits  marked  "private." — Money, 
made  up  bj'  a  banking  firm  in  a  pack- 
age, and  marked  "Private,"  with  the 
name  of  a  general  depositor  thereon, 
previous  to  an  assignment  tor  the 
l^enefit  of  creditors,  who,  on  making 
the  assignment,  asked  the  assignee  to 
give  the  package  to  the  depositor,  who 
knew  nothing  of  these  facts  till  after- 
v.'ards,  was  covered  by  the  assignment. 
Coots  V.   McConnell,   39   Mich.   742. 

A  banking  firm,  just  before  it  had 
determined  on  assigning,  marked  a 
package  of  money  with  the  name  of  a 
general  depositor  and  the  word  "Pri- 
vate." The  money  did  not  amount  to 
the  depositor's  full  credit.  On  mak- 
ing the  assignment  the  firm  asked  the 
assignee  to  give  said  package  to  the 
depositor,  who  knew  nothing  of  these 
facts  till  afterwards.  Held,  that  the 
money  was  not  thereby  delivered,  and 
was  covered  by  the  assignment.  Coots 
7-.    McConnell.    39    Mich."  742. 

Liability  of  stockholders  for  unpaid 
stock. — .An  insolvent  l)ank  may,  in  its 
assignment  for  creditors,  include  as 
assets  the  liability  of  its  stockiiolders 
for  unpaid  stock  for  which  no  call  has 
l)een  made.  Eppright  7'.  Nickerson,  78 
Mn.    482. 

Liabilities  of  officers  to  a  bank  for 
official  misconduct  pass  to  an  assignee 
for  the  benefit  of  creditors  by  a  gen- 
eral assignment  of  its  property  for 
that  purpose.  Killen  z:  State  Bank, 
106  Wis.  546,  82   N.  W.  536. 

6.  Eppriglit  T'.  Nickerson,  78  Mo. 
482. 

7.  .An  assignment  of  the  property 
and  effects  of  a  I)ank  to  a  trustee  ap- 
pointed under  the  Mississippi  statute 
of  1843,  relating  to  the  dissolution  of 
l)anks,  vests  in  the  trustee  tlie  legal 
title  to  such  property  only  of  which 
tlie  bank  had  the  beneficial  interest. 
Nevitt  V.  Bank  CMiss.).  6  Smodes  Si  M. 
513;  Commercial  Bank  t.  Chamber.s 
(Miss.),  8  Smcdcs  &  M.  9;  Crand  Culf 


568 


BANKS    AND    BANKING. 


§  78    (5c) 


§  78  (5)  The  Assignee  or  Trustee— §  78  (5a)  Relation  of  Trus- 
tee to  Bank  and  Creditors. — The  grantees  in  a  deed  of  assignment  by  a 
bank  are  not  trustees  for  the  bank  but  for  the  creditors. § 

§  78  (5b)  Necessity  of  Assignee. — If  an  assignment  by  a  bank  was 
valid  when  made,  it  will  not  fail  for  the  want  of  an  assignee ;  but  the  court, 
in  vacation  or  term  time,  is  authorized  to  appoint  a  receiver,  who  shall  exe- 
cute the  assignment.  When  appointed,  he  has  all  the  rights,  privileges  and 
powers  of  the  assignee,  but  none  others. '^ 

§  78   (5c)  Selection  or  Appointment.— Manner   of   Selecting.— In 

some  jurisdictions,  the  stockholders  of  a  bank  which  has  made  an  assign- 
ment are  entitled  to  select  an  assignee,  subject  to  the  approval  of  the  court  ;^^ 
the  creditors  have  no  voice  in  the  matter.^ ^ 


R.  &  B.  Co.  V.  State  (Miss.),  10 
Smedes  &  M.  428;  Bacon  v.  Cohea 
(Miss.),   12   Smedes   &   M.   516. 

Trust  funds  do  not  pass  to  assignee. 
— A  banking  firm  issued  its  cashier's 
check  to  its  creditor,  who  received  it 
upon  the  assumption  that  it  would  l)e 
paid  by  a  certain  bank  pursuant  to  an 
arrangement  between  such  firm  and 
that  bank,  whereby  such  checks  were 
to  be  paid  through  the  clearing  house. 
After  the  check  had  been  deposited, 
and  had  passed  through  the  clearing 
house,  the  firm  gave  securities  to  the 
bank  for  the  payment  of  this  class  of 
obligations.  Said  firm  then  made  an 
assignment  for  the  benefit  of  creditors. 
Held,  that  by  such  deposit  the  securi- 
ties became  a  trust  fund  for  the  bene- 
fit of  the  holder  of  the  check,  and  that, 
therefore,  they  did  not  pa§s  to  the 
firm's  assignee.  Watts  v.  Shipman  (N. 
Y.).  21    Hun  598. 

8.  Grantees  in  deeds  trustees  for 
creditors,  not  bank. — Where  a  l^ank  in 
conformity  with  the  Act  of  February 
12,  1866.  entitled  "An  act  requiring 
banks  of  the  commonwealth  to  go  into 
liquidation,"  executed  its  deed  of  as- 
signment, it  ceased  to  exist  for  the 
purposes  for  which  it  was  created.  A 
resumption  of  its  operations  as  a  bank 
was  simply  impossible.  The  stock- 
holders had  no  longer  any  interest  in 
it.  It  only  remained  to  wind  them  up 
for  the  benefit  of  the  creditors.  There- 
fore, the  grantees  in  such  deeds  were 
not  trustees  for  the  bank,  but  for  the 
creditors  only,  and  are  purchasers  and 
assignees  for  value  of  all  the  property 
and  effects  of  the  bank,  for  the  benefit 
of  the  creditors.  Robinson  v.  Gardiner, 
59  Va.  (18  Graft.)  509;  Exchange  Bank 
7'.  Knox.  60  Va.  (19  Graft.)  739;  Saunders 
r.  White,  61  Va.   (20  Graft.)  327;  Bank 


7.    Marshall,    66    Va.    (25    Gratt.)    378; 
Farmers'   Bank  z'.  Willis,   7  W.  Va.   31. 

9.  Necessity  of  assignee. — Fouche  v. 
Brower,    74    Ga.    251. 

10.  Selection  or  appointment  of  as- 
signee.— In  re  Union  Banking  Co. 
(Pa.),  12  Phila.  469,  34  Leg.  Int.  230. 

Where,  under  the  law,  the  appoint- 
ment of  the  assignees  of  a  bank  is  sub- 
ject to  the  approval  of  the  court,  it 
will  not  grant  the  application  of  one 
that  he  be  discharged  and  his  associate 
approved,  where  he  has  already  en- 
tered on  his  trust,  and  charges  of  mis- 
conduct have  been  made  against  him. 
Ex  parte  Banking  Co..  34  Leg.  Int.  204. 

11.  Creditors  may  not  select  as- 
signee.— News  z'.  Shackamaxon  Bank 
(Pa.),    16   Wkly.    Notes    Cas.   207. 

Under  Act  April  16,  1850,  providing 
that,  on  the  application  of  a  creditor, 
the  directors  of  an  insolvent  bank 
shall  make  and  execute  "a  general  as- 
signment to  such  person  or  persons 
as  they  may  select,  subject  to  the  ap- 
proval of  the  court  of  common  pleas," 
the  creditors  have  no  right  to  partici- 
pate in  the  appointment  of  the  as- 
signees. News  V.  Shackamaxon  Bank 
(Pa.).    16   Wkly.    Notes    Cas.    207. 

Creditors  may  object  to  selection  of 
assignee. — Under  .\ct  April  16,  1850, 
providing  for  a  compulsory  assignment 
by  an  insolvent  bank  to  assignees 
selected  by  the  directors  subject  to  the 
approval  of  the  court,  the  creditors 
have  a  sufficient  standing  in  court  to 
entitle  them  to  object  to  the  assignees 
selected  by  the  directors,  upon  tlie 
ground  of  disqualification  or  personal 
unfitness  for  the  office.  News  v. 
Shackamaxon  Bank  (Pa.).  16  Wkly. 
Notes  Cas.  207. 

Though  the  creditors  have  no  voice 
in   the    selection    of  the   assignees   of  a 


§  78  ( 5f ) 


INSOLVENCY   AND   DISSOLUTION. 


569 


§  78  (5d)  Qualifications  of  Assignee.— Tlie  assignee  selected  should 
be  an  unbiased  and  disinterested  person.'-  lUn  the  selection  as  assignee  of 
one  of  the  parties  bound  on  a  joint  and  several  obligation  does  not  affect 
the  right  of  action  against  the  others. ^-"^ 

§  78  (5e)  Joint  Assignees. — An  as.^ignment  to  several  assignees 
jointly  may  provide  for  survivorship,  so  that  one  may  act  without  joining 
the  others. ^^ 

§  78    (5f)    Title  and  Rights,  Powers  and  Duties    of    Assignee.— 

When  an  insolvent  bank  executes  an  assignment  of  "'all  and  everv  of  its 
property  and  effects  and  credits  of  each  and  every  kind  and  character  what- 
soever, in  as  full  and  complete  a  manner  as  the  same  are  now  owned,  held 
and  possessed  by  it,"  and  the  assignees  accept  the  trust,  the  title  of  the  prop- 
erty passes  to  the  assignees,  and  also  the  right  to  sue  for  and  recover  all 
rights,  credits,  etc.^^ 

Conflicting  Rights  of  Assignees  and  Others.— If  a  receiver  is  ap- 
pointed by  the  court  pending  litigation  over  assignees  improperly  appointed, 
the  receiver  will  be  ordered  to  pay  over  money  in  his  hands  to  such  assignee, 
after  the  latter  has  qualified.^''  And  if  trustees  are  appointed  after  the 
bank  has  made  an  assignment,  the  rights  of  the  assignee  are  paramount  to 
that  of  the  trustees.^" 


bank,  under  Act  1850,  §  27,  providing 
that  the  court  may  order  the  directors 
of  an  insolvent  bank  to  make  an  as- 
signment to  such  persons  as  they  may 
select  subject  to  the  approval  of  the 
court,  they  may  object  to  the  assignees 
selected  by  the  directors  upon  the 
ground  of  disqualification  or  personal 
unfitness  for  the  office.  News  v. 
Shackamaxon  Bank  (Pa.),  16  Wkly. 
Notes    Cas.    207. 

12.  Qualifications  of  assignee. — The 
fact  that  one  appointed  as  an  assignee 
of  an  insolvent  bank  is  a  small  stock- 
holder therein  does  not  disqualify  him 
to  serve.  News  v.  Shackainaxon  Bank 
(Pa.),    16   Wkly.    Notes    Cas.   207. 

13.  Where  one  of  the  parties,  liable 
on  a  joint  and  several  note,  becomes 
one  of  the  general  assignees  of  the 
bank  to  which  the  note  is  payable,  the 
other  parties  are  not  thereby  released 
from  liability.  Rossman  v.  McFar- 
land,    9    O.    St.    .TOO. 

14.  Survivorship  between  joint  as- 
signees.— .\  Ijank  was  put  in  liquidation 
by  St.  1843,  and  by  St.  184'.,  a  supple- 
mentary act,  it  was  provided  that  all 
the  effects  of  the  bank  should  ])C  trans- 
ferred to  four  assignees.  ft  was 
further  provided  that  the  real  estate 
should  be  conveyed  to  all  the  assignees 
jointly,    and    that    the    personal    effects 


thereof  at  S.  and  of  the  branch  at  L. 
should  be  assigned  to  A.  and  B.,  and 
of  the  other  branches  to  other  as- 
signees. There  was  no  requirement 
that  this  should  be  done  jointly,  with 
or  without  the  right  of  survivorship. 
A  note  made  by  the  plaintiff,  payable 
to  the  bank  at  S.,  was  assigned  to  A. 
and  B.  and  the  survivor.  A.  died.  Held, 
that  the  assignment,  with  survivorship, 
was  authorized  by  the  act,  though  the 
act  provided  for  the  filling  of  vacan- 
cies; and  therefore  the  fact  that  A."s 
vacancy  was  not  filled  did  not  invali- 
date the  assignment.  Ryan  7'.  Van- 
landingliam.    7   Ind.   416. 

15.  Title,  rights  and  powers  of  as- 
signee.— Hill  V.  Western,  etc.,  R.  Co.. 
86    Ga.   284,    12    S.    K.   6,'?.'). 

16.  Conflicts  between  rights  of  as- 
signees and  others. —  In  re  I'liion 
Banking  Co.  (Pa.),  12  Piiila.  460.  :54 
Leg.  Int.  230. 

Where  the  appointment  of  assignees 
by  a  bank  is  defective,  and  the  court 
appoints  a  receiver,  on  a  sulise(|uent 
legal  appointment  and  aiiproval  of  as- 
signees, tlic  court  will  direct  the  re- 
ceiver to  turn  the  bank  property  over 
to  such  assignees.  Kx  parte  Ranking 
Co.,   34    T-eg.    Tnt.   230. 

17.  Rights  as  between  trustees  and 
assignees. — Upon      quo      warranto      to 


.570 


BANKS    AND    BANKING. 


§  78  (6aa) 


Duties. — Under  the  law,  it  is  the  duty  of  the  assignee  to  ascertain 
whether  a  claim  presented  for  payment  is  legal.  His  failure  to  do  so  would 
render  him  liable  to  those  injured  by  a  neglect  of  duty  in  this  respect.^'^ 

§  78  (5g)  Compensation  of  Assignee. — The  trustees  in  an  assign- 
ment by  a  bank  may  forfeit  their  compensation  by  misconduct. ^^ 

§  78  (5h)  Removal  of  Assignee. — If  necessary  the  court  may  remove 
a  delinquent  assignee  of  a  bank  and  appoint  another.-^ 

§  78  (6)  Rights  and  Remedies  of  Creditors — §  78  (6a)  Assets — 
§  78  (6aa)  What  Constitutes. — Debts  owing  to  a  bank  at  the  time  of 
its  insolvency  constitute  assets  in  the  hands  of  the  assignee. ^^  And  a  note 
deposited  for  collection  in  a  bank  that  afterwards  becomes  insolvent  is  not 
impressed  with  the  character  of  a  trust  fund  in  the  hands  of  the  assignee, 
so  as  to  enable  the  plaintiiT  to  recover  its  value  from  the  assignee.-^ 


annul  the  charter  of  a  bank  that  had 
made  a  partial  assignment  of  its  as- 
sets to  pay  its  debts,  trustees  were 
appointed,  to  whom  the  bank  was  or- 
dered to  deliver  all  its  property.  Held, 
that  the  right  of  the  assignees  was 
paramount  to  that  of  the  trustees,  and 
that,  therefore,  the  latter  took  only 
what  did  not  pass  by  the  assignment. 
Grand  Gulf  R.,  etc.,  Co.  z\  State 
(Miss.).  10  Smedes  &  M.  428. 

18.  Duties  of  assignee. — Kassler  v. 
Kyle,   28   Colo.   374,   65   Pac.   34. 

19.  Right  of  assignees  to  compensa- 
tion.— Where  trustees,  to  v.'hom  have 
been  assigned  the  assets  and  property 
of  a  banking  corporation  for  the  bene- 
fit of  its  creditors,  etc.,  have  been 
guilty  of  gross  misconduct  toward 
such  creditors,  refusing  inspection  of 
their  books,  taking  no  steps  to  collect 
or  distribute  the  assets,  neglecting  for 
years  to  sue  upon  the  stock  notes, 
loaning  the  only  funds  actually  col- 
lected to  themselves  and  the  stock- 
holders, etc.,  such  trustees  are  entitled 
1o  no  compensation  as  against  the  note 
holders  and  creditors  of  the  bank. 
Moses  V.  Ocoee  Bank,  69  Tenn.  (1 
Lea)    398. 

As  between  the  trustees  and  stock- 
holders, the  former  having  carried  out 
the  settled  policy  and  wishes  of  the 
latter  with  reference  to  the  manage- 
ment of  the  trust  property,  and  having 
consulted  their  interests  to-  the  ex- 
clusion of  the  interest  of  creditors,  a 
different  rule  might  apply,  entitling 
them  to  compensation,  did  not  a  rule 
of  public  policy  intervene,  by  which 
to  prevent  a  collusion  between  corpo- 
rations and  their  trustees  detrimental 
to  the  ends  of.  justice  and  good   faith. 


trustees  should  be  denied  all  compen- 
sation from  any  source,  where,  by 
misconduct  and  mala  fides  towards  the 
public  they  have  forfeited  their  claim 
to  such  compensation.  Moses  v. 
Ocoee    Bank,   69   Tenn.    (1    Lea)    398. 

20.  Removal  of  assignee. — Garden 
City  Banking,  etc.,  Co.  t'.  Geilfuss,  86 
Wis.  612,  616,  57  N.  W.  349. 

21.  The  debts  due  to  the  bank  of 
Illinois  after  the  assignment  thereof 
to  trustees  for  the  benefit  of  creditors 
in  pursuance  of  the  statute  of  Illinois 
of  1845  had  the  satne  force  in  the 
hands  of  the  assignees  after  the  dis- 
solution of  the  corporation  as  the 
rights  and  credits  of  deceased  persons 
in  the  hands  of  their  representatives. 
Ryan  7'.   Vanlandingham,  7   Ind.   416. 

22.  When  a  bank  to  which  a  note 
is  sent  for  collection,  instead  of  col- 
lecting it,  takes  from  the  maker  a  new 
note,  payable  to  itself,  which  note 
comes  to  the  hands  of  the  assignee  for 
the  creditors  of  the  bank,  the  equitable 
owner  of  the  note  can  not  hold  the  as- 
signee as  trustee  for  him  to  its 
amount.  Harrison  Nat.  Bank  z'.  Elli- 
cott.   31   Kan.    173.   1    Pac.   593. 

Checks  and  drafts  of  correspondent 
bank  do  not  pass. — The  assignees  of 
an  insolvent  banking  firm,  the  surviv- 
ing partner  of  which  has  made  an  as- 
signment, can  not  hold  as  assets  of 
the  firm  the  proceeds  of  checks  and 
drafts  which  M^ere  in  the  mails  at  the 
time  of  the  death  of  the  other  partner 
one  morning  before  the  banking  hours, 
and  were  received  by  the  survivor  the 
same  day  and  paid  by  chargin.g  them 
against  the  accounts  of  the  drawers, 
the  proceeds  being  placed  to  the  credit 
of    the    bank    which    sent    them.      First 


§  78  (6cc) 


INSOLVENCY    AND   DISSOLUTION. 


571 


§  78  (6bb)  Collection  of  Assets. — The  assignee  has  a  right  to  sue  to 
collect  assets  of  the  baiik-'^  either  in  his  own  name-'*  or  in  the  name  of  tlie 
assignor,  depending  on  the  statute  or  rules  of  practice  in  the  particular  juris- 
diction.-°  And  if  the  assignee  refuses  to  bring  the  suit  the  creditors  may 
maintain  it.-''     But  the  trustee  should  exhibit  the  deed  with  his  pleadings.-" 

§  78  (6cc)  Limitation  on  Actions  by  Assignee. — The  limitation  on 
actions  l)y  the  assignee  of  a  bank  is  governed  by  statute  in  the  various 
jurisdictions. 28 


Nat.  Bank  v.  Payne,  85  Va.  890,  9  S. 
E.  153,  3  L.  R.  A.  284,  citing  Overseers 
r.  Bank.  43  Va.  (2  Gratt.)  544,  44  Am. 
Dec.  399. 

23.  Suit  by  assignee  to  collect  claims. 
— Whatever  claims  a  bank  could  col- 
lect by  suit  or  action  before  an  as- 
signment may  be  so  collected  after- 
wards by  the  trustee  in  the  deed  of 
assignment.  Lamb  z'.  Cecil,  25  W.  Va. 
288;  S.  C,  28  W.  Va.  653,  approved  in 
Lamb  V.  Pannell,  28  W.  Va.  663. 

The  president  of  a  bank,  b}--  the  au- 
thority of  the  directors,  given  before 
the  time  limited  for  closing  the  con- 
cerns of  the  bank,  assigned  certain 
notes  to  trustees,  to  whom  the  prop- 
erty of  the  bank  had  been  transferred 
by  a  vote,  and  for  the  benefit,  of  the 
stockholders.  Held,  that  the  assign- 
ment vested  the  legal  interest  in  the 
trustees,  who  were,  therefore,  entitled 
to  sue  on  such  notes.  Stevens  v.  Hill, 
29  Me.  133. 

Foreign  assignee. — A  statute  passed 
by  the  Illinois  legislature  in  1845  pro- 
vided that  the  real  estate  of  the  in- 
solvent bank  of  Illinois  should  be  con- 
veyed to  four  assignees  jointly,  and 
that  the  personal  effects  of  the  branch 
of  the  bank  at  S.  should  be  assigned 
to  A  and  B,  but  did  not  require  that 
it  should  be  done  jointly,  with  or  with- 
out the  right  of  the  survivorship. 
Held,  that  B  had  a  right  to  sue  in  this 
state  on  a  note  assigned  to  himself 
and  A,  whether  he  was  clothed  with 
the  legal  title  or  not.  Ryan  z'.  Van- 
landingham,  7  Ind.  41 0. 

Estoppel. — A  trustee  in  an  assign- 
ment for  the  creditors  of  an  insolvent 
bank  is  not  estopped  from  suing  to  re- 
cover the  amount  of  discounted  bills 
and  notes  fraudulently  received  from 
the  cashier,  without  authority,  by  a 
director  of  the  bank,  by  the  fact  that 
the  trustee  has  paid  such  director 
dividends  on  the  bank's  indebtedness 
to  him.  Lamb  v.  Cecil,  25  W.  Va.  288; 
S.  C,  28  W.  Va.  653,  approved  in 
T-amb  7'.  Pannell,  28  W.  Va.  600, 

24.    In  Wisconsin  all   actions   fur  the 


recovery  of  the  assigned  estate  or  any 
interest  therein,  or  for  the  recovery 
of  property  conveyed  or  transferred 
in  fraud  of  creditors,  or  the  transfer 
or  conveyance  of  which  is  void  l)y  rea- 
son of  being  preferential  or  other- 
wise, are  required  to  be  brought  only 
in  the  name  of  the  assignee.  Garden 
City  Banking,  etc.,  Co.  v.  Geilfuss,  86 
Wis.    612,    57^   N.    W.    349. 

25.  Suit  in  name  of  bank  for  trus- 
tees.—Stetson  V.  City  Bank,  12  O.  St. 
577;  Crews  v.  Farmers'  Bank,  72  Va. 
(31   Graft.)   348. 

26.  Setting  aside  confessed  judg- 
ments.— A  judgment  taken  by  a  bank- 
ing partnership  (whose  capital  stock 
is  not  divided  into  shares,  and  trans- 
ferable on  the  books  of  the  "concern") 
in  its  firm  name  upon  a  note  with  a 
power  of  attorney  to  confess  judg- 
ment, and  releasing  all  errors,  after  a 
change  has  taken  place  in  its  member- 
ship, and  before  the  filing  of  a  new 
certificate,  is  invalid,  and  may  lie  set 
aside  by  the  debtor  or  his  assignee 
for  the  l)enefit  of  creditors;  and  where 
the  latter  refuses  on  request  of  the 
creditors  to  bring  suit,  the  creditors, 
or  any  of  them,  may  maintain  an  ac- 
tion to  set  it  aside  for  the  benefit  of 
themselves  and  all  other  creditors  of 
the  delator.  Cobble  :'.  Farmers'  Bank, 
63   O.   Si.   528,   59   N.   K.   221. 

27.  Admissibility  of  copy  of  deed. — 
Where  a  deed  of  assignment  is  made 
for  the  benefit  of  creditors  by  a  bank- 
ing corporation,  a  copy  of  such  deed 
from  the  records  of  deeds  ol  the 
county  may  lie  exhibited  with  the  liill 
l',y  the  trustee  witli  the  same  effect  as 
if  he  had  filed  the  original.  Lamb  7'. 
Cecil,    25   W.    Va.   2SS. 

28.  Limitation  on  actions  by  as- 
signee.— The  seventeentli  section  <if 
the  statute  of  Illinois  of  1845.  provid- 
ing that  the  jiersonal  effects  of  the  de- 
funct bank  of  Tllinciis  should  l>e  as- 
signed by  the  bank  to  trustees  for  the 
benefit  of  creditors,  was  not  <lesigned 
to  limit  the  assignees  to  sue  within 
four    years,    nor    was    the    .Art    of    1H4'.) 


572 


BANKS    AND    BANKING. 


§  78  (6cc) 


§  78  (6b)  Presentation,  Proof  and  Payment  of  Claims — §  78 
(6aa)  Presentation  of  Claims. — As  a  general  rule,  those  creditors  fail- 
ing to  present  their  claims  to  the  assignee  for  special  allowance,  after  the 
assignee  has  given  notice  to  creditors  of  the  time  for  the  presentation  and 
allowance  of  demands,  are  precluded  from  any  benefit  in  the  estate.-'^ 

§  78  (6bb)  Allowance  of  Claims. — A  certificate  of  allowance  by  the 
assignee  of  a  bank  of  the  amount  of  a  check  on  it  does  not  merge  or  satisfy 
the  check.2^ 

§  78  (6cc)  Set-Off. — Set-Off  against  Assignee. — A  depositor,  in  ac- 
tion by  the  assignee  against  him  on  a  note,  may  set  off  against  the  note  the 
amount  of  his  deposit. ^i  But  to  justify  a  set-off  against  an  assignee  for  the 
benefit  of  creditors,  there  must  be  a  present  debt  due  at  the  date  of  the 
assignment.  In  this  respect  a  surety  stands  on  no  better  footing  than  any 
other  creditor.-^ - 

Right  to  Apply  Deposits  to  Debts  Due  Bank. — The  assignees  of  a 
bank  for  the  benefit  of  its  creditors  may  apply  a  bank  deposit  to  the  payment 
of  a  debt  due  the  bank  by  the  depositor.-^ '^  But  if  the  assignee  wishes  to 
make  this  application  of  a  deposit  he  should  manifest  such  desire  in  a  plead- 


of  that  state  "for  the  relief  of  the  as- 
signees" of  said  bank  "and  to  extend 
the  time  for  the  liquidation  of  the  af- 
fairs of  said  bank"  designed  to  limit 
their  right  to  sue  to  January  1,  1851. 
Ryan  v.   Vanlandingham,   7    Ind.   416. 

Laches. — When  a  director  of  an  in- 
solvent banking  corporation  by  fraud 
and  collusion  with  the  cashier  of  such 
institution  receives  from  the  cashier 
for  his  deposits,  without  the  authority 
of  the  board  of  directors,  discounted 
bills  and  notes,  the  property  of  said 
corporation,  and  suit  is  not  brought 
therefor  until  nearly  five  years  after 
such  transaction,  the  doctrine  of  laches 
does  not  apply.  Lamb  v.  Cecil,  25  W. 
Va.  288;  S.  C,  28  W.  Va.  653,  approved 
Lamb  V.  Pannell,  28  W.  Va.  663. 

29.  Presentation  of  claims. — Section 
21,   assignment   act   of   Kansas. 

Owner  of  trust  fund  deposited  is  not 
"creditor." — If  a  trustee  places  the 
trust  fund  in  a  bank,  and  the  bank, 
knowing  its  character,  mingles  it  with 
its  own  funds,  and,  after  using  it  in 
the  payment  of  its  debts,  becomes  in- 
solvent, and  assigns  for  the  benefit  of 
creditors,  the  beneficiary  has  a  right 
to  recover  the  trust  fund  from  the  as- 
sets of  the  bank  in  preference  to  it? 
general  creditors,  although  he  fails  to 
present  his  claim  to  the  assignee  for 
allowance.  Myers  v.  Board,  51  Kan. 
87,  32  Pac.   658,  37   Am.   St.   Rep.  263. 

30.  Allowance   of   claims. — Warrens- 


burg  Co-Op.  Bldg.  Ass'n  v.  Zoll,  83 
Mo.  94. 

31.  Set-offs     against     assignees. — In 

an  action  by  an  assignee  of  an  in- 
solvent bank  against  an  indorser  on  a 
note  that  did  not  fall  due  until  after 
the  assignment,  the  defendant  may  set 
off  against  the  note  the  amount  of  his 
deposit  in  the  bank  at  the  time  of  the 
assignment.  Arnold  v.  Niess  (Pa.),  36 
Leg.    Int.    437. 

32.  The  maker  can  not  set  off 
against  a  note  to  a  bank,  due  when 
the  bank  made  an  assignment  for  cred- 
itors, the  amount  of  his  part  payment 
after  the  assignment  as  cosurety  of  an 
account  due  by  the  bank  to  a  de- 
positor. Storts  V.  George,  150  Mo.  1, 
51    S.   W.    489. 

A  guarantor  of  a  note  by  a  bank  can 
not  set  off  against  his  own  note  to  it, 
due  at  the  time  of  its  assignment  for 
creditors,  money  paid  as  guarantor 
after  the  assignment.  Storts  v.  George, 
150    Mo.    1,   51    S.   W.   489. 

33.  Right  to  apply  deposits  to  pay 
debts. — Wallace  v.  Estill  County  De- 
posit  Bank    (K}'.),   116   S.  W.  351. 

The  fact  that  the  assignees  paid  out, 
in  settlement  of  the  bank,  the  assets  in 
their  hands  did  not  affect  the  right  to 
attach  the  deposit,  since  the  assignees 
could  not  appropriate  or  apply  the  de- 
posit to  the  payment  of  debts  due  by 
the  bank.  Wallace  v.  Estill  County 
Deposit   Bank    (Ky.),   116   S.   W.   351. 


§  78  (6d:) 


IXSOLVI;XCV  AXD  DISSOLUTION. 


573 


ing,^-*  and  if  the  assignee  does  not  so  apply  it  the  deposit  is  Uable  to  garnish- 
ment.^^ 

§  78   (6c)  Distribution  of  Assets— §  78   (6aa)  In  General.— The 

rule  for  the  distribution  of  the  assets  of  an  insolvent  bank,  as  prescril)ed  in 
the  assignment,  is  not  changed  or  affected  by  the  subsequent  appointment 
of  a  receiver.^^ 

§  78  (6bb)  Priorities.— In  distributing  the  assets  of  the  bank  existing 
priorities  will  be  recognized,  but  as  to  the  other  creditors  of  the  bank  who 
have  no  specific  lien  upon  its  property,  they  are  placed  upon  the  same  foot- 
ing and  are  entitled  to  share  the  assets  ratably.-'" 

§  78  (6d)  Actions  by  Creditors.— Right  of  Action.— Creditors  of 
the  bank  may  sue  the  assignee  to  obtain  satisfaction  of  their  claims  out  of 
the  assets.^^     For  example,  creditors  who  have  not  accepted  the  assignment 


34.  Wallace  v.  Estill  County  Deposit 
Bank    (Ky.),    116    S.    W.    351. 

35.  Wallace  v.  Estill  County  Deposit 
Bank   (Ky.),  116  S.  W.  351. 

36.  Distribution  of  assets. — Garden 
City  Banking,  etc.,  Co.  v.  Geilfuss,  86 
Wis.    612,    57    N.    W.    349. 

Payment  by  stockholders. — Where 
the  stockholders  of  an  insolvent  bank 
that  has  made  an  assignment  for  the 
benefit  of  its  creditors,  voluntarily  pay 
into  the  trust  fund  thus  created  the 
full  amount  of  their  double  liability 
created  by  law,  and  such  additions  to 
such  fund  are  distributed  to  and  re- 
ceived by  the  creditors  according  to 
their  right  to  participate  in  the  benefits 
of  such  liability,  it  is  thereby  dis- 
charged. Killen  v.  State  Bank,  106 
Wis.  546,  82   X.  W.  536. 

37.  Priorities. — Robinson  z:  Gardi- 
ner,   59    Ga.    (18    Gratt.)    509. 

A  chartered  bank  may  make  a  vol- 
untary assignment  for  the  benefit  of 
its  creditors,  but  neither  the  assignee 
nor  the  creditors  whom  he  represents 
stand  in  any  better  situation  than  the 
assignor  in  respect  to  prior  equitable 
liens.      Seay   ?•.    Bank,   66   Ga.   609. 

Right  of  depositors  to  priority. — A 
bank  was  placed  in  the  hands  of  a  re- 
ceiver. Pending  the  receivership  pro- 
ceeding the  l)ank  filed  a  motion  al- 
leging that  it  was  solvent  and  able  to 
pay  all  of  its  creditors,  set  forth  a 
scheme  under  wliich  it  claimed  tliat  it 
could  be  reorganized  to  the  advantage 
of  its  creditors,  and  prayed  that  its 
assets  be  surrendered  to  it  for  this 
purpose.  Certain  of  its  creditors  and 
depositors  a.grced  in  writing  to  the  al- 
leged     reorganization       sclu-nic.       and 


pledged  themselves  to  aid  in  securing 
a  dismissal  of  the  receivership  pro- 
ceeding. The  motion  was  granted 
and  the  assets  of  the  bank  turned  over 
to  it,  upon  which  it  proceeded  to  do 
business  under  a  ditferent  name  but 
under  the  old  charter.  The  scheme 
failed,  and  the  bank  again  made  an  as- 
signment. Upon  the  petition  of  some 
of  its  creditors  it  was  again  placed  in 
the  hands  of  a  receiver.  Its  assets 
are  not  sufficient  to  pay  all  of  its  cred- 
itors. Held,  that,  under  the  facts  ap- 
pearing in  the  record,  in  the  distril)u- 
tion  of  such  assets  depositors  wlio 
were  not  parties  to  the  agreement  and 
the  application  for  a  surrender  of  the 
assets  under  the  first  receivership  are 
entitled  to  priority  over  those  who 
were.  Rumble  z:  Tyus,  123  Ga.  295.  51 
.S.    E.    420. 

38.  Actions  by  creditors  against  as- 
signee.—  Depositors  and  creditors  of  a 
bank  that  has  failed  may,  in  an  equi- 
table proceeding  against  the  assignee, 
seek  satisfaction  of  their  claims  out 
of  the  assets,  and  also  ol)tain  a  decree 
against  the  bank  for  the  full  amount 
of  their  debts.  City  Bank  7'.  Cross- 
land,    (■)5    Ga.   7:!4. 

Bill  of  discovery  against  assignee. — 
Where  a  l)ill  was  filed  l)y  a  judgment 
creditor  of  a  bank  a.gainst  the  assignee 
thereof,  to  account  for  the  assets  of 
the  bank,  which  came  into  his  hands 
as  sucli  assignee,  it  is  held,  that  win-n 
the  defendant  has  in  liis  i)()\\er  the 
means  of  acquiring  the  information 
necessary  to  make  the  discovery  called 
for,  he  is  bound  to  make  use  of  such 
means,  whatever  pains  or  trouble  it 
may  cost  him.     Green  i'.  Carey,  12  Ga. 

CO  I. 


574 


BANKS    AND    BANKING. 


§    78    (8) 


may  make  the  assignee  a  party  to  a  suit  to  enforce  the  personal  Habihty 
of  stockholders. •^'^ 

§  78  (7)  Proof  of  Assignment. — A  person  relying  upon  an  assign- 
ment by  a  bank  must  prove  it.'*"  But  the  existence  of  the  common  seal 
to  a  deed  of  assignment  by  a  bank  is  prima  facie  evidence  that  it  was  made 
bona  fide  to  secure  the  payment  of  a  just  debt.'*^ 

§  78  (8)  Vacating  and  Setting  Aside  Assignment. — If  the  grounds 
are  sufficient,"*-  any  party  interested"*-^  in  the  method  pointed  out  in  the 
statute,*"*  may  vacate  and  set  aside  the  assignment. 

But  pending  a  bill  to  set  aside  the  assignment,  the  assignee,  if  sol- 
vent, will  not  be  enjoined,  at  the  instance  of  creditors,  from  controlling  the 
assets."*^ 


39.  Right  to  sue  assignee. — The  cred- 
itors and  .stockholders  of  a  bank  will 
not  be  enjoined,  at  the  instance  of  its 
general  assignee,  from  instituting  suit 
against  him,  the  creditors  not  having 
accepted  the  assignment,  nor  reduced 
their  demands  to  judginent  against  the 
bank,  and  they  having  a  clear  right  to 
proceed  in  order  to  fix  a  personal  lia- 
bility on  the  stockholders,  imposed 
by  the  charter,  to  which  proceeding 
they  may  desire  to  make  the  assignee 
a  party  in  order  to  reach  the  assets 
in  his  hands  Gresham  77.  Crossland, 
59   Ga.  270. 

40.  Proof  of  assignment. — Where  the 
rights  of  a  party  plaintiff  depend  upon 
the  facts  that  an  assignment  was  made 
by  a  bank  to  the  defendant,  and  that 
the  defendant  is  the  assignee,  he  must 
prove  them,  notwithstanding  they  are 
recited  in  a  public  act  of  the  legisla- 
ture.    Dougherty  v.  Bethune,  7  Ga.  90. 

Judicial  knowledge  of  assignment. — 
The  court  while  taking  judicial  notice 
of  the  Act  of  February  16,  1866,  re- 
quiring the  president  and  directors  of 
the  Bank  of  Tennessee  to  execute  an 
assignment  of  its  effects,  could  not 
judicially  know  that  when  this  action 
was  brought,  in  1866,  the  assignment 
has  been  made,  and  Samuel  Watson 
appointed  trustee,  and  that  he  had  ac- 
cepted the  trust,  given  the  bond,  and 
been  duly  qualified.  Topp  v.  Watson, 
59    Tenn.    (32    Heisk.)    411. 

41.  Import  of  seal. — Hopkins  v. 
Gallatin  Turnpike  Co..  23  Tenn.  (4 
Humph.)    40.3. 

42.  Grounds  for  vacating  assign- 
ment.— An  assignment  was  made  by 
an  insolvent  bank  of  a  portion  of  its 
effects  to  pay  an  existing  debt,  and 
it  was  stipulated  that  the  amount  of 
such  effects  in  excess  of  the  debt  due 


should  be  returned  to  the  bank.  Held, 
in  an  action  by  the  receiver  of  the 
bank  whose  charter  had  been  forfeited 
to  set  aside  such  assignment,  tl'iat  it 
was  competent  to  attack  the  assign- 
ment upon  the  ground  of  fraud  in  tact, 
and  that  any  fact  within  the  allega- 
tions in  complainant's  bill  mi,«;ht  be 
proven,  which  would  go  to  show  that 
the  bank  intended  to  perpetrate  a  fraud 
in  making  the  assignment.  Carey  v. 
Giles,    10    Ga.    9. 

43.  Who  may  set  aside  assignment. 
— Any  shareholder  may  bring  an  ac- 
tion to  set  aside  an  assignment  for  the 
benefit  of  creditors  made  by  the  di- 
rectors of  an  insolvent  bank  as  ultra 
vires.  Descombes  v.  Wood,  91  Mo. 
106,   4   S.  W.   82,   60  Am.    Rep.   239. 

It  is  laches  for  a  shai-eholder  and 
creditor  to  delay  bringing  his  suit  to- 
set  aside  the  assignment  for  four  years 
after  the  appointment  of  the  assignee, 
during  which  he  was  engaged  in  ad- 
ministration, if  no  excuse  is  tdleged. 
Descombes  v.  Wood,  91  x\Io.  196,  4  S. 
W.  82,  60  Am..   Rep.  230. 

44.  Remedy  for  setting  aside  assign- 
ment.— Code,  §  1404,  providing  the 
method  by  which  an  assignment  by  a 
bank  may  be  set  aside  at  the  instance 
of  creditors,  applies  only  to  a  case 
where  there  has  been  a  voluntary  sur- 
render of  the  charter.  Milliken  v. 
Steiner,   56   Ga.  251. 

45.  Powers  of  assignee  pendente 
lite. — Where  the  assignee  is  solvent, 
honest,  and  competent,  and  a  case  of 
real  danger  to  the  assets  in  his  hands 
is  not  made,  and  where  the  creditors 
have  the  security  of  ultimate  liability 
by  solvent  stockholders,  the  assignee 
will  not  be  enjoined,  at  the  instance  of 
the  creditors,  from  controlling  the  as- 
sets,   pending    a    bill    to    set    aside    the 


§  /9  (lb) 


INSOLVENCY   AND   DISSOLUTION. 


:>/:) 


§  79.  Rights  of  Holders  of  Circulating  Notes— §  79  (1)  Payment 
Out  of  Assets  in  General — §  79  (la)  Right  of  Bill  Holders  to  Share 
in  Assets. — The  holder  of  the  biUs  of  an  insolvent  bank  is  entitled  to  share 
in  the  distribution  of  its  assets,^*^  and  for  the  purpose  of  subjecting  these 
assets  to  his  demand  he  may  proceed  against  the  assignee  or  trustee  in  a 
court  of  equity.^'  But  the  circulating  notes  issued  by  a  bank  are  not  "claims 
against  the  bank."^^ 

§  79  (lb)  Payment  in  Bills,  Notes  or  Other  Obligations  of  the 
Bank. — In  the  absence  of  statute,  the  receiver  or  assignee  of  an  insolvent 


assignment  and  to  recover  f -oni  the 
bank,  etc.,  and  a  receiver  will  not  be 
appointed  to  supersede  the  assignee 
in  his  functions  before  a  final  decree. 
Gresham    v.    Crossland,    59    Ga.    270. 

46.  Rights  of  bill  holders  to  payment 
out  of  assets. — In  adjusting  the  claims 
of  creditors  of  an  insolvent  bank 
whose  assets  are  in  the  hands  of  a  re- 
ceiver, the  claims  of  the  holders  of 
bills,  issued  by  the  bank  under  an  un- 
lawful agreement  that  they  should  be 
kept  from  circulation  for  a  limited 
time  or  not  be  returned  to  the  bank 
for  redemption  within  a  limited  time, 
should  be  allowed.  Atlas  Bank  v.  Na- 
hant   Bank   (:\lass.),  3   Mete.  581. 

Stockholders  who  hold  bills  of  an 
insolvent  bank  are  entitled  to  share  in 
the  distribution  of  its  assets,  as  other 
bill  holders.  Belcher  r.  Willcox,  40 
Ga.  391. 

Amount  payable  to  bill  holders. — In 
the  distribution  of  the  fund  of  a  bank 
among  bill  holders,  it  was  held  by  the 
court  that  the  holders  should  l)e  al- 
lowed only  the  amount  paid  by  each 
for  his  bills,  and  not  the  face  of  the 
bills.  After  that  decision  the  holder 
of  the  bills  filed  in  the  case  assigned 
them.  Held,  that  the  amount  paid  by 
the  holder  at  the  time  of  the  former 
decision,  and  not  the  amount  paid  by 
the  present  holder,  was  what  he  was 
entitled  to  receive  for  them.  Griffin  z'. 
Central    Bank,    P,    Ga.    371. 

Rights  of  bill  holders  to  object  to 
other  claims. — Under  a  ImII  to  wind  up 
tlic  affairs  of  the  Bank  of  the  State 
of  Soutli  Carolina,  the  holders  of  bills 
of  the  l)ank  have  no  equity  to  compel 
the  holders  of  the  fire  loan  bonds,  is- 
sued by  the  state  and  guarantied  by 
the  bank,  to  show  that  their  claims 
against  the  state  on  the  bonds  will  be 
delayed  or  denied,  before  they  shall 
be  permitted  to  share  in  the  distribu- 
tion of  the  l)ank's  assets.  Dabnev  t'. 
Bank,  3  S.  C.  124. 


Right  of  bill  holders  to  be  subro- 
gated.— Under  a  bill  to  wind  up  the 
affairs  of  the  Bank  of  the  State  of 
South  Carolina,  the  bill  holders  have 
no  equity  to  be  subrogated  to  the 
rights  of  the  holders  of  fire  loan 
V,onds,  issued  by  the  state  and  guar- 
antied by  the  bank,  upon  said  holders 
sharing  in  the  assets  of  the  bank,  the 
state  being  liable,  by  the  terms  of  the 
bank  charter,  for  all  the  debts  of  the 
l)ank,  no  matter  how  contracted.  Dab- 
ney  r.  Bank,  3  S.  C.  124. 

Bona  fide  holders  of  the  bills  of  an 
insolvent  bank  hold  them,  as  against 
the  bank,  at  their  face  value,  no  matter 
at  what  price  they  were  purchased. 
Dabney  z:  Bank,  3  S.  C.  124. 

47.  As  any  holder  of  the  bills  of  the 
Real-Estate  Bank  had  a  right  of  ac- 
tion at  law  against  the  bank  for  a 
breach  of  the  contract  to  pay  on  de- 
mand, he  is  entitled  to  follow  the  as- 
sets in  the  hands  of  the  trustees, 
under  the  deed  of  assignment  for  cred- 
itors, and  sul)ject  them,  by  proceed- 
ing in  equity,  to  the  payment  of  his 
demands.  Ringo  z\  Biscoe,  13  .\rk. 
563. 

48.  "Claims"  provable. — Circulating 
notes  issued  by  a  bank  under  its  char- 
ter (Laws  1849,  p.  252"),  secured  by 
stocks  deposited  with  the  state  treas- 
urer, and  which  he  is  directed,  on  affi- 
davit of  any  holder  that  tlie  bank, 
upon  due  demand,  has  refused,  to  re- 
deem out  of  the  proceeds  of  the  se- 
curity or  other  assets  coming  to  his 
Iiands  from  the  liank.  or  its  duly-ap- 
pointed receivers,  are  not  claims 
against  the  bank,  within  a  provision  of 
tile  charter  (§  12)  providing  for  the 
appointment  of  a  receiver,  and  requir- 
ing him  to  notify  all  persons  having 
claims  against  tlic  bank  to  file  proof 
thereof,  and  authorizing  him,  at  the 
expiration  of  one  year  from  (Ii«-  no- 
tice, to  distril)Ute  ftmds  in  hands 
ratably  among  jirovcd  claims.  People 
v.    Holmes,    :i    Midi.    514. 


576 


BANKS    AND    BANKING. 


79   (lb) 


bank  may  not  receive  the  bills  or  notes  of  the  bank  in  the  payment  of  debts 
due  to  it,  especially  where  the  statutes  in  the  particular  jurisdiction  provide 
for  a  pro  rata  distribution  among  creditors.-^^  In  one  jurisdiction,  however, 
it  has  been  held  that  by  the  general  law  of  the  land,  the  notes  and  bonds 
payable  at  and  discounted  by  any  bank,  may  be  paid  in  the  bills  of  that 
bank;  and  that  too,  notwithstanding  such  notes  or  bonds  may  be  trans- 
ferred to  any  other  bank.-'^o  But  by  express  statute  in  most  jurisdictions, 
the  holders  of  the  bills  and  the  circulating  notes  of  a  bank  may  tender  the 
same  in  payment  of  debts  due  by  them  to  the  bank.-^i     .\  debtor  of  the  bank 


49.    Debts   due  bank   not  payable   in 
circulating  notes  in  absence  of  statute. 

— There  is  no  obligation  on  a  bank,  in 
making  an  assignment  of  its  efifects,  to 
provide  that  its  notes  shall  be  received 
in  payment  of  debts  due  to  it.  On  the 
contrary,  if  the  object  is,  in  contem- 
plation of  insolvency,  an  equal  and 
fair  distribution  among  its  creditors, 
the  notes  can  not  be  so  received,  un- 
less so  held  by  the  debtors  of  the  bank 
as  to  become  legally  the  sul:)ject  of 
set-ofif.  Ringo  v.  Biscoe.  13  Ark.  563. 
The  assignee  of  a  bank  instituted 
suit  and  recovered  judgment,  and  the 
defendants  paid  the  notes  of  the  bank 
into  court,  and  made  a  motion  to  have 
the  execution  which  issued  on  the 
judgment  entered  satisfied.  Held,  that 
the  assignee  was  not  bound  to  re- 
ceive the  bank  notes  in  payment,  and 
that  a  judgment  ordering  an  entry  of 
satisfaction  was  erroneous.  Commer- 
cial Bank  v.  Thompson  (Miss.).  7 
Sm.edes    &   M.   443. 

Where,  on  an  application  by  the 
bank  commissioners,  the  assets  and  af- 
fairs of  a  bank  had  been  placed  in  the 
hands  of  an  assignee,  the  assignee 
should  not  be  allowed  to  receive  bills 
of  the  bank  in  payment  of  debts  due 
to  the  bank,  as  to  do  so  would  inter- 
fere with  the  express  injunction  of  the 
statute  that  such  bills  are  to  be  paid 
pro  rata.  In  re  White  Mountains 
Bank,  46  N.   H.  143. 

50.  Act  1841,  repealing  the  charter 
of  the  Bank  of  Darien,  and  authorizing 
the  Central  Bank  to  v/ind  up  the  af- 
fairs of  the  Darien  Bank,  provided 
that,  in  all  payments  to  be  made  on 
notes  originally  due  the  Darien  Bank, 
the  maker  shall  be  authorized  to  pay 
in  bills  issued  by  such  bank.  This 
provision  was  a  re-enactment  of  §  15 
of  the  Act  of  1832.  Held  that,  under 
these  acts,  creditors  of  the  Darien 
Bank  can  not  complain  that  bills  of 
that  bank  were  received  by  the  Cen- 
tral Bank  in  payment  of  debts  founded 
on    notes    originally     due     the    Darien 


Bank,  even  though  such  notes  were 
in  judgment;  that,  independent  of  the 
statutes,  it  is  doubtful  whether  debtors 
of  such  bank  did  not  possess  the  right 
of  discharging  their  debts  with  the 
notes  of  the  bank.  Robinson  v.  Bank, 
18    Ga.   65. 

51.  Debts  due  bank  solvable  in  its 
circulating  notes. — Moise  v.  Chapman, 
24  Ga.  249;  Belcher  v.  Willcox,  40  Ga. 
391;  Dunlap  %\  Smith,  12  111.  399;  Ex- 
change &  Banking  Co.  v.  Mudge 
(La.),  6  Rob.  397;  Basehore  v.  Rhodes, 
85  Pa.  44. 

Requirements  of  Ga.  statute. — Code, 
§  1496,  provides  that  where  the  assets 
of  an  insolvent  bank  are  to  be  col- 
lected and  distributed  by  a  receiver, 
the  debtors  are  not  allowed  to  pay 
their  debts  to  the  receiver  in  bills  of 
the  bank  at  par  value,  unless  accom- 
panied by  an  affidavit  that  they  are  the 
identical  bills  received  from  the  bank 
by  which  the  debt  was  created.  Held, 
that  each  bill  holder  takes  his  propor- 
tion of  the  whole  assets  of  an  insolvent 
b.ank  only  in  proportion  to  the_  quan- 
tum of  consideration  paid  by  him  for 
such  bills,  and  each  should  be  re- 
quired to  state  on  oath  in  writing  that 
he  was  a  bona  fide  holder  of  the  bills, 
and  state  as  nearly  as  possible  the 
amount  he  paid  for  them,_  and  when, 
and  to  whom,  and  in  what  it  was  paid; 
every  other  claimant  having  the  right 
to  contest  the  statement  made  by  each 
as  to  the  quantum  or  true  value  of  the 
consideration  paid  bv  him  for  bills. 
Belcher  v.  Willcox.   40   Ga.   391. 

Receivable  "at  par"  in  Pennsylvania. 
— Act  May  5.  1841,  providing  for  the 
assignment  of  the  Bank  of  the  United 
States,  directed  the  trustees  to  re- 
ceive the  notes  or  other  evidences  of 
debt  issued  by  the  bank  in  payment  of 
debts  due  it  at  par.  Held,  that  the 
term  "at  par"  meant  the  amount  really 
due  on  the  security,  including  interest, 
and  that  a  claimant  might  sell  the 
principal    of   his    claim,    and    retain    his 


§  79  (lb) 


INSOLVENCY   AND   DISSOLUTION. 


.-^/z 


can  not,  however,  pay  his  debt  with  bills  or  notes  of  the  bank  acquired 
after  notice  of  the  insolvency  and  assignment  by  the  bank  of  its  assets,^- 


light  to  receive  the  interest.  Appeal 
of    Hogg.    22    Pa.    479. 

In  a  suit  by  judgment  creditors  of 
a  state  bank  to  subject  judgments  in 
favor  of  the  bank  against  others  to 
payment  of  their  judgments,  where  it 
appeared  that  by  Act  1840  state  banks 
must  accept  their  own  bank  notes  in 
payment  of  all  claims  due  to  them,  and 
that,  when  suit  was  begun,  the  issues 
of  the  bank  were  worth  fifty-six  cents 
on  the  dollar,  the  liability  of  the  judg- 
ment debtors  is  limited  to  fifty-six 
cents  for  every  dollar  represented  by 
the  judgments  in  favor  of  the  bank. 
Robson  c'.  Benton,  etc.,  Banking  Co. 
(Miss.).    7    Smedes    &   M.    724. 

Character  of  debts  solvable  in  notes 
of  bank. — Act  [March  2G.  1S42.  Xo.  ]o7, 
which  gives  the  right  of  paj'ing  notes 
due  banks  in  liquidation  in  their  own 
notes,  though  it  mention  only  "notes," 
should,  by  a  fair  construction,  be  ex- 
tended to  all  debts,  though  not  in  the 
form  of  notes.  Exchange  &  Banking 
Co.  v.  Mudge   (La),  6  Rob.  387. 

Debts  for  unpaid  subscriptions. — A 
debtor  of  the  Bank  of  Illinois,  at  the 
time  it  became  insolvent,  is  authorized 
to  discharge  his  indebtedness,  in  the 
notes  and  certificates  of  the  bank,  un- 
less it  appears  that  the  indebtedness 
arose  as  a  subscription  for  the  stock 
of  the  bank.  Dunlap  v.  Smith,  12  111. 
.399. 

Debt  due  on  stock  note. — Under  Acts 
March  14  and  26,  1842,  and  April  5, 
1843.  relating  to  the  liquidation  of 
banking  corporations  whose  charters 
have  been  forfeited,  and  providing  that 
debtors  to  the  bank  may  give  in  pay- 
ment the  obligations  of  such  bank  held 
by  them,  one  indebted  to  a  bank  on  a 
stock  note  may  turn  in  payment  there- 
of a  bond  of  the  l)ank  held  by  him. 
Saunders  v.  Smith,  4  La.  Ann.  232. 

Payment  of  drafts. — Where  a  draft 
may  be  payaljlc  in  Ijills  of  the  bank  to 
a  bank  itself,  it  is  also  so  payable  to 
the  receiver  of  the  bank.  Moise  v. 
Chapman,  24  Ga.  249. 

Rut  in  Pennsylvania  the  Act  of  1850, 
declaring  that  the  assignees  of  an  in- 
solvent bank  shall  receive,  in  payment 
of  del)ts  due  the  bank,  "its  own  notes 
and  obligations  and  the  checks  of  its 
depositors  at  par,"  does  not  apply  to 
a  protested  draft.  Baschore  v.  Rhodes, 
8.->  Pa.  44. 

.\  bank,  just  prior  to  its  assignment 
for    the    1)enefit    of    creditors,    drew    a 

1   B  cS:  B— 37 


draft  in  favor  of  F.  on  another  bank, 
and  the  draft  was  protested.  Subse- 
quently F.  indorsed  the  draft  to  de- 
fendant, who  had  notice  of  the  assign- 
ment by  the  drawer.  Held,  that  the 
draft  was  not  an  "obligation"  which 
the  assignee  was  bound  to  accept  in 
payment  of  a  claim  against  F.  Shr- 
yock  c'.  Bashore  (Pa.),  11  Phila.  565,  33 
Leg.   Int.  56. 

Debts  reduced  to  judgment. — Judg- 
ment creditors  of  a  bank  i)rought  their 
bill  in  equity  against  the  liank  and  judg- 
ment debtors  of  the  bank,  praying  that 
the  judgment  debtors  be  required  to 
pay  the  amount  of  their  judgment 
against  the  bank,  and  the  debtors  were 
enjoined  from  paying  the  bank.  Held, 
that  the  creditors  were  not  bound  to 
receive  the  issues  of  the  bank,  and 
nothing  but  gold  and  silver,  notwith- 
standing the  statute  of  1840,  requiring 
banks  to  receive  their  own  issues  in 
payment  of  debts.  Robson  v.  Benton, 
etc..  Banking  Co.  (Miss.),  7  Smedes  & 
M.  724. 

But  in  other  states  the  bills  of  the 
liank  must  be  received  in  payment  even 
of  debts  reduced  to  judgment.  Robin- 
son V.  Bank.  18  Ga.  65;  Farmers'  Bank 
f.  Willis,  7  W.  Va.  31. 

52.  Notes  acquired  after  insolvency 
not  receivable. — 3  McLean  (U.  S.)  397; 
16  B.  Mon.  (Ky.)  351;  1  Duval  (Ky.) 
84;  King  v.  Elliott  (Miss.),  5  Smedes 
&  M.  428;  34  Barb.  (N.  Y.)  224;  1 
Paige  Ch.  (N.  Y.)  585;  Haxton  7'.  Bis- 
hop (N.  Y.),  3  Wend.  13;  McDougal  :•. 
Holmes,  1  Ohio  376,  381;  Northamp- 
ton Bank  v.  Balliet,  8  Watts  &  S.  (Pa.) 
311;  Housum  v.  Rogers.  40  Pa.  190; 
Saunders  v.  White,  61  Va.  (20  Gratt.) 
327;  Farmers'  Bank  :-.  Willis,  7  W.  Va. 
31;  1   Law  Reg.,  X.  S.,  238. 

The  provision  that  all  "notes  shall 
I)e  received  in  payment  of  debts  to  the 
bank,"  applies  only  while  the  debts  re- 
main due  and  ])ayable  to  tlie  bank. 
When  they  have  been  endorsed  or  as- 
signed and  the  title  has  passed  from 
the  l)ank  to  another  holder  or  owner, 
they  are  no  longer  debts  to  the  l)ank 
or  payalile  in  the  notes  of  the  hank,  or 
sul)ject  to  extinguishment  by  the  set- 
off of  notes,  unless  the  latter  were  ac- 
quired by  the  debtor  before  endorse- 
ment and  delivery  or  assignment  of  the 
l)ills  of  excliange  or  promissory  notes, 
and  notice  thereof  to  him.  I'armers' 
I'.ank  ?■.  Willis.  7  W.  Va.  31. 

The    provision    in  the    Code    of    Vir- 


578  BANKS    AND    BANKING.  §    79    (2) 

because  the  rights  of  all  creditors  attach  equally  after  insolvency. ^^ 

§  79  (2)  Preference. — By  constitutional  and  statutory  provisions  in 
mo'st  jurisdictions  the  holders  of  the  bills  or  notes  of  a  bank  are  to  be  pre- 
ferred to  all  other  creditors  in  the  distribution  of  the  assets  of  the  bank,^^ 


ginia,  that,  "though  a  bank  had  a 
branch  *  *  *  all  its  notes  should  be 
received  in  payment  of  debts  to  the 
bank,  whether  contracted  at  the  parent 
bank,  or  a  branch,"  applied  only  w^hile 
the  debts  remained  due  to  the  bank. 
When  a  negotiable  promissory  note 
discounted  by  the  Farmers'  Bank  of 
Virginia  had  been  assigned  by  the 
bank  to  trustees,  for  the  payment  of 
antecedent  debts,  and  the  maker,  hav- 
ing notice  of  the  assignment,  after- 
wards acquired  notes  of  the  bank,  he 
could  not,  with  these,  pay  his  debt  so 
assigned,  or  set  them  off  against  it. 
Farmers'   Bank  v.  Willis,  7  W.  Va.  31. 

A  bank  which  had  been  forced  into 
an  assignment  by  failure  to  pay  its 
notes  in  specie,  afterwards  recovered 
a  judgment,  to  the  use  of  its  assignee, 
against  defendant,  who  had  converted 
a  portion  of  the  bank's  assets.  Held, 
that  the  judgment  was  not  a  debt  to 
the  bank,  but  to  assignee  for  creditors, 
and  hence  could  not  be  paid  in  the  de- 
preciated notes  of  the  bank.  North- 
ampton Bank  v.  Winder  (Pa.),  3  Clark 
284. 

After  a  note  made  payable  at  a  bank, 
and  negotiated  there,  had  been  trans- 
ferred by  the  bank,  and  notice  given 
to  the  maker  of  the  transfer,  a  tender 
by  him  to  the  cashier  of  the  bank  of 
the  notes  of  the  bank  not  procured  in 
the  usual  course  of  Ijusiness  nor  before 
notice  of  transfers  is  invalid.  Reed  i'. 
Mitchell,   18   Pa.  405. 

Where,  in  a  suit  in  the  United  States 
circuit  court,  the  court  ordered  that 
the  receiver  take  the  notes  of  defend- 
ant bank  in  payment  of  the  debts  due 
to  it,  and  afterwards  the  court  set 
aside  such  order,  a  plea  of  tender  of 
the  notes  in  payment  of  the  debts  of 
the  bank,  filed  in  a  case  pending  in  a 
state  court,  after  the  rescinding  of  the 
order  of  the  United  States  court,  the 
notes  having  been  obtained  after  the 
execution  and  recording  of  the  deed  of 
the  bank  and  notice  thereof  to  the  de- 
fendant, was  not  a  valid  defense  to  the 
action.  Bank  v.  Marshall,  66  Va.  (25 
Gratt.)  378. 

Rights  of  attaching  creditors. — "It 
was  held  by  the  supreme  court  of  ap- 
peals of  this  state,  in  the  case  of  the 
Farmers'  Bank  v.  Gettinger,  4  W.  Va. 
305,  that  a  debtor  of  a  bank,  summoned 


as  a  garnishee,  could  not  afterwards 
procure  the  notes  of  the  bank  and  pay 
them  or  set  them  off,  in  satisfaction  or 
discharge  of  the  debt.  We  can  not  see 
that  the  right  of  the  assignee  in  trust 
for  creditors  is  inferior  to  that  of  an 
attaching  creditor."  Farmers'  Bank  v. 
Willis,   7  W.  Va.   31. 

Rule  in  Maryland. — Under  Acts  1818, 
c.  177,  and  Act  1824,  c.  199,  debts  due 
insolvent  banking  corporations  maybe 
paid  in  the  notes  of  the  bank,  and  in  its 
certificates  of  deposit,  without  refer- 
ence to  the  time  when  such  notes  or 
certificates  were  acquired.  Union 
Bank  v.  Ellicott  (^Id.),  6  Gill  &  J.  363. 

53.  Reason  of  rule. — "It  is  true  that 
a  bank,  as  long  as  it  is  solvent,  or 
rather,  as  long  as  it  has  control  of  its 
assets,  is  bound  to  take  its  own  bills 
in  payment  of  debts  due  to  it;  but 
when  it  becomes  insolvent,  and  goes 
into  liquidation,  making  an  assignment 
of  all  its  assets  for  the  benefit  of  its 
creditors,  the  rights  of  all  its  creditors 
attach  equally,  and  a  debtor  then  takes 
the  bills  of  the  bank  subject  to  the 
rights  of  other  creditors  to  enforce  his 
obligations  against  him  for  the  equal 
benefit  of  all.  Diven  v.  Phelps  (N.  Y.), 
34  Barb.  224;  9  Cowen  413,  notes;  1 
Paige  Ch.  585;  Haxton  v.  Bishop  (N. 
Y.),  3  Wend.  13."  Farmers'  Bank  v. 
Willis,  7  W.  Va.  31. 

54.  Holders  of  circulating  notes  are 
preferred  creditors. — Taylor  v.  Hutch- 
inson, 145  Ala.  202,  40  So.  108;  Robin- 
son V.  Bank,  18  Ga.  65;  Dobbins  v. 
Walton,  37  Ga.  614,  95  Am.  Dec.  371; 
Miller  v.  Andrews,  43  Tenn.  (3  Coldw.) 
380;  Marr  v.  Bank,  44  Tenn.  (4  Coldw.) 
471;  Moseby  t'.  Williamson,  52  Tenn. 
(5  Heisk.)  278;  Bank  v.  Bank,  56  Tenn. 
(9  Heisk.)  408;  Smith  v.  Moseby,  56 
Tenn.  (9  Heisk.)  501;  Moses  v.  Ocoee 
Bank,  69  Tenn.  (1  Lea)  398;  Foulker 
V.  Union  Banking  Co.  (Pa.),  6  Wkly. 
Notes   Cas.  109. 

The  holder  of  a  certificate  of  de- 
posit is  not  placed  T3y  law  on  the  same 
footing  as  the  holder  of  the  notes  of 
the  bank.  The  holder  of  certificates  is 
only  a  creditor  of  the  bank  entitled  to 
pro  rata  distribution.  Moseby  v.  Wil- 
liamson,  52  Tenn.    (5   Heisk.)    278. 

Priority  over  judgment  creditors. — 
The  statutory  lien  of  liill  holders,  un- 
der the  charter  of  the  Monroe  Railroad 


§  79  (2) 


INSOLVENCY    AND   DISSOLUTION. 


579 


except  in  the  payment  of  the  expenses  of  settHng  the  concern,'*''  and  this 
preference  may  he  set  forth  in  an  assignment  by  the  bank.^*^    But  as  between 


&  Banking  Companj-,  attaches  equally 
upon  all  the  property  and  effects  of 
that  company,  to  the  exclusion  of  judg- 
ment creditors.  Woodward  v.  Central 
Bank.  4   Ga.   3;23. 

Priority  over  holders  of  certificates 
of  deposit. — In  re  Pennsylvania  Bank, 
3'J   I'a.   10.:!. 

Construction  of  Tennessee  statute. — 
The  Act  of  1860.  ch.  ;27,  §  30,  provides, 
that,  in  all  cases  of  insolvency  of  any 
bank,  or  banking  association,  the  bill 
holders  shall  be  entitled  to  preference 
in  payment,  to  all  other  creditors  of 
such  bank  or  association,  and  no  trans- 
fer or  assignment  of  any  note,  bill  of 
exchange,  or  other  evidence  of  debt  by 
the  bank,  shall  prevent  the  debtor  from 
paying  the  same  into  the  hands  of  the 
assignee  in  the  currency  of  the  bank. 
Held,  that  this  law  applies  to  a  general 
assignment  by  the  bank,  and,  also,  to 
any  assignment  made  by  the  bank,  of 
its  notes,  bills  of  exchange,  or  other 
evidence  of  debt.  Miller  v.  Andrews, 
43  Tenn.   (3  Coldw.)   380.      ' 

Construction  of  Georgia  statute. — 
Section  149.5  of  the  Revised  Code 
which  prescribes  the  order  of  paying 
off  the  debts  of  an  insolvent  bank,  and 
par.  3,  §  1493,  which  gives  the  bill 
liolders  a  priority  over  creditors  in 
the  payment  of  delDts,  apply  only  where 
there  has  been  a  forfeitttre  of  the 
charter  and  a  receiver  appointed  by  the 
court;  they  do  not  apply  in  the  case  of 
an  assignment  by  the  bank  of  its  assets 
to  pay  its  debts  according  to  the  re- 
quirements of  the  law.  Dobbins  v. 
Walton,   37    Ga.   614,   95   Am.   Dec.   371. 

Note  holders  not  entitled  to  priority. 
— In  Virginia  the  note  holders  of  an 
insolvent  bank,  having  no  lien,  stands 
upon  the  same  footing  as  depositors 
and  other  general  creditors,  and  are  en- 
titled to  no  priority.  Robinson  v. 
Gardiner,  59  Va.  (18  Gratt.)  .509,  ap- 
proved in  Exchange  Bank  v.  Knox,  60 
Va.  Cl9  Gratt.)  739;  Saunders  v.  White. 
61  Va.  (20  Gratt.)  327;  Bank  :■.  Mar- 
shall. 66  Va.  (25  Gratt.)  378. 

.And  in  Massachusetts  bill  holders 
are  not  entitled  to  a  priority  over  other 
creditors,  in  the  distribution  of  the  as- 
sets of  an  insolvent  bank,  receivers  of 
whose  property  have  been  appointed 
under  St.  1851,' c.  127.  Stockholders  v. 
Colt.  67  Mass.   (1   Gray)  382. 

Enforcement  of  right  of  priority. — 
In  a  ijr'Kccding  under  Act  of  Fehniar}- 
6,  I860,  ch.  27,  to  suliject  the  assets  of 
a    bank,    on    the    ground    of    its    insol- 


vency, to  the  prior  right  of  its  note 
holders  over  all  other  creditors  to  pay- 
ment of  its  assets,  it  is  essential  that 
the  fact  of  insolvency  be  positively  al- 
leged. McCrae  v.  Bank,  46  Tenn. 
(6    Coldw.)    474. 

Rule  for  distribution. — In  the  distri- 
bution of  the  assets  of  an  insolvent 
bank  special  preference  is  given  by  law 
to  bill  holders  over  other  creditors  of 
the  bank,  and  the  distribution  is  to  be 
made  among  all  bill  holders  whose 
bills  have  been  brought  in  before  dis- 
tribution made,  in  proportion  to  the 
amount  of  the  just  claim  of  each. 
Belcher  v.   Willcox,   40    Ga.   391. 

55.  Eastern  Bank  v.  Capron,  22 
Conn.    639. 

56.  In  re  Pennsylvania  Bank,  39  Pa. 
103. 

Act  1860,  c.  27,  §  30,  provides  that, 
in  all  cases  of  insolvency  of  any  bank 
or  banking  association,  the  bill  holders 
shall  be  entitled  to  preference,  in  pay- 
ment, to  all  other  creditors  of  such 
bank  or  association,  and  no  transfer 
or  assignment  of  any  note,  bill  of  ex- 
change, or  other  evidence  of  debt  by 
the  bank  shall  prevent  the  debtor  from 
paying  the  same  into  the  hands  of  the 
assignee,  in  the  currency  of  the  bank. 
Held,  that  this  law  applies  to  a  gen  • 
eral  assignment  by  the  bank;  and  also 
to  any  assignment  made  by  the  bank 
of  its  notes,  bills  of  exchange,  or  other 
evidence  of  debt.  Miller  v.  Andrews, 
43    Tenn.    (3   Coldw.)    380. 

A  finn  of  bankers  having  issued  and 
circulated  notes  payable  to  bearer  of 
less  denominations  than  five  dollars, 
and  subsequently^  having  made  an  as- 
signment giving  a  priority  or  prefer- 
ence in  payment  to  the  holders  of  these 
notes,  it  was  held  that  such  holders 
were  entitled  to  the  preference  in  the 
distribution  of  assets,  notwithstanding 
Act  July  7,  1838  [5  Stat.  309],  which 
prohibits  the  issue  of  any  note  or  other 
paper  currency  of  a  less  denomination 
than  five  dollars  within  the  District  of 
Columbia.  Tucker  v.  Fowler,  Fed. 
Cas.   No.   14,219,   1    llayw.   ^   U.  67. 

But  in  Georgia  it  lias  been  held 
that  the  statute  providing  tiiat,  where 
a  receiver  is  api)ointcd  for  an  insol- 
vent bank,  bill  holders  shall  be  paid 
in  preference  to  other  creditors,  does 
not  apply  where  tlic  bank  makes  a 
voluntary  assignment  for  the  payment 
r)f  all  the  debts  of  tlie  bank.  l)oi)bins 
7'.  Wahon,  37  Ga.  614,  9.5  .Am.  Dec. 
;;71. 


580 


BANKS    AND    BANKING. 


§  79  (4) 


each  other  they  share  equally  in  the  distribution.-^" 

§  79  (3)  Penalties  and  Interest. — If  bill  holders  of  an  insolvent 
bank  demand  payment  of  their  claims  and  are  refused,  they  are  entitled  to 
interest  from  the  time  of  such  demand. ^^ 

§  79  (4)  Set-Off  against  Bank  or  Receiver. — Persons  holding  the 
circulating  notes  of  a  bank  at  the  time  it  becomes  insolvent  may  set  the  same 
off  against  their  indebtedness  to  the  bank.^^  This  set-off,  however,  will 
only  be  allowed  against  the  bank,'^*'  and  circulating  notes  acquired  after  the 
insolvency  of  the  bank  can  not  be  set  oft'  against  the  holder's  indebtedness 
to  the  bank,*5i  j-^or  will  bills  purchased  in  at  a  discount  be  allowed  as  a 


57.  Holders  of  circulating  notes 
share  pro  rata. — The  assets  of  an  in- 
solvent banking  corporation  under  the 
laws  and  statutes  of  this  state  consti- 
tute a  trust  fund  in  the  hands  of  the 
officers  of  the  bank  for  the  equal  bene- 
fit of  all  the  note  holders  of  the  bank. 
No  diligence  on  the  part  of  one  can 
defeat  the  others'  right  to  a  pro  rata 
distribution  of  the  fund.  Marr  z'. 
Bank,    44   Tenn.    (4    Coldw.)    471. 

58.  Penalties  and  interest. — In  ad- 
justing the  claims  of  an  insolvent  bank 
whose  assets  have  been  put  into  the 
hands  of  a  receiver,  those  creditors 
who  have  demanded  payment  of  the 
bank's  bills,  and  been  refused,  are  not 
entitled  to  twenty-four  per  cent  in- 
terest on  such  bills,  under  Rev.  St.  c. 
36,  §  29,  which  allows  interest  at  that 
rate  when  payment  has  been  demanded 
on  the  bank  and  refused,  but  they  are 
entitled  to  six  per  cent  interest  from 
the  time  of  such  demand.  Atlas  Bank 
7'.    Nahant   Bank    (Mass.),   .3    Mete.    581. 

Right  of  bill  holder's  assignee  to  in- 
terest.— Where  the  holder  of  bank 
bills  has  obtained  the  right  to  legal 
interest  thereon  by  making  demand  of 
payment,  an  assignee  of  such  bills  is 
entitled  to  interest  out  of  the  assets 
of  the  bank  which  has  become  insol- 
vent. Atlas  Bank  v.  National  Bank 
(]\Tass.),  3  Mete.  581. 

59.  Set  off  of  notes  against  claims  of 
bank.— Williams  z\  Planters'  Bank 
(La.),  13  Rob.  125;  American  Bank  v. 
Wall,  56  Me.  167;  Mandeville  v.  Bracy, 
31  Miss.  460;  Niagara  Bank  v.  Rosevelt 
(N.  Y.),  9  Cow.  409;  Bruyn  v.  Middle 
Dist.  Bank  (X.  Y.),  9  Cow.  413;  1  Paige 
584,  note;  In  re  Middle  Dist.  Bank 
(N.  Y.),  9  Cow.  414.  19  Am.  Dec.  452,  1 
Paige  585;  Mann  v.  Blount,  65  N.  C. 
99;  Blount  v.  Windley,  68  N.  C.  1,  IS 
Am.  Rep.  616;  Clarke  v.  Hawkins,  5  R. 
I.  219. 

Act   April   5,   1843,   §   2,   No.   92,  com- 


pelling banks  to  receive  in  offset  their 
own  debts,  when  liquidated  and  due, 
from  whatever  source  arising,  and 
whenever  acquired,  may  be  considered 
as  declaratory  of  the  former  intention 
of  the  legislator.  Exchange  &  Bank- 
ing Co.  V.  Mudge  (La.),  6  Rob.  387. 

Plaintiffs'  agent  drew  a  time  bill  of 
exchange  in  favor  of  the  Bank  of 
Florida,  which  said  bank  discounted, 
paying  therefor  in  its  own  notes,  and 
sending  the  draft  to  its  New  York 
agent,  who  had  the  same  accepted. 
Afterwards  the  bank  failed,  and  its 
agent  transferred  the  bill  to  defendant 
for  the  use  of  its  creditors.  Plaintiffs 
still  held  a  large  portion  of  the  bank's 
notes,  which  it  had  received  on  the 
discount  of  the  draft,  and  also  other 
notes  which  it  had  received  in  the  due 
course  of  business.  Held,  in  an  action 
to  restrain  the  enforcement  of  the 
draft,  that  said  notes  constituted  an 
equitable  set-off.  Mel  z'.  Holbrook 
(N.   Y.).   4   Edw.   Ch.   539. 

Rule  in  Virginia. — LTnder  x-Vct  Feb. 
12.  1866,  placing  all  creditors  of  an  in- 
solvent bank  on  the  same  footing,  the 
holder  of  circulating  notes  has  no  right 
of  set-off.  Exchange  Bank  v.  Knox, 
60  Va.   (19   Gratt.)   739. 

60.  W^here  a  note  made  payable  to 
a  bank  for  discount  was  not  discounted 
by  the  bank,  but  was  afterwards  dis- 
counted by  another  person,  and  suit 
is  brought  in  the  name  of  the  bank 
for  the  use  of  the  holder,  such  holder 
may  resist  a  set-off  of  notes  of  the 
bank  by  proof  that  the  note  in  suit 
never  belonged  to  the  bank.  Trible 
r.   Bank   (Miss.\  2   Smedes   &   M.   523. 

61.  Notes  acquired  after  bank's  in- 
solvency.— American  Bank  z\  Wall,  56 
Me.  167;  Niagara  Bank  z\  Rosevelt 
(N.  Y.),  9  Cow.  409;  In  re  Middle  Dist. 
Bank  (N.  Y.),  9  Cow.  414,  1  Paige  585, 
19  Am.  Dec.  452;  Haxton  v.  Bishop 
(N.   Y.).  3  Wend.   13;   Diven  v.   Phelps 


§  79  (6) 


INSOLVENCY   AND   DISSOLUTION. 


581 


set-off.*' - 

§  79  (5)  Rights  against  Officers  of  Bank.— It  seems  that  the  hank 
officers  are  not  answerahle  in  an  action  at  huv  to  the  holders  of  circnhiting 
notes. "^ 

§  79  (6)  Actions  by  Bill  Holders.— No  proof  of  execution  of  the 
bills  is  necessary  in  a  suit  by  bill  holders  against  the  bank,  in  the  absence  of 
a  plea  of  non  est  factum  by  the  defendant.'"*  ^ 

Plea  in  Suit  by  Bill  Holder  against  Stockholder.— Where  stockhold- 
ers in  a  bank  are  personally  liable  for  the  ultimate  redemption  of  its  bills,  to 
a  suit  by  a  bill  holder  against  a  stockholder,  a  plea  that  the  bank  has  assets 


(X.  Y.),  34  Barb.  224;  Clarke  v. 
Hawkins,  5  R.  I.  219;  Exchange  Bank 
V.  Knox.  60  Va.  (19  Gratt.)  739;  Saun- 
ders V.  White,  61  Va.   (20  Gratt.)  327. 

The  bank  notes  of  the  Pennsylvania 
Bank  of  the  United  States  can  not  be 
set  off  to  a  note  sued  upon  by  the 
trustees  of  the  bank,  to  whom  it  had 
been  assigned  for  the  payment  of  its 
creditors.     Gee  v.   Bacon,  9  Ala.  699. 

A  depositor  in  a  bank,  as  it  was 
about  to  suspend,  obtained,  on  account 
of  his  deposit  from  an  officer,  an  undue 
note,  which  had  been  discounted;  and 
afterwards,  receiving  other  securities 
in  excess  of  his  deposit,  paid  back  part 
of  the  excess  in  bills  of  the  bank.  In 
an  action  by  him  on  the  note,  it  was 
held  that  the  drawers  could  not  set  off 
against  the  note  bills  of  the  bank  ob- 
tained after  the  plaintiff's  payment  on 
account  of  the  excess,  except  as  to  the 
balance  remaining;  and,  as  that  balance 
arose  out  of  other  securities  subse- 
quently given  to  the  plaintiff  by  the 
bank,  and  not  from  the  note,  which  se- 
curities were  not  shown  to  have  been 
fully  paid,  the  set-off  as  against  that 
balance  was  not  admissible.  Struthers 
V.    Brown,   44   Pa.   469. 

In  an  action  by  the  receivers  of  a 
bank,  appoint^^d  under  the  statute  of 
1825,  to  "prevent  fraudulent  bank- 
ruptcies by  incorporated  companies," 
etc.,  to  recover  a  note  discounted  at  the 
bank,  and  falling  due  after  the  re- 
ceivers are  appointed,  the  notes  of  the 
same  bank,  received  by  the  defendant 
before  his  note  fell  due,  can  not  be  set 
off,  though  he  reasonably  tendered 
them  in  payment.  Haxton  v.  Bishop 
(N.  Y.),  ;{  Wend.  13. 

62.     Bills     purchased     at     discount. — 

Dcljtors  of  an  insolvent  liank  in  the 
hands  of  a  receiver  will  be  allowed  to 
set  off  debts  due  to  them  by  the  bank 


while  it  is  doing  business  against  the 
debts  due  from  them  to  the  bank,  but 
not  even  the  bills  of  the  bank,  pur- 
chased by  them  after  an  injunction  has 
issued  against  it  preliminary  to  its 
winding  up,  and  especially  if  the 
debtor  be  a  director  of  the  bank,  and 
has  purchased  in  the  bills  at  a  dis- 
count; the  allowance  of  a  set-off  of 
bills  so  purchased  being  in  derogation 
of  the  rule  of  equality  in  payment, 
established  by  statute  as  between  the 
bill  holders  of  an  insolvent  bank. 
Clarke   v.    Hawkins,    5    R.    I.   219. 

63.  Liability  of  bank  officers  to  note 
holders. — A  bank  ofricer.  tlimugh 
whose  mismanagement  the  bank  has 
become  insolvent,  is  not  liable  to  the 
holders  of  its  notes,  though  he  is  liable 
to  the  bank.  Hinsdale  v.  Larned,  16 
Mass.   65. 

Proceedings  in  equity  by  note  hold- 
ers.— Tile  note  iioldors  of  a  foreign 
banking  corporation,  which  has  sus- 
pended payment,  and  become  insol- 
vent, may,  without  first  obtaining  a 
judgment  at  law,  proceed  in  equity 
against  the  bank,  its  directors,  stock- 
liolders,  and  agents,  charging  them 
with  fraud  and  misapplication  of  the 
assets,  and  seeking  a  discovery  and 
account.  Such  a  bill  may  be  maintained 
under  the  general  powers  and  jurisdic- 
tion of  the  court,  which  regard  the 
capital  stock  of  the  company  and  all 
its  assets  as  a  trust  fund  for  the  pay- 
ment of  its  creditors,  and  the  direct- 
ors, stockholders,  and  agents  as  trus- 
tees. Bank  ;•.  St.  lolin,  etc.,  Co.,  25 
Ala.   566. 

64.  Proof  of  execution  of  bills. — 
Where  a  bill  holder  sues  the  assignee 
of  a  bank  ui)()ii  its  notes,  and  no  ple.i 
of  non  est  factum  is  filed,  the  plaintiff 
need  not  prove  the  execution  of  the 
bills.  Billume  v.  Di.ugluTt y,  :!0  Ga. 
770. 


582 


BANKS    AND    BANKING. 


§  80  (laa) 


which   have  not  been  appropriated,  without  specifying  what  they  are,   is 
demurrable  for  uncertainty.*^ -"^ 

§  80.  Presentation  and  Payment  of  Claims'''' — §  80  (1)  Claims 
Provable  and  Estoppel  to  Claim''" — §  80  (la)  Claims  Provable — 
§  80  (laa)  In  General.— Of  course,  only  the  obligations  of  the  bank 
are  provable  claims  against  it.'^^  But  a  claim  for  rent  service  which  became 
due  after  the  appointment  of  a  receiver,'''''  for  damages  for  breach  of  a  lease 
by  the  bank,'^"  for  expenses  in  winding  up  the  affairs  of  the  bank,"^  and 
even   the  claims  of   bank  officers'^-   are  provable   claims  against  the  bank. 


65.  Lane   t'.    Morris.   8    Ga.   468. 

66.  Holding  bank  as  trustee  with  re- 
gard to  moneys  collected,  see  post, 
§   166   (1). 

On  dissolution  of  bank,  see  post, 
"Payment  of  Forged  or  Altered 
Paper,"    §    147. 

Payment  of  debts  from  safety  fund, 
see  ante,  "Reports  and  Statements," 
§  16. 

Right  of  depositor  of  check  or  draft 
on  insolvency  of  bank,  see  post,  "For- 
feiture of  Charter  and  Dissolution," 
§  308. 

67.  Rights  of  holders  of  circulating 
notes,  see  post,  "Restrictions  upon 
Issue   or   Circulation,"   §   198. 

68.  Claims  provable. — In  proceedings 
to  establish  a  claim  against  an  insol- 
vent bank,  it  appeared  that  claimant 
sold  to  the  president  of  the  bank  cer- 
tain securities,  and  in  payment  took 
certificates  of  deposit.  The  president 
testified  that  the  transaction  was  his 
individual  venture.  The  claimant  de- 
nied. The  certificates  were  never  en- 
tered on  the  books  as  liabilities  of  the 
bank,  but  four  were  afterwards  paid 
by  the  bank  and  charged  to  the  presi- 
dent's account.  Held,  that  the  certifi- 
cates were  prima  facie  those  of  the 
bank.  State  v.  Farmers',  etc.,  Bank,  36 
Neb.    67.5,    54    N.    W.    974. 

What  law  governs. — In  a  suit  in  the 
federal  courts  praying  fpr  the  appoint- 
ment of  a  receiver  of  an  insolvent  bank 
organized  under  the  state  laws,  the 
winding  up  of  its  afifairs,  and  the  dis- 
tribution of  its  assets,  the  question  as 
to  what  are  and  are  not  provable 
claims  must  be  governed  by  the  laws 
of  the  state.  New  York  Security,  etc., 
Co.  V.  Lombard  Invest.  Co.,  73  Fed. 
537. 

69.  Claim  for  rent. — Where  a  bank 
broke  its  covenant  in  a  lease  of  its 
banking  house  on  its  becoming  insol- 
vent, and  the  lessor  re-entered  and 
relet  the  premises  in  accordance  with 
the  terms  of  the  lease,  at  a  loss,  the 
lessor   was    entitled    to    have    his    claim 


for  damages  for  the  loss  so  sustained 
allowed  by  the  bank's  receiver  as  a 
claim  against  the  bank's  estate  in  in- 
solvency. McGraw  v.  Union  Trust  Co.. 
135    Mich.    609.    98    N.    W.    390. 

Where  an  insolvent  banking  corpo- 
ration is  proceeded  against  under  Gen. 
St.  1894,  c.  76,  §  5900,  and  is  restrained 
from  exercising  any  of  its  corporate 
functions,  and  its  executory  contract 
of  leasing  for  a  term  of  years  is  repu- 
diated by  its  receiver,  and  the  leased 
premises  are  abandoned,  there  is  a 
final  breach  of  such  contract,  for  which 
the  lessor  is  entitled  to  damages.  Min- 
neapolis Baseball  Co.  f.  City  Bank,  74 
Mlinn.   98,   76   N.    W.    1024. 

Where  an  executory  contract  of 
leasing  for  a  term  of  years  is  repu- 
diated by  a  receiver  of  an  insolvent 
banking  corporation,  and  there  is  a 
final  breach  of  such  contract,  the  lessor 
should  immediately  declare  the  breach 
to  be  total,  and  in  the  insolvency  pro- 
ceedings must  be  allowed  to  establish 
his  claim  for  damages  against  the  es- 
tate. Minneapolis  Baseball  Co.  v.  City 
Bank,  74  Minn.  98,  76  N.  W.  1024. 

70.  Damages  for  breach  of  lease. — 
Where  a  bank  operated  a  savings  and 
commercial  department  in  its  banking 
house,  which  it  held  under  a  lease,  a 
claim  for  damages  for  breach  of  the 
lease  on  the  bank's  insolvency  was 
chargeable  pro  rata  against  the  assets 
of  each  department.  McGraw  t'.  Union 
Trust  Co..  ]35   Mich.  609,  98  N.  W.  390. 

71.  All  reasonable  and  proper  ex- 
penditures incurred  by  a  receiver  or 
other  agent,  in  winding  up  the  afifairs 
of  an  insolvent  bank,  are  legitimate 
charges  against  the  trust  fund,  and 
should  be  allowed,  unless  shown  to  be 
overcharged  or  wrongfully  charged. 
Robinson  f.  Bank.  18  Ga.  65. 

72.  Claims  of  bank  officers. — An  offi- 
cer of  an  insolvent  bank  is  entitled  to 
participate  as  a  creditor  in  the  distri- 
bution of  its  assets,  when  he  has  been 
guiltv  of  no  fraud.  In  re  Insurance 
Co.    (Pa.),  9  Lane.   Bar.  119. 


§  80  (Ice) 


INSOLVENCY    AND   DISSOLUTION. 


583 


although  it  did  not  mature  until  after  the  appointment  of  the  receiver.'-'^ 

Claims  of  Individual  Creditor  of  Private  Banker. — Creditors  of  an 
individual  doing  business  as  a  private  banker  may  participate  in  the  distribu- 
tion of  the  assets  of  the  bank  in  the  hands  of  a  receiver."'* 

§  80  (Ibb)  Claims  for  Taxes. — If  before  the  liability  for  a  tax  on 
capital  stock  of  a  bank  has  attached  the  bank  becomes  insolvent,  the  tax  on 
the  stock  can  not  be  collected  from  the  receiver,  because  the  stockholders 
are  primarily  liable  for  the  tax  and  the  liability  of  the  bank  is  secondary. 
And  manifestly  if  its  capital  stock  becomes  valueless  there  is  nothing  be- 
longing to  the  stockholder  upon  which  a  lien  could  attach  in  the  bank's 
favor."'"*  But  taxes  assessed  against  the  receiver  upon  all  personal  property 
in  its  possession,  and  all  of  the  assets  of  the  insolvent  bank,  must  be  paid  by 
the  receiver  from  the  assets  in  his  possession."'^ 

§  80  (Ice)  Claims  of  Depositary. — Where  a  bank  which  has  money 
on  deposit  with  another  becomes  insolvent,  being  at  the  time  indebted  to  the 
depositary  upon  promissory  notes,  the  depositary  may,  after  crediting  the 
deposit  upon  the  notes  it  holds  against  the  failing  bank,  share  in  the  bal- 
ance still  due,  pro  rata  with  the  depositors  of  that  bank,  in  a  general' 
distribution  of  its  assets  in  the  hands  of  a  receiver  appointed  to  take  charge 
of  and  administer  the  same.'" 


73.  A  claim  against  a  bank  maturing 
after  the  date  of  the  receivership  will 
nevertheless  be  allowed,  provided  it 
has  sufficiently  matured  before  an> 
order  of  distribution  is  made.  New 
York  Security,  etc.,  Co.  v.  Lombard 
Invest.  Co.,  73  Fed.  537;  Hussey  v. 
Crawford,  152  Mass.  596,  26  N.  E.  424; 
Hoyle   V.    Scudder,   32    Mo.   App.   372. 

74.  Individual  creditors  of  private 
banker. — Under  Laws  1891,  c.  43,  §  35, 
providing  that  any  individual  receiving 
money  on  deposit  shall  be  considered 
as  doing  a  banking  business,  and  §  26, 
making  it  the  duty  of  the  bank  com- 
missioner, on  insolvency  of  a  bank,  to 
have  a  receiver  appointed  to  wind  up 
its  business  for  the  benefit  of  its  de- 
positors, creditors,  and  stockholders,  a 
creditor  holding  notes  given  by  the 
sole  owner  and  manager  of  a  bank  for 
individual  indebtedness,  the  bank  being 
conducted  in  the  owner's  personal 
name,  is  not  prevented  from  sharing 
in  the  distribution  of  the  assets  of  the 
bank  after  insolvency  equally  with  its 
depositors  and  other  creditors.  Mc- 
Dermott  z:  Halleck,  61  Kan.  486,  59 
Pac.   1074. 

75.  Tax  on  capital  stock. — Laws  1893, 
p.  333,  §  22,  provides  that,  if  the  tax 
on  capital  stock  of  a  bank  is  not  paid, 
the  bank  shall  be  liable  for  it.  and  §  2:-> 


provides  that  the  corporation  shall 
have  a  lien  on  the  shares  in  the  corpo- 
ration, and  in  the  rights  and  property 
of  the  shareholders,  for  the  payment 
of  the  taxes.  Held,  that  the  receivei 
of  an  insolvent  bank  is  not  liable  for 
taxes  assessed  against  its  capital  stock 
before  it  became  insolvent.  Hewitt  v. 
Traders'  Bank,  18  Wash.  326,  51  Pac. 
-'68,  following  Baker  v.  King,  17  Wash. 
632,  50  Pac.  481.  '         ■ 

76.  Tax  on  personalty. — Hewitt  v. 
Traders'  Bank,  IS  Wash.  326,  51  Pac. 
468. 

The  receiver  of  an  insolvent  bank  is 
liable  for  taxes  on  the  full  amount  of 
personal  property  and  assets  of  the 
bank,  and  can  not  deduct  therefrom 
the  amount  of  debts  owing  by  the 
bank.  Hewitt  v.  Traders'  Bank,  18 
Wash.  326,   51   Pac.  468. 

77.  Claims  of  depositary. — Georgia 
Seed  Co.  z:  Talniadge  &  Co.,  96  Ga. 
254,  22  S.    E.   1001. 

A  bank  which  applied  a  deposit  be- 
longing to  another  bank  on  notes  due 
it  by  the  latter,  on  the  latter's  sus- 
pension, could  share  with  the  deposi- 
tors of  the  suspended  bank  in  the  gen- 
eral distrilnition  of  the  latter's  assets, 
(m  the  balance  due  on  the  notes, 
fieorgia  Seed  Co.  z:  Talmadge  &  Co.. 
'.16  Ga.  254,  22  S.   E.  1001. 


584 


BANKS    AND    BANKING. 


§    80    (lb) 


§  80  (Idd)  Paid-Up  Stockholders.— On  the  distribution  of  the  as- 
sets of  an  insolvent  bank,  the  personal  liability  of  stockholders  to  depositors 
under  the  statute,  being  in  the  nature  of  a  guarantee,  can  not  be  set  up  to 
prevent  paid-up  stockholders  from  participating,  as  creditors,  in  the  distribu- 
tion.'''^ 

§  80  (lee)  Incidental  Expenses  in  General.— The  rent  for  the  bank 
and  clerk's  hire  may  be  allowed  by  the  receiver.''-^ 

Expenses  of  Collecting  Assets.— And  the  reasonable  and  necessary 
cost  and  expense  incurred  by  a  creditor  in  collecting  collateral  security  held 
by  the  bank  also  may  be  allowed  by  the  receiver.^o 

§  80  (lb)  Estoppel  to  Claim.— Creditors,  of  course,  are  only  entitled 
to  a  single  satisfaction  of  their  claims.si  But  a  receipt  of  part  of  his  claim 
by  a  creditor  does  not  preclude  him  from  recovering  the  balance.s^ 

Claims  of  Accommodation  Makers.— Persons  lending  their  credit  to 
a  bank  by  making  an  accommodation  note  payable  to  the  bank,  thereby  en- 
abling the  bank  to  obtain  money,  can  only  claim  reimbursement  on  the  sub- 
sequent insolvency  of  the  institution ;  they  can  not  also  claim  a  credit  in  their 
favor  on  the  books  of  the  bank  for  that  same  debt.^-' 


78.  In  re  Humboldt  Safe-Deposit, 
etc.,  Co.,  3   Pa.  Co.  Ct.   R.  621. 

79.  Incidental  expenses  such  as  rent, 
etc. — The  receiver  is  authorized  to 
allow  such  sum  for  the  use  of  the 
banking  room,  and  to  the  clerk  for  at- 
tending to  demand  payment,  and  pro- 
test notes  which  fall  due,  as  he  may- 
deem  reasonable.  Bruyn  v.  Middle 
Dist.  Bank  (N.  Y.),  9  Cow.  413,  1 
Paige  .584. 

80.  Expenses  incurred  in  coUectmg 
collateral. — Hanover  Nat.  Bank  v. 
Brown  (Tenn.),  53  S.  W.  206  (may  re- 
cover attorney  feesV 

In  a  receivership  proceeding  to  wind 
up  the  affairs  of  an  insolvent  bank,  a 
creditor  of  a  bank  holding  collateral 
security  was  entitled  to  an  allowance, 
for  his  reasonable  and  necessary  costs 
and  expenses  of  collecting  the  collat- 
eral. Brown  v.  Sheldon  State  Bank, 
139   Iowa   83,   117   N.   W.   289. 

81.  Estoppel  to  present  claims. — A 
depositor  in  a  bank  who  recovers  a 
judgment,  which  is  satisfied,  against 
one  who  held  himself  out  as  its  presi- 
dent, can  not  afterwards  prove  his  debt 
against  the  bank's  assets.  Dobson  v. 
Simonton,   95   N.   C.   312. 

82.  Receipt  of  part  of  claim  by  cred- 
itor of  bank. — Receiving  a  portion  of 
his  claim  against  an  insolvent  bank,  by 
a  creditor  thereof,  does  not  impair  his 
right  to  seek  the  entire  satisfaction  of 
his    claim    by    legal    or    equitable    pro- 


ceedings against  the  assets  of  the  bank 
or  the  stockholders,  though  he  has  pre- 
viously ratified  the  deed  of  assignment 
by  the  bank.  City  Bank  v.  Crossland, 
65    Ga.   734. 

A  creditor  of  an  insolvent  bank,  who 
recovers  a  portion  of  his  debt  from 
stockholders  on  their  personal  liability, 
is  not  thereby  prevented  from  sharing 
with  other  creditors  on  the  basis  of 
his  entire  debt  in  the  assets  of  the  cor- 
poration, to  the  extent  of  the  balance 
due.  Sacramento  Bank  v.  Pacific  Bank, 
124  Cal.  147,  56  Pac.  787,  45  L.  R.  A. 
863.  71  Am.  St.  Rep.  36. 

The  receipt  by  a  person  of  a  divi- 
dend from  the  assignee  of  an  insolvent 
bank  does  not  estop  him  from  demand- 
ing payment  in  full  of  his  claim  against 
the  bank,  on  the  ground  that  a  trust 
was  imposed  on  the  assets  in  his  favor 
as  against  the  general  creditors.  Wal- 
lace V.  Stone,  107  Mich.  190,  65  N.  W. 
113. 

83.  Claims  of  accommodation  makers 
of  notes. — Complainants,  on  the  re- 
quest of  a  national  bank  needing  funds, 
signed  an  accommodation  note  for 
$10,000.  payable  to  its  order,  with  the 
understanding  that  it  would  discount 
the  same,  and  use  the  proceeds  in  its 
business.  The  bank  at  the  same  time 
agreed  to  place  to  the  credit  of  com- 
plainants on  its  books  an  amount 
equal  to  the  proceeds  of  the  note,  corn- 
plainants    stipulating    that    they    would 


§  80  (2cc) 


INSOLVENCY   AND   DISSOLUTION. 


.■)«D 


§  8  0  (2)  Presentation  and  Proof— §  80  (2a)  Presentation— 
§  80  (2aa)  In  General. — The  statutes  in  most  jurisdictions  require 
creditors,  desiring  to  share  in  a  distribution  of  the  shares  of  an  insolvent 
bank,  to  bring  in  and  prove  their  claims.'^-*  within  a  prescribed  time/**^ 

§  80  (2bb)  Notice  to  Creditors  to  Present  Claims. — By  statute  in 
most  jurisdictions,  it  is  provided  that  upon  the  appointment  of  a  receiver 
notice  shall  be  given,  usually  by  advertisement,  calling  on  all  persons  who 
may  have  claims  against  the  bank  to  present  the  same  to  the  receiver  and 
make  legal  proof  thereof. ^"^ 

§  80  (2cc)  Time  for  Presentation  or  Filing  of  Claim. — The  time 
within  which  a  creditor  must  file  or  deposit  his  claim  is  usually  prescribed 


not  check  against  this  credit  except 
to  pay  the  note  or  to  reimburse  them- 
selves for  paying  it.  The  credit  was 
accordingly  made,  and  the  bank,  after 
continuing  business  for  some  time, 
failed,  and  complainants  were  com- 
pelled to  pay  the  note.  They  there- 
after recovered  a  judgment  at  law 
against  the  bank's  receiver  for  the 
amount  paid  to  take  up  the  note,  and 
then  sued  in  equity  for  the  amount 
placed  to  their  credit  according  to  the 
agreement.  Held,  that  they  were  not 
entitled  to  two  judgments  for  the  same 
debt,  and  to  dividends  on  both  judg- 
ments until  one  of  them  was  satisfied, 
and  that  the  bill  must,  therefore,  be 
dismissed.  Latimer  v.  Wood,  20  C.  C. 
A.  251,   73   Fed.   1001. 

84.  The  mere  service  of  a  copy  of 
the  writ,  in  a  suit  then  pending,  upon 
the  receivers  of  the  effects  of  an  in- 
solvent bank,  is  not  a  compliance  with 
the  provisions  of  Act  April  16,  1841, 
that  creditors  must  bring  in  and  prove 
their  claims  if  they  would  receive  their 
share  of  the  effects.  Read  v.  Frank- 
fort  Bank,  23   Me.   318. 

Under  the  New  York  General  Corpo- 
ration Law,  §  2G1,  creditors  of  a  bank, 
who  after  due  notice  failed  to  assert 
their  claims  forfeited  their  right  to 
share  in  the  distribution.  People  v. 
German  Bank  (Sup.),  136  N.  Y.  S. 
31  \. 

It  is  unquestionably  the  practice  in 
New  York  that  as  to  an  application  by 
a  depositor  or  other  creditor  for  leave 
to  prove  a  claim  against  a  bank,  or  in 
any  other  aspect  in  which  the  fund  in 
the  receiver's  hands  is  sought  to  be 
charged,  it  is  essential  that  the  appli- 
cation be  made  in  the  action  in  which 
the  receiver  is  appointed.  In  re 
Ziegler,  98  App.  Div.  117,  90  N.  Y.  S. 
681. 


Application  for  claim. — Where  a  re- 
ceivership of  a  bank  was  extended  over 
a  fund  recovered  in  an  action  to  en- 
force a  stockholders'  statutory  liabil- 
ity, and  a  notice  to  creditors  of  such 
action  stated  that  an  order  would  be 
applied  for,  directing  the  receiver  of 
the  bank  to  apply  to  the  applicant's 
claim  dividends  out  of  the  funds  in 
his  hands  accruing  from  such  stock- 
holders' actions,  which  designation  of 
the  receiver  was  the  same  as  in  the 
judgment  appointing  him  receiver  in 
the  action,  and  disclosed  that  it  had  re- 
lation to  the  fund  held  by  him  as  such 
receiver,  the  application  should  be  re- 
garded as  having  been  properly  made 
in  the  stockholders'  action.  In  re 
Ziegler.  98  App.  Div.  117,  90  N.  Y.  S. 
681. 

85.  Time   for  presentation  of  claims. 

— See     post.     "Time     for     Presentation 
or  Filing  of  Claim,"  §-80  (2cc). 

86.  Notice  to  creditors  to  present 
claims. — McGraw  t'.  Union  Trust  Co., 
135    Mich.    609.   98   N.   W.   390. 

Tn  pursuance  of  a  decree  to  dis- 
tribute the  assets  of  an  insolvent  bank, 
advertisement  was  made  for  creditors 
to  prove  their  claims  by  a  certain  day, 
on  pain  of  being  thereafter  barred. 
Held,  that  a  creditor  who  had  no  in- 
formation of  the  advertisement,  and 
who  was  not  guilty  of  laches  in 
presenting  his  claim,  was  entitled  to 
prove  after  the  day  named.  Glenn  7'. 
Farmers'   Bank,   80   N.   C.   97. 

The  banking  Act  of  1887,  §  .56.  which 
requires  the  receiver  of  an  insolvent 
bank  to  give  twelve  weeks'  notice  by 
publication  for  presentation  of  claims 
l)y  creditors,  is  for  their  benefit,  and 
does  not  prevent  the  receiver  from 
passing  on  a  claim  presented  to  him 
on  a  briefer  notice.  Bisscll  7'.  Heath, 
98    Mich.    472.   .57   N.   W.   .'58.'5. 


586 


BANKS    AND    BANKING. 


§  80  (2b) 


by  statute. ■^■^  But  a  court  may,  in  its  discretion,  permit  a  creditor  to  share  in 
the  assets  of  an  insolvent  bank,  though  his  claim  was  not  filed  with  the  re- 
ceiver within  the  time  which  was  by  a  general  order  limited  for  the  presen- 
tation of  claims. ^^ 

§  80  (2b)  Proof.— Where  a  creditor  claims  expenses  for  collecting 
the  bank's  assets,  he  must  produce  proof  thereof.'*^  The  manner  of  prov- 
ing claims  against  the  bank  is  largely  in  the  court's  discretion.^^* 


87.  Time  for  presentation  or  filing  of 

claim.— The  Act  of  December  12,  1866, 
entitled.  "An  act  to  expedite  the  dis- 
tribution of  the  effects  of  banks  which 
have  made  or  may  make  assignments 
among  their  creditors,"  is  not  a  statute 
of  limitations.  The  statute  is  uncon- 
stitutional and  void.  Fogg  c'.  Union 
Bank,   60   Tenn.    (1    Baxt.)    435. 

"This  statute  makes  the  trustee  both 
legislator  and  judge.  To  him  it  is 
given  to  prescribe  the  time  within 
which  the  creditor  shall  file  or  deposit 
his  claim,  and  to  him  it  is  given  to 
determine  whether  he  has  broughi 
himself  within  the  time,  creating 
branches  to  the  legislature  and  judicial 
departments  unknown  to  the  constitu- 
tion. The  act  is  an  attempt  on  the 
part  of  the  legislature  to  delegate  its 
law-making  power  to  individuals,  and 
is  prohibited  by  the  constitution,  of 
which  the  legislature  is  the  creature. 
It  is  as  competent  for  the  legislature 
to  enact  that  each  court  in  the  state 
shall  declare  that  time  shall  bar  tlie 
collection  of  a  debt  after  a  given 
period,  as  it  was  to  have  enacted  this 
statute.  To  do  either  is  to  create  as 
many  new  legislatures,  with  limited 
powers  as  there  are  trustees  or  courts. 
The  statute  is  unconstitutional  and 
void."  Fogg  V.  Union  Bank,  60  Tenn. 
(1  Baxt.)  435. 
88.  Discretion  of  court  as  to  time  of 

filing State   v.    Bank,    61    Neb.   22,    84 

N.   \V.  406. 

A  creditor  of  an  insolvent  bank, 
whose  assets  are  in  custodia  legis 
under  decree  of  court,  will  be  let  in 
to  prove  his  debt  after  the  day  fixed 
for  proofs,  if  he  is  not  guilty  of  laches; 
but  if  he  fail  to  make  application  to 
do  so  until  after  the  fund  is  distributed, 
having  full  knowledge  of  the  proceed- 
ing, he  will  be  barred  of  his  right. 
Glenn  v.  Farmers'  Bank,  84  X.  C.  631. 
Excuses  for  failure  to  file  in  time. — 
A  stockholder  in  a  bank,  with  the  help 
of  its  president,  obtained,  as  he  sup- 
posed, assets  in  full  payment  of  his 
claim   in   preference   to  other   creditors. 


who  afterwards  received  only  ninety 
per  cent  of  their  claims.  He  after- 
wards found  the  assets  which  he  re- 
ceived were  not  collectible,  and  asks 
to  file  his  claim  with  the  receiver, 
though  the  time  for  such  filing  has 
expired.  Held  not  an  abuse  of  discre- 
tion to  deny  the  motion.  Howe  v. 
Bankers'  Exch.  Bank.  75  Minn.  286,  77 
N.  W.  967. 

The  penalty  which  attaches  to  a 
failure  to  prove  the  claim  does  not 
operate  to  deprive  a  creditor  of  all 
l:ienefits  derived  from  the  judgment  un- 
less there  has  been  a  final  distribution 
of  the  fund,  based  upon  claims  proven 
thereunder.  At  any  time  before  such 
distribution  a  creditor  may  come  in 
and  be  permitted  to  prove  his  claim, 
even  though  a  schedule  of  those  who 
are  entitled  to  share  in  the  fund  and 
the  amounts  has  been  made  up  for 
distribution.  Under  such  circumstances, 
the  court  has  the  power  to  open  the 
proceeding  for  the  purpose  of  estab- 
lishing the  claim;  and  the  applicant, 
in  moving  the  court  to  its  exercise,  is 
required  to  show  an  excuse,  bj^  satis- 
factory proof,  for  failing  to  prove  her 
claim  before  the  referee  within  the 
prescribed  period.  In  re  Ziegler,  98 
App.    Div.    117,   90    X.   S.   681. 

89.  Proof  of  expenditures  by  credit- 
ors.— It  could  not  be  claimed,  by  the 
receiver  in  such  case,  that  the  creditor 
failed  to  introduce  proof  as  to  his  ex- 
penditures in  the  collection  of  such 
collateral  security,  where  he  had  pre- 
sented a  complete  statement  of  the 
account,  including  such  expenses,  and 
the  court  might  have  examined  the  ac- 
count, and  a'Uowed  such  of  the  items 
as  were  proper.  Brown  v.  Sheldon 
State  Bank,  139  Iowa  83,  117  X.  W. 
289. 

90.  Manner  of  proving  claims.— 
Code,  §§  669,  670,  providing  that  in 
winding  up  the  affairs  of  insolvent  cor- 
porations the  court  shall  make  such 
orders  as  justice  and  equity  shall  re- 
ciuire,  and  direct  how  claims  shall  be 
proved,  apply  to  the  adjustment  of  the 
claim    of    an    insolvent     bank     and     its 


§  80  (3c) 


IXSOLVEXCY   AND   DISSOLUTION. 


587 


The  burden  of  proof  is  on  the  bank  to  show  the  invalicHty  of  the  claims 
of  depositors.'^  1 

§  80  (3)  Allowance  and  Payment— §  80  (3a)  By  Whom  Al- 
lowed.— The  court  and  not  the  receiver  is  the  proper  party  to  allow  or  dis- 
allow claims,  nor  is  it  necessary  to  appeal  from  the  action  of  the  receiver  in 
the  premises. ^- 

§  80  (3b)  To  Whom  Allowed. — Money  deposited  by  a  husband  in  the 
wife's  name  belongs  to  the  wife  and  will  be  allowed  her  upon  presentation 
of  a  proper  claim,  and  no  promise  or  agreement  which  the  husband  makes 
in  her  absence  will  bind  her.^-^ 

§  80    (3c)   Rights  and  Liabilities  of  Creditors  Holding  Collateral. 

— Although  there  is  irreconcilable  conflict  in  the  cases,  the  better  rule,  and 
that  sustained  by  the  great  weight  of  authority  is  that  collateral  security, 
by  mortgage  or  otherwise,  held  by  the  claimant,  does  not  affect  the  claim- 
ant's right  to  prove  up  for  the  full  amount  of  his  claim ;  nor  does  the  fact 
that  he  has  realized  a  part  of  his  claim  from  the  subjection  of  such  collateral, 
since  the  date  of  the  receivership ;  but  he  is  entitled  in  such  case  to  receive 
distributions   or   dividends   from   the  general   estate,   until   such   dividends. 


debtor,  who  is  also  a  depositor.  Davis 
V.  Industrial  Mfg.  Co..  114  N.  C.  321, 
19   S.    E.  pi,   23   L.   R.   A.   322. 

Necessity  for  verification. — In  the 
absence  of  a  statute  requiring  that  a 
■claim  against  the  receiver  of  a  bank 
should  be  verified  by  affidavit,  the 
failure  to  make  such  proof  will  not 
l5ar  the  right  to  sue  on  the  claim. 
Arnold  v.  Penn,  11  Tex.  Civ.  App.  325. 
32   .S.   W.    353. 

91.  Burden  of  proving  invalidity  of 
claims. — Act  Feb.  16,  1866,  providing 
for  the  appointment  of  directors  to 
put  the  Bank  of  Tennessee  in  liquida- 
tion, required  them  to  collect  the  debts 
due  the  bank,  and  receive  in  payment 
United  States  currency  or  notes  of 
such  bank  issued  prior  to  May  6,  1861, 
but  to  refuse  all  issues  of  such  bank 
made  after  May  9,  1861,  etc.,  and  also 
to  cause  an  assignment  of  all  tlic  prop- 
erty in  trust  to  secure  $1,500,000  of 
the  school  fund  deposited  in  such  bank 
pursuant  to  prior  acts  of  the  legisla- 
ture, with  interest  from  May  6,  1861, 
and  to  secure  all  just  creditors,  ex- 
cluding all  claims  of  date  after  May  6, 
1861,  as  null  and  void;  and  directed  the 
attorney  general  to  file  a  bill  in  chan- 
cery to  execute  such  deed  of  trust,  en- 
join all  creditors  from  suing,  make  all 
persons  interested  parties  by  publica- 
tion, etc.,  to  "come  in  under  one  de- 
cree, and  equal  justice  be  done  to  all." 
Helfj.   in  an   action   in   the   name   of  the 


state  and  the  assignee  brought  pur- 
suant to  such  statute,  that  defendants, 
showing  themselves  to  be  depositors 
in  such  bank,  were  prima  facie  credit- 
ors of  the  bank,  and  the  burden  of 
proof  was  on  the  bank  or  trustee  to 
show  the  invaliditv  of  their  claims. 
State  7'.   Bank,   64  fenn.    (5   Baxt.)    1. 

92.  By  whom  claims  to  be  allowed. — 
The  receiver  appointed  to  sequester 
the  assets  has  no  authority  to  allow  or 
disallow  the  claims  of  creditors,  such 
power  resting  with  the  court.  Palmer 
V.   Bank,   72  Minn.  266,  75   N.  W.  380. 

93.  Claims  by  wife. — In  proceedings 
for  the  allowance  of  a  claim  againsi 
an  insolvent  bank,  based  on  a  deposit 
in  claimant's  name,  the  cashier  stated 
that  claimant's  husband,  when  he  de- 
posited the  money,  stated  that  it  was 
the  proceeds  of  land  claimed  by  his 
wife.  The  testimony  of  claimant 
showed  that  it  was  her  money.  The 
husband  deposited  the  money  in  claim- 
ant's name,  and  in  her  absence  told 
the  cashier  that  it  would  be  used  as  a 
credit  on  a  debt  due  bj^  him  and  her, 
and  the  deposit  was  entered  as  a 
credit  thereon.  When  claimant  saw 
the  entry,  her  husband  told  her  that 
the  credit  was  not  to  be  made.  Held, 
that  no  agreement  made  by  the  hus- 
band in  the  wife's  absence  would  bind 
her,  and  the  claim  of  the  wife  was 
properly  allowed.  Peach  z'.  Grubbs, 
145    .\la.    685,   40    So.    110. 


588 


BANKS    AND    BANKING. 


§  80  (3aa) 


added  to  the  amount  realized  from  the  collateral,  are  equal  to  or  sufficient 
to  satisfy  his  debt.^'* 

§  80  (3d)  Hearing  and  Determination— §  80  (3aa)  In  General. 
— The  report  of  the  auditor  appointed  to  distribute  the  funds  is  conclu- 
sive on  a  finding  of  facts,  unless  plain  error  is  shown. '^^'^     If  a  claim  is  dis- 


94.  Rights  of  creditors  holding  col- 
lateral,— Lewis  V.  United  States,  92  U. 
S.  618,  23  L.  Ed.  513;  Tod  7'.  Kentucky 
Union  Land  Co.,  57  Fed.  47;  Chemical 
Nat.  Bank  v.  Armstrong,  8  C.  C.  A. 
155,  59  Fed.  372,  28  L.  R.  A.  231;  New 
York  Security,  etc.,  Co.  v.  Lombard 
Invest.  Co.,  73  Fed.  537;  Findlay  v. 
Hosmer,  2  Conn.  350;  In  re  Bates,  118 
111.  524,  9  N.  E.  257,  59  Am.  Rep.  383; 
Logan  V.  Anderson  (Ky.),  18  B.  Mon. 
114;  Bank  v.  Patterson,  78  Ky.  291; 
Southern  Michigan  Nat.  Bank  v.  Byles, 
67  Mich.  296,  34  N.  W.  702;  Third  Nat. 
Bank  v.  Haug,  82  Mich.  607,  47  N.  W. 
33;  Fifth  Nat.  Bank  v.  Clinton  Circuit 
Judge,  100  Mich.  67,  58  N.  W.  648; 
People  7'.  Remington  &  Sons,  121  N. 
Y.  328,  24  N.  E.  793,  8  L.  R.  A.  458; 
Brown  v.  Bank,  79  N.  C.  244;  Kellogg 
r.  Miller,  22  Ore.  406,  30  Pac.  229.  29 
Am.  St.  Rep.  618;  Miller's  Appeal,  35 
Pa.  481;  In  re  Patten's  Appeal,  45  Pa. 
151,  84  Am.  Dec.  479;  Graefif's  Appeal, 
79  Pa.  146;  In  re  Miller's  Estate,  82  Pa. 
113,  22  Am.  Rep.  754;  Allen  v.  Daniel- 
son,  15  R.  I.  480,  8  Atl.  705;  Citizens' 
Bank  v.  Kendrick,  92  Tenn.  437,  21  S. 
W.  1070;  West  z:  Bank.  19  Vt.  403; 
Walker,  etc.,  Co.  r.  Baxter,  26  Vt.  710. 
Compare,  also,  Kortlander  v.  Elston, 
?  C.  C.  A.  657,  52  Fed.  180;  Bank  v. 
Cases,  92  Tenn.  437,  21  S.  W.  1070,  36 
Am.  St.  Rep.  96. 

The  great  weight  of  authoritj^  in 
England  and  this  country  is  strongly 
opposed  to  the  view  that  a  creditor 
with  collateral  shall  be  thereby  de- 
prived of  the  right  to  prove  for  his  full 
claim  against  an  insolvent  estate. 
Greenwood  v.  Taylor,  1  Russ.  &  M. 
185,  was  questioned  by  Lord  Cotten- 
ham  in  Mason  v.  Bogg,  2  Mylne  &  C. 
443,  448,  and  was  expressly  repudiated 
as  authority  in  the  court  of  chancery 
appeals  in  Kellock's  Case,  3  Ch._  App. 
769 — a  case  which,  upon  this  point,  is 
cited  with  approval  in  Lewis  v.  United 
States,  92  U.  S.  618,  23  L.  Ed.  513.  In 
this  country,  the  Massachusetts  doc- 
trine was  dissented  from  by  the  su- 
preme court  of  New  Hampshire  in  the 
early  case  of  Moses  v.  Hanlet,  2  N.  H. 
488. 

In  Massachusetts,  Amory  7'.  Francis, 
16  Mass.  308,  in  Iowa,  Wurtz  v.   Hart, 


13  Iowa  515,  in  South  Carolina,  Wheat 
V.  Dingle,  32  S.  C.  473,  11  S.  E.  394, 
8  L.  R.  A.  375,  and  in  Washington,  In 
re  Frasch,  5  Wash.  344,  31  Pac.  755,  it 
was  held  that  the  rule  in  equity  is  the 
same  as  the  rule  in  bankruptcy,  and 
that  the  secured  creditor  can  prove 
only  for  the  balance  of  his  debt  after 
the  collateral  shall  have  been  applied. 
It  was  so  held  by  Sir  John  Leach,  mas- 
ter of  the  rolls,  in  Greenwood  v.  Tay- 
lor, 1  Russ.  &  M.  185. 

There  is  one  authority,  and  only  one, 
which  upholds  the  view  that  a  creditor 
who  has  once  proved  his  claim  shall 
reduce  that  claim  by  all  collections 
made  before  the  declaration  of  each 
dividend,  on  the  theory  that  he  is  en- 
titled to  a  ratable  distribution  on  his 
debt  as  it  is  at  the  time  of  distribution, 
and  the  collections  made  after  proof 
of  claim  and  before  each  dividend  must 
reduce  the  debt  pro  tanto.  This  author- 
ity is  Third  Nat.  Bank  v.  Lanahan,  66 
Md.   461.   7   Atl.   615. 

94a.  Conclusiveness  of  auditor's  re- 
port.— A  depositor  of  an  insolvent 
bank,  whose  pass  book,  as  well  as  the 
books  of  the  bank,  showed  an  over- 
draft, presented  a  claim  to  the  auditor 
appointed  to  distribute  the  funds,  and 
testified  that  the  books  did  not  show 
the  true  state  of  the  accounts;  that, 
in  order  to  apparently  swell  the  assets 
of  the  bank  in  anticipation  of  an  ex- 
amination by  the  auditing  committee, 
the  president  had  induced  claimant  to 
draw  several  checks  for  large  amounts 
on  another  bank,  and  in  favor  of  the 
insolvent  bank,  to  be  offset  by  checks 
to  an  equal  amount  to  be  drawn  on 
the  insolvent  bank,  and  deposited  with 
such  other  bank  for  collection;  that 
the  checks  drawn  in  favor  of  the  in- 
solvent bank  were  not  credited  to 
claimant,  but  that  one  of  those  drawn 
on  it  was  charged  to  him.  Held,  that 
a  report  by  the  auditor  that  he  was 
not  able  to  say  as  a  matter  of  fact 
that  the  check  had  been  improperly 
charged,  or  that  claimant  had  not  re- 
ceived credits  to  balance  it,  was  a  find- 
ing of  fact,  which,  unless  shown  to  be 
plain  error,  was  conclusive  of  the  case. 
In  re  Penn  Bank,  152  Pa.  St.  65,  25  AtL 
310. 


§  80  (3e) 


INSOLVENCY   AND   DISSOLUTION. 


589 


allowed  by  a  receiver,  the  court  appointing  him  will  frame  an  issue  between 
the  receiver  and  the  creditor  to  determine  the  validity  of  the  claim. ^^ 

§  80  (3bb)  Raising  and  Waiving  Objections  to  Allowance  ot 
Claims. — Who  May  Interpose. — In  some  jurisdictions  any  creditor, 
whether  preferred  or  not.  may  object  to  the  allowance  of  a  claim  against 
an  insolvent  bank.^'^' 

Waiver  of  Objections. — But  a  creditor  who  appears  at  the  hearing 
and  makes  no  objections  to  the  allowance  of  claims  is  thereafter  precluded 
by  the  order  of  allowance.^''  Xor  can  the  question  of  the  insufficiency  of 
objections  to  the  allowance  of  a  claim  against  an  insolvent  bank  be  raised 
for  the  first  time  on  appeal. ^'^ 

§  80  (3e)  Payment. — What  Constitutes  Payment. — \\here  a 
bank  surrenders  the  original  collateral  given  to  secure  a  loan  and  takes  a 
different  kind  of  security  in  its  place,  this  surrender  will  not  be  considered 
a  payment,  upon  failure  to  collect  the  substituted  security. '^'-^ 

Demand  for  Payment. — Where  a  bank  is  in  the  hands  of  a  receiver, 
a  demand  for  payment  of  a  deposit  due  by  the  bank  is  properly  made  by 
drawing  a  check  on  the  bank  and  demanding  payment  thereof  of  the  re- 


95.  Issues  to  the  jury. — The  receiver 
of  an  insolvent  state  bank,  appointed 
by  the  circuit  court  on  petition  of  the 
commissioner  of  banking,  as  provided 
in  the  general  banking  Act  of  1887 
(§§  55-57),  who  is  in  express  terms 
placed  under  the  direction  of  the  court 
in  taking  possession  of  the  bank's  as- 
sets and  administering  its  affairs,  is  an 
officer  of  the  court;  and  hence,  on  the 
disallowance  of  a  claim  by  the  receiver, 
the  court  appointing  him  should  per- 
mit an  issue  to  be  framed  between  him 
and  the  creditor,  in  which  the  validity 
of  the  claim  may  be  determined,  and 
not  remit  the  creditor  to  an  action 
against  the  insolvent  bank.  Citizens' 
Sav.  Bank  v.  Ingham  Circuit  Judge,  98 
Mich.    173,   57    N.   W.    121. 

96.  Obiections  to  allowance  of 
claims. — Taylor  v.  Hutchinson,  145 
Ala.   202,   40   So.    108. 

A  creditor  who  has  not  been  deprived 
of  any  legal  right  by  the  allowance  of 
a  belated  claim  against  an  insolvent 
bank  can  not  complain  of  the  order 
of  the  court  allowing  such  claim.  State 
V.    Hank,   61    Neb.    22,   84   N.   W.   406. 

97.  Waiver  of  objections  to  allow- 
ance of  claims. — The  receiver  of  an  in- 
solvent bank  advertised  for  presenta- 
tion of  claims,  and  for  the  filing  of 
objections  thereto,  and  afterwards 
made  a  report  recommending  the  al- 
lowance   of    certain     claims.       On     the 


hearing  of  the  report  one  creditor  ap- 
peared, but  no  objections  were  filed, 
and  the  claims  were  allowed.  Held, 
that  the  creditor  appearing  was  pre- 
cluded by  the  order  then  made  from 
afterwards  contending  that  certain  of 
the  claims  allowed  were  invalid,  as 
representing  an  unauthorized  and  ille- 
gal deposit  of  public  funds.  Baker  v. 
Williams,  etc..  Banking  Co.,  43  Or.  213, 
70    Pac.   711. 

98.  Raising  objections  on  appeal. — 
Taylor  v.  Hutchinson,  14.5  Ala.  202,  40 
So.    108. 

99.  Novation. — A  bank  held  several 
notes  as  collateral  security  for  a  note 
given  it  by  a  second  bank,  which  after- 
wards failed,  and  the  maker  of  one  of 
the  pledged  notes  imiuediately  con- 
veyed his  property  to  a  bona  fide  cred- 
itor, and  the  pledgee  then  surrendered 
this  maker's  note  and  took  in  exchange 
therefor  a  note  for  an  equal  sum  from 
the  cashier  of  the  insolvent  bank,  it  ap- 
pearing that  such  note  was  of  more 
value  than  the  one  surrendered.  It 
afterwards  transpired  that  the  cashier's 
note  could  not  be  collected,  while  the 
note  exchanged  therefor  was  paid  in 
full.  Held,  there  was  no  negligence  by 
the  holder  as  against  other  creditors  of 
the  insolvent  bank,  and  it  could  not 
be  charged  with  having  received  pay- 
ment of  the  note  surrendered.  Hanover 
Nat.  Bank  v.  Brown  (Tenn.),  53  S.  W. 
206. 


590 


BANKS    AND    BANKING. 


§  80   (4aa) 


ceiver.J 


Estoppel. — A  creditor  assenting  to  the  mode  of  payment  prescribed  in 
the  dissolution  proceedings  is  thereafter  estopped  to  object.- 

§  80  (4)  Preferences  and  Priorities  in  General— §  80  (4a)  Or- 
der of  Liability  of  Assets. — When  a  bank  becomes  insolvent  the  distri- 
bution of  its  assets  in  the  hands  of  a  receiver  is  to  be  made  in  the  same 
order  as  prescribed  in  the  case  of  administration  of  insolvent  estates,  ex- 
cept when  special  preference  or  postponement  is  provided  by  law.^ 

§  80  (4b)  Claims  Preferred— §  80  (4aa)  In  General.— The  cred- 
itors have  the  first  claim  against  the  bank's  assets.-*  And  this  right  is  su- 
perior to  those  of  the  stockholders,  or  the  assignee  of  an  insolvent  stock- 
holder.5  The  mere  fact  that  the  security  given  a  creditor  is  annulled  does 
not  destroy  his  privileges  as  creditor. '^  But  as  between  the  creditors  them- 
selves, the  statutes  in  most  jurisdictions  recjuire  that  the  assets  be  ratably 
distributed.'^ 


1.  Demand  for  payment. — Wylie  v. 
Commercial,  etc..  Bank,  63  S.  C.  406, 
41   S.    E.   504. 

But  the  appointment  of  the  tempo- 
rary receiver  under  the  N.  Y.  laws  and 
the  taking  possession  of  the  assets  by 
him  operates  to  prevent  the  bank  from 
paying  the  claims  of  the  creditors,  and 
thereby  obviates  the  necessity  of  a 
formal  demand  for  payment  on  their 
part.  People  v.  Merchants'  Trust  Co., 
187  N.  Y.  293,  79  N.  E.  1004;  Richmond 
V.  Irons,  121  U.  S.  27,  30  L.  Ed.  864, 
7  S.  Ct.  788;  Sickles  v.  Herold,  149  N. 
Y.    332,    43    N.    E.    852. 

2.  Estoppel  to  object  to  mode  of  pay- 
ment.— By  Act  111.  Jan.  34,  1843,  the 
Bank  of  Illinois  was  dissolved,  and  its 
assets  directed  to  be  divided  among  its 
creditors.  Section  2  provided  that  a 
large  portion  of  the  bank's  specie 
should  be  paid  to  its  creditors  pro  rata, 
and  that,  for  the  balance  of  their 
claims,  they  should  receive  certificates 
"receivable  by  the  bank  in  payment 
of  any  debt  due  it,  or  for  any  property 
which  the  bank  might  sell,  and  en- 
titling the  holder  to  the  proper  propor- 
tion of  all  dividends  made  to  credit- 
ors." Held,  that  a  creditor,  though 
residing  in  another  state,  who  had  ac- 
cepted the  benefits  of  the  act,  and  re- 
ceived his  proportion  of  the  bank's 
specie,  together  with  partial  payments 
on  such  certificates  issued  to  him, 
thereby  assented  to  the  mode  of  pay- 
ment prescribed  by  the  act,  and  could 
not  thereafter  maintain  an  action 
against  the  bank  on  the  certificates. 
State    Bank   v.    Corwith,   6   Wis.   551. 


3.  Order     of     liability     of     assets. — 

Georgia  Seed  Co.  v.  Talmadge  &  Co., 
96  Ga.  254,  22  S.  E.  1001,  citing 
Belcher    :■.    Willcox,   40    Ga.    .391. 

4.  Creditors  have  first  claim  on  as- 
sets.— A  receiver  of  a  state  bank,  ap- 
pointed in  proceedings  under  Comp. 
St.  c.  8,  §  34,  takes  possession  and 
holds  the  assets  of  a  bank  in  favor  of, 
and  to  assert  and  guard  the  claims  of, 
the  depositors  and  other  creditors,  as 
the  paramount  and  superior  claims 
against  the  assets.  State  v.  Bank,  58 
Neb.   818,  80   N.  W.   50. 

5.  State  V.  Commercial  State  Bank, 
28    Neb.   677,  44   N.   W.   998. 

The  assets  of  an  insolvent  banking 
corporation  are  always  liable  for  its 
debts,  and,  if  distributed  among  stock- 
holders, or  transferred  to  others  than 
bona  fide  creditors  or  purchasers,  such 
holders  take  them  charged  with  the 
trust  in  favor  of  creditors,  and  a  court 
of  equity  will  follow  the  assets,  and 
compel  their  application  to  the  corpo- 
ration debts.  Marr  v.  Bank,  44  Tenn. 
(4   Coldw.)    471. 

6.  Where  the  stock  and  other  assets 
of  one  bank  had  been  transferred  to 
another  bank,  to  secure  it  against  ex- 
isting liabilities,  and  such  transfer  was 
set  aside  as  fraudulent,  it  was  held, 
that  the  debt  was  not  thereby  ren- 
dered void.  It  lost  the  benefit  of  the 
security,  but  was  entitled  to  the  privi- 
leges of  other  creditors.  Johnston  v. 
South  Western  R.  Bank  (S.  C),  3 
Strob.    Eq.    263. 

7.  Creditors  share  ratably. — Richards 
V.  Osceola  Bank,  79  Iowa  707,  45  N.  W. 


§  80  (4aa) 


INSOLVENCY   AND   DISSOLUTION, 


591 


Creditors  of  Branch  Bank. — Since  the  relation  existing  between  a 
principal  bank  and  its  agency  or  branch  is  that  of  principal  and  agent,  and 
all  the  assets  of  the  agency  belong  to  the  principal,  and  all  the  debts  of  the 
agency  are  debts  of  the  principal,  it  follows  that  the  depositors  and  cred- 
itors of  the  branch  bank  may  share  equally  and  ratably  with  the  depositors 
and  creditors  of  the  principal  bank.^ 

Crediting  Amount  of  Note  to  Owner  without  His  Consent. — The 
delivery  of  notes  to  a  bank  in  payment  for  land,  and  the  crediting  of  the 


294;  St.  Mary's  Church  v.  National 
Bank.  23  Misc.  Rep.  588,  52  N.  Y.  S. 
802;  Union  Nat.  Bank  v.  Lyons,  220 
Mo.  538,  119  S.  W.  540;  Robinson  v. 
Gardiner.  59  Va.  (18  Gratt.)  509;  Ex- 
change Bank  v.  Knox,  60  Va.  (19 
Gratt.)   739. 

The  provisions  of  the  Act  of  1841, 
for  the  surrender  of  the  charter  of  the 
Washington  County  Bank,  that  the  as- 
sets of  the  bank  should  be  distributed 
among  all  creditors  pro  rata,  did  not 
prevent  a  creditor  from  bringing  a  suit 
to  ascertain  the  amount  due  on  a  dis- 
puted claim.  Emerson  v.  Washington 
County   Bank,  24  Me.  445. 

Construction  of  order  of  court. — An 
order  of  court  directing  a  receiver  to 
make  a  pro  rata  distribution  of  the 
money  of  an  insolvent  bank  among 
the  creditors,  does  not  entitle  the 
creditors,  who  fails  to  avail  himself 
of  the  order,  to  a  preferred  lien  upon 
the  remaining  assets  of  the  bank. 
Rockwell  V.  Portland  Sav.  Bank,  31 
Or.  431,  50  Pac.  566. 

When  creditors  are  preferred  over 
one  another. — In  the  adjustment  and 
settlement  of  claims,  those  of  deposi- 
tors and  other  general  creditors  who 
trusted  the  bank  in  the  course  and 
transaction  of  its  legitimate  business 
may  be  preferred  over  claims  which 
originated  in  the  pursuit  and  conduct 
of  a  business  by  the  bank  in  which  it 
had  no  legal  authority  or  power  to  en- 
gage. State  V.  Bank,  58  Neb.  818,  80 
N.  W.  50. 

An  incorporated  bank  went  into  liq- 
uidation, being  solvent,  and  turned 
over  its  assets  to  another  incorporated 
bank  to  pay  the  creditors  and  stock- 
holders. Before  the  liabilities  of  the 
liquidating  bank  were  paid,  the  pur- 
chasing bank  became  insolvent.  Held, 
that  a  creditor  of  the  liquidating  bank 
has  a  prior  lien  over  the  assets  in  the 
possession  of  the  receiver  of  the  pur- 
chasing bank  belonging  to  the  liq- 
uidating bank  as  against  creditors  of 
the  purchasing  bank.  Ex  parte  Sav. 
Bank,  73  S.  C.  393,  53  S.  E.  614,  5  L.  R. 
A.,  N.  S.,  520. 


8.  Rights  of  creditors  of  branch 
bank. — Prince  v.  Bank.  3  App.  Cases, 
(Eng.)  325;  Garnett  z'.  McKewan,  L.  R. 
8  Exch.  (Eng.)  10;  Irvin  v.  Bank,  38 
U.  C.  Q.  B.  (Eng.)  375;  Webb  v.  Bank, 
50   N.   C.  288. 

A  bank  chartered  by  an  act  of  the 
general  assembly,  with  the  usual 
powers  of  a  banking  corporation, 
establishing  a  branch  bank  thereot, 
stands  to  such  branch  bank  in  the  re- 
lation of  principal  to  agent,  and  all 
assets  and  debts  of  the  branch  bank 
are  assets  and  debts  of  the  principal 
bank.  So  an  assignment  by  the  prin- 
cipal bank  of  all  its  property  of  every 
description,  wherever  situated,  includ- 
ing all  that  belongs  to  the  branch 
bank,  forces  the  depositors  and  cred- 
itors of  the  branch  bank  to  share 
equally  and  ratably  with  the  deposi- 
tors and  creditors  of  the  principal  bank. 
Worth  V.  Bank,  122  N.  C.  397,  29  S.  E. 
775. 

A  bank  chartered  by  an  act  of  the 
general  assembly  ratified  January  12, 
1872,  with  the  usual  powers  of  a  bank- 
ing corporation,  establishing  a  branch 
bank  under  section  9  thereof,  stands 
to  such  branch  bank  in  the  relation  of 
principal  to  agent,  and  all  assets  and 
debts  of  the  branch  bank  are  assets 
and  debts  of  the  principal  bank.  So 
an  assignment  by  the  principal  bank  of 
all  its  property  of  every  description, 
wherever  suited,  including  all  that  be- 
longs to  the  branch  bank,  forces  the 
depositors  and  creditors  of  the  branch 
l)ank  to  share  equally  and  ratably  with 
the  depositors  and  ci-editors  of  the 
principal  bank.  Worth  v.  Bank,  122 
N.  C.   397,  29  S.   E.  775. 

An  estoppel,  if  there  could  be  one, 
on  a  principal  bank,  from  dealings 
with  its  branch  bank,  could  not  affect 
the  creditors  of  the  principal  bank, 
since  they  are  entitled  to  have  its  prop- 
erty of  every  description  applied 
ratably  to  the  payment  of  their  claims. 
Worth  V.   P.ank,  122  N.  C.  397,  29  S.  E. 


592 


BANKS    AND    BANKING. 


80  (4ff) 


amount  thereof  to  the  owner,  without  his  knowledge  or  consent,  held  to 
render  the  notes  a  trust,  which  could  be  followed  as  a  preference  into  the 
hands  of  a  receiver.^ 

§  80  (4bb)  Expenses  of  Insolvency  Proceedings. — As  a  general 
rule,  the  costs  and  expenses  of  the  proceeding  to  winding  up  and  dissolving 
the  bank  are  to  be  first  paid  from  the  assets.^*' 


§  80    (4cc)    Claim  for  Taxes. 

ferred.i^ 


-A    claim    for    taxes    is  usually  pre- 


§  80  (4dd)  Pre-Existing  Liens  and  Equities. — Of  course  liens  and 
■equities  arising  before  the  assets  of  the  bank  became  subject  to  the  juris- 
diction of  the  court  are  not  prejudiced  or  afifected  by  the  insolvency  pro- 
ceeding.i2 

§  80    (4ee)   Debts  Lawfully  and  Unlawfully  Contracted. — In  the 

settlement  of  claims  against  an  insolvent  bank,  the  claims  of  depositors  and 
other  general  creditors  who  trusted  the  bank  in  the  transaction  of  its  legiti- 
mate business  may  be  preferred  over  claims  which  originated  in  the  con- 
duct of  a  business,  by  the  bank,  in  which  it  had  no  legal  authority  to  engage, 
and  it  makes  no  dilterence  that  amounts  claimed  by  the  latter  creditors  are 
shown  by  the  books  of  the  bank  to  have  come  to  it,  as  a  bank,  from  the  un- 
authorized business  it  conducted. ^^ 

§  80    (4ff)    Claims  of  Firm  and  Individual  Creditors. — Social  or 


9.  Crediting  amount  of  note  to 
owner  without  his  consent. — Covey  r. 
Cannon    (Ark.j,    149    S.    \\'.    514. 

10.  Expenses  of  insolvency  proceed- 
ing.— Complied  Laws  of  Mich.,  §  6146. 

Attorneys'  fees. — For  the  prosecu- 
tion of  the  bill  and  amended  bill  filed 
to  wind  up  the  afifairs  of  a  banking 
corporation,  and  for  valuable  services 
rendered  in  the  general  litigation, 
•counsel  should  be  paid  out  of  the  ag- 
gregate recovery — -all  petitioning  cred- 
itors who  have  come  in  to  claim  the 
benefit  of  the  suit  to  contribute  pro 
rata;  while  counsel  who  represent  or 
perform  services  only  for  petitioning 
creditors,  must  be  paid  by  their  own 
clients  out  of  the  funds  recovered  for 
them.  Moses  v.  Ocoee  Bank,  69  Tenn. 
(1   Lea)   398. 

Construction  of  Nebraska  statute. — 
By  the  .execution  of  a  bond  to  the 
state,  as  provided  by  Cobbey's  Ann. 
St.  1903.  §  3735,  conditioned  on  the 
full  settlement  of  all  the  liabilities  oi 
such  bank,  the  officers  and  sureties 
assume  the  burdens  of  the  bank's 
liquidation,  and  can  not  use  the  assets 
in  paying  the  expenses  thereof,  to  the 


prejudice    of    the    creditors.      Hume    v. 
Miller,   75   Neb.   800,   106   N.   W.   1006. 

11.  Claini  for  taxes. — The  assets  of 
a  bank  being  in  the  hands  of  a  re- 
ceiver, the  court  ordered  all  claims 
against  it  to  be  filed  by  a  certain  date, 
or  be  barred.  After  that  time  the  col- 
lector of  taxes  intervened,  and  asked 
the  court  for  an  order  for  the  receiver 
to  pay  the  same.  Held,  that  the  state 
having,  under  Sess.  Acts  1881,  p.  180, 
§7,  a  paramount  right  to  be  paid  out 
of  those  assets,  it  was  error  for  the 
court  not  to  issue  the  order  as  re- 
quested. Greeley  z*.  Provident  Sav. 
Bank,   98   Mo.   458,   11    S.    W.   980. 

12.  Pre-existing  liens  and  equities. — 
Richards  z:  Osceola  Bank,  79  Iowa  707, 
45   N.  W.  294. 

13.  State  z'.  Bank,  58  Neb.  818.  80  N. 
W.    50. 

Between  legal  and  ultra  vires  con- 
tracts.— As  between  the  creditors  of 
an  insolvent  bank,  those  whose  debts 
were  created  under  the  lav/ful  power 
given  by  the  charter  must  be  pre- 
ferred to  those  who  claim  under  a 
contract  that  the  bank,  under  its  char- 
ter, had  no  power  to  make.  Bank  v. 
Bank,   56  Tenn.    (9   Heisk.)   408. 


§  80  (4gg) 


IXSOLVENCY   AND  DISSOLUTION', 


593 


firm  liabilities  are  to  participate  in  the  distribution  of  the  assets  before  in- 
dividual liabilities.^"* 

§  80  (4gg)  Claims  of  State  and  County. — While  the  state,  on  ac- 
count of  its  prerogative  right,  has  a  preference  over  other  creditors  and 
depositors  in  the  distribution  of  the  assets  of  an  insolvent  bank/^  this  right 
does  not  apply  to  the  counties  of  the  state  in  the  absence  of  statute,  but  the 
county  must  stand  upon  an  equal  footing  with  other"* depositors. ^^  But 
though  the  stock  of  a  bank  is  altogether  owned  by  a  state,  if  the  bank  is 
insolvent,  its  assets  can  not  be  appropriated  by  legislative  act  or  otherwise 
to  pay  the  debts  of  the  state,  as  distinguished  from  the  debts  of  the  bank. 
Those  assets  are  a  trust  fund  first  applicable  to  the  payment  of  the  debts  of 
the  bank.^"     Any  preference,  however,  over  general  creditors  of  an  insol- 


14.  Claims  of  firm  and  individual 
creditors. — Laws  1897,  c.  47,  §  42,  pro- 
viding that  the  assets  of  any  private 
bank  shall  be  exempt  from  execution 
by  any  creditor  of  the  individual  or 
firm  doing  business  as  such  bank  until 
after  the  liabilities  of  the  bank  have 
been  paid  in  full,  does  not  apply  to  the 
individual  debt  of  such  a  banker  con- 
tracted before  the  passage  of  the  act. 
McDermott  v.  Halleck,  61  Kan.  486,  59 
Pac.   1074. 

15.  Preferences  allowed  state  and 
county. — Robinson  v.  Bank,  18  Ga.  65; 
Seay  v.  Bank,  66  Ga.  609. 

There  is  nothing  in  the  acts  estab- 
lishing state  depositories,  and  providing 
for  bonds  and  rules  for  regulating 
such  depositories,  that  abrogates  or 
modifies  the  sovereign  right  of  the 
state  to  priority  in  the  assets  of  an 
insolvent  bank  which  is  a  state  de- 
pository. Booth  V.  State,  131  Ga.  750, 
6.3   S.   E.   503. 

Custodian  of  public  funds. — Under 
Code  1906,  §  3845,  making  money  de- 
posited by  or  for  a  custodian  of  pub- 
lic funds  prima  facie  a  trust  fund,  not 
liable  to  be  taken  by  the  custodian's 
or  the  depositary's  creditors,  a  custo- 
dian of  public  funds  deposited  in  a 
bank  which  has  become  insolvent  is 
entitled  to  priority  of  payment,  as 
against  general  creditors,  out  of  as- 
sets acquired  before  such  deposit. 
Green  v.  Cole,  98  Miss.  67,  54  So.  65. 

And  in  Metcalfe  v.  Merchants',  etc., 
Bank,  89  Miss.  649,  41  So.  377,  it  was 
held  that  under  this  statute  public 
moneys  deposited  by  a  tax  collector 
were  entitled  to  priority  of  payment 
over  general  creditors,  in  case  of  an 
assignment  by  the  l)ank  for  the  I)ene- 
fit  of  creditors. 

1    l>.  ^  B— 38 


16.  Preferences    allowed    counties 

County  of  Glynn  v.  Brunswick  Termi- 
nal   Co.,    101    Ga.    244,    28    S.    E.    604. 

Where  a  bank  in  which  county  funds 
are  deposited  fails,  the  county  is  not 
entitled  to  a  lien  on  the  assets  in 
preference  to  the  individual  depositors. 
County  of  Glynn  v.  Brunswick  Termi- 
nal  Co.,  101   Ga.  244,  28   S.   K.   604. 

17.  Effect  where  state  is  sole  owner. 
—Baring  v.  Dabney  (U.  S.),  19  Wall. 
1,   22   L.   Ed.   90. 

Although  the  capital  of  a  bank  is 
furnished  by  the  state  under  the  laws 
of  which  it  was  incorporated,  and  the 
profits  thereof  inure  to  the  benefit  of 
that  state,  and  the  faith  of  that  state 
is  pledged  to  its  support,  yet  such 
bank  is  a  distinct  corporation,  having 
the  ordinary  powers  and  rights,  and 
subject  to  the  ordinary  obligations,  of 
banking  corporations,  with  liability  to 
suits  by  creditors,  and  holding  its 
property  subject  to  the  claims  of  these 
in  preference  to  the  claims  of  the 
state  as  the  only  stockholder.  State  v. 
State   Bank,  1   S.  C.  63. 

The  state,  being  the  owner  and  sole 
stockholder  of  the  Bank  of  the  State 
of  South  Carolina,  a  moneyed  corpo- 
ration with  usual  banking  powers,  and 
wishing  to  borrow  money,  passed  ap 
act  for  that  purpose,  and  thereby  di- 
rected the  money  when  borrowed  to  be 
deposited  in  the  bank  as  so  much  addi- 
tional capital,  and  directed  the  bank 
to  keep  a  separate  account  of  the  an- 
nual profits  thereof,  to  constitute  a 
fund  "solemnly  pledged  and  set 
apart"  for  the  payment  of  the  interest 
and  principal  of  the  loan.  The  other 
profits  of  the  bank  were  also  pledged 
for  the  same  purpose,  after  specified 
claims,  afterward  paid,  should  be  satis- 
fied.    A  portion  of  the  money  was  bor- 


594 


BANKS    AND    BANKING. 


§  80  (4c) 


vent  bank  which  the  state  has  at  common  law  as  successor  to  the  sov- 
ereignty is  lost  by  a  valid  assignment  for  the  benefit  of  creditors,  executed 
before  action  is  taken  to  enforce  the  priority.^'' 

§  80  (4hh)  Claims  of  Forwarding  or  Collecting  Banks, — Where 
a  collecting  bank  forwards  a  check  to  the  bank  on  which  it  was  drawn  with 
directions  as  to  the  application  of  the  proceeds,  but  before  the  drawee  bank 
has  assented  to  the  directions  of  the  collecting  bank  in  reference  to  its  deal- 
ing with  the  check,  the  drawee  bank  ceases  to  do  business  and  passes  into 
the  hands  of  a  receiver,  the  refusal  of  the  latter  bank  to  accept  and  pay  the 
check  will  give  only  a  right  of  action  against  it  on  the  instrument. ^^  Bni 
a  correspondent  is  entitled  to  a  preference  in  any  security  held  to  protect 
overdrafts. 2^ 

§  80  (4c)  Effect  of  Fraud. — Fraud  does  not  alone  create  equities 
superior  to  those  of  general  creditors.  Hence  the  fraudulent  receipt  of 
deposits  in  a  bank,  or  the  fraudulent  acquirement  of  goods,  does  not  give 
the  depositor  or  the  vendor  a  lien  upon  the  entire  estate  or  entitle  him  to  a 
preference.-^     Accordingly,  a  creditor  of  an  insolvent  national  bank,  whose 


rowed  on  bonds  of  the  state,  guaran- 
teed by  the  bank,  known  as  the  "Fire 
Loan  bonds,"  and  the  residue  on  stock 
of  the  state  known  as  the  "Fire  Loan 
stock."  The  bank  neglected  to  keep 
a  separate  account  of  the  profits,  and 
afterwards  became  insolvent;  its  debts 
being  evidenced  principally  by  its 
guaranty  of  the  bonds,  its  bills,  and 
its  deposits.  Held,  that  the  assets, 
not  being  sufficient  to  pay  the  debts, 
were  not  subject  to  the  lien  created 
by  the  act  in  favor  of  the  holders  of 
the  fire  loan  bonds  and  fire  loan  stock, 
but  were  subject  to  equitable  distri- 
bution among  all  the  creditors  of  the 
bank.      Dabney   v.    Bank,    3    S.    C.    124. 

18.  Effect  of  assignments  for  credit- 
ors on  state's  priority. — State  r.  Fos- 
ter, 5  Wyo.  199,  38  Pac.  926,  29  L.  R. 
A.  226,   63  Am.   St.   Rep.  47. 

19.  Rule  where  drawee  bank  becomes 
insolvent  before  collection. — A  check 
was  forwarded  by  a  collecting  bank 
to  the  bank  on  which  it  was  drawn, 
with  directions  to  collect,  and  apply 
the  proceeds  to  a  debt  owing  to  the 
drawee  bank  by  the  collecting  bank. 
Held  that,  where  the  drawee  bank 
failed  on  the  day  it  received  the  check, 
and  before  it  had  assented  to  the  di- 
rection of  the  collecting  bank,  the  re- 
fusal to  accept  and  pay  the  check  out 
of  the  funds  of  the  drawer  then  to  his 
credit  gives  only  a  right  of  action 
against  the  drawee  bank  on  the  check, 
and  does  not  enable  the  drawer,  who 
subsequently   paid   the   check,   either   to 


sue  the  collecting  bank,  or  entitle  him 
to  priority  over  the  other  creditors  of 
the  drawee  bank.  Romanski  v.  Thomp- 
son   (Miss.),  11  So.   828. 

20.  A  bank,  by  agreement  with  the 
agent  of  its  foreign  correspondent, 
pledged  to  the  latter  certain  state 
bonds  as  security  for  its  overdrafts. 
Subsequently,  in  1861,  it  drew  bills  on 
the  correspondent  on  the  faith  of  its 
entire  credit  and  cash  deposit.  The 
business  relations  between  them  were 
closed  in  1863,  the  bank  having  be- 
come insolvent,  indebted  to  the  corre- 
spondent. The  bills  of  1861  were  not 
presented  until  1864.  Held,  that  the 
correspondent  was  entitled  to  pay- 
ment, out  of  the  bonds,  of  the  balance 
due  it,  in  preference  to  the  holders 
of  such  bills.  Garvin  7'.  State  Bank, 
7   S.   C.  266. 

A  bank  pledged  to  its  foreign  cor- 
respondent certain  state  bonds  to  se- 
cure any  overdrafts  arising,  and 
subsequently  became  insolvent,  in- 
debted to  the  correspondent.  Held, 
that  the  holders  of  bills  drawn  by.  the 
bank  on  such  correspondent  prior  to 
the  insolvency,  but  not  presented  for 
acceptance  until  afterwards,  were  en- 
titled to  a  lien  on  the  bonds  in 
preference  to  the  general  creditors  of 
the  bank.  Garvin  ?'.  State  Bank,  7  S.  C. 
366. 

21.  Effect  of  fraud.— Cadwell  v. 
King,  84  Iowa  228,  50  N.  W.  975;  Mc- 
Henry  z:  King, -85  Iowa  717,  50  N.  W. 
977;    Elwell   v.    Kimball,   102    Iowa   720, 


§  80  (4aa) 


INSOLVENCY    AND    DISSOLUTION, 


595 


demand  grows  out  of  a  fraudulent  transaction  perpetrated  by  the  officers  of 
the  bank  in  contemplation  of  the  immediate  wrecking  of  their  corporation, 
does  not  thereby  become  entitled  to  a  preference  over  the  general  creditors 
of  the  bank.-- 

§  80  (4d)  Transfer  of  Right  to  Priority. — A  person  entitled  to 
priority  in  the  distribution  of  the  assets  of  a  bank  may  sell  and  assign  this 
privilege  to  another,  thereby  substituting  such  other  in  his  place ;  nor  is  it 
necessary  for  such  authority  to  be  given  by  a  statute,  for  under  the  common 
law  one  may  transfer  whatever  right  he  has  which  is  the  subject  of  sale  and 
transfer  whether  acquired  by  virtue  of  the  statute  or  common  law.-^ 

§  80    (4e)   Allowance  of  Preferences — §  80    (4aa)   In  General. — 

\\"here  there  are  a  large  number  of  depositors  and  general  creditors  who 
have  a  common  interest  in  the  allowance  of  preferences  by  a  bank,  one  or 


(VJ  X.  W.  286;  Seeley  t'.  Seeley-Howe- 
Le  Van  Co.,  128  Iowa  294,  103  N.  W. 
961;  Stilson  v.  First  State  Bank,  149 
Iowa  662,  129  X.  \V.  70. 

Fraud  in  receiving  a  deposit  of 
checks  or  drafts  after  bank  officials 
know  that  it  is  insolvent,  will  not  give 
the  depositor  a  preferential  claim 
against  assets  in  the  hands  of  the  re- 
ceiver of  the  bank  if  the  bank  before 
its  failure,  had  received  the  proceeds 
of  such  paper,  or  credit  therefor  from 
a  correspondent,  although  the  bank  had 
no  hand  when  it  failed,  and  always 
after  the  deposits  were  made  then  the 
amount  thereof  in  cash.  Bruner  t'. 
First  Nat.  Bank,  97  Tenn.  540,  37  S.  W. 
286,  34   L.   R.  A.  532. 

Accordingly,  where  a  general  depos- 
itor presented  his  check  to  a  bank,  ac- 
companied with  a  demand  for  payment, 
but,  by  reason  of  the  false  representa- 
tions of  the  president  as  to  the  sol- 
vency of  the  bank,  was  induced  to  with- 
draw said  check,  and  to  allow  his 
money  to  remain  in  the  bank,  he  can 
not,  as  a  preferred  creditor,  maintain 
a  bill  to  recover  the  amount  of  said 
check,  against  a  receiver  appointed 
after  the  bank  was  declared  insolvent. 
Venner  r-.    Cox    (Tenn.),   35    S.    W.   7()'.». 

22.  Fraud  alone  does  not  give  a  pref- 
erence.—Plaintiff,  liaving  received  in 
the  course  of  business  checks  on  a  bank, 
took  in  payment  checks  of  the  latter 
on  a  bank  in  New  York.  The  presi- 
dent of  the  bank  knew  when  he  signed 
such  checks  that  they  would  not  l>e 
honored,  and  was  making  preparations 
to  abscond  with  the  assets  of  liis  bank. 
Held,  that  plaintiff  is  not  entitled  to 
any  preference  over  other  unsecured 
creditors.  Citizens'  Nat.  i'>ank  7'. 
Dowd,  35   Fed.  340. 


23.    Transfer    of    right    to    priority. — 

Commercial  Bank  r.  Hardv,  97  j\liss. 
755,   53   So.   395. 

The  preference  which  the  tax  col- 
lector and  treasurer  of  a  county  have, 
on  insolvency  of  a  bank  in  which  they 
have  deposited  county  funds,  under 
Code  1906.  §  3485,  declaring  them  trust 
funds  and  not  liable  to  be  taken  by 
general  creditors  of  the  bank,  is  as- 
signable by  them  to  one  who,  in  con- 
sideration thereof,  paj^s  the  indebted- 
ness due  them  by  the  bank;  it  not 
being  necessary  that  there  be  any  statu- 
tory authority  therefor.  Commercial 
Bank  z'.  Hardv,  97  Miss.  755,  53  So.  395. 

In  Fogg  V.  Bank,  80  Miss.  750,  32  So. 
285,  this  court  held  that,  under  §  3077, 
Code  1892  (§  3485,  Code  1906),  funds 
deposited  in  bank  by  a  tax  collector 
were  trust  funds,  and,  in  case  of  an  as- 
signment b}^  such  bank  for  the  benefit 
of  creditors,  the  tax  collector  had  a 
preference  over  other  creditors  to  be 
paid  in  full,  although  he  had  settled 
with  the  state  and  county,  and  the  pref- 
erence sought  to  be  enforced  was  for 
his  individual  benefit,  and  that,  liy  vir- 
tue of  his  having  made  settlement  out 
of  his  own  funds,  entitled  him  to  l)e 
subrogated,  as  an  individual,  to  his 
right  as  tax  collector  to  the  preference, 
and  that  he  was  required  to  settle 
monthly,  and  if  by  such  settlement  his 
right  to  the  preference  was  destroyed 
the  statute  would  be  practically  value- 
less, and  that  it  was  i^rcsumed  that  the 
bank  as  trustee  did  its  duty  by  preserv- 
ing the  trust  fund  until  all  the  other 
assets  were  exhausted,  and  "the  trust 
moneys,  so  far  as  possil)le,  are  repre- 
sented in  the  remaining  assets  of  the 
])ank." 


596 


BANKS    AND    BANKING. 


80  (4bb) 


more  may  appear  for  the  benefit  of  the  whole. -^ 

Burden  on  Person  Seeking  Preference. — A  person  seeking  to  have  a 
preference  in  fnnds  of  an  insoh-ent  bank  held  bound  to  show  that  the  re- 
ceiver has  in  his  possession  trust  funds  or  property  obtained  therewith.--^ 

§  80    (4bb)  Funds  or  Assets  Available  to  Preferred  Creditors. — 

A  preferred  creditor  is  not  entitled  to  a  preference  in  the  distribution  of  a 
fund  raised  from  assessment  on  stockholders  under  the  double  liability  act, 
more  especially  where  the  provisions  of  the  statute  are  specific  that  the 
fund  derived  from  the  assessment  of  stockholders  shall  be  distributed 
equally  among  all  the  creditors  of  such  corporation  in  proportion  to  the 
amount  due  to  each.-*^  But,  if  prior  to  an  order  establishing  the  claim  as 
entitled  to  preference,  assets  of  the  bank  which  should  have  been  applied  to 
the  satisfaction  of  a  preferred  claim  have  been  distributed  to  general  cred- 
itors, then  undoubtedly  to  that  extent  the  proceeds  of  the  stockholders' 
double  liability,  which  would  otherwise  be  distributed  to  general  creditors, 
might  be  applied  to  the  satisfaction  of  the  preferred  claim  because  no  ulti- 
mate injustice  would  thereby  be  done  to  general  creditors.-" 


24.  Where  the  assets  of  an  insol- 
vent bank  are  insufficient  to  meet  all 
the  claims  of  creditors  and  depositors, 
though  no  preference  is  allowed,  the 
allowance  of  preference  to  some  cred- 
itors is  prejudicial  to  other  creditors 
and  depositors  who  have  a  common  in- 
terest in  defeating  the  preference,  and, 
where  they  are  numerous,  a  few  may- 
appear  and  defend  for  the  whole,  as  au- 
thorized by  Code,  §  3464,  providing 
that,  when  the  question  is  one  of  com- 
mon interest  to  many  persons,  one  or 
more  may  defend  for  the  benefit  of  the 
whole,  and  those  appearing  in  the  trial 
court,  contesting  the  right  to  a  pref- 
erence, are  proper  parties  to  the  pro- 
ceedings, and  may  appeal  from  a  judg- 
ment awarding  a  preference.  Stilson 
i:  First  State  Bank,  149  Iowa  662,  129 
N.  W.  70. 

25.  Burden  on  persons  seeking  pref- 
erence.— Covcv  f.  Cannon  (Ark.),  149 
S.  W.  514. 

Rule  stated  as  to  right  to  recover 
trust  funds  mingled  with  the  bank's 
own  funds,  after  the  reduction  of  the 
mingled  fund  below  the  amount  of  the 
trust  fund.  Covey  r.  Cannon  (Ark.), 
149   S.  W.  514. 

26.  Fund  derived  from  assessment 
on  stockholders. — Under  Code.  §§  1882, 
1883,  authorizing  a  double  liability  as- 
sessment on  stockholders  of  an  insol- 
vent bank,  and  providing  that  the  fund 
derived  from  such  assessment  shall  be 
distributed  equally  among  all  the  cred- 
itors  of   the   corporation   in   proportion 


to  the  amount  due  each,  the  holder  of 
a  preferred  claim  is  not  entitled  to 
have  the  same  paid  from  such  double 
liability  fund  to  the  exclusion  of  other 
creditors.  Sioux  City  Stock  Yards  Co. 
V.  Fribourg,  121  Iowa  230,  96  N.  W. 
747. 

Where  an  order  establishing  a  claim 
against  an  insolvent  bank  directed  that 
it  should  be  treated  as  a  preferred 
claim,  and  should  be  paid  "out  of  any 
funds  of  said  estate  remaining  in  the 
receiver's  hands  applicable  thereto," 
and  at  the  time  of  the  allowance  the 
entire  assets  of  the  estate  had  been 
distributed  among  creditors,  or  applied 
to  receivership  expenses,  such  order 
did  not  entitle  the  preferred  creditor 
to  have  the  claim  paid  out  of  the  stock- 
holders' liability  fund  subsequently  ac- 
cumulated, to  the  exclusion  of  other 
creditors.  Sioux  City  Stock  Yards  Co. 
z'.  Fribourg,  121  Iowa  230,  96  N'.  W. 
747. 

27.  Sioux  City  Stock  Yards  Co.  v. 
Fribourg,  121  Iowa  230,  96  N.  W.  747, 
citing  Standard  Oil  Co.  :•.  Hawkins,  20 
C.  C^  A.  468,  74  Fed.  395,  33  L.  R.  A. 
739. 

Where  a  claim  of  a  creditor  of  a 
bank  was  entitled  to  preference  from 
the  general  assets,  and  a  large  portion 
thereof  had  been  used  to  enforce  a 
stockholders'  double  liability  assess- 
ment for  the  benefit  of  general  cred- 
itors, without  any  part  of  such  pre- 
ferred claim  being  paid,  such  claim  is 
entitled    to    a    preference    out   of    such 


§  80  (4f) 


IXSOLVENCV    AND   DISSOLUTION, 


597 


Money  Paid  to  Cover  Protested  Draft. — A  return  of  a  portion  of 
money  paid  by  an  insolvent  bank  to  cover  a  protested  draft  beld  not  to 
entitle  owners  of  a  trust  fund  to  a  preference  therein  over  general  cred- 
itors.-* 

Proceeds  of  Return  Pledges. — A  receiver  of  a  bank,  who  collected  re- 
turn pledges  made  by  the  bank  to  secure  a  loan,  must  prorate  the  proceeds 
between  depositors  according  to  the  amount  of  their  several  deposits.-^ 

§  80  (4f)  Estoppel  and  Election. — An  equitable  estoppel  can  not  be 
interposed  against  the  claim  to  a  preference  by  the  cestui  c|ue  trust,  because 
an  essential  element  to  constitute  such  an  estoppel  is  wanting,  namely,  that 
of  prejudice  to  the  creditors. ^°  But  where  a  creditor  in  one  state  makes 
himself  a  party  to  the  dissolution  proceedings  in  another  under  which  no 
preferences  are  given,  and  shares  in  the  distribution  of  assets,  he  is  estopped 
to  claim  a  preference  as  to  assets  in  his  own  state.^^ 

Election  of  Remedies. — The  allowance,  however,  in  favor  of  the  plain- 
tiffs of  their  claim  as  a  debt  against  the  general  assets  of  the  bank,  estops 
them  to  claim  in  equity  for  the  conversion  of  a  trust  fund,  because  the  two 
remedies  are  inconsistent.^-  Hence  if  a  depositor  of  a  trust  fund,  through 
its  proper  officials,  presents  its  claim  for  allowance  on  account  of  the  deposit 
as  a  general  creditor,  and  obtains  an  allowance  of  any  part  thereof,  he  is 
estopped  to  maintain  an  action  against  the  assignee  or  receiver  to  subject  all 
of  such  assets  to  the  payment  of  the  trust  fund,  because  of  the  well-settled 


double  liability  fund  to  the  extent  that 
the  general  assets  were  so  used.  Sioux 
City  Stock  Yards  Co.  v.  Frib.ourg,  131 
Iowa  230,  96  N.  W.  747. 

28.  Money  paid  to  cover  protested 
draft. — Covey  v.  Cannon  (Ark.),  149 
S.  W.  514. 

29.  Hall  V.  Burrell  (Colo.),  124  Pac. 
751;  Hall  v.  Mcintosh  (Colo.),  124  Pac. 
753;  Hall  v.  Hardy  (Colo.),  124  Pac. 
753;  Hall  v.  Rocky  Ford,  etc.,  Co. 
(Colo.),  124  Pac.  754. 

30.  Estoppel  to  claim  preference. — 
A  county  whose  funds  have  been  un- 
lawfully deposited  in  a  bank  is  not  es- 
topped from  claiming  such  funds  as  a 
trust  fund  after  the  appointment  of  a 
receiver  for  such  bank,  by  reason  of 
its  treasurer  having  received  a  pro  rata 
payment  on  such  deposits  in  common 
with  general  creditors.  First  Nat. 
Bank  v.  Bunting  &  Co.,  7  Idaho  27,  59 
Pac.  920,  rehearing  denied,  59  Pac.  1106. 

Where  a  guardian  wrongfully  depos- 
its his  ward's  money  in  a  I)ank  which 
becomes  insolvent,  his  acceptance  of 
a  dividend  from  the  assignee  does  not 
estop  the  ward  from  demanding  a  re- 
turn of  the  full  amount  as  a  preferred 
claim.  In  re  Knapp.  101  Iowa  488,  70 
N.  W.  626. 


The  fact  that  a  tax  collector  required 
by  Code  1892,  §  3840,  to  settle  monthly, 
has  accounted  for  public  funds  de- 
posited in  a  bank,  which  has  become 
insolvent,  does  not  preclude  him  from 
afterwards  maintaining  a  suit  to  es- 
tablish such  deposit  as  a  trust  fund. 
Fogg  V.  Hebdon.  80  Miss.  750,  32  So. 
285. 

31.  Rights  of  foreign  creditors. — A 
proceeding  was  begun  in  North  Caro- 
lina to  wind  up  the  affairs  of  an  insol- 
vent bank  in  that  state,  under  which 
no  creditors  were  to  be  preferred.  Its 
creditors  in  South  Carolina  appeared, 
a  receiver  was  appointed  to  collect  and 
disburse  its  assets,  and  they  shared  in 
a  partial  distribution.  Held,  that  they 
were  estopped  from  claiming,  in  pref- 
erence to  foreign  creditors,  the  pro- 
ceeds of  a  real-estate  mortgage  be- 
longing to  the  l)ank,  on  which  the 
receiver  had  obtained  judgment  in 
South  Carolina.  Wilson  v.  Keels,  54 
S.  C.  545,  32  S.  E.  702,  71  Am.  St.  Rep. 
816. 

32.  Stoller  7'.  Coates,  88  Mo.  514,  dis- 
tinguishing and  explaining  First  Nat. 
Rank  7'.  Coates,  8  Fed.  540,  3  Mc- 
Crary  9. 


598 


BANKS    AND    BANKING. 


§  80  (5a) 


g-eneral  rule  that  an  election  between  two  inconsistent  remedies,  if  know- 
ingly  made,  is  an  estoppel  to  claim  the  other. ^"^ 

§  80  (5)  Deposits — §  80  (5a)  In  General."*^ — A  general  depos- 
itor is  merely  a  general  creditor  of  a  bank,  and  is  not  entitled  to  a  preferred 
claim  against  the  assets  in  the  hands  of  the  receiver,^^  unless  ecjuitable  con- 


33,  Larned  v.  Jordan,  55  Kan.  124,  39 
Pac.  1030;  Plow  Co.  v.  Rodgers,  53 
Kan.  743,  37  Pac.  111. 

Where  a  bank  having  possession  of 
a  trust  fund  belonging  to  a  city,  which 
it  had  received  on  deposit  from  the 
city  treasurer,  makes  an  assignment  o\ 
all  of  its  property  for  the  benefit  of  its 
creditors,  and  subsequently  the  city 
demands  of  the  city  treasurer  the  pay- 
ment of  the  money,  which  he  deposited 
in  the  insolvent  bank,  and  when  this  is 
refused  also  makes  a  demand  upon  the 
bondsmen  of  such  treasurer,  and  there- 
upon one  of  the  bondsmen  presents  to 
the  assignee  of  the  bank  a  demand  for 
the  amount  of  the  deposit,  and  alleges 
therein  "that  the  bank  is  justly  in- 
debted to  this  afliant  as  l)ondsnian  for 
the  amount  of  the  deposit  upon  the 
following  claim,  to  wit:  Upon  the  de- 
posit account  as  above  stated,  in  the 
sum  of  $4,645.18,  which  this  affiant 
claims  as  bondsman  of  F.  J.  Mathias, 
city  treasurer  aforesaid;"  and  further 
alleges:  "This  certificate  of  proof  be- 
ing made  in  behalf  of  G.  Krouch  and 
the  other  bondsmen  of  said  F.  J.  Ma- 
thias, city  treasurer;"  and  the  assignee 
allows  to  the  bondsman  the  full  amount 
of  the  demand  presented  by  him,  ?nd 
thereafter  issues  to  such  bondsman  a 
check  for  the  amount  of  the  first  divi- 
dend made  upon  the  claini,  and  the 
bondsman  turns  this  over  to  the  city 
treasurer,  and  it  is  credited  upon  the 
account  of  the  defaulting  treasurer — 
held,  that  the  city  thereby  does  not 
become  a  general  creditor  of  the  m- 
solvent  bank,  nor  is  it  estopped  from 
pursuing  the  trust  fund  in  the  hands 
of  the  assignee  of  such  bank.  Larned 
V.  Jordan,  55  Kan.  124,  39   Pac.  1030. 

In  an  action  by  the  drafthoklers 
against  such  assignee  to  enforce  pay- 
ment of  their  drafts  in  full,  held,  that 
they  had  not  barred  themselves  from 
recovering  in  this  action  by  present- 
ing their  drafts  to  the  assignee  as 
claims  against  the  estate,  having  them 
allowed,  and  accepting  dividends 
thereon.  First  Nat.  Bank  v.  Coates, 
8  Fed.  540,  3  McCrary  9. 

34.  See,  also,  post,  "Special  or  Seg- 
regated Deposits,"  §  80  (6). 

Preference    of    depositors    in    savings 


banks,  see  post,  "Insolvency  and  Re- 
ceivers," §  309. 

35.  Right  of  general  depositors  to 
preferences. — Otis  v.  Gross,  96  111.  612, 
36  Am.  Rep.  157;  Wetherell  v.  O'Brien, 
140  111.  146,  29  N.  E.  904,  33  Am.  St. 
Rep.  221;  McLain  v.  Wallace,  103  Ind. 
562,  5  N.  E.  911;  Fletcher  v.  Sharpe. 
108  Ind.  276,  9  N.  E.  142;  Schmelling 
V.  State,  57  Neb.  562,  78  N.  W.  279; 
Bruyn  v.  Middle  Dist.  Bank  (N.  Y.), 
9  Cow.  413,  1  Paige  584,  note;  Bank  v. 
Dean,  9  Okl.  626,  60  Pac.  226;  Moseby 
:.'.  Williamson,  52  Tenn.   (5  Heisk.)  278. 

The  depositors  of  money  in  a  bank, 
unless  in  case  of  a  special  deposit  of 
money  in  a  box  or  bag,  or  otherwise 
identified,  which  the  bank  has  no  right 
to  sue,  are  general  creditors,  and,  in 
case  of  insolvency  of  the  bank,  are  not 
entitled  to  be  preferred  to  other  cred- 
itors. In  re  Franklin  Bank  (N.  Y.),  1 
Paige  249,  19  Am.  Dec.  413. 

A  cotton  buyer  shipped  cotton  to 
New  York,  receiving  a  draft  on  the 
consignees  in  payment,  and  delivered 
the  draft  to  defendant  bank,  which  ob- 
ligated itself  to  pay  his  checks  in  fa- 
vor of  the  vendor.  Complainant  bank 
acquired  the  buyer's  check  in  favor  of 
the  vendor,  and,  on  presentation  to  de- 
fendant, accepted  in  lieu  of  cash  a  bill 
of  exchange  on  defendant's  New  York 
correspondent,  and  thereafter  defend- 
ant failed.  Held  not  to  impress  de- 
fendant's assets  with  a  trust  to  the 
amount  of  the  bill  of  exchange,  nor  to 
charge  defendant's  correspondent  as 
trustee  for  the  amount  thereof.  Citi- 
zens' Bank  :-.  Bank,  71  Miss.  27],  14 
So.  456. 

The  P.  bank  complied  with  a  re- 
quest of  the  S.  bank  to  place  a  certain 
amount  of  money  to  the  credit  of  tlie 
S.  bank,  and  in  pursuance  thereof  the 
S.  bank  delivered  to  the  P.  bank  cer- 
tificates, reciting  that  the  "P.  bank  has 
deposited  in  the  S.  bank"  a  certain 
sum,  "payal)le  to  the  order  of  itself  3 
months  after  date  with  interest  at  6 
per  cent."  Thereafter  the  P.  bank 
iionored  the  checks  of  the  S.  bank  to 
the  amount  of  the  certificates.  Held, 
that  the  transaction  amounted  to  a  loan 
bv  the  P.  bank  to  the  S.  bank,  and  the 
P.  bank  did  not  stand  in  the  relation  of 


§  80  (5a) 


IXSOLVE.XCV    AXD   DISSOLUTION. 


599 


siderations  justify  it.-="  And  a  cashier's  check,  payable  to  the  order  of  a 
depositor  for  the  amount  of  his  funds  on  deposit,  is  merely  evidence  of  an 
indebtedness  of  the  bank  to  the  depositor,  and  does  not  entitle  the  depositor 
to  any  preference  over  other  creditors  of  the  bank  at  the  hands  of  a  re- 
ceiver.-^''  But  by  express  statute  in  some  jurisdictions  depositors  are  given' 
a  preference  over  all  other  creditors  in  the  distribution  of  assets  of  an  in- 
solvent bank-'*  unless  they  are  liable  to  the  bank,  in  which  case  they  must 


a  depositor  to  the  S.  bank,  so  as  to 
give  the  P.  bank  a  preference  on  the 
distribution  of  the  funds  of  the  S.  bank 
on  its  insolvency.  Brown  z'.  Sheldon 
State  Bank,  139  Iowa  83,  117  N.  W. 
289. 

One  who  acquiesced  in  the  entry  of 
money  paid  to  a  bank  to  discharge  an 
unmatured  note  held  elsewhere,  to  his 
credit  until  the  note  should  be  pro- 
cured, has  no  standing  in  equity  on  a 
liquidation  other  than  that  of  a  general 
depositor.  Peterson  v.  Grapser  (Iowa), 
ns  X.  W.  411. 

Where  a  bank  for  its  own  accommo- 
dation ships  currency  to  another  bank, 
and  makes  a  draft  against  such  ship- 
ment, the  transaction  will  be,  in  the 
absence  of  an  express  stipulation  to 
the  contrary,  deemed  a  general  deposit 
of  the  currency,  and  in  event  of  the 
failure  of  the  correspondent  the  first- 
mentioned  bank  will  share  in  the  assets 
on  the  same  footing  as  other  general 
creditors.  Bank  z:  Dean,  9  Okl.  62C, 
60  Pac.  226. 

Construction  of  New  York  statute. 
— The  relation  which  the  depositors  of 
an  insolvent  bank  bear  to  the  funds 
which  have  been  or  are  to  be  distributed 
by  order  of  court  is  fixed  as  of  the 
time  when  the  superintendent  of  banks 
closed  the  bank  and  took  possession  of 
its  assets.  People  v.  Bank.  70  Misc. 
Rep.  633,  127  N.  Y.  S.  908. 

Deposit  by  court  of  funds  in  court. 
— Where  a  court  deposits  funds  with  a 
hank,  and  the  l)ank  assigns  for  the  ben- 
efit of  its  creditors,  the  court  can  not 
order  the  assignee  to  pay  into  court 
the  balance  due  on  its  claim  under  the 
penalties  of  contem.pt,  as  the  court  is 
simply  a  creditor,  with  no  greater 
rights  than  other  creditors.  In  re 
Western  Marine,  etc.,  Ins.  Co.,  38  111. 
289. 

36.  A  preferential  trust  can  not  be 
established,  in  favor  of  a  depositor,  be- 
cause just  prior  to  the  failure  of  the 
l^ank  the  claimant  demanded  ])ayment, 
and  was  told  by  the  cashier  to  indorse 
his  certificates,  and  had  already  in- 
dorsed two  when  payment  was  forbid- 
den   by    the    president,    although    there 


was  more  than  enough  money  in  the 
bank  at  the  time  to  pay  the  claim. 
St.  Mary's  Church  v.  National  Bank, 
23   Misc.   Rep.  588,  52   N.   Y.   S.  802. 

37.  Effect  of  cashier's  check.— Clark 
r.  Chicago  Trust,  etc.,  Co.,  85  111.  App. 
293,  judgment  affirmed  in  186  111.  440, 
57  N.  E.  1061,  53  L.  R.  A.  232,  78  Am. 
St.    Rep.    294. 

38.  Depositors  preferred  in  some 
states. — Taylor  r.  Hutchinson,  145  Ala. 
202,    40    So.    108. 

Code,  §  1877,  provides  that  on  the 
insolvency  of  a  bank  a  receiver  shall 
be  appointed  at  the  instance  of  the 
state  auditor,  and  the  bank's  assets 
ratably  distributed  "'among  the  cred- 
itors thereof,  giving  preference  in  pay- 
ment to  depositors,"  and  §§  1878-1S83 
declare  that,  in  case  a  deficiency  still 
remains,  a  ratable  assessment  may  be 
made,  on  stockholders,  the  sum  re- 
alized to  be  distributed  equally  "among 
all  the  creditors  in  proportion  to  the 
several  sums  due  them."  Held,  that  on 
the  insolvency  of  a  bank  the  deposit- 
ors were  entitled  to  be  first  paid  in 
full  before  other  creditors  were  entitled 
to  share  in  the  general  assets.  State 
C-.  Corning  State  Sav.  Bank,  127  Iowa 
198,    103    N'.    W.   97. 

Where  a  bond  with  sureties  has 
l)een  given  to  secure  a  deposit  on 
which  judgment  has  been  obtained, 
and  a  receiver  appointed  for  the  bank, 
tlie  sureties,  as  to  assets  of  the  bank 
in  the  hands  of  the  receiver  other 
tlian  securities  assigned  to  the  de- 
positor as  additional  security  before 
the  failure,  have  no  prior  rights  over 
other  creditors;  since  Code,  §  1,'572, 
declares  that  the  assets  in  such  case 
shall  be  "ratably  distributed  among 
the  creditors,  *  *  *  giving  preference 
in  payment  to  depositors."  Richards 
7'.  Osceola  Bank,  79  Iowa  707,  45  N. 
W.  294. 

A  bank,  having  solicited  accounts 
from  banks  in  other  cities,  received 
checks  and  drafts  for  collection,  which 
were  credited  to  them  upon  their  col- 
lection. Cash  was  also  frequently  sent 
to  it,  and  interest  was  allowed  upon 
lialanccs   exceeding  $1,000.     These   bal- 


600 


BANKS    AND    BANKING. 


§  80  (5a) 


discharge  this  hability  before  they  can  claim  the  preference.3»  And  a  bank 
which  by  its  charter  is  authorized  to  receive  deposits,  and  give  security 
therefor,  may  provide  a  system  for  securing  loans  and  deposits  generally, 
by  establishing  an  investment  department,  in  which  certificates  issued  there- 
for are  secured  by  a  transfer  to  a  trustee  of  negotiable  paper,  to  be  held  by 
him  solely  for  the  benefit  of  depositors  and  others  dealing  with  the  bank, 
and  thereby  give  them  precedence  over  its  general  creditors,  not  so  secured.^^ 
Where  checks  on  another  bank  are  deposited  the  bank  is,  until 
collection,  a  mere  bailee  of  the  checks  deposited  or  agent  of  its  customer's 
depositor.      Accordingly,   the  proceeds   of  the  check  must   be   paid  to  the 


ances  were  used  by  the  bank  in  the 
course  of  its  business,  and  were  not 
remitted  except  upon  checks  or  draft. 
Held,  on  failure  of  the  bank,  that  such 
remitting  banks  were  depositors,  within 
Act  April  16,  1850,  which  provides 
that  the  assignees  of  insolvent  banks 
shall  pay  liabilities  in  the  following 
order:  (1)  Note  holders;  (2)  deposi- 
tors; and  (3)  other  creditors.  Foulker 
V.  Union  Banking  Co.  (Pa.),  6  Wkly. 
Notes  Cas.  109. 

Who  are  depositors. — A  depositor, 
within  the  meaning  of  Act  April  16, 
1850,  providing  preferences  in  the  dis- 
tribution of  the  assets  of  banks  in 
the  hands  of  assignees,  is  one  who 
places  his  money  on  deposit  for  safe- 
keeping, to  be  paid  out  on  demand, 
upon  his  checks  or  drafts.  Appeal  of 
Parkesburg  Bank,  6  Wkly.  Notes  Cas. 
394. 

A  bank,  being  in  need  of  funds,  bor- 
rowed securities  to  be  used  as  col- 
lateral in  securing  money.  Jt  borrowed 
the  money,  giving  the  securities,  and 
entered  the  amount  so  borrowed  as 
a  deposit  to  the  credit  of  the  owner 
of  the  securities,  who,  upon  subse- 
quent failure  of  the  bank,  paid  the  in- 
debtedness, and  took  the  securities,  and 
then  claimed  preference  as  a  depositor. 
Held,  that  he  was  not  a  depositor.  Ap- 
peal of  Parkesburg  Bank,  C  Wkly. 
Notes  Cas.  394. 

Where  bills  are  forwarded  by  one 
bank  to  another  for  collection,  and 
the  proceeds  are  credited  to  the  re- 
mitter, the  usual  mode  of  settlement 
of  such  proceeds  being  by  weekly 
drafts  for  the  balance  due,  such  re- 
mitter is  not  a  depositor,  within  Act 
April  16,  1850,  which  provides  that, 
upon  insolvency  of  a  bank,  the  as- 
signee shall  pay  (1)  note  holders,  (2) 
depositors,  and  (3)  other  creditors,  in 
the  order  named.  Appeal  of  Parkes- 
burg Bank,  6  Wkly.  Notes  Cas.  394. 

A  corporation  which  makes  a  de- 
posit to  be  used  in  paying  maturing  in- 


terest coupons,  and  for  no  other  pur- 
pose, when  the  bank  assigns  is  a  gen- 
eral creditor,  and  not  a  "depositor," 
within  the  meaning  of  Act  April  16, 
1850,  §  39  (P.  L.  492),  making  deposi- 
tors preferred  creditors.  In  re  Brandj^- 
wine  Bank  (Pa.).  1  Chest.  Co.  Rep. 
431. 

A  holder  of  a  bank's  certificate  of 
deposit,  payable  on  a  fixed  date  with 
interest,  is  a  creditor  of  the  bank  on 
a  loan  made  to  it  for  a  fixed  period 
on  which  interest  is  stipulated  for, 
and  is  not  a  depositor,  within  Const., 
§  250,  giving  depositors  who  have  not 
stipulated  for  interest  a  preference  in 
case  of  the  bank's  insolvency.  Taylor 
r.  Hutchinson,  145  Ala.  202,  40  So.  108. 

What  are  deposits.— Under  Banking 
Act  May  13,  1876,  providing  that  in 
case  of  insolvency  of  a  bank  its  de- 
posits are  to  be  paid  first,  balances 
due  banks  as  the  result  of  mutual  ac- 
counts with  the  insolvent  bank  are 
not  deposits.  In  re  State  Bank,  13  Pa. 
Co.  Ct.   Rep.  433. 

An  interest-bearing  time  deposit,  is 
not  a  deposit,  within  Banking  Act  May 
13,  1876,  providing  that  in  case  of  in- 
solvency of  a  bank  its  deposits  shall 
be  paid  first,  but  is  a  loan  to  the  bank, 
a  deposit  being  money  placed  in  the 
bank  to  be  drawn  on  at  pleasure;  es- 
pecially as  the  act  prohibits  the  pay- 
ment of  interest  on  deposits,  but  al- 
lows banks  to  borrow  money  and  pay 
interest  thereon.  In  re  State  Bank, 
13   Pa.   Co.   Ct.   Rep.  433. 

39.  Banking  Act  May  13.  1876,  pro- 
viding that  in  case  of  insolvency  of  a 
bank  deposits  shall  be  paid  first,  does 
not  authorize  the  payment  of  depositors, 
in  any  way  liable  to  the  bank,  till  such 
liability  is  discharged,  nor  payment 
to  a  stockholder  of,  his  deposit,  tilt 
all  other  creditors  are  fully  paid.  In 
re  State  Bank,  13  Pa.  Co.  Ct.  Rep. 
433. 

40.  Ward  v.  Johnson,  95  111.  215. 


§  80  (5a) 


IXSOLVEXCV   AND   DISSOI^UTIOX. 


601 


depositor  although  not  collected  until  after  insolvency.-*^  But  the  relation 
of  debtor  and  creditor  is  established  between  a  bank  and  a  depositor  therein 
of  a  check,  where  such  check  is  delivered  to  and  accepted  by  the  bank  as 
cash,  and  treated  as  such,  and  so  charged  up  to  the  bank  to  which  it  was 
sent  for  collection.  In  such  case  the  depositor  can  not  follow  the  check  or 
its  proceeds  where  the  bank  becomes  insolvent."*-     And  the  right  to  follow 


41.    Checks  deposited  for   collection. 

— Akin  7'.  Jones,  93  Tenn.  353,  2T  S. 
W.  669,  25  L.  R.  A.  523,  42  Am.  St. 
Rep.  921;  Sayles  v.  Cox,  95  Tenn.  579, 
32  S.  W.  626,  32  L.  R.  A.  715,  49  Am. 
St.  Rep.  940;  Showalter  v.  Cox,  97 
Tenn.  547,  37   S.  W.  286. 

The  title  to  a  check  does  not  pass 
to  a  bank  to  which  it  is  delivered  by 
the  holder,  without  any  special  agree- 
ment, express  or  implied,  in  regard 
thereto,  when  it  is  not  entered  up  to 
the  latter's  credit,  and  the  bank,  at  the 
time  of  receiving  it,  was  hopelessly 
insolvent,  to  the  knowledge  of  its  offi- 
cers; and  a  receiver  of  such  bank  sub- 
sequently appointed,  who  forwards 
such  check  to  the  drawee,  and  collects 
the  amount,  will  be  compelled  to  re- 
fund same  to  the  depositor.  Akin  v. 
Jones,  93  Tenn.  353,  27  S.  W.  669,  25 
L.  R.  A.  523,  42  Am.  St.  Rep.  921; 
Sayles  v.  Cox,  95  Tenn.  579,  32  S.  W. 
626,  32  L.  R.  A.  715,  49  Am.  St.  Rep. 
940;  Showalter  v.  Cox,  97  Tenn.  547, 
37  S.  W.  286. 

Indorsement  for  collection. — "In  the 
case  of  Akin  v.  Jones,  93  Tenn.  353, 
27  S.  W.  669,  25  L.  R.  A.  523,  42  Am. 
St.  Rep.  921,  the  general  rule  is  held 
to  be  that  an  indorsement  for  collec- 
tion vests  no  title  to  the  paper  in  the 
bank,  etc.,  and  it  'may  be  recovered  in 
specie  before  collection  made;  *  *  * 
but,  if  the  bank  made  collection  be- 
fore it  makes  an  assignment,  even 
though  it  be  in  fact  insolvent,  it  simply 
becomes  as  ordinary  contract  debtor  of 
the  owner,  and  he  can  not  impress  any 
trust  character  upon  the  proceeds.' 
Citing  Morse  on  Banking,  vol.  1,  p. 
248."  Sayles  v.  Cox,  95  Tenn.  578,  32 
S.  W.  626,  32  L.  R.  A.  715,  49  Am.  St. 
Rep.  940. 

Indorsement  "for  deposit." — In  Beal 
V.  Somcrvillc,  1  C.  C.  A.  598,  50  Fed. 
647,  17  L.  R.  A.  291,  the  circuit  court 
of  appeals,  first  circuit,  laid  down  the 
following  proposition:  "A  city  treas- 
urer deposited  checks  in  a  bank,  in- 
dorsed by  him  'for  deposit,'  and  the 
checks  were  immediately  credited  to 
him  on  his  bank  book,  though  not  in 
pursuance  of  any  agreement  to  that 
effect.  He  had  been  a  depositor  in 
the   bank   for   some  years,   but  had   no 


agreement  that  his  checks  should  be 
treated  as  cash,  or  that  he  should  draw 
against  them  before  collection.  The 
bank  became  insolvent  before  the 
checks  were  collected,  and  tlieir  pro- 
ceeds passed  into  the  hands  of  a  re- 
ceiver. Held,  that  no  title  passed  to 
the  ban'K  except  as  a  bailee,  and  that 
the  depositor  was  entitled  to  the  pro- 
ceeds." 

42.  When  check  deposited  for  col- 
lection a  general  deposit. — Friberg  v. 
Cox,    97    Tenn.    550,    37    S.    W.    283. 

"In  such  case,  in  the  absence  of  anj'- 
thing  more,  the  customer  can  not  fol- 
low up  the  check  or  its  proceeds  as  his 
own  property,  but  the  relation  of 
debtor  and  creditor  is  established  by 
such  transaction,  and  the  customer  and 
his  assignee  have  merely  demands 
against  the  bank  upon  their  certifi- 
cates of  deposit  and  credit  on  the 
books.  Akin  v.  Jones,  93  Tenn.  353, 
27  S.  W.  669,  25  L.  R.  A.  523,  42  Am. 
St.  Rep.  921 ;  Sayles  v.  Cox,  95  Tenn. 
579,  32  S.  W.  626,  32  L.  R.  A.  715,  49 
Am.  St.  Rep.  940;  Williams  v.  Cox,  97 
Tenn.  555,  37  S.  W.  282;  Morse  on 
Banking,  §  568,  and  subsections."  Fri- 
berg V.  Cox,  97  Tenn.  550,  37  S.  W. 
283. 

"The  check  having  been  treated  and 
received  and  credited  as  cash,  the  re- 
lation of  creditor  and  debtor  between 
the  customer  and  bank  arose  out  of  the 
deposit,  and  the  customer  is  not,  there- 
fore, entitled  to  recover  the  proceeds 
of  the  check  as  his  own  money.  Akin 
V.  Jones,  03  Tenn.  353,  27  S.  W.  669, 
25  L.  R.  A.  523,  42  Am.  St.  Rep.  921; 
Sayles  v.  Cox,  95  Tenn.  579,  32  S.  W. 
626,  32  L.  R.  A.  715,  49  Am.  St.  Rep. 
940;  Morse  on  Ranking.  §  568,  and  sub- 
sections." Williams  v.  Cox,  97  Tenn. 
555.  37  S.  W.  282. 

"In  Morse  on  Banking,  §  583,  it  is 
said  that,  when  there  is  no  usage,  or 
course  of  dealing  between  the  parties 
to  decide  the  matter,  and  a  check  is 
received  without  instructions,  the  bank 
may  elect  to  receive  it  for  collection 
or  as  cash,  and  tlic  depositor^  is  the 
owner  until  the  bank  makes  it  its  own 
l)y  crediting  it  as  cash.  There  is  an 
evident  difference  lietwcen  a  deposit 
of  money  without   instructions,   and   of 


602 


BANKS    AND    BANKING. 


'§  80  (5a) 


and  reclaim  a  check  received  for  deposit  by  a  bank  after  it  is  insolvent  to 
the  knowledge  of  its  officers,  is  lost  where,  before  the  bank  fails,  another 
bank,  to  which  it  is  sent  for  collection,  credits  the  check  to  the  former  bank.'*^ 
x-\nd  a  credit,  for  a  draft  given  by  one  bank  to  another  on  the  same  day 
that  the  latter  failed,  will  not  be  presumed,  in  the  absence  of  proof,  to  have 
been  given  after  the  failure,  in  order  to  entitle  one  who  deposited  the 
draft  in  the  insolvent  bank  after  its  officers  knew  it  was  insolvent,  to  re- 
claim the  proceeds  of  the  draft  out  of  the  assets  in  preference  to  other 


paper,  such  as  checks,  drafts,  etc., 
without  such  instructions.  Morse  on 
Banking,  §§  186,  187.  When  the  check 
came  to  the  hands  of  the  bank  ex- 
aminer it  was  still  the  property  of 
complainant,  and  when  its  proceeds 
were  sent  to  the  receiver  he  took 
them  for  complainant  as  the  owner, 
and  not  as  assets  or  property  of  the 
bank."  Showalter  v.  Cox,  97  Tenn. 
.547,    37    S.    W.    286. 

A  customer  for  whom  a  bank  makes 
a  collection  and  remits  the  funds  col- 
lected by  check  upon  another  bank, 
which  is  not  paid  upon  presentation, 
becomes  a  mere  creditor  of  the  col- 
lecting bank  for  the  amount  of  such 
fund,  and  entitled  to  share  only  pro 
rata  with  other  general  creditors  under 
a  general  assignment  subsequently 
made  by  the  bank,  unless,  by  special 
contract,  express  or  implied,  the  bank 
was  constituted  trustee  of  such  fund 
for  its  customer,  and  the  fund  remains 
susceptible  of  identification.  Akin  i'. 
Tones,  93  Tenn.  3o3,  27  S.  W.  669,  2o 
"L.    R.   a.    523.    42    Am.    St.    Rep.    921. 

And  the  collecting  bank,  not  its  as- 
signee, has,  as  between  itself  and  cus- 
tomer, effected  the  collection  of  the 
Tatter's  debt,  and  become  debtor  for 
the  fund,  where  the  bank,  before  mak- 
ing a  general  assignment,  accepted,  in 
absolute  payment  of  the  debt,  the 
check  of  its  customer's  debtor  upon  it- 
self, overdrawing  his  deposit,  and  this 
overdraft  was  subsequently  collected 
of  the  drawee  by  the  assignee  of  the 
bank,  for  benefit  of  all  its  creditors. 
Akin  T'.  Jones,  93  Tenn.  353,  27  S.  W. 
669.  25  L.  R.  A.  523,  42  Am.  St.  Rep. 
921. 

"In  his  work  on  commercial  paper 
Mr.  Randolph  says:  'If  the  holder  of 
a  bill  directs  that  it  be  paid  to  a  cer- 
tain banker,  procuring  credit  with  such 
banker  will  amount  to  a  payment  of 
the  bill.  So  if  the  amount  of  a  note  is 
credited  to  a  bank  holding  it  for  col- 
Tectioh  (according  to  the  custom  of 
dealing  between  the  banks),  it  will  be 
a  payment,   although   the   bank   making 


the  note  and  giving  the  credit  failed 
on  the  day  it  was  so  credited.'  Ran- 
dolph on  Com.  Paper,  vol.  3,  §§  1395, 
1456.  The  doctrine  has  been  extended, 
and  collecting  banks  have  been  rec- 
ognized as  authorized  to  receive  their 
own  certificates  of  deposit  in  payment, 
and  the  debtor  is  discharged,  even 
though  the  bank  fails  before  remitting. 
See  Howard  v.  Walker,  92  Tenn.  452, 
21  S.  W.  897."  Akin  v.  Jones,  93  Tenn. 
353,  27  S.  W.  669,  25  L.  R.  A.  523,  42 
Am.    St.    Rep.    921. 

Check  with  unrestricted  indorse- 
ment.— The  deposit  with  a  bank  of  a 
check  with  an  unrestricted  indorse- 
ment, which  the  depositor  directs  to 
b.ave  placed  to  his  credit,  will  be 
treated  as  a  cash  deposit  which  the 
depositor  is  not  entitled  to  reclaim 
otherwise  than  as  a  general  liability  <:n 
the  bank  becoming  insolvent,  where 
the  bank  treated  it  as  credited,  and 
immediately  advised  the  depositor  of 
such  fact,  and  the  latter's  check, 
drawn  on  same  day  for  part  of  the 
am.ount,  was  paid  by  the  bank.  Akin 
7'.  Jones,  93  Tenn.  353,  27  S.  W.  669, 
25  L.  R.  A.  523.  42  Am.  St.  Rep.  921; 
Sayles  z:  Cox,  95  Tenn.  579,  32  S.  W. 
626,  32  L.  R.  A.  715,  49  Am.  St.  Rep. 
940;  Williams  7-.  Cox,  97  Tenn.  555. 
37    S.    W.    282. 

43.  Akin  r.  Jones,  93  Tenn.  353,  27 
S.  W.  669,  25  L.  R.  A.  523,  42  Am.  St. 
Rep.  92] ;  Sayles  z'.  Cox.  95  Tenn.  579, 
32  S.  W.  626,  32  L.  R.  A.  715,  49  Am. 
St.  Rep.  940;  Klepper  r.  Cox,  97  Tenn. 
534,  37  S.  W.  284.  34  L.  R.  A.  536,  56 
Am.  St.  Rep.  823;  Friberg  v.  Cox,  97 
Tenn.   550,  37   S.  W.  283. 

In  the  absence  of  proof  to  the  con- 
trary, it  will  be  presumed  in  favor  of 
the  creditors  of  an  insolvent  bank  that 
its  failure  occurred  after  the  entry  of 
a  credit  by  its  correspondent  for  a 
deposited  check  sent  for  collection  and 
credit,  where  both  the  entry  of  the 
credit  and  the  failure  occurred  on  the 
same  day.  Friberg  v.  Cox,  97  Tenn. 
550,    37    S.   W.   283. 


§  80  (5b) 


IXSOLVEXCV   AXD   DISSOLUTION. 


603 


creditors  who  seek  to  have  them  thstributed  pro  rata."*^  But  if  the  identity 
of  the  check  is  lost,  and  the  bank,  at  the  time  its  doors  are  closed,  has  on 
hand  no  money  or  property  which  represents  them  or  which  was  received  in 
excliange  for  them,  and  simply  used  the  checks  in  paying  its  debts,  the  de- 
positor will  not  be  permitted  to  take  property  or  the  proceeds  from  it,  no 
part  of  which  was  recei^•ed  in  exchange  for  the  checks ;  he  will  be  limited 
to  an  unpreferred  claim. ^-"^ 

§  80  (5b)  Priorities  as  between  Themselves. — Since  general  de- 
positors are  merely  general  creditors  they  are  only  entitled  to  share  j^ro 
rata  with  other  general  creditors  in  the  distribution  of  the  funds  of  an 
insolvent  bank.-**'  But  where  the  assets  of  a  bank  in  the  hands  of  a  re- 
ceiver are  released  upon  the  false  representations  of  some  of  the  depositors 
that  it  is  solvent,  the  nonassenting  depositors  are  entitled  to  be  first  paid 
out  of  the  assets  when  finallv  distributed."*' 


44.  Klepper  v.  Cox,  97  Tenn.  534, 
37   S.  W.  284,  34  L.   R.  A.   536. 

"If  such  credit  was  entered  before 
the  Johnson  City  bank  failed,  then  the 
proceeds  became  mingled  with  the  gen- 
eral funds  of  the  banks,  and  can  not 
be  reclaimed.  Aiken  v.  Jones,  93 
Tenn.  353,  27  S.  W.  669,  25  L-  R.  A. 
523,  42  Am.  St.  Rep.  921;  Sayles  v. 
Cox,  95  Tenn.  579,  32  S.  W.  626,  32  L. 
R.  A.  715,  49  Am.  St.  Rep.  940.  In  such 
case  the  proceeds  can  not  be  followed, 
separated,  or  identified."  Klepper  v. 
Cox,  97  Tenn.  534,  37  S.  W.  284,  34 
L.    R.   A.    536,   56   Am.    St.    Rep.    823. 

"There  may  be  special  facts  in  a 
case  which  will  take  it  out  of  the  or- 
dinary rule,  and  create  a  trust  in  the 
funds  collected.  Such  special  facts 
were  found  in  the  case  of  Continental 
National  Bank  t'.  Weems,  5  Am.  State 
Reports,  page  85,  cited  by  counsel  for 
defendant.  In  this  case  the  agree- 
ment between  the  two  banks  in  refer- 
ence to  the  proceeds  was  that  'they 
should  be  preserved  by  said  bank  as 
the  property  of  the  complainant,  and 
returned  to  it  as  such.'  The  court 
thought  these  special  facts  settled  the 
question  of  trust  in  favor  of  the  com- 
plainant. But  the  rule  undoubtedly  is, 
that  unless  there  is  some  agreement 
or  course  of  dealing  whereby  the  funds 
are  to  be  held  separate  and  the  iden- 
tical proceeds  remitted,  the  owner  of 
the  drafts  stands  upon  no  higher 
ground  than  the  other  creditors  of  the 
bank  in  a  case  where  the  bank  collects 
tlic  drafts  prior  to  making  a  general 
assignment."  Akin  v.  Jones,  03  Tenn. 
.'553,  27  S.  W.  669,  25  L.  R.  iV  .523,  42 
Am.    St.    Rep.    921;    Sayles   v.    Cox,    95 


Tenn.    579,    32    S.    W.    626.    32    L.    R.    .\. 
715,    49    Am.    St.    Rep.    940. 

45.  Loss  of  identity  of  check  de- 
posited for  collection. — Where  a  bank 
accepts  checks  for  deposit  when  it  is 
in  a  failing  condition,  and  afterwards 
fails,  the  checks  may  be  followed  by 
the  depositor  and  recovered,  unless 
they  have  passed  into  the  hands  of 
innocent  parties;  or,  if  they  have  been 
changed  for  other  property,  it  may 
be  impressed  with  the  equities  of  the 
depositor.  But  if  the  insolvent  bank 
did  not  receive  other  property  in  lieu 
of  the  checks  deposited,  the  depositor 
will  be  limited  to  an  unpreferred  claim. 
Willoughby  :■.  Weinberger,  15  Okl.  226, 
79  Pac.  777.  See  post,  "Special  or 
Segregated    Deposits,"    §    80    (6). 

46.  Pro  rata  distribution  between 
general  depositors. — McLain  v.  Wal- 
lace, 103  ind.  562,  5  N.  E.  911;  Butcher 
V.  Butler,  134  Mo.  App.  61,  114  S.  W. 
564;  Bank  v.  Dean,  9  Okl.  626,  60  Pac. 
226. 

47.  A  bank  was  placed  in  the  iiands 
of  a  receiver,  and  filed  a  motion  al- 
leging that  it  was  solvent,  set  forth 
the  scheme  for  reorganization,  and 
prayed  for  the  surrender  of  its  assets. 
The  motion  was  granted,  and  it  pro- 
ceeded to  do  business  under  ;i  dif- 
ferent name,  but  again  made  an  as- 
signment, and  was  placed  in  the  hands 
of  the  receiver.  Held,  in  the  distri- 
bution of  its  assets,  depositors  who 
were  not  parties  to  the  agreement  for 
reorganization  and  the  application  for 
a  surrender  of  the  assets  under  the  first 
receivership  were  entitled  to  jiriorit)'' 
over  those  who  were.  Rim.I)lo  v.  'I'yus, 
123   Ga.  295,   51   S.    K.   420. 


604 


BANKS    AND    BANKING. 


§  80  (6a> 


§  80  (5c)  Deposits  by  Savings  Banks. — Under  the  laws  of  New 
York  deposits  made  by  savings  banks  have  preference  over  other  creditors 
of  an  insolvent  bank  in  the  distribution  of  its  assets. ^^ 

§  80  (6)  Special  or  Segregated  Deposits— §  80  (6a)  In  Gen- 
eral.-*^— A   special   deposit   or   deposit   that   is   to   be   segregated   and   kept 


48.  Savings  banks. — Laws  1875,  c. 
371,  §  48,  providing  that  all  the  assets 
of  an  insolvent  bank,  after  the  pay- 
ment of  its  circulation,  shall  be  ap- 
plied to  the  payment  of  moneys  de- 
posited with  it  by  any  savings  cor- 
poration, applies  only  to  deposits, 
property  so  calleii,  and  not  to  any 
other  description  of  indebtedness. 
Rosenback  v.  Manufacturers',  etc.. 
Bank,   69  N.  Y.  358,  affirming  10  Hun  148. 

The  provision  of  Laws  1875,  c.  371, 
§  48 — savings  banks  shall  have  a  pref- 
erence for  moneys  deposited  over 
other  creditors  of  an  insolvent  bank — 
only  applies  to  deposits  made  in  the 
ordinary  course  of  business,  and  sub- 
ject to  the  drafts  of  the  depositors. 
Loans,  whether  on  time  or  payable  on 
call,  are  not  deposits,  within  the  mean- 
ing of  the  provision;  and  a  loan  can 
not  be  changed  into  a  deposit  by  rea- 
son of  any  want  of  authority  in  the 
managers  of  the  savings  bank  to  make 
the  loan,  or  for  the  reason  that  it 
may  have  been  made  in  violation  of 
law.  Rosenback  v.  Manufacturers', 
etc..  Bank,   69   N.  Y.  358. 

The  provision  of  Laws  1875,  c.  371, 
§  48,  directing  assets  of  insolvent  banks 
to  be  applied  to  refund  deposits  by 
savings  banks,  applies  to  deposits 
made  before,  as  well  as  since,  the  pas- 
sage of  the  act,  and  extends  to 
moneys  received  under  a  general  agree- 
ment and  course  of  business  for  the 
savings  bank  to  pay  in  funds  from 
day  to  day,  by  pass  book,  like  a  de- 
positor, the  same  to  be  repayable,  on 
call,  with  interest.  Upton  v.  New 
York,  etc..  Bank   (N.  Y.),  13  Hun  269. 

What  a  deposit  is. — Money  paid  by 
a  savings  bank  to  the  M.  Bank  in  pur- 
suance of  an  agreement  to  deposit  with 
the  M.  Bank  one-fourth  of  all  moneys 
received,  the  M.  Bank  to  pay  interest 
on  the  daily  balance  at  4  per  cent  per 
annum,  and  at  the  end  of  three  years 
pay  over  to  the  savings  bank  all  money 
belonging  to  it,  and  also  pay  at  sight 
any  checks  or  drafts  drawn  upon  it, 
held  to  be  a  "deposit,"  within  the 
meaning  of  Laws  N.  Y.  1875,  c.  37, 
§  48,  and  thereby  entitled  to  priority 
over  other  claims.  In  re  Patterson, 
18  Hun  221,  affirmed  in  78  N.  Y.  608. 

A   savings    bank   had  $50,000   on   de- 


posit with  defendant.  The  latter  ap- 
plied to  the  savings  bank  for  a  loan, 
on  call,  of  $40,000.  The  loan  was 
agreed  upon,  a  formal  agreement  pre- 
pared, and  defendant  gave  securities 
for  repayment  of  the  loan.  The  presi- 
dent of  the  savings  bank  borrowed 
$65,000  on  its  own  securities,  and  de- 
posited $40,000  to  defendant's  credit 
in  the  C.  Bank,  which  was  defendant's 
correspondent,  and  where  its  account 
was  overdrawn.  The  amount  bore  in- 
terest from  the  time  of  this  deposit. 
It  was  entered  in  the  cash  book  of  the 
savings  bank  as  a  "deposit,"  but  was 
thereafter  entered  in  the  journal  as  a 
call  loan;  and  $5,000,  paid  on  the  day 
of  such  entry,  was  entered  as  made  on 
account  of  the  loan.  In  defendant's 
books  it  was  entered  to  the  credit  of 
the  call-loan  account  of  the  savings 
bank.  Held,  that  the  transaction  was 
a  loan,  not  a  deposit  (Laws  1875,  c. 
371,  §  48),  and  that  the  savings  bank 
was  not  entitled  to  a  preference. 
Rosenback  v.  Manufacturers',  etc., 
Bank,   69   N.   Y.   358. 

Conflict  between  state  and  federal 
statute. — The  question  whether  a  sav- 
ings bank  should  be  paid  in  full  by 
an  insolvent  national  bank,  pursuant 
to  the  state  law,  Laws  N.  Y.  1882,  c. 
409,  §  282:  Elmira  Sav.  Bank  v.  Davis, 
73  Hun  357,  26  N.  Y.  S.  200,  or  pro 
rata,  as  provided  by  the  Revised  Stat- 
utes (§§  5236,  5242),  held,  upon  a  mo- 
tion to  remand,  to  be  a  controversy 
"arising  under  the  laws  of  the  United 
States."  Tehan  v.  First  Nat.  Bank,  39 
Fed.  577,  distinguished.  Auburn  Sav. 
Bank  v.    Hayes,   61    Fed.   911. 

Law.?  N.  Y.  1853,  c.  257,  and  Laws 
N.  Y.  1858,  c.  130,  which  provide  that, 
after  paying  the  circulating  notes  of  an 
insolvent  bank  of  deposit,  its  assets 
shall  be  first  applied  to  the  payment 
of  deposits  made  with  it  by  savings 
banks,  do  not  entitle  a  savings  bank 
to  be  preferred  to  other  creditors  in 
the  distribution  of  the  estate  of  a 
bank  of  deposit  under  the  federal 
bankrupt  law.  Sixpenny  Sav.  Bank  v. 
Stuyvesant's  Bank,  Fed.  Cas.  No. 
12.919,  12  Blatchf.  179,  49  How.  Prac. 
133. 

49.  Special  or  segregated  deposits. 
— Whether   deposit   is  special  so  as  to 


§  80  (6a) 


IXSOLVENXY   AND  DISSOLUTIOX. 


605 


separate  from  the  other  property  or  funds  in  the  bank,  will  be  entitled  to 
priority  of  payment  on  a  distribution  of  the  bank's  assets  upon  its  insol- 
vency. But  a  deposit  is  presumed  to  be  general  and  the  burden  is  on  the 
person  claiming  the  contrary  to  prove  it.^*^    It  is,  however,  a  well-established 


entitle  depositor  to  preference,  see 
post,    "Special    Deposits.''    §    153. 

50.  Special  or  segregated  deposits. 
— Minard  v.  Watts,  186  Fed.  245; 
Butcher  v.  Butler,  134  Mo.  App.  61, 
114  S.  W.  564;  Bank  v.  Dean,  9  Okl. 
626,    60    Pac.    226. 

A  deposit  of  money  in  a  bank  by 
•one  who  sustains  fiduciary  relations 
to  the  funds,  and  who  deposits  the 
money  for  the  benefit  of  another  with 
the  knowledge  of  the  banker,  was  not 
entitled  to  any  priority  at  the  dis- 
tribution of  the  assets  on  the  bank's 
insolvency,  where  there  was  no  un- 
derstanding that  the  deposit  should 
"be  treated  as  a  special  deposit.  Butcher 
V.  Butler,  134  Mo.  App.  61,  114  S.  W. 
564. 

What  constitutes  special  deposit. — 
The  complainant,  a  corporation,  had 
a  large  deposit  in  the  defendant  bank, 
It  being  in  a  sense  a  depositary  of  the 
complainant.  There  was  an  under- 
standing or  agreement  between  the 
"bank  officials  and  the  officers  of  the 
complainant  that  the  latter  would  not 
draw  out  all  of  its  money  at  once,  but 
would  do  so  only  as  it  needed  it  in  its 
current  business.  The  president  of 
the  bank  believing  that  the  com- 
plainant was  not  observing  its  agree- 
ment about  not  checking  on  its  deposit 
except  as  it  needed  its  money  in  its 
current  business,  saw  the  secretary  of 
the  complainant,  about  it,  and  told 
Tiim  that  a  number  of  his  stockholders 
were  borrowers  from  his  bank,  that 
they  had  deposited  their  certificates  of 
stock  as  collaterals  to  secure  these 
notes,  and  that  the  complainant  ought 
to  have  enough  money  on  deposit  to 
protect  its  stock  thus  deposited.  The 
directors  passed  a  resolution  to  the  ef- 
fect that  they  would  keep  enough 
money  on  deposit  to  protect  their 
stock  hypolheticated  by  their  stock- 
Tiolders  to  secure  the  payment  of 
notes  given  by  them  to  the  bank,  and 
the  bank  officials  were  notified  of  this 
action.  "There  is  not  the  slightest 
evidence  that  the  deposit  was  to  be 
changed  from  a  general  to  a  special 
deposit,  or  that  the  bank  was  not  to 
use  it  as  it  did  its  other  funds  in  its 
current  business.  Under  these  facts, 
we  are  aware  of  no  wcll-considcred 
authority  that  would  hold  it  to  be  a 
special    deposit,    or    that     it      was      im- 


pressed with  a  trust  which  entitled  it 
to  be  preferentially  paid  out  of  the 
funds  of  the  assigning  insolvent  bank. 
We  think  ■  the  decided  weight  of  au- 
thority is  to  the  contrary.  The  cases 
of  Continental  Nat.  Bank  v.  Weems, 
G9  Tex.  489,  6  S.  W.  802,  5  Am.  St. 
Rep.  85;  First  Nat.  Bank  v.  Hum- 
mel, 14  Colo.  259,  23  Pac.  986,  and 
Roca  V.  Byrne.  145  N.  Y.  182,  39  N. 
E.  812,  45  Am.  St.  Rep.  599,  are  lead- 
ing cases  upholding  the  doctrine  of 
trusts  with  respect  to  funds  deposited 
or  placed  with  parties  for  designated 
purposes.  But  this  case,  in  its  facts, 
is  covered  by  the  principle  announced 
in  the  cases  of  Mutual  Acci.  Ass'n  v. 
Jacobs,  141  111.  261,  31  N.  E.  414,  16 
L.  R.  A.  516,  33  Am.  St.  Rep.  302,  and 
authorities  cited.  Grisscm  r.  Commer- 
cial Nat.  Bank,  87  Tenn.  350,  10  S.  W. 
774,  3  L.  R.  A.  273,  10  Am.  St.  Rep. 
669;  Akin  v.  Jones,  93  Tenn.  353,  27 
S.  W.  669,  35  L.  R.  A.  523,  42  Am.  St. 
Rep.  921,  and  Howard  v.  Walker,  92 
Tenn.  452,  21  S.  W.  897;  1  Morse, 
Banks,  §  248."  State  Bldg.,  etc.,  Ass'n 
7'.  ^Mechanics'  Sav.,  etc..  Trust  Co. 
(Tenn.),  36  S.  W.  967. 

A  railroad  company,  being  required 
by  the  court  to  give  security  for  the 
payment  of  certain  outstanding  bonds, 
gave  an  undertaking,  .signed  by  the 
president  of  a  bank,  in  which  it  was  a 
depositor,  as  security.  At  the  same 
time  it  gave  him  a  check  on  the  bank 
for  the  amount  of  the  bonds,  taking 
from  him  a  certificate,  signed  by  him 
for  the  bank,  that  it  had  deposited  such 
sum  in  his  name  as  trustee  to  secure 
him  as  surety.  The  bank  then  charged 
complainant  with  the  check.  and 
credited  the  amount  to  the  president 
as  trustee.  Held,  that  the  bank  did 
not  become  a  trustee,  and  on  its  in- 
solvency the  company  was  only  en- 
titled to  the  same  dividend  as  other 
creditors.  Cleveland,  etc.,  R.  Co.  v. 
Hawkins.  79  Fed.  29,  reversed.  Haw- 
kins 7'.  Cleveland,  etc..  R.  Co..  32  C. 
C.  A.  198,  89  Fed  266,  motion  to 
modify  mandate  denied,  39  C.  C.  A.  538, 
99   l<Vd.  322. 

Deposit  to  abide  event  of  suit. — • 
Complainants  I)oiiig  in  litigation  con- 
cerniu}/  tlic  title  to  certain  lands  in  the 
possession  of  a  tenant,  it  was  agreed 
that  the  landlord's  share  of  the  rentals 
accruing    pcmlcnli'    liti-    should    be    de- 


606 


BANKS    AND    BANKING. 


§  80  (6a) 


rule  that  moneys  received  by  a  bank  to  be  applied  to  a  particular  purpose,  or 
to  be  remitted  to  some  creditor  of  the  person  paying  such  sums,  are  regarded 
as  trust  funds,  and  a  claim  therefor  is  ordinarily  entitled  to  preference  over 
the  claims  of  general  creditors  in  the  distribution  of  the  assets  of  the  in- 
solvent bank.^i     Thus,  where  money  is  deposited  with  a  bank,  to  be  applied 


posited  in  a  bank  to  abide  the  final 
determination  of  the  controversy,  pur- 
suant to  which  agreement  various 
sums  were  so  deposited,  there  being  at 
no  time  any  agreement  or  understand- 
ing between  any  of  the  parties  and 
the  bank  that  the  deposits  were  to  be 
held  or  kept  separate  from  the  gen- 
eral funds  of  the  bank.  Held,  that 
such  deposit  was  general  in  its  na- 
ture, and  did  not  constitute  a  trust 
fr.nd,  so  that,  on  the  failure  of  the 
bank,  complainants  were  only  en- 
titled to  share  in  the  bank's  assets  as 
general  creditors.  Alinard  ?■.  Watts, 
186    Fed.    24.5. 

Package  of  money  placed  in  separate 
box. — A  bank  teller,  knowing  the  bank 
to  l)e  insolvent,  received  from  plain- 
tiff, as  a  deposit,  a  package  of  money, 
which  he  put  into  a  box  by  itself,  en- 
tering the  amount  in  plaintiff's  pass 
book.  On  the  same  daj^  the  bank  failed. 
Held,  that  the  title  to  the  package  of 
money  never  vested  in  the  bank,  and 
that  plaintiff  could  maintain  replevin 
therefor.  Tn  re  Assignment,  1  N.  P. 
3.58,   2    O.    Dec.   .304. 

Securities  deposited  for  safe-keep- 
ing.— Where  a  banker  has  sold  bonds 
deposited  with  him  for  safe-keeping, 
the  proceeds  of  which  were  applied  to 
his  general  banking  business,  and  came 
into  the  hands  of  his  assignee  for 
Ijenefit  of  creditors,  the  depositor  has 
a  paramount  right  to  be  first  paid  out 
of  the  assets.  Bowers  v.  Evans,  71 
Wis.  133,  36  N.  W.  629,  following 
Francis  v.  Evans,  69  Wis.  115,  33  N. 
W.  93;  overruled  in  Nonoiuck  Silk  Co. 
T\  Flanders,  87  Wis.  237,  58  N.  W. 
383. 

Waiver. — The  fact  that  a  special  de- 
positor, on  being  falsely  told  that 
there  were  not  sufficient  funds  in  bank 
lo  pay  the  amount  held  in  trust  by 
the  bank  for  him.  receives  in  part  pav- 
ment  a  draft,  which  is  never  oaid,  is 
not  a  waiver  of  his  right  to  impress 
on  the  assets  of  the  bank  a  trust  in 
his  favor.  Tn  re  Johnson.  103  Mich. 
109.   61    X.   W.    352. 

51.  Deposits  received  for  a  special 
or  designated  purpose. — Central  Xat. 
Bank  r.  Connecticut  INfut.  Life  Tns. 
Co.,  104  U.  S.  54,  26  L.  Ed.  693:  Boone 
County  Nat.  Bank  7'.  Latimer.  67  Fed. 
27,   30;    Anderson   7:   Pacific   Bank,   112 


Cal.  598,  44  Pac.  1063,  32  L.  R.  A.  479, 
53  Am.  St.  Rep.  228;  Davenport  Plow 
Co.  z:  Lamp,  80  Iowa  722,  45  N.  W. 
1049,  20  Am.  St.  Rep..  442;  Nurse  v. 
Satterlee,  81  Iowa  491,  46  N.  W.  1102;. 
Brooke  v.  King,  104  Iowa  713,  74  N. 
W.  683;  Officer  7:  Officer,  120  Iowa 
389,  94  N.  \\\  947,  98  Am.  St.  Rep. 
365;  Officer  v.  Officer,  127  Iowa  347, 
101  N.  W.  484;  Whitcomb  v.  Carpen- 
ter (Iowa),  111  N.  W.  825,  10  L.  R. 
A.,  N.  S.,  928;  Peak  v.  Ellicott,  30' 
Kan.  156,  1  Pac.  499,  46  Am.  Rep. 
90;  Sherwood  v.  Milford  State 
Bank,  94  Mich.  78,  53  N.  W.  923; 
Sherwood  v.  Central  Michigan  Sav. 
Bank,  103  IMich.  109,  61  N.  W.  352; 
Anheuser-Busch  Brew.  Ass'n  v.  Mor- 
ris, 36  Neb.  31,  53  N.  W.  1037;  Capital 
Nat.  Bank  7'.  Coldwater  Nat.  Bank.  49 
Neb.  786,  69  N.  W.  115,  59  Am.  St.  Rep. 
572;  Continental  Nat.  Bank  v.  Weems, 
69  Tex.  489,  6  S.  W.  802,  5  .Am.  St. 
Rep.  85;  McLeod  v.  Evans,  66  Wis. 
401,  28  N.  W.  173;  Francis  v.  Evans, 
69  Wis.  115,  33  N.  W.  93;  Foster  v. 
Rincker,    4    Wyo.    484,    35    Pac.    470. 

Where  a  town  supervisor  deposited 
town  funds  with  a  private  banker 
without  any  agreement  that  he  should 
hold  and  keep  the  money  separate  from 
his  other  funds  or  that  he  should  not 
use  them  in  the  usual  course  of  his 
banking  business,  the  relation  was  that 
of  debtor  and  creditor  only,  so  that 
en  the  insolvency  of  the  banker  the 
supervisor  had  no  preference  over 
other  creditors.  In  re  Nichols,  166 
Fed.    603. 

Deposit  for  special  purpose. — Where 
money  v.-as  deposited  in  a  bank  to 
secure  payment  of  compensation  un- 
der a  well  drilling  contract,  and,  while 
the  depositor  had  no  right  to  check 
against  the  deposit,  there  was  no- 
agreement  that  the  money  should  be 
kept  separate  from  the  other  funds 
of  the  bank,  it  was  a  general  and  not 
a  special  deposit,  though  the  transac- 
tion was  called  a  "trust  fund  account" 
on  the  bank's  books,  and  hence,  on 
the  insolvency  of  the  bank,  the  de- 
positor was  not  entitled  to  a  priority 
over  general  creditors.  Butcher  7'. 
Butler,  134  Mo.  .-Xpp.  61,  114  S.  W. 
564. 

A  depositor  drew  a  check  on  his 
bank,    requesting   it    to   place    proceeds 


§  so  (6a) 


IXSOLVEXCY   AND   DISSOLUTION. 


607 


in  the  payment  of  a  note  on  which  the  (lei)ositor  is  Hahle,  the  bank  holds  it 
as  a  trust  fund  and  not  as  the  assets  of  the  bank  and  it  may  be  followed  and 
reclaimed  from  the  assignee  or  receiver.^-  The  reason  of  the  rule  is  that 
the  relation  between  the  depositor  and  the  bank  as  to  such  deposits  is  that 
of  principal  and  agent,  or  trustee  and  cestui  que  trust  and  not  simply  that 
of  depositor  and  depositary.  Nor  will  the  mere  fact  that  the  bank  credit^ 
to  the  plaintiff  the  amount  received  change  this  relationship  and  create 
simply  that  of  debtor  and  creditor. •''■'     But  the  mere  unperformed  agree- 


in  its  correspondent  bank  to  the  credit 
of  a  third  person,  which  the  bank 
agreed  to  do.  The  bank  then  drew 
a  memorandum  draft  to  the  corre- 
spondent bank,  stating  that  its  ac- 
count had  been  credited  with  the 
amount  of  the  check  to  the  use  of  the 
third  person,  but,  before  the  memo- 
landum  reached  the  correspondent, 
the  bank  assigned  for  creditors,  after 
which  the  correspondent  refused  to  ac- 
cept the  credit.  Held,  that  the  amount 
of  the  check  remained  in  the  bank  in 
trust  for  the  depositor,  and  not  as  gen- 
eral assets  for  creditors.  Stoller  Z'. 
Coates.  88   Mo.  514. 

52.  Money  deposited  to  meet  a  note. 
— In  re  West  of  England,  11  Ch.  Div. 
772;  Knatchbull  t-.  Hallett,  13  Ch.  Div. 
69C;  St.  Louis  v.  Johnson,  Fed.  Cas. 
No.  12.235,  5  Dill.  241;  National  Bank 
V.  Insurance  Co..  104  U.  S.  54,  26  L. 
Ed.  693;  Peak  z:  Ellicott,  30  Kan.  156, 
1  Pac.  499,  46  Am.   Rep.  90. 

One  who  gives  the  cashier  of  a  bank 
a  sum  of  money  to  pay  his  note  made 
to  the  bank,  the  cashier  saying  that 
he  will  send  for  the  note,  and  return 
it  to  the  maker,  and  who,  notwith- 
standing, is  sued  by  one  holding  the 
note,  and  judgment  recovered,  may 
follow  the  amount  given  to  the  cash- 
ier as  a  trust  fund  into  the  hands  of 
an  assignee  for  creditors  of  the  bank. 
Ellicott  z:  Barnes.  31  Kan.  170.  1  Pac. 
767. 

'\  banker  receiving  money  from  the 
maker  of  a  note  to  be  applied  on  the 
note  made  payable  to  the  banker, 
•  and  failing  to  make  the  proper  in- 
dorsement, if  holding  the  note,  or  to 
turn  over  the  payment  to  the  person 
holding  it.  but  mintjiing  the  money 
with  the  funds  of  his  liank.  is  a  trus- 
tee of  the  money  received,  and  the 
maker  is  entitled,  on  the  insolvency  of 
the  banker,  to  a  preference  for  the 
amount  paid.  Whitcomb  ?'.  Carncnter 
CTowa).  Ill  N.  W.  825,  10  L.  R.  .\., 
N.    ^.   928. 

Where  nn  indorser  pays  a  note  to  a 
bank,  and  takes  a  receipt  containincr 
an  order  fr)r  a  surrender  of  the  note 
on   return    of   tlie    receipt,   the    relation 


between  the  bank  and  the  indorser  is 
not  that  of  debtor  and  creditor,  but 
.is  a  fiduciary  relation,  entitling  the  in- 
dorser, on  the  bank  becoming  insol- 
vent without  applying  the  mone}^  on 
the  note,  or  procuring  its  sttrrender,  to 
have  the  assets  in  the  hands  of  its  re- 
ceiver applied  in  payment  thereof. 
Massey  z\  Fisher,  62  Fed.  958,  follow- 
ing People  ?'.  City  Bank,  96  N.  Y.  32; 
Peak  ■:•.  Ellicott,  30  Kan.  156,  1  Pac. 
499,  46  Am.   Rep.  90. 

Where  one  indebted  to  a  bank  on  a 
note  before  the  insolvency  of  the 
Ijank  deposits  with  it  a  part  of  the 
amount  of  his  indebtedness,  that  it 
may  be  applied  on  the  note  when 
due,  the  "debt''  taken  by  the  receiver 
of  the  bank  is  the  difiference  between 
the  amount  of  the  note  and  the  amount 
of  the  deposit.  Clots  v.  Dickson  (N. 
Y.),  5  Alb.   L.  J.  286. 

A,  before  the  maturity  of  a  note, 
delivered  money  to  a  bank  cashier  to 
pay  the  note  which  was  held  l)y  an- 
other bank.  The  cashier  gave  A  a 
special  receipt,  but  the  note  was  not 
paid,  and  the  bank  failed,  and  as- 
signed its  property  in  trust  for  cred- 
itors. Held,  that  A  could  reclaim  the 
amount  as  impressed  with  a  trust. 
Peak  v.  Ellicott,  30  Kan.  156,  1  Pac. 
499,    46   Am.    Rep.    90. 

When  money  is  paid  to  and  accepted 
by  a  bank  for  the  purpose  of  transmis- 
sion to  the  holder  of  the  note  made  by 
the  person  so  paying,  and  is  mingled 
by  the  bank  with  its  assets,  and  is  not 
transmitted,  and  the  bank  thereafter 
assigns  for  the  benefit  of  its  creditors, 
if  the  holder  of  the  note  adopts  the 
trust  thereby  created  in  his  favor,  and 
no  other  rights  thereto  intervene,  he 
may  maintain  an  action  to  compel  the 
execution  of  the  trust  l)y  the  assignee 
of  the  bank.  Ryan  z'.  Phillips,  3  Kan. 
.App.    704,    44    Pac.    909. 

53.  Reason  of  rule  making  special 
deposits  a  trust  fund. —  llarrison  z: 
Smith.  83  Mo.  210,  53  Am.  Rep.  571; 
State  7'.  State  Bank,  42  Neb.  896,  61 
N.  W.  252. 

In    ,\nheuser-BuscIi    Brew.    .\ss'n    7'. 


608 


BANKS    AND    BANKING. 


§  80  (6a) 


ment  on  the  part  of  the  bank  to  create  a  specific  fund  which  shall  possess 
a  separate  identity,  and  to  hold  the  same  in  trust  does  not  entitle  the 
depositor  to  any  preference  where  such  promise  was  never  complied  with 
and  the  money  never  separated  from  the  general  funds  of  the  bank  by 
either  placing  the  deposit  in  a  distinct  parcel  or  by  making  any  entry  upon 
the  books  of  the  bank  indicating  the  withdrawal  from  the  general  funds 
of  the  firm,  or  by  giving  a  receipt  containing  even  an  intimation  of  a 
special  deposit.^-*  This  rule,  however,  may  well  be  doubted,  because  to 
make  one  depositor  of  a  bank  and  in  case  of  its  insolvency  to  limit  such 
person's  rights  against  the  assets  thereof  to  those  of  an  ordinary  creditor, 
it  must  appear  that  such  person  became  a  depositor  of  such  bank  vol- 
untarily.^^ 


Morris,  36  Neb.  31,  53  N.  W.  1037,  this 
court  held  that  "where  a  bank  col- 
lects money  for  another,  it  holds  the 
same  as  trustee  of  the  owner;  and, 
on  the  making  of  an  assignment  by 
the  bank  for  the  benefit  of  its  cred- 
itors, the  trust  character  still  adheres 
to  the  fund  in  the  hands  of  the  as- 
signee, and  the  owner  is  entitled  to 
have  his  claim  allowed  as  a  preferred 
claim." 

In  McLeod  v.  Evans,  66  Wis.  401, 
28  N.  W.  173,  214,  it  was  held  that  a 
banker  who  accepts  for  collection  a 
draft,  and  in  fact  collects  the  money 
thereon,  holds  the  same  as  trustee  of 
the  owner;  and  after  his  assignment 
for  the  benefit  of  creditors  the  trust 
character  still  adheres  to  the  fund  in 
the  hands  of  the  assignee,  irrespective 
of  other  creditors. 

These  cases  were  decided  upon  the 
correct  principle  that  to  make  one  a 
depositor,  as  such,  of  a  bank,  and,  in 
case  of  its  insolvency,  to  limit  his 
rights  against  the  assets  thereof  to 
those  of  an  ordinary  creditor,  it  must 
appear  that  such  person  became  a  de- 
positor of  such  bank  voluntarily.  See 
State  V.  State  Bank,  42  Neb.  896,  61 
N.  W.  252. 

54.  Effect  of  agreement  to  separate 
deposit. — A  depositor  who  receives  an 
ordinary  certificate  of  deposit,  and 
wliose  money  is  mingled  with  the  other 
funds  of  a  bank,  is  not  entitled,  on  the 
insolvency  of  the  bank,  to  any  prefer- 
ence over  other  creditors,  even  though 
the  banker  promised  him  to  keep  his 
money  separate  from  the  other  funds. 
Bayor  v.  American,  etc.,  Sav.  Bank,  157 
111.   62,    41    N.    E.   622. 

55.  State  7'.  State  Bank,  42  Neb.  896, 
61   N.  W.  252. 

One  may  involuntarily  become  the 
creditor  of  another,  but,  from  the  very 
nature  of  things,  the  relation  of  banker 


and  depositor  can  be  credited  only  by 
consent  of  both  parties.  If  A,  without 
the  knowledge  or  consent  of  B,  de- 
posits a  sum  of  money  in  a  bank  to 
the  latter's  credit,  then,  until  B  shall 
be  informed  thereof,  and  expressly  or 
by  implication  recognize  the  deposit 
as  such,  the  bank  will  hold  such  money 
in  trust  for  B,  and  not  as  his  banker. 
State  V.  State  Bank,  42  Neb.  896,  61 
N.  W.  252. 

Plaintiff,  by  arrangement  with  de- 
fendant's assignor,  a  banking  house, 
was  accustomed,  on  receipt  from  it  of 
a  statement  that  a  certain  amount  of 
money  could  be  advantageously  loaned 
to  a  specified  person  on  described 
security,  to  send  a  check  for  the 
amount,  payable  to  the  bank,  to  be 
turned  over  on  completion  of  the  ne- 
gotiation. A  check  thus  sent  had  been 
collected  of  plaintifif's  bank,  and  the 
banking  house,  having  led  plaintiff  to 
believe  that  the  loan  had  been  per- 
fected, made  as  assignment  for  bene- 
fit of  creditors.  Held,  that  the  money 
so  received  was  on  special  trust,  and 
plaintiff  entitled  to  preference  oyer 
general  creditors.  Harrison  v.  Smith, 
83   Mo.   210,   53   Am.   Rep.   571. 

Where  one  makes  a  loan  to  a  pur- 
chaser of  land  of  the  amount  neces- 
sary to  pay  therefor,  receiving  a  mort- 
gage to  secure  it,  and  deposits  the 
money  in  a  bank,  to  be  paid  over  to 
the  vendor,  and  the  cashier  of  the 
bank  falsely  states  to  the  vendor  that 
he  has  the  right  to  hold  the  money 
until  a  defect  in  the  title  can  be  cured, 
and  sends  the  vendor  a  certificate  of 
deposit  payable  when  the  title  is 
straightened,  and  in  a  few  days  the 
bank  becomes  insolvent,  the  vendor  is 
not  a  voluntary  creditor  of  the  bank, 
and  the  money  is  held  in  trust  for  him, 
and  the  title  thereto  does  not  pass  to 
the  receiver.  State  v.  State  Bank,  42 
Neb.    896,    61    N.    W.   252. 


§  80  (7a) 


INSOLVENCY    AND   DISSOLUTION. 


609 


§  80  (6b)  Checks  Deposited  for  Collection. — Where  there  are  cir- 
cumstances of  a  special  nature  indicating  an  intention  to  make  money 
received  upon  a  collection  a  special  deposit,  such  money  has  sometimes  been 
held  to  be  a  trust  fund,  and  the  trust  attaches  to  any  actual  fund  into  which 
the  money  received  can  be  traced ;  and  there  have  been  cases  which  seem  to 
go  so  far  as  to  hold  that  this  extends  to  all  of  the  property  of  the  bank, 
ahhough  it  be  evident  that  the  actual  fund  into  which  the  money  was 
traced  has  been  exhausted,  and  notwithstanding  the  fact  that  what  re- 
mains could  not,  by  reason  of  its  different  nature,  by  any  possibihty, 
include  it.^*^  And  if  a  check  is  deposited  with  a  banker  for  collection  only 
•and  he  collects  it,  and  the  money  so  collected  by  him  passes  into  the  hands 
of  his  assignee  or  receiver,  the  plaintiff"  may  reclaim  it,  nor  is  this  right 
affected  by  any  unauthorized  act  of  the  trustee  in  destroying  its  identity 
by  intermingling  it  with  his  own  funds. ^'  But  where  a  check  is  sent  for 
collection  by  a  bank  to  the  bank  on  which  it  is  drawn,  and  the  latter  bank 
charges  it  upon  its  books  against  the  drawer,  but  no  money  is  received  by 

the  bank,  no  trust  fund  is  thereby  created. ^^ 
* 

§  80    (6c)   Identification  of  Fund  Deposited. — See  post,  "Deposit  of 

Trust  Funds,"  §  80  (7). 

§  80    (7)   Deposit    of    Trust    Funds— §  80    (7a)   In  General."^»— 

The  general  rule  is  that  when  a  bank,  in  which  trust  funds  have  been  de- 


56.    Checks   deposited  for  collection. 

— Sherwood  z'.  Central  Michigan  Sav. 
Bank,  103  :\lich.  109,  61  N.  \V.  352; 
Sunderlin  t'.  Mecosta  County  Sav.  Bank, 
116  Mich.  281,  7-1  N.  W.  478:  People 
V.  Merchants,  etc.,  Bank,  78  X.  Y.  269, 
34  Am.   Rep.  532. 

Proceeds  of  notes  sent  for  collec- 
tion.— Where,  for  two  years,  the  gen- 
eral agent  of  a  corporation  had  been 
accustomed  to  send  notes  due  the  cor- 
poration to  a  bank  for  collection,  and 
the  bank,  as  it  collected  the  notes  at 
different  times,  gave  the  agent  credit 
on  its  books,  sometimes  retaining  the 
collections  as  long  as  two  months  be- 
fore remitting  the  balance  due  the 
corporation,  the  corporation  was 
merely  a  creditor  of  the  bank,  and  the 
proceeds  of  collections  made  by  it 
could  not  I)e  regarded  as  trust  funds. 
McCormick  Harvesting  Mach.  Co.  i'. 
Yankton  Sav.  Rank,  15  S.  Dak.  196, 
87   X.  W.   974. 

57.  Check  deposited  for  collection. 
— Meldrum  ?•.  Henderson,  7  Colo. 
App.  256,  4;;  Pac.  148;  First  Xat.  Bank 
V.   Hummel,   14,  Colo.   259,   23   Pac.   986. 

Checks  sent  for  collection. — The  F. 
bank,   wbicli    sent   to   the    M.   bank,   for 


collection,  a  number  of  checks  on  the 
latter,  is  not  entitled  to  preference,  on 
the  M.  bank  becoming  insolvent;  the 
M.  bank  having  received  no  money  on 
the  checks,  but  merely  charged  them 
on  its  books  against  the  drawers.  Be- 
cause the  mere  sending  by  one  bank 
to  another,  in  payment  of  a  collection, 
of  a  draft  on  a  third,  is  not  an  equi- 
table assignment  of  part  of  the  fund 
standing  to  the  drawer's  credit  in  such 
third  bank.  Sunderlin  v.  Mecosta 
County  Sav.  Bank,  116  Mich.  281,  74 
X.    W.    478. 

But  other  cases  hold  that  it  is  not 
necessary  to  show  that  there  was  an 
actual  receipt  of  money,  but  that  it 
is  sufficient  if,  through  a  charge  against 
a  depositor,  the  bank  takes  credit  for 
the  amount,  where  the  depositor  has 
a  credit  equal  to  his  check,  a  fact  by 
tile  way  which  does  not  appear  in  this 
case.  McLeod  z:  Evans,  66  Wis.  401, 
28  X.  W.  173,  214. 

58.  Sherwood  r:  Milford  State  Bank, 
94    Midi.    78,    53    X.    W.    923. 

59.  Deposit  of  trust  funds. — Hold- 
ing bank  as  trustee  with  regard  to 
money  collected,  see  ante,  "Special  or 
Segregated  Deposits,"  §  80  (6);  post, 
'•Holding  Bank  as  Trustee,"  §  166(1). 


1  B  &  B— 39 


610 


BANKS  AND  BANKING. 


§  80   (7a) 


posited,  becomes  insolvent,  the  cestui  que  trust  can  recover  such  funds  to 
the  prejudice  of  other  general  creditors  of  the  bank.  But,  as  will  be  seen 
later  on,  in  some  jurisdictions  this  right  of  recovery  is  contingent  oh  the 
claimant's  ability  to  trace  and  identify  the  deposit.^'"  Thus,  if  a  deposit  of 
trust  funds  is  wrongful  and  the  bank  has  notice  of  the  character  of  the 
funds,  the  claim  should  be  given  a  preference.*^^     But  the  mere  fact  that  the 


60.  Deposit  of  trust  funds. — Daven- 
port Plow  Co.  V.  Lamp,  80  Iowa  722, 
45  N.  W.  1049,* 20  Am.  St.  Rep.  442; 
In  re  Knapp,  101  Iowa  488,  70  N.  W. 
626  (deposit  of  ward's  money);  Dowie 
r.  Humphrey,  91  Wis.  98,  64  XI  W. 
315. 

An  insolvent  banker  sold  a  draft  on 
his  correspondent  bank,  though  he 
knew  that  he  had  no  funds  there.  The 
draft  was  dishonored,  and  the  banker 
failed  to  return  the  money  received 
from  the  buyer,  but  mingled  the  same 
with  his  own  funds.  Held,  that  the 
buyer,  on  the  insolvency  of  the  banker, 
was  entitled  to  a  preference  for  the 
amount  of  his  claim.  Whitcomb  f. 
Carpenter  (Iowa),  111  N.  W.  825,  10 
L.  R.  A.,  N.  S.,  928. 

A  banking  partnership,  being  in- 
solvent, executed  a  number  of  deeds 
and  mortgages  to  secure  different 
creditors,  and  a  trust  deed  to  secure 
depositors.  Held,  construing  the 
deeds  as  an  assignment  for  the  benefit 
of  creditors,  that  the  claims  of  the  de- 
positors were  not  trust  obligations,  en- 
titling them  to  priority  over  the  gen- 
eral creditors.  Elwell  7\  Kimball,  102 
lovv-a  720,  69  N.  W.  286. 

Where  an  administrator  mixes  the 
money  of  the  estate  with  his  own  and 
makes  a  general  deposit  in  a  bank, 
where  it  remains  on  an  assignment  by 
the  bank,  the  fund  will  be  impressed 
with  a  lien  in  favor  of  the  estate. 
Judgment,  56  P.  412,  affirmed  on  re- 
hearing. Shute  7'.  Hinman,  34  Or. 
578,  56  Pac.  412,  58  Pac.  882,  47  L.  R. 
A.   265. 

A  payment  to  a  bank  by  draft  is 
within  the  rule  that,  when  trust  money 
is  paid  into  a  bank  for  deposit  without 
authority,  it  becomes  a  preferred  claim 
on  the  bank's  subsequent  insolvency. 
Brooke  7-.  King,  104  Iowa  713,  74  N. 
W.  683. 

A  bank  collected  a  draft  sent  to  it 
by  a  correspondent,  and  remitted  to 
the  correspondent  by  a  draft  on  a  third 
bank,  and  the  proceeds  of  the  collec- 
tion passed  into  the  hands  of  the  re- 
ceiver of  the  collecting  bank.  The 
correspondent  bank,  within  a  reason- 
able time,  presented  the  draft  drawn 
on   such   third   bank,   and   payment  was 


refused  for  want  of  funds.  Held,  that 
the  proceeds  of  the  draft  constituted 
a  trust  fund,  and  the  correspondent 
bank  was  entitled  to  a  preferred  claim, 
against  the  assets  in  the  hands  of  the 
receiver,  to  the  amount  thereof.  Brown 
?■.  Sheldon  State  Bank.  139  Iowa  83, 
117    X.   W.    289. 

Payment  of  a  debt  due  a  trust  es- 
tate, whose  collecting  agent  was  a 
banker,  was  made  l)y  the  banker's 
charging  the  sum  against  the  debtor's 
account  and  crediting  it  to  the  estate. 
Held  that,  in  the  absence  of  proof  that 
there  were  ftmds  of  the  debtor  to 
make  the  payment,  the  estate  could 
not,  on  the  banker's  subsequent  in- 
solvency, collect  the  amount  of  the 
payment  as  a  preferred  claim,  on  the 
groimd  that  it  had  become  impressed 
with  the  trust.  Brooke  7'.  King,  104 
Iowa   713,    74    X.   W.    683. 

61.  Notice  by  bank  of  charter  of  de- 
posit.— Independent  Dist.  7'.  King,  80 
Iowa  497,  45  N.  W.  908;  Davenport 
Plow  Co.  V.  Lamo,  80  Iowa  722,  45  X. 
W.  1049,  20  Am.  St.  Rep.  442;  District 
Tp.  7'.  Farmers'  Bank,  88  Iowa  194,  55 
X.  W.  342;  In  re  Knapp,  DOl  Iowa  488, 
70  N.  W.  626;  Jones  v.  Chesebrough, 
105  Iowa  303,  75  X.  W.  97;  Bradley  v. 
Chesebrough,  111  Iowa  126,  82  X.  W. 
472;  Page  County  7'.  Rose,  130  Iowa 
296,  ]06  X.  W.  744,  5  L.  R.  A.,  X.  S., 
886;  Wiggins  v.  Stevens,  33  App.  Div. 
83,   53    X.    Y.    S.   90. 

If  a  bank  receiving  a  deposit  from 
a  trustee  has  notice  that  such  trustee 
has  no  right  to  make  such  deposit — 
that  is  to  say,  to  lend  the  trust  moneys 
to  a  bank — then  such  deposit  would  be 
a  wrongful  conversion,  and  the  bank, 
having  notice,  could  be  treated  as  con- 
structively a  trustee.  Hawkins  v. 
Cleveland,  etc.,  R.  Co.,  32  C.  C.  A.  198, 
89  Fed.  266. 

A  woman  engaged  to  marry  the 
cashier  of  an  insolvent  bank,  who  is 
told  by  him  that  the  bank  is  in  trouble 
and  needs  money  or  securities  imme- 
diately, and  is  induced  by  him  to 
furnish  securities  for  a  loan  to  the 
bank,  but  is  not  told  that  the  bank's 
capital  is  gone,  and  more,  as  a  result 
of  defalcations  by  the  cashier  and  oth- 
ers, is  entitled  to  recover  from  the  re- 


§  80  (7a) 


IXSOLVEXCY   AXD   DISSOLUTION. 


611 


deposit  is  of  a  trust  fund,  and  known  to  the  bank  to  be  such,  will  not  of 
itself  make  the  bank  a  trustee  of  the  fund  for  the  benefit  of  the  cestui  que 
trust,  so  as  to  give  him  a  preference  over  other  creditors.  In  order  to  have 
that  effect,  there  must  be  something  in  the  circumstances  of  the  deposit  to 
constitute  it  a  special,  as  contradistinguished  from  a  general,  deposit,  into 
which  two  classes  all  deposits  in  commercial  banks  may  be  divided.  If  the 
deposit  belongs  to  the  former  class,  the  fiduciary  relation  might  well  arise ;  if 
to  the  latter,  in  the  absence  of  mala  fides,  it  could  not  do  so,  for  by  a  general 
deposit  in  good  faith  the  title  to  the  fund  deposited  passed.  The  bank  be- 
came the  owner  thereof.  The  relation  of  debtor  and  creditor,  and  not  that 
of  trustee  and  cestui  que  trust,  was  created.^s    In  other  words  by  a  general 


ceiver.  as  a  preferred  creditor,  the 
amount  of  the  loan  paid  by  her  to  save 
her  securities.  Hallett  v.  Fish,  120 
Fed.   986. 

A  sold  land  to  B.  and  forwarded  the 
deed  and  abstract  of  title  to  a  banker, 
to  be  delivered  to  B  on  payment  of 
$2,000,  which  was  to  be  immediately 
remitted  to  him.  The  banker  delivered 
the  deed  to  B  on  payment  by  him  of 
four  $100  bills  and  certain  certificates 
of  deposit  which  the  banker  had  pre- 
viously issued  to  him  and  others.  The 
banker  failed  the  same  night,  and  be- 
fore the  $2,000  had  been  remitted  to  A. 
Held,  that  it  was  a  fraud  on  A  for  the 
banker  to  receive  certificates  instead 
of  cash,  and  that  the  assets  in  the 
hands  of  his  assignee  were  impressed 
with  a  trust  in  favor  of  A  to  the  ex- 
tent of  $2,000.  and  that  his  claim  for 
that  amount  should  be  paid  in  prefer- 
ence to  all  other  claims.  Francis  z: 
Evans.  69  Wis.  115,  33  N.  W.  93; 
Bowers  r.  Evans,  71  Wis.  133,  36  N 
W.   629. 

Wrongful  act  of  bank.— "While  we 
have  held  that  where  a  bank  receives 
money  wrongfully,  'a  trust  arises  as 
between  it  and  the  true  owner  of  the 
money'  (Smith  z\  Des  Moines  Nat. 
Bank,  107  Iowa  620,  78  N.  W.  238)  we 
have  never  held  that  the  wrongful  act 
of  the  bank  will  alone  create  a  prefer- 
ence as  against  general  creditors." 
Stilson  V.  First  State  Bank.  149  Iowa 
662,    129    N.    W.    70,    73. 

Some  cases,  however,  seem  to  deny 
the  necessity  for  any  wrongdoing,  and 
hold  that  the  right  to  this  preference 
is  based  on  a  right  in  the  particular 
fund  or  property  and  the  manner  of 
acquiring  it  is  immaterial.  Stilson  z: 
First  State  Bank,  149  Iowa  662,  129  N. 
W.   70. 

"\Vhcthcr  tlie  disposition  of  the  fund 
he  rightful  or  wrongful,  the  beneficial 
owner  is  entitled  to  the  proceeds,  what- 


ever be  their  form,  provided  onlv  he 
can  identify  them.  National  Bank  7'. 
Insurance  Co.,  104  U.  S.  54.  26  L.  Ed. 
693."  Thuemmler  v.  Barth,  89  Wis. 
381.   62   N.   W.  94. 

A  fraudulent  receipt  of  deposits  by 
a  bank,  or  the  fraudulent  acquisition 
of  property  by  it.  does  not  give  the 
depositor  or  seller  a  lien  on  the  entire 
estate  or  entitle  him  to  a  preference, 
nor  can  a  preference  be  based  on  the 
supposed  greater  sacredness  of  one 
debt,  or  the  fact  that  it  arose  out  of  a 
violation  of  duty,  or  that  its  loss  in- 
volves greater  apparent  hardship  in 
one  case  than  in  another,  unless  there 
is  some  specific  recognized  equity, 
founded  on  agreement,  or  the  relation 
of  the  debt  to  the  property,  which  en- 
titles the  claimant  to  an  equitable 
preference.  Stilson  z:  First  State 
Bank,    149    Iowa   662,    129    N.   W.   70. 

62.  Mere  deposit  of  trust  funds  gives 
no  preference.— .Morse  on  Banks  (3rd 
Edj,  §§  187.  567,  568,  573;  Alarine 
Bank  v.  Fulton  Bank  (U.  S.),  2  Wall. 
252,  17  L.  Ed.  785;  Thompson  z: 
Riggs  (U.  S.),  5  Wall.  663,  18  L.  Ed. 
704;  National  Bank  v.  Millard,  10  Wall 
152,  153,  19  L.  Ed.  897;  Central  Nat. 
Bank  v.  Connecticut  Mut.  Life  Ins. 
Co.,  104  U.  S.  54,  26  L.  Ed.  693;  Ringo 
r.  Field,  6  Ark.  43;  American  Trust, 
etc..  Co.  z'.  Boone,  102  Ga.  202.  29  S 
E.  182,  40  L.  R.  A.  250;  Wctherell  v. 
O'Brien,  140  111.  146,  29  N.  E.  904,  33 
Am.  St.  Rep.  221;  Fletcher  z:  Sharpe, 
i08  Ind.  276,  9  N.  E.  142;  McAfee  v. 
Bland.  11  Ky.  L.  Rep.  1,  11  S.  W.  439; 
Little  z:  Chadwick,  151  Mass.  109,  23 
N.  E.  1005,  7  L.  R.  ^A.  570;  State  v. 
Powell,  67  Mo.  395.  29  Am.  Rep.  512; 
State  z'.  Moore,  74  Mo.  413,  41  Am. 
Rep.  322;  Ayres  7'.  Farmers',  etc., 
Bank,  79  Mo.  421 ;  Fhillips  7-.  Over- 
ficM.  100  Mo.  466,  13  S.  W.  705;  Paul 
7'.  Draper,  158  Mo.  197,  59  S.  W.  77, 
78,  81   .\m.   Rep.  296;   Cavin  7'.  Gleason, 


612 


BANKS   AND   BANKING. 


§  80  (7a) 


deposit  of  the  trust  fund,  whereby  no  misappropriation  is  intended  or  ac- 
comphshed,  the  owner  of  the  fund  becomes  a  creditor  of  the  bank  and 
stands  upon  precisely  the  same  footing  as  the  other  general  creditors  in  the 
bank  who  are  creditors  thereof,  and  who  is  entitled  to  no  preference  over 
them.'''^     The  reason  for  this  rule  is  found  in  the  fact  that  upon  a  general 


105  N.  Y.  256,  11  N.  E.  504;  O'Connor 
V.  Mechanics'  Bank,  124  N.  Y.  324,  26 
N.  E.  816;  Shaw  -J.  Bauman,  34  O.  St. 
25:  Nonotuck  Silk  Co.  v.  Flanders,  87 
Wis.    237,    58    N.    W.    383. 

Trust  funds  may  often  be  properly 
put  into  a  bank  as  a  deposit,  that  be- 
ing in  such  nistances  a  prudent  dis- 
position of  such  funds  by  the  trustee; 
but  the  bank  becomes  simply  a  bor- 
rower, and  the  trustee  a  depositor, 
like  any  other  depositor,  and  in  case 
the  bank  dofes  become  insolvent  the 
trustee  has  no  preference  over  other 
creditors.  He  and  those  beneficially 
interested  must  take  simply  a  distrib- 
utive share  of  the  assets.  Hawkins  v. 
Cleveland,  etc.,  R.  Co.,  32  C.  C.  A.  198, 
89   Fed.   266. 

Where  a  general  deposit  of  a  trust 
fund  is  rightfully  made  in  bank  as  part 
of  the  trust  estate,  the  relation  of 
debtor  and  creditor  is  created  between 
the  bank  and  the  trustees,  and  the  lat- 
ter are  not  entitled  to  be  preferred 
over  other  creditors  on  the  bank  be- 
coming insolvent.  Fletcher  v.  Sharpe, 
108    Ind.   276,   9    N.    E.    142. 

Deposits  of  school  funds  made  by 
the  treasurer  of  a  school  district  in  a 
private  bank  are  not  wrongful,  and 
the  banker  does  not  become  a  trustee 
ex  maleficio  as  to  such  deposits  so  as 
to  give  the  school  district  a  prefer- 
ential claim  against  the  assets  of  the 
bank  on  the  death  insolvent  of  the 
owner  of  the  bank.  Hansen  v.  Roush, 
139   Iowa  58,   116   N.   W.   1061. 

Since  it  is  not  unlawful  for  the  treas- 
urer of  a  school  township  to  deposit 
the  school  funds  in  a  bank  in  his  name 
as  treasurer,  a  general  deposit  of  such 
funds  in  the  name  of  the  treasurer  does 
not  constitute  a  trust  fund;  and  on  the 
failure  of  the  bank  neither  the  treas- 
urer, nor  the  school  township,  has  any 
claim,  on  the  assets  of  the  bank  in 
the  hands  of  a  receiver,  superior  to 
that  of  other  general  depositors. 
Brown  v.  Sheldon  State  Bank,  139 
Iowa  83,   117   N.  W.   289. 

Where  a  trust  fund  is  left  M^ith  a 
banking  firm  as  a  general  deposit,  the 
fact  that  the  bank  knew  that  it  was  a 
trust  fund  can  not  give  to  the  claim 
against  it  for  such  fund  priority  over 
the   claims   of  other   depositors   on  as- 


signments by  the  bank  for  the  benefit 
of  creditors.  McAfee  v.  Bland,  11  Ky. 
L.   Rep.   1,   11   S.   W.  439. 

Deposits  by  agent  in  his  own  name. 
— When  an  agent,  in  accordance  with 
a  long  course  of  business,  deposits  in 
his  own  name  as  agent  moneys  of  his 
principal,  with  his  knowledge  and  con- 
sent, in  a  bank  which  becomes  in- 
solvent, such  moneys  will  not  be  de- 
clared a  trust  fund  in  favor  of  the 
latter,  and  established  as  a  preferred 
claim.  State  v.  Midland  State  Bank, 
53  Neb.  464,  73  N.  W.  922,  distinguish- 
ing State  V.  State  Bank,  42  Neb.  896, 
61  N.  W.  252,  on  the  ground  that  in 
that  case  the  money  was  deposited 
without  the  knowledge  or  consent  of 
the  owner,  and  there  was  no  subse- 
quent  ratification. 

The  mere  fact  that  an  agent  de- 
posits money  in  a  bank  in  another 
than  his  own  name,  with  notice  to  the 
bank  that  it  is  the  money  of  third  par- 
ties, does  not,  on  the  insolvency  of 
the  bank,  impress  on  its  assets  a  trust 
in  favor  of  the  principal,  thereby  giv- 
ing him  a  preference  over  its  other 
creditors.  Henry  v.  Martin,  88  Wis. 
367.   60   N.   W.   263. 

The  funds  of  a  receivership  were  de- 
posited in  a  bank,  and  subsequently  in 
litigation  between  the  bank  and  an- 
other creditor  of  the  insolvent  it  was 
decreed  that  the  bank,  upon  execution 
of  a  bond,  should  be  paid  the  amount 
decreed  to  it,  the  bond  to  be  condi- 
tioned that  the  bank  would  pay  any 
party  who  might  be  found  entitled  to 
the  fund  on  appeal,  but  the  bank  did 
not  avail  itself  of  the  privilege,  and 
the  money  continued  on  deposit  as  be- 
fore, and  the  bank  became  insolvent, 
and  thereafter  the  other  creditor  ob- 
tained a  reversal  and  a  judgment. 
Held,  that  there  was  no  ground  for  de- 
claring a  preference  against  the  bank 
in  favor  of  such  creditor  or  the  re- 
ceiver. State  V.  Corning  State  Sav. 
Bank,  128  Iowa  597,  105  N.  W.  159. 

63.  Paul  V.  Draper,  158  Mo.  197,  59 
S.  W.  77,  81  Am.  St.  Rep.  296,  citing 
Cavin  V.  Gleason,  105  N.  Y.  256,  11  N. 
E.  504;  Fletcher  v.  Sharpe,  108  Ind. 
276.   9    N.    E.    142. 

Where  a  guardian  deposited  a  trust 
fund  with   a  bank   as   an   ordinary  de- 


§  80  (7a) 


INSOLVENCY    AND    DISSOLUTION, 


613 


deposit  of  money  in  a  bank  it  becomes  the  property  of  the  latter,  and,  when 
indiscriminately  mixed  and  mingled  with  the  other  money  of  the  bank 
which  becomes  insolvent,  its  identity  is  wholly  lost  when  any  portion  of  it 
is  checked  out.  in  which  case  it  is  impossible  to  trace  the  fund  into  the  hands 
of  the  bank's  assignee  or  receiver.'^-*  The  mere  fact  that  the  trustee  and 
the  bank  officer  are  one  and  the  same  person,  so  that  the  bank  must  have 
known  the  character  of  the  fund  so  deposited,  affords  no  reason  for  chang- 
ing the  rule  that  a  general  deposit  can  not  be  impressed  with  a  trust  after 
the  bank  in  which  it  is  placed  has  become  insolvent.^' •'* 

Thus,  where  an  executor  deposits  the  trust  fund  of  an  estate  in  a 
bank  to  the  account  of  such  estate  and  subject  to  check,  without  any  promise 
on  the  bank  to  keep  the  identical  money  and  return  it  to  the  executor,  such 
deposit  is  a  general  and  not  a  special  deposit,  and  therefore  the  executor  or 
his  cestui  que  trust  can  not  recover  the  fund  as  a  preferred  claim.  He  is 
simply  a  creditor  of  the  bank,  and  has  no  peculiar  claim  or  right  over  other 
creditors.^*^  And  if  a  fund  was  never  paid  or  received  upon  trust  condi- 
tions, it  is  not  entitled  to  a  priority. 6'     Any  agreement  or  understanding  or 


posit,  and  it  was  mingled  with  the 
other  funds  of  the  bank,  on  the  in- 
solvency of  the  bank  the  cestui  que 
trust  was  not  entitled  to  a  preference 
over  other  creditors  merely  because 
the  bank  was  aware  that  the  fund  was 
a  trust  fund.  but.  in  order  to  entitle 
the  cestui  que  trust  to  a  preference,  it 
must  have  been  a  special  deposit  creat- 
ing a  trust  relation,  and  not  merely  the 
relation  of  creditor  and  debtor.  Paul 
V.  Draper.  158  Mo.  197.  59  S.  W.  77.  81 
Am.   St.   Rep.  296. 

64.  Reason  for  rule. — Shute  t'.  Hin- 
man,  34  Or.  578.  56  Pac.  412,  58  Pac. 
882.  47  L.   R.  A.  265. 

65.  Effect  of  identity  between  trus- 
tee and  bank  officer. — Shute  f.  Hin- 
man,  34  Or.  578,  56  Pac.  412,  58  Pac. 
882,  47  L.  R.  A.  265.  citing  Shields  v. 
Thomas.  71  Miss.  260,  14  So.  84,  42 
Am.    St.    Rep.    458. 

66.  Deposit  by  executor  of  funds  of 
estate. — Officer  v.  Officer.  120  Iowa 
389.  94  X.  W.  947.  98  Am.  St.  Rep. 
365. 

Where  an  executor  makes  a  general 
deposit  of  money  l)elonging  to  the  es- 
tate in  an  apparently  solvent  bank, 
neither  he  nor  his  cestui  que  trust  is 
entitled  to  any  preference  over  the 
other  creditors  of  the  bank  merely  lie- 
cause  the  deposit  was  a  trust  fund  to 
the  knowledge  of  the  bank.  Officer  7'. 
Officer,  120  Towa  389.  94  X.  W.  947, 
98  Am.  St.  Rep.  365. 

Where  trustee  is  also  officer  of  bank. 
— P>ut  in  a  Xcw  York  case  the  assignee 
of  an   insolvent   estate,. who   had   a   de- 


posit as  such  in  a  bank  of  which  he 
was  cashier,  drew  a  check,  as  assignee, 
for  the  amount  of  the  deposit,  and 
placed  it  on  the  spindle  where  paid 
checks  were  placed  by  the  paying 
teller,  and  the  check  was  entered  in 
the  bank's  books.  Held,  that  the  cash- 
ier knew,  and  the  bank  had  notice 
from  the  check  itself,  that  the  at- 
tempted payment  by  the  check,  if  such 
payment  were  intended,  was  a  pay- 
ment of  trust  funds;  and  the  cesttti 
que  trust  may  follow  trust  funds  into 
the  assets  of  the  bank,  and  reclaim 
them,  as  acrainst  the  general  creditors 
of  the  bank.  Wigeins  v.  Stevens,  33 
.\pp.  Div.  83.  53  N.  Y.  S.  90.  citing 
Kirch  V.  Tozier.  143  X.  Y.  390.  38  X. 
K.  375;  Le  Marchant  r'.  Moore,  150 
X.  Y.  209.  44  X.  E.  770;  Roca  v.  Byrne. 
145  X.  Y.  182.  39  X.  E  812.  45  km.  St. 
Rep.  599;  Deobold  7'.  Oppermann.  Ill 
X.  Y.  684.  19  X.  E.  94;  Tmoorters'.  etc.. 
Xat.  Pnnk  7'.  Peters,  123  X  Y.  272, 
25  X.  E.  319;  Suarez  r.  De  Montionv, 
1  .Anp.  Div.  494.  37  X.  Y  S.  503.  73 
X.  Y.  St.  Reo.  95.  affirmed  in  153  X.  Y. 
678.    48   X.    E.    1107. 

67.  A  deposit  of  money  to  purchase 
a  letter  of  credit,  tlic  depositor's  name 
being  entered  on  a  signature  card  on 
which  is  written.  "Guaranty  for  a  Let- 
ter of  Credit."  does  not  constitute  a 
trust  fund  for  the  benefit  of  other 
bankers  honoring  drafts  drawn  against 
the  letter  of  credit,  the  entry  on  the 
card  being  explained  as  not  giving  the 
depositor  any  peculiar  rights;  and 
hence  a  bank  lionoring  sucli   a  draft   is 


614 


BANKS   AND   BANKING. 


§    80    (7b) 


course  of  dealing  whereby  a  bank  is  not  to  use  the  identical  money,  and  is 
to  substitute  its  own  obligation  in  its  stead,  destroys  all  idea  of  a  trust,  and 
simply  establishes  the  relation  of  debtor  and  creditor  between  the  bank 
and  its  patron. "^^ 

§  80  (7b)  Deposits  of  Public  Moneys. — Public  money  deposited  by 
its  custodian  is  so  impressed  with  the  character  of  a  trust  fund  that  it  can 
be  followed  and  the  trust  enforced  against  the  bank's  assets  in  the  hands 
of  the  assignee  or  receiver  to  the  prejudice  of  other  general  creditors,  pro- 
vided the  bank  had  notice  of  the  character  of  the  funds  and  the  deposits 
have  increased  the  funds  in  the  hands  of  the  receiver.  And  in  some  ju- 
risdictions the  fact  that  the  funds  are  mingled  with  other  money  so  that 
the  identity  of  that  deposited  is  lost,  will  not  destroy  the  trust  character  of 
the  deposits,  nor  prevent  the  enforcement  of  the  trust  against  property  to 
which  they  have  contributed,*^*^  though  in  a  few  jurisdictions  the  failure  to 


not  entitled  to  priority  over  other 
creditors  of  the  issuing  bank.  Kuehne 
V.  Union  Trust  Co.,  133  Mich.  602.  95 
N.   W.   715. 

68.  Effect  of  stipulations  or  customs. 
—Akin  V.  Jones.  93  Tenn.  353,  27  S. 
W.  G69,  25  L.  R.  A.  523,  42  Am.  St. 
Rep.    921. 

Plaintiff  requested  a  bank  to  pur- 
chase for  him  certain  stock  on  mar- 
gins. The  bank  purchased  it,  through 
brokers,  and  made  a  draft  on  plaintiff 
for  the  margins,  which  was  paid.  The 
bank  remitted  the  amount  by  draft  to 
its  correspondent,  and  sent  a  check 
on  such  correspondent  to  the  brokers, 
but,  by  reason  of  the  bank's  failure,  the 
brokers  did  not  obtain  the  money,  and 
resold  the  stock.  The  amount  re- 
mitted was  eventually  recovered  back 
by  defendant,  as  the  banker's  assignee. 
Held,  that  the  transaction  between 
plaintiff  and  the  bank  did  not  contem- 
plate the  purchase  of  the  stock  with 
plaintiff's  own  money,  but  by  the 
bank  with  its  own  funds,  and  created 
the  relation  of  creditor  and  debtor  be- 
tween them,  and  not  of  principal  and 
agent,  and  that  plaintiff  could  not  re- 
cover the  amount  paid  from  the  de- 
fendant assignee  as  a  trust  fund, 
though  traced  into  his  hands.  Down- 
ing V.  Lellyett  (Tenn.),  36  S.  W.  890. 

69.  Deposits  of  public  money. — 
Myers  v.  Board,  51  Kan.  87,  32  Pac. 
658.  37  Am.  St.  Rep.  263;  Board  v. 
Wilkinson,  119  Mich.  655,  78  N.  W. 
893,    14    L.    R.   A.    493. 

Since  Code,  §  1457.  expressly  for- 
bids the  deposit  of  public  funds  by  a 
county  treasurer  in  a  bank,  unless  au- 
thorized to  do  so  by  the  board  of_  su- 
pervisors, and  a  bond  has  been  given 
by    the    bank,    a    deposit,    made    by     a 


county  treasurer  without  such  au- 
thority, is  unlawful,  and,  as  between 
the  county  and  the  bank,  the  deposit 
constitutes  a  trust  fund,  and  the  county 
is  entitled  to  a  preference  over  other 
general  depositors,  in  the  distribution 
of  the  assets  of  the  bank  in  the  hands 
of  a  receiver.  Brown  v.  Sheldon  State 
Bank,    139    Iowa   83,    117    N.   W.   289. 

Where  an  insolvent  bank  gives  a 
bondsman  for  a  city  treasurer  a  check 
for  the  amount  of  the  first  dividend 
made  on  the  claim  of  the  city  for  a 
deposit  of  city  funds  by  such  treasurer, 
which  check  is  turned  over  to  the  city 
treasurer  and  credited  on  his  account 
with  the  city,  the  amount  of  the  check 
is  a  trust  fund  which  the  city  may  re- 
cover from  the  assignee  of  the  bank. 
City  z'.  Jordan.  55  Kan.  124.  39  Pac. 
1030. 

Limitations  of  general  rule. — Public 
moneys  deposited  in  a  bank  in  viola- 
tion of  law  are  trust  funds,  do  not  be- 
come the  property  or  assets  of  such 
bank,  and  remain  trust  funds,  with  the 
title  in  the  true  owner,  in  which  the 
creditors  of  the  bank  are  not  entitled 
to  share,  after  the  appointment  of  a 
receiver  and  insolvency  of  the  bank. 
First  Nat.  Bank  v.  Bunting  &  Co..  7 
Idaho  27,  59  Pac.  929.  rehearing  denied, 
7    Idaho   27,    59    Pac.    1106. 

A  deposit  of  public  funds  on  which, 
under  the  law,  interest  must  be  paid, 
can  not  be  special  or  in  trust,  and,  in 
case  of  insolvency  of  the  depositary, 
stands  on  the  same  footing  with  other 
deposits.  McXulta  v.  West  Chicago 
Park  Comm'rs,  40  C.  C.  A.  155,  99  Fed. 
900. 

A  bank  accepting  deposits  of  county 
money,  made  by  a  county  treasurer  in 
violation    of    Cade,    §    1457,    forbiddmg 


§  80  (7b) 


IXSOLVEXCV    AND    DISSOLUTION. 


615 


identify  the  fuiuls  or  its  equi\alent  in  other  propert}-  into  which  it  has  been 
converted  is  fatal  to  the  preferences"^  On  the  other  hand,  deposits  of  pub- 
lic funds  by  officers  to  whom  they  are  intrusted  by  law.  where  the  fact  that 


such  deposits  without  the  order  of  the 
board  of  supervisors,  does  not  stand 
in  the  position  of  a  trustee  as  far  as 
the  county  treasurer  is  concerned,  and 
where  such  treasurer  is  compelled,  by 
the  county,  to  make  good  the  loss  re- 
sulting from  the  failure  of  the  bank, 
such  treasurer  can  not  claim  that  the 
deposit  constitutes  a  trust  fund,  and 
that  he  is  entitled  to  preference  over 
other  general  depositors  of  the  bank. 
Brown  z:  Sheldon  State  Bank,  139 
Iowa   83,    117    N.    W.    289. 

Deposit  of  school  funds. — Where  the 
treasurer  of  a  school  district  without 
authority  deposited  its  moneys  in  a 
bank  in  his  own  name,  but  with  notice 
to  the  banker  that  they  were  school 
funds,  the  banker  became  a  trustee  of 
the  school  district,  and  his  insolvent 
estate  in  the  hands  of  an  assignee  is 
subject  to  the  repayment  of  such 
moneys  to  the  prejudice  of  all  other 
creditors.  Independent  Dist.  v.  King, 
80  Iowa  497,  45   N.  W.  908. 

A  banker,  by  receiving  on  deposit 
from  a  school-district  treasurer  funds 
known  to  be  held  by  the  latter  in  his 
official  capacity,  becomes  thereby  a 
trustee  for  the  beneficial  owner  with 
respect  to  such  funds;  and  the  same 
may,  upon  his  insolvency,  be  recov- 
ered by  the  owner  as  a  preferred  claim 
against  his  estate.  State  v.  Midland 
State  Bank.  52  Xeb.  1,  71  N.  W.  1011, 
66  Am.   St.  Rep.  484. 

The  funds  of  a  township  can  be  re- 
covered from  the  assignee  of  an  in- 
solvent bank,  in  which  they  were 
deposited  by  the  township  clerk  in 
his  own  name,  though  known  to  the 
bank  to  be  township  funds.  Bunton 
V.  King,  80  Iowa  50(;,  45   N.  \V.  1050. 

Public  moneys  deposited  by  sheriff. 
—Under  Ann.  Code  1892,  §  3077,  mak- 
ing moneys  deposited  in  l)ank  by  any 
officer  having  the  custody  of  public 
funds  a  trust  fund,  and  not  liable  to 
the  claims  of  general  creditors  of  the 
bank,  public  moneys  deposited  by  a 
sheriff  have  prioritj'  of  payment  on  an 
assignment  for  the  benefit  of  creditors. 
Metcalfe  c'.  Merchants',  etc..  Bank,  89 
Miss.    040,    41    So.    377. 

Deposit  of  tax  receipts  for  collec- 
tion.— Where  a  county  treasurer,  witli- 
out  legal  authority,  deposited  tax  re- 
ceipts with  a  private  l)ank  for  collec- 
tion, and  the  l)ank  collectexl  the  same 
from  the  taxpayers,  eitlier  in  cash  or 
by   charging   them    to    tlie    accounts    of 


depositors,  and  credited  the  proceeds 
to  the  county  treasurer's  account  in 
his  representative  capacity,  knowing 
that  the  funds  belonged  to  the  county, 
it  was  chargeable  as  a  trustee  thereof, 
entitling  the  county  to  a  preferred 
claim  for  the  amount  due  against  the 
bank's  estate  in  insolvency.  Page 
County  V.  Rose,  130  Iowa  296,  106  N. 
W.    744,    5   L.    R.    A.,    N.   S.,    886. 

The  bank  was  equally  chargeable  as 
a  trustee  of  the  proceeds  ot  such  col- 
lections, which  were  made  with  knowl- 
edge of  the  county's  right  thereto, 
though  the  deposit  of  the  receipts  by 
the  treasurer  with  the  bank  for  col- 
lection was  rightful.  Page  County  v. 
Rose,  130  Iowa  296,  106  N.  W.  744.  5 
L.   R.  A.,   N.   S.,  886. 

Tracing  the  fund. — Where  money  has 
been  deposited  by  a  treasurer  of  a 
township  in  a  bank  which  subsequently 
makes  an  assignment  for  the  benefit 
of  its  creditors,  it  is  not  necessary, 
in  order  to  follow  the  money  as  a 
trust  fund,  to  trace  the  deposit  into 
specific  property;  but  it  has  no  greater 
interest  than  an  ordinary  creditor  in 
land  purchased  before  any  money  was 
deposited  by  its  treasurer,  and  to 
which  its  deposits  in  no  way  con- 
tributed. District  Tp.  v.  Farmers' 
Bank,    88    Iowa   194.   53    N.   W.   342. 

The  word  "municipal,"  in  Code  1906, 
§  3485,  providing  that  deposit  in  banks 
of  public  funds  may  not  be  taken  by 
the  general  creditors  of  the  bank,  em- 
l)races  only  municipal  corporations, 
represented  by  cities,  towns,  and  vil- 
lages, and  does  not  apply  to  the  lioard 
of  drainage  commissioners.  United 
States  Fidelitv,  etc..  Co.  v.  First  Slate 
Bank    (Miss.),    60    So.    47. 

70.  Necessity  for  identifying  deposit 
of  public  money. — State  7'.  Foster.  5 
Wyo.  199.  38  Pac.  926.  29  L.  R.  A.  226. 
63  Am.  St.  Rep.  47. 

.•\  county  treasurer  is  a  trustee  of 
moneys  wliicli  come  into  his  hands  by 
virtue  of  his  office;  and  if  he  wrong- 
fully deposits  them  to  his  own  credit 
in  a  1)ank  aware  of  their  cliaracter, 
wliich  afterwards  becomes  insolvent, 
the  county  is  entitled  to  have  its  claim 
decreed  a  first  lien  upon  any  asset  of 
the  insolvent  l)ank  which  it  sliows  is 
tile  product  of  its  moneys,  though  it 
has  no  such  lien  on  the  other  assets 
of  the  I)ank.  State  7'.  I'.ank,  54  Neb. 
7  25,  75  X.   \V.  28. 


616 


BANKS  AND  BANKING. 


§  80  (7aa) 


the  deposits  are  of  public  funds  is  not  known  to  the  bank,  creates  the  re- 
lation of  debtor  and  creditor  and  gives  the  sovereign  no  right  of  priority  in 
a  distribution  of  the  assets.'^ 

§  80  (7c)  Right  to  Follow  and  Reclaim  Fund— §  80  (7aa)  In 
General. — The  rule  in  equity  is  well  established  that,  so  long  as  trust  prop- 
erty can  be  traced  and  followed  into  other  property  into  which  it  has  been 
converted,  it  remains  subject  to  the  trust,'-  and  may  be  recovered  provided 
the  fund  has  come  to  the  hands  of  the  assignee  or  receiver  and  the  assets  in 
his  hands  have  been  increased  by  the  funds  so  received. '^^    To  illustrate:    If 


71.  Long  V.  Emsley,  57  Iowa  11,  10 
N.  W.  280;  Lowry  v.  Polk  Co.,  51  Iowa 
50,  49  N.  W.  1049,  33  Am.  Rep.  114; 
School  Dist.  V.  First  Nat.  Bank.  102 
Mass.  174. 

72.  Right  to  follow  and  reclaim 
trust  property. — McLeod  v.  Evans,  66 
Wis.  401.  28  N.  W.  173.  See,  also.  Peo- 
ple V.  City  Bank.  96  N.  Y.  32;  Third 
Nat.  Bank  v.  Stillwater  Gas  Co..  36 
Minn.  75.  30  N.  W.  440. 

73.  Fund  must  come  to  receiver's 
hands  and  increase  the  assets. — Phil- 
adelphia Nat.  Bank  v.  Dowd,  38  Fed. 
172;  2  Am.  &  Eng.  Dec.  in  Equity 
558,  659;  In  re  Hallett's  Estate,  13  Ch. 
Div.  696;  Oswego  Milling  Co.  v.  Skil- 
lern,  73  Ark.  324,  84  S.  W.  475;  Hill  v. 
Miles,  83  Ark.  486,  104  S.  W.  198; 
Jones  V.  Chesebrough,  105  Iowa  303, 
75  N.  W.  97;  Bradley  7'.  Chesebrough, 
111  Iowa  126.  82  N.  W.  472;  Whitcomb 
7'.  Carpenter  (Iowa),  111  N.  W.  825.  10 
L.  R.  A.,  N.  S.,  928;  Stilson  v.  First 
State  Bank.  149  Iowa  662,  129  N.  W. 
70;    Hulibard  f.   Alamo,   etc..   Mfg.   Co., 

53  Kan.  637,  36  Pac.  1053.  37  Pac.  625; 
Insurance  Co.  v.  Caldwell.  59  Kan.  ]56, 
52  Pac.  440;  Little  v.  Chadwick.  151 
Mass.  109,  23  N.  E.  1005.  7  L.  R.  A. 
570;  In  re  Irish-American  Bank,  70 
Minn.  238.  73   N.  W.  6;   State  v.  Bank. 

54  Neb.  725,  75  N.  W.  28;  Cavin  v. 
Gleason.  105  N.  Y.  256,  11  N.  E.  504; 
Atkinson  v.  Rochester  Printing  Co.. 
114  N.  Y.  168,  21  N.  E.  178. 

Before  such  a  preference  can  be  sus- 
tained, it  must  appear  that  the  estate 
has  been  so  benefited  by  the  misappro- 
priation of  the  trust  fund  that  its  re- 
moval or  its  equivalent  from  the  estate 
will  be  without  prejudice  to  creditors; 
in  other  words,  that  the  conditions 
must  be  such  that  the  creditors  have 
the  same  protection  as  if  the  trust 
money  had  been  retained  in  the  bank 
in  a  way  that  it  could  be  identified  and 
taken,  which  latter  would  be  the  right 
of  a  cestui  que  trust  under  all  author- 
ities. Jones  V.  Chesebrough,  105  Iowa 
303,  75  N.  W.  97. 


The  fact  that  the  assets  which  passed 
into  the  hands  of  an  assignee  of  an  in- 
solvent banker  are  less  than  those 
which  the  banker  had  on  hand  when 
he  wrongfully  obtained  money  from 
another,  and  mingled  the  same  with 
his  own  funds,  does  not  overcome  the 
presumption  that  the  money  passed 
into  the  hands  of  the  assignee  and  the 
person  paying  the  same  is  entitled  to 
a  preference  for  the  amount  thereof. 
Whitcomb  v.  Carpenter  (Iowa),  111  N. 
W.  825,  10  L.  R.  A..  N.  S..  928. 

Where  assets  not  augmented  by  de- 
posit.— \Miere  money  was  delivered  to 
a  bank,  to  be  transmitted  by  it  to  the 
depositor's  creditors  for  payment  of 
his  obligations,  the  use  of  such  money 
by  the  bank  in  the  payment  of  its  debts, 
and  failure  to  transmit  it  as  directed, 
does  not  entitle  such  depositor  to  pref- 
erence over  the  bank's  other  creditors 
on  insolvency,  where  the  assets  of  such 
bank  were  not  in  any  way  augmented 
thereb3^  Moore  v.  Chesebrough 
(Iowa),  8]    N.   W.   469. 

Where  a  bank  takes  a  chattel  mort- 
gage on  merchandise  to  secure  a  loan 
on  the  day  the  mortgage  is  executed, 
but  does  not  record  the  same  until 
after  four  months,  and  it  is  agreed  that 
the  mortgage  can  retain  possession  of 
the  merchandise  and  sell  it  at  retail,  ap- 
plying the  proceeds  on  the  mortgage, 
and  before  record  another  creditor 
without  notice  takes  a  mortgage  to  se- 
cure a  bona  fide  debt  on  the  same 
goods,  and  takes  possession,  and  the 
bank  brings  replevin  against  the  sec- 
ond mortgage,  and  judgment  is  ren- 
dered for  defendant,  and  the  value  of 
the  property  is  fixed,  and  an  appeal  is 
taken  to  the  district  court  and  dis- 
missed, and  the  bank  retains  possession 
vmder  the  replevin  writ  and  collects 
the  proceeds,  and  shortly  thereafter 
becomes  insolvent  and  a  receiver  is  ap- 
pointed, unless  it  is  shown  that  the 
property  or  the  proceeds  thereof  went 
into  the  hands  of  the  receiver,  such 
creditor  is   not   a  preferred   creditor  as 


§  80  (7aa) 


INSOLVENCY   AND  DISSOLUTION. 


617 


A.,  as  trustee,  wrongfully  places  trust  funds  in  a  bank,  regularly  doing 
business,  and  tbat  money— say,  $1,000— is  paid  out  in  the  usual  course  of 
business  to  discharge  a  debt  of  the  bank,  when,  had  it  not  been  so  paid  out, 
other  money  of  the  bank  would  have  been  so  used,  and  that  is  the  last  busi- 
ness transaction  of  the  bank  before  assignment,  it  is  clear  that  the  assets 
of  the  bank  are  $1,000  more  than  if  the  trust  money  had  not  been  placed 
there,  and  that,  when  $1,000  of  other  money  is  used  to  replace  it  with  the 


to  the  general  assets  of  the  bank.     In 
re  Bank,   17  Okl.  605,  89  Pac.  196. 

^Vhere  plaintiff  deposited  checks  with 
an  insolvent  bank  a  few  hours  before 
it  closed  its  doors,  and  these  checks 
were  used  by  it  in  settling  its  accounts 
with  the  clearing  house,  and  after  such 
settlement  there  was  still  a  balance  due 
the  clearing  house,  which  was  settled 
in  another  way,  as  the  bank,  before  it 
closed  its  doors,  used  the  checks  to 
pay  a  debt,  and  such  checks  did  not 
come  into  the  hands  of  a  receiver,  or 
any  property  received  in  exchange  for 
them,  plaintiff  would  be  denied  prefer- 
ence as  to  them,  but  his  rights  as  to 
such  checks  were  on  equality  with  the 
general  creditors.  Willoughby  ?■.  We- 
inberger, 15  Okl.  226.  79  Pac.  777. 

In  Nonotuck  Silk  Co.  v.  Flanders.  87 
Wis.  237,  58  N.  W.  383,  it  was  held 
that  one  for  whom  a  banker  had  col- 
lected a  draft  before  making  a  volun- 
tary assignment,  was  not  entitled  to  a 
preference  over  other  creditors  of  the 
proceeds  of  such  collection  were  dis- 
posed of  by  the  banker  prior  to  the  as- 
signment, so  that  no  part  thereof  came 
in  any  form  to  the  hands  of  the  as- 
signee, and,  in  substance,  that  the  right 
of  tracing  trust  funds  has  its  basis  in 
the  right  of  property,  and  never  was 
based  upon  the  theory  of  preference 
by  reason  of  an  unlawful  conversion, 
and  that  the  complainant  had  in  that 
case  no  legal  right  to  a  preference  over 
the  assignor's  other  creditors,  in  the 
distriljution  of  his  estate  in  the  hands  of 
the  assignee,  and  into  which  no  part 
of  the  complainant's  money  could  be 
traced.  To  the  same  effect  is  In  re 
Plankinton  Bank,  87  Wis.  378,  58  N". 
W.  784;  Thuemmler  v.  Barth,  89  Wis 
381.  62   N.  W.  94. 

Plaintiff  bank  sent  a  New  York  draft 
to  the  C.  Bank,  to  be  deposited  to 
plaintiff's  credit;  and  the  C.  Bank, 
Avhich  was  insolvent,  sent  the  draft  to 
the  N.  Bank,  in  New  York,  to  be  de- 
posited to  its  credit.  The  N.  Bank  ap- 
I)bed  the  draft  to  reduce  a  debt  due  it 
by  the  C.  Bank,  the  draft  being  paid 
by  the  drawees,  after  some  delay,  un- 
der   express    directions    from    plaintiff. 


Held,  that  plaintiff  was  not  entitled  to 
payment  of  the  amount  of  the  draft  by 
the  receiver  of  the  C.  Bank  as  a  pre- 
ferred claim,  the  amount  of  the  assets 
for  distribution  among  creditors  not 
having  been  increased  in  that  amount 
by  the  deposit  of  the  draft.  City  Bank 
r.  Blackmore,  21  C.  C.  A.  514,  75  Fed. 
771. 

A  county  treasurer  is  not  entitled  to 
recover  school  warrants  of  the  receiver 
of  a  bank  on  the  ground  that  they 
were  purchased  with  pulilic  funds  in 
the  receiver's  hands,  where  it  not  only 
is  not  shown  that  any  of  the  public 
funds  came  into  the  hands  of  the  re- 
ceiver, but  is  shown  that  the  bank  at 
the  time  of  its  failure  was  without 
funds,  nor  what  became  of  the  public 
funds,  or  that  such  funds  came  back 
into  the  hands  of  the  receiver.  Hill  r. 
Miles,  83  Ark.  486,  104  S.  W.  198. 

An  executor  deposited  estate  funds 
with  a  bank  in  1893.  The  officers  of 
the  bank  had  knowledge  of  the  nature 
of  the  deposit,  but  used  the  money 
so  received  in  payment  of  the  bank's 
debt.  The  bank  made  a  general  as- 
signment in  1896.  It  had  not  increased 
its  assets  after  the  deposit,  and  no 
property  had  been  acquired  with  such 
funds.  Held  not  sufficient  to  impress 
a  trust  on  such,  as  it  does  not  appear 
that  the  deposit  has  been  preserved, 
and  came  to  the  assignees  in  such  a 
form  that  it  could  be  taken  therefrom 
without  injuring  the  rights  of  credit- 
ors. Bradlev  7'.  Chescbrough,  111  Iowa 
126,  82   N.  W:  472. 

The  reason  for  the  rule  of  the  text 
is  that  trust  funds  deposited  in  a  bank 
do  not  constitute  a  general  lien  on  as- 
sets superior  to  that  of  general  credit- 
ors. Hill  V.  Miles,  83  Ark.  486,  104  S. 
W.  198. 

"A  creditor  who  is  given  a  preference 
in  the  distribution  of  the  assets  of  a 
bank,  on  the  ground  that  the  fund 
which  he  claims  as  a  trust  fund  was 
wrongfully  received  l)y  the  officers  of 
the  bank,  and  should  be  returned  to 
him  before  the  assets  are  used  in  the 
payment  of  general  creditors,  is  given 
such   preference  I)ecause  the   trust    fund 


618 


BANKS   AND   BANKING. 


§  80  (7dd) 


owner,  the  creditors  are  in  no  sense  prejudiced.'-*  And  a  creditor  claiming  a 
preference  must  prove  that  his  contribution  to  the  bank  has  increased  the  as- 
sets of  the  estate  and  may  be  taken  therefrom  without  impairing  the  rights 
of  general  creditors.''^ 

§  80  (7bb)  Notice  of  Character  of  Deposit.— If  the  cashier  or 
other  officer  of  the  bank  has  notice  that  the  money  was  received  as  a  trust 
fund,  this  knowledge  is  imputable  to  the  bank."'' 

§  80    (7cc)    Effect  of  Beneficiary  Taking  Collateral  Security.— 

The  fact  that  the  beneficial  owner  of  the  fund  has  taken  collateral  security 
for  the  payment  of  the  deposit  after  insolvency  and  before  it  is  known 
whether  the  trust  money  can  be  recovered,  does  not  prevent  the  complain- 
ant from  following  and  recovering  the  trust  fund,  especially  where  the 
rights  of  no  creditor  of  the  bank  have  been  prejudiced  by  the  taking  of 
the  security."' 

§  80  (7dd)  Identification  of  Fund  or  Deposit. — Although  there  is 
considerable  conflict  in  the  decisions  of  the  courts,  yet  according  to  the 
better  rule  the  plaintiff  may  follow  and  reclaim  a  deposit  which  is  impressed 
with  the  character  of  a  trust  fund,  even  though  it  has  been  mingled  with 
other  funds  of  the  bank  so  that  the  identity  of  that  deposited  is  lost,  pro- 
vided it  has  passed  into  and  swelled  the  funds  of  the  bank.     And  the  doc- 


has  swelled  the  general  assets,  and  the 
creditors  of  the  bank  will  not  be  de- 
prived of  anything  to  which  they  arc 
entitled,  if,  to  the  extent  to  which  the 
general  assets  have  been  increased  by 
including  the  trust  fund,  they  are  in 
turn  diminished  by  the  return  of  such 
fund  to  the  beneficiary  entitled  there- 
to." Sioux  City  Stock  Yards  Co.  r. 
Fribourg,  121  Iowa  230,  9G  N.  W.  747. 
"But  where  the  trust  fund  has  been 
diverted  or  squandered,  and  the  assets 
"have  been  in  any  way  derived  from  or 
swelled  by  it,  then  a  beneficiary  is  in 
no  situation  to  ask  that  the  funds  of 
the  bank  be  diverted  from  the  payment 
of  general  creditors  and  applied  to  the 
return  of  the  trust  fund."  Sioux  City 
Stock  Yards  Co.  v.  Fribourg,  121  Iowa 
230,  96  N.  W.  747;  Jones  v.  Chese- 
brough,  105  Iowa  303,  75  X.  W.  97; 
Bradlev  z'.  Chesebrough,  111  Iowa  126, 
82  N.  W.  472. 

74.  Jones  f.  Chesebrough,  105  lov.^a 
303.  75  N.  W.  97. 

75.  Trust  fund  must  come  to  receiv- 
er's hands. — Stilson  v.  First  State 
Bank.  149   Iowa  662.  129   X.  ^V.  70. 

Proof  that  fund  came  to  assignee's 
hands. — Where  a  check  for  a  trust  fund 
was  deposited  in  bank,  and  the  pro- 
ceeds   thereof   were    mingled    with    the 


l^ank's  funds  nearly  nine  months  before 
the  bank  went  into  the  hands  of  a  re- 
ceiver, the  affidavit  of  the  plaintiff's  at- 
torney, stating  that  the  fund  in  ques- 
tion "has  passed  into  the  hands  of  said 
receiver,  and  he  now  has  possession 
of  same  as  such  receiver,'  is  not  suffi- 
cient to  show  that  the  trust  fund  came 
into  the  hands  of  the  receiver,  so  as  to 
entitle  plaintiff  ■  to  a  preference  over 
other  creditors,  even  conceding  that  a 
trust  relation  existed  between  plaintiff 
and  the  bank.  In  re  Irish-American 
Bank,   70   Minn.  238,   73   X.   W.   6. 

76,  Peak  z:  EUicott,  30  Kan.  156,  1 
Pac.  499,  46  Am.   Rep.  90. 

The  cashier  of  a  bank  which  became 
insolvent  forged  notes  payable  to  the 
l>ank,  and  delivered  them  to  another 
bank  for  rediscount,  and  stole  from 
his  own  bank  the  money  so  received. 
He  had  full  charge  of  the  affairs  of  the 
bank,  and  none  of  its  officers  knev/  of 
the  forgery  or  the  misconduct.  Held, 
that  the  creditor  bank  was  not  enti- 
tled to  a  preference  based  on  its  claim 
for  rediscounting  the  forged  notes. 
Stilson  V.  First  State  Bank.  149  Iowa 
662.  129  X.  W.  70. 

77.  Effect  of  beneficiary  taking  col- 
lateral security. — Myers  f.  Board,  51 
Kan.  Sr.  32  Pac.  658,  37  Am.  St.  Rep. 
263. 


§  80  (7dd) 


INSOLVENCY  AND  DISSOLUTION. 


619 


trine  that  one  can  not  follow  trust  money  mixed  with  other  money  in  an 
indistin^iishable  mass,  because  of  its  having  no  ear-mark,  must  be  taken 
subject  to  the  application  of  this  rule.''^    And  it  is  not  material  whether  the 


78.     Identification  of  fund  or  deposit. 

— Pennell  z:  Deffell,  23  Eng.  L.  &  Eq. 
460;  Foley  z:  Hill,  2  H.  L.  Cas.  2S; 
Sims  z:  Bond,  5  Barn.  &  Adol.  389; 
Tassell  v.  Cooper,  9  C.  B.  509;  Knatch- 
buU  v.  Hallett,  13  Ch.  Div.  696;  Marine 
Bank  v.  Fulton  Bank  (U.  S.),  2  Wall. 
252,  17  L.  Ed.  785;  Thompson  v.  Riggs 
(U.  S.),  5  Wall.  663,  18  L.  Ed.  704; 
Bank  v.  Millard,  10  Wall.  152,  19  L. 
Ed.  897;  National  Bank  z'.  Insurance 
Co.,  104  U.  S.  54,  26  L.  Ed.  693;  San 
Diego  County  v.  California  Nat.  Bank, 
52  Fed.  59;  First  Nat.  Bank  v.  Hum- 
mel, 14  Col.  259,  23  Pac.  986,  20  Am. 
St.  Rep.  257;  Independent  Dist.  v.  King, 
80  Iowa  497,  45  N.  W.  908;  Davenport 
Plow  Co.  V.  Lamp,  80  Iowa  722,  45  N. 
W.  1049,  20  Am.  St.  Rep.  442;  Officer 
V.  Officer  (Iowa),  90  N.  W.  826;  Peak  v. 
Ellicott,  30  Kan.  156,  161,  1  Pac.  499, 
46  Am.  Rep.  90;  Myers  v.  Board,  51 
Kan.  87,  32  Pac.  658,  37  Am.  St.  Rep. 
263;  In  re  Johnson,  103  Mich.  109,  61 
N.'W.  352;  Pomeroy  v.  Benton,  57  Mo. 
531;  Harrison  v.  Smith,  83  Mo.  210,  53 
Am.  Rep.  571,  overruling  Mills  z'.  Post, 
76  Mo.  426;  Smith  v.  Combs,  49  N.  J, 
Eq.  420,  24  Atl.  9;  In  re  Franklin  Bank 
(N.  Y.),  1  Paige  Ch.  249,  19  Am.  Dec. 
413;  Aetna  Nat.  Bank  v.  Fourth  Nat. 
Bank,  46  N.  Y.  82,  7  Am.  Rep.  314; 
People  V.  City  Bank,  96  N.  Y.  32; 
Frazier  v.  Bank,  8  Watts  &  S.  (Pa.)  18; 
Bank  v.  Jones,  42  Pa.  536;  Stair  v.  York 
Nat.  Bank,  55  Pa.  364;  Farmers',  etc., 
Nat.  Bank  v.  King,  57  Pa  202;  Knight 
V.  Fisher,  58  Fed.  991;  Continental  Nat. 
Bank  z:  Weems,  69  Tex.  489,  6  S.  W. 
802,  5  Am.  St.  Rep.  85;  Frith  v.  Cart- 
land,  12  Va.  (2  Hen.  &  M.)  417;  Mc- 
Leod  V.  Evans,  66  Wis.  401,  28  N.  W. 
17r{. 

In  Downing  v.  Lellyett  (Tenn.),  36 
S.  W.  890,  the  court  said:  "The  cases 
of  Continental  Nat.  Bank  v.  Weems, 
69  Tex.  489,  6  S.  W.  802,  5  Am.  St.  Rep. 
85;  First  Nat.  Bank  z'.  Hummel,  14 
Colo.  259,  23  Pac.  986,  and  Roca  v. 
Byrne,  145  N.  Y.  183,  39  N.  E.  812,  45 
Am.  St.  Rep.  599,  on  the  one  side,  and 
Wetherell  v.  O'Brien,  140  111.  146,  29 
N.  E.  904,  33  Am.  St.  Rep.  221,  and 
cases  there  cited,  on  the  other,  pre- 
sent a  somewhat  conflicting  phase  of 
judicial  tlioiight  on  tliis  nniltifnrni  sub- 
ject." 

The  same  subject  has  Ijeen  discussed 
in  an  exhaustive  and  claliorate  opinion 
of    tlie    supremo   court   of    the     United 


States  in  the  case  of  National  Bank  z: 
Insurance  Co.,  104  U.  S.  54,  26  L.  Ed. 
693,  decided  in  1881,  where  it  is  held 
that  as  long  as  trust  property  can  be 
traced  and  followed,  the  property  into 
which  it  has  been  converted  remains 
subject  to  the  trust,  and  if  a  man  mixes 
trust  funds  with  his  own  money  the 
whole  will  be  treated  as  trust  property, 
except  so  far  as  he  may  be  able  to  dis- 
tinguish what  is  his. 

It  would  seem  to  be  immaterial 
whether  the  property  with  which  the 
trust  funds  were  mingled  was  moneys 
or  whether  it  was  bills,  notes,  securi- 
ties, lands,  or  other  assets.  Myers  v. 
Board,  51  Kan.  87,  32  Pac.  658,  37  Am. 
St.  Rep.  263. 

The  fact  that  a  bank,  which  receives 
money  as  the  agent  of  another,  mingles 
it  with  its  own  funds,  does  not  prevent 
the  imposition  of  a  trust  therefor  on 
the  insolvency  of  the  bank,  if  the 
money  on  hand  at  no  time  prior  to  the 
bank's  failure  is  reduced  below  the 
amount  so  received  in  trust  by  the 
bank.      In   re   Johnson,    103    Mich.    109, 

61  N.  W.  352. 

An  indorser  paid  the  amount  of  a 
note  to  a  bank,  and  received  a  receipt 
containing  an  order  for  a  surrender  of 
the  note  upon  return  of  the  receipt. 
The  bank  subsequently  failed,  without 
taking  up  the  note.  There  was  at  all 
times  more  than  enough  money  in  the 
vaults  of  the  bank  to  pay  the  note. 
Held,  that  the  fact  that  the  money  was 
not  marked,  and,  by  a  mingling  with 
other  funds  of  the  l>ank,  lost  its  iden- 
tity, did  not  afifect  the  indorser's  right 
to  recover  the  amount  from  the  re- 
ceiver of  the  bank.     Masscy  z'.  Fisher. 

62  I'"ed.  958. 

The  fact  that  public  moneys  depos- 
ited with  a  bank  by  the  tax  collector 
are  intermingled  with  its  funds,  and  in- 
capable of  identification,  does  not  pre- 
vent its  collection  as  a  trust  fund  from 
the  assets  of  the  l:)ank,  on  its  insol- 
vency before  the  judgment  of  unpre- 
ferred  debts;  such  deposit  being  a  trust 
fund  from  its  nature  and  l)y  the  express 
provision  of  Code  1892,  §  3077.  Fogg 
7'.    Hebdon,   SO   ^liss.   7r,0,   32    So.   285. 

What  is  the  Michigan  rule.— The  re- 
ceiver of  an  insolvent  bank  can  not  be 
required  to  repay  the  lieneficiary  in  a 
trust  deposit  in  preference  to  general 
creditors,  unless  the  claimant  can 
show,  by  a  clear  preponderance   of  tlie 


620 


BANKS  AND  BANKING. 


§  80  (7dd) 


balance  was  preserved  in  the  form  of  money  or  other  property.  It  is  only 
necessary  that  it  appear  by  presumption  of  law,  or  otherwise,  that  it  has 
been  preserved  in  the  hands  of  the  defendant.'^  The  reason  for  this  rule 
is  that  the  creditors  are  deprived  of  no  right,  for  the  bank  never  acquired 
any  title  to  the  property  and  therefore  it  was  never  subject  to  the  claims 
of  its  creditors. ^'^     Hence  where  trust  money  of  the  depositor  is  mingled 


evidence,  that  there  remains  in  the 
hands  of  the  receiver  either  the  specific 
deposit,  or  specific  funds  or  property 
into  which  the  deposit  can  be  traced. 
Board  r.  Wilkinson,  119  Mich.  655,  78 
N.  W.  893,  44  L.  R.  A.  493.  reviewing 
and  attempting  to  distinguish  many 
cases.  The  court  seems  to  return  to 
the  Wisconsin  rule. 

Rule  in  Oregon. — Where  a  trustee 
deposited  the  trust  funds  to  his  credit 
in  his  own  bank,  and  such  funds  were 
commingled  with,  and  used  as  a  part 
of,  the  general  funds  of  the  bank,  in 
the  ordinary  course  of  its  business,  so 
that  the  identity  of  the  trust  fund  was 
wholly  lost,  the  trust  creditor  is  not 
entitled  to  a  preference  over  other 
creditors  in  respect  to  money  left  in 
the  bank  upon  an  assignment  by  the 
trustee  for  creditors,  unless  he  can 
show  that  it  has  been  mingled  into  a 
common  inass,  and  fonns  a  part 
thereof.  Shute  v.  Hinman,  34  Or.  578, 
56  Pac.  412,  affirmed  58  Pac.  882,  47  L. 
R.   A.   265. 

Where  money  bears  no  ear  mark,  it 
is  sufficient  in  such  cases  to  show  that 
the  assets  of  the  bank  have  been  in- 
creased thereby.  Knight  v.  Fisher,  58 
Fed.  991. 

It  is  not  important  that  the  plain- 
tiffs' money  bore  no  mark,  and  can 
not  be  identified.  It  is  sufficient  to 
trace  it  into  the  bank's  vaults,  and  find 
that  a  sum  equal  to  it  (and  presuma- 
bly representing  it),  continuously  re- 
mained there  until  the  receiver  took 
it.  The  modern  rules  of  equity  require 
no  more.  KnatchbuU  z'.  Hallett,  13  Ch. 
Div.  696;  National  Bank  v.  Insurance 
Co.,  104  U.  S.  54,  26  L.  Ed.  693;  Farm- 
ers', etc.,  Nat.  Bank  v.  King,  57  Pa. 
202;  Stoller  v.  Coates,  88  Mo.  514;  Mc- 
Leod  V.  Evans,  66  Wis.  401,  28  N.  W. 
173,  214;  People  r.  City  Bank,  96  N.  Y. 
32;  Continental  Nat.  Bank  v.  Weems, 
69  Tex.  489,  6  S.  W.  802,  5  Am.  St. 
Rep.  85;  Harrison  z'.  Smith,  83  Mo. 
210,  53  Am.  Rep.  571;  Beech.  Eq.  Jur., 
§  285;  Fisher  r.  Knight,  9  C.  C.  A. 
582,  61  Fed.  491;  Massey  z:  Fisher,  62 
Fed.  958;  Compare  Philadelphia  Nat. 
Bank  v.  Dowd,  38  Fed.  172,  and  see 
criticism  of  case  in  Massey  v.  Fisher, 
62    Fed.    958. 


79.  Story,  Ag.,  §  231;  Thompson  v. 
Perkins,  3  Mason,  232,  Fed.  Cas.  No. 
13,972;  Robson  v.  Wilson  (Ky.),  1 
Marsh.  Ins.  295;  Independent  Dist. 
7\  King,  80  Iowa  497,  45  N.  W.  908; 
Van  Allen  v.  American  Nat.  Bank,  52 
N.  Y.  1;  Importers',  etc.,  Nat.  Bank 
z:  Peters,  123  N.  Y.  272,  25  N.  E.  319; 
Roca  r.  Byrne,  145  N.  Y.  182,  39  N.  E. 
812,  45  Am.   St.  Rep.  599. 

To  give  a  deposit  in  a  bank  trust 
character  so  as  to  render  the  deposit  a 
preferred  claim  against  the  assets  of 
the  bank  on  its  insolvency,  it  must  ap- 
pear, by  presumption  or  otherwise, 
that  the  deposit  has  been  preserved  in 
the  assets  of  the  bank;  and,  while  it 
is  not  necessary  to  identify  the  particu- 
lar money  deposited,  it  must  apoear 
that  the  assets  of  the  bank  have  been 
increased  by  the  deposit,  and  that  such 
deposit  may  be  withdrawn  without 
prejudice  to  the  rights  of  the  other 
creditors.  Hansen  z'.  Roush,  139  Iowa 
58,    116    N.    W.    1061. 

80.  Reason  of  rule. — National  Bank 
v.  Insurance  Co..  104  U.  S.  54,  26  L. 
Ed.  693;  Lowry  v.  Polk  Co.,  51  Iowa 
50,  49  N.  W.  1049,  33  Am.  Rep.  114; 
Long  V.  Emsley,  57  Iowa  11,  10  N.  W. 
280;  Davenport  Plow  Co.  v.  Lamp,  80 
Iowa  722,  45  N.  W.  1049,  20  Am.  St. 
Rep.  442;  Peak  v.  Ellicott,  30  Kan.  156, 
1  Pac.  499,  46  Am.  Rep.  90;  Thompson 
7'.  Gloucester  Sav.  Inst.  (N.  J.),  8  Atl. 
97;  People  v.  City  Bank,  96  N.  Y.  32; 
Farmers',  etc.,  Nat.  Bank  z\  King,  57 
Pa.  202;  McLeod  v.  Evans,  66  Wis. 
401,  28  N.  W.  173,  214;  Francis  v. 
Evans,  69  Wis.  115.  33  N.  W.  93; 
Bowers  v.  Evans,  71  Wis.  133,  36  N. 
W.   629. 

A  reason  on  which  the  rights  of  the 
cestui  que  trust  are  preserved  in  the 
first  instance  is  that  by  the  wrongful 
act  the  assets  of  the  bank  have  been 
enhanced  to  the  amount  of  the  wrong- 
ful deposit,  and  to  deny  the  preference 
is  to  permit  the  creditors  to  profit  to 
the  extent  of  the  deposit  at  the  ex- 
pense of  one  who  has  never  assented 
to  the  relationship  of  creditor  of  the 
insolvent  bank;  and  hence  the  rights  of 
the  other  creditors  are  limited  to  the 
assets  of  the  bank,  less  the  amount  of 
the    unlawful    deposit,    to    no    part    of 


§  80  (7dd) 


INSOLVENCY    AND  DISSOLUTION. 


621 


wrongfully,  if  not  frauclulently.  with  funds  of  the  bank  and  goes  into  its 
business  operations  a  very  short  time  previous  to  the  assignment  of  its 
effects,  and  while  not  clearly  traceable  to  any  particular  asset  of  the  bank, 
3^et  the  fact  remains  that  it  went  into  its  assets  and  to  the  extent  of  the 
deposit  increased  and  swelled  the  volume  of  its  assets,  such  sum  will  be 
decreed  by  a  court  of  equity  to  be  a  lien  on  the  assets  to  be  paid  out  of 
such  assets  before  the  same  or  any  part  thereof  is  used  for  the  benefit  of 
the  general  creditors. ^^  But  in  other  jurisdictions,  in  order  to  impress  a 
trust  upon  moneys  deposited  in  a  bank  so  that  they  may  be  reclaimed  as 
against  the  'general  funds  of  the  bank,  they  must  be  susceptible  of  identi- 
fication as  distinct  from  other  funds,  and  must  not  be  so  mixed  up  or 
mingled  with  other  moneys  as  to  be  incapable  of  specific  separation ;  other- 
wise the  plaintiff  will  occupy  the  position  of  a  general  creditor.  In  other 
Avords,  the  court  will  go  as  far    as    it    can    in    tracing  and  following  trust 


which  they  have  a  right.  The  accept- 
ance of  the  dividend  in  no  way  af- 
fected or  prejudiced  their  interests.  It 
was  but  a  partial  payment  or  restora- 
tion of  the  trust  fund.  In  re  Knapp, 
101  Iowa  488,  70  N.  W.  626.  See  In- 
dependent Dist.  Z'.  King.  80  Iowa  497. 
45  N.  W.  908;  Davenport  Plow  Co.  v. 
Lamp,  80  Iowa  733,  45  N.  W.  1049,  20 
Am.   St.   Rep.  442. 

81.  Harrison  r.  Smith,  83  Mo.  310,  53 
Am.   Rep.   571. 

"If  A,  holding  $1,000  in  coin  in  trust 
for  B,  place  it  in  a  bag  or  box  and 
iningle  with  it  $1,000  in  coin  of  his 
own,  whereby  the  particular  $1,000  of 
coin  of  trust  money  can  not  be  dis- 
tinguished from  the  $1,000  of  private 
money,  it  is  more  consonant  with 
equity  for  the  chancellor  to  say  he  will 
put  his  hand  in  the  bag  and  take  from 
it  and  restore  to  B  his  $1,000  of  trust 
money,  than  for  him  to  say  because  of 
the  fact  that  the  money  is  not  ear 
marked  and  the  fact  that  because  of 
A's  wrongful  act  in  thus  mixing  the 
funds  one  can  not  be  distinguished 
from  the  other,  that  B  can  take  noth- 
ing in  virtue  of  the  trust,  but  must 
take  his  chances  with  the  general  cred- 
itors of  A."  Harrison  v.  Smith,  83  Mo. 
210.  53  Am.   Rep.  571. 

"While  it  may  be  impossible  to  fol- 
low the  fund  in  its  diverted  uses,  it 
is  always  possiI)Ie  to  make  it  a  charge 
upon  the  estate  or  assets,  to  the  in- 
crease or  benefit  of  which  it  has  been 
appropriated.  The  general  assets  of 
the  bank  having  received  the  benefit 
of  the  unlawful  conversion,  there  is 
nothing  inequitable  in  charging  them 
with  the  amount  of  the  converted 
fund,  as  a  preferred  demand."  Stollcr 
1'.  Coates,   88   Mo.   514,   citing   Harrison 


V.   Smith.  83  Mo.  210,  53  Am.   Rep.  571. 

Where  one  delivered  money  to  a 
bank  to  pay  his  note  when  presented 
for  payment,  and  the  identity  of  the 
money  is  found  in  the  increased 
amount  of  the  assets  at  the  time  of 
the  failure  of  the  bank  by  the  amount 
of  such  money  left  with  it,  he  is  en- 
titled to  such  sum  in  preference  to 
the  general  creditors  of  the  bank. 
Bergstresser  v.  Lodewick,  37  App. 
Div.   629,  59   N.   Y.   S.   630. 

School  funds. — The  treasurer  of  a 
board  of  education  without  authority 
placed  the  school  funds  in  a  bank  of 
which  he  was  manager,  and  the  owner 
of  which  had  knowledge  of  the  char- 
acter of  the  funds.  They  were  wrong- 
fully used  in  the  business  of  the  bank, 
and  for  the  payment  of  indebtedness 
against  it.  Afterwards  the  owner  of 
the  bank  became  insolvent,  and  made 
an  assignment  of  his  property  for  the 
benefit  of  creditors.  The  assets  which 
came  into  the  hands  of  the  assignee 
consisted  of  real  property,  securities, 
and  cash.  But  the  amount  of  the 
school  money  wrongfully  converted, 
and  which  was  impressed  with  a  trust, 
was  largely  in  excess  of  the  cash  on 
hand  at  the  time  of  the  assignment. 
The  trust  fund  could  not  be  dearly 
traced  to  any  particular  asset  in  the 
hands  of  the  assignee,  but  it  was 
shown  to  have  gone  into  and  been 
used  tor  the  benefit  of  the  estate.  Held, 
that  the  trust  fund  became  a  charge 
upon  the  entire  assets  with  wliich  it 
was  mingled,  and  that  the  board  of 
education  has  a  preferred  rigiit  to  the 
assets  over  general  creditors  to  the 
extent  of  the  fund  converted.  Myers 
t'.  Board,  51  Kan.  87,  33  Pac.  658,  37 
Am.    St.    Hop.   263. 


622 


BANKS   AND  BANKING. 


80    (7(ld) 


money,  but  when,  as  a  matter  of  fact,  it  can  not  be  traced,  the  equitable 
right  of  the  cestui  que  trust  fails.  Hence,  when  the  trust  fund  has  been 
dissipated,  or  so  confounded  and  mixed  up  with  the  other  property  of  the 
insolvent  that  it  can  not  be  traced  or  identified,  the  owner  of  the  fund  or 
property  is  not  entitled  to  prove  for  it  as  a  trust  debt,  and  obtain  a  prefer- 
ence over  the  other  creditors  of  the  insolvent  bank,  out  of  the  property  to 
which  no  part  of  the  trust  fund  or  property  or  proceeds  of  it  is  traceable.^^ 


82.  Rule  requiring  identification  of 
deposit. — Mechem,  Ag.,  §§  780,  781;  Ex 
parte  Hlane,  2  Q.  B.  Div.  237,  273;  Ex 
parte  Hardcastle,  44  Law  T.  (N.  S.) 
524;  Whitcomb  v.  Jacob,  1  Salk.  160; 
National  Bank  v.  Insurance  Co.,  104  U. 
S.  54,  26  L.  Ed.  693;  Peters  v.  Bain,  133 
U.  S.  670,  33  L.  Ed.  696,  10  S.  Ct.  354; 
Illinois,  etc.,  Sav.  Bank  v.  First  Nat. 
Bank,  15  Fed.  858,  21  Blatchf.  275; 
Philadelphia  Nat.  Bank  v.  Dowd,  38 
Fed.  172;  Commercial  Nat.  Bank  v. 
Armstrong,  39  Fed.  684;  Cecil  Nat. 
Bank  v.  Thurber,  8  C.  C.  A.  365,  59 
Fed.  913;  Multnomah  v.  Oregon  Nat. 
Bank,  61  Fed.  912;  City  Bank  v.  Black- 
more,  21  C.  C.  A.  514,  75  Fed.  771; 
Beard  v.  Independent  Dist.,  31  C.  C.  A. 
562,  88  Fed.  375;  Case  v.  Beauregard, 
Fed.  Cas.  No.  2,487,  1  Woods  125; 
Trecothick  v.  Austin,  Fed.  Cas.  No. 
14,164,  4  Mason  29;  In  re  Coan 
Mfg.  Co.,  12  N.  B.  R.  (U.  S.)  203; 
Bank  v.  Russell,  2  Dillon  (U.  S.)  215; 
Goldsmith  v.  Stetson  &  Co.,  30  Ala. 
164;  Maury  v.  Mason,  8  Port.  (Ala.) 
212;  Parker  v.  Jones,  67  Ala.  234;  Mc- 
Call  V.  Rogers,  77  Ala.  349;  St.  Louis 
Brewing  Ass'n  v.  Austin,  100  Ala.  313, 
13  So.  908;  First  Nat.  Bank  z'.  Hum- 
mel, 14  Colo.  259,  23  Pac.  986;  Mel- 
drum  z'.  Henderson,  7  Colo.  App.  256, 
43  Pac.  148;  School  Trustees  ?'.  Kir- 
win,  25  111.  73;  Bayor  v.  Schaffner  & 
Co.,  51  111.  App.  180;  Kneisley  v.  Weir, 
81  111.  App.  251;  Union  Nat.  Bank  v. 
Goetz,  138  111.  127,  27  N.  E.  907,  32 
Am.  St.  Rep.  119;  Wetherell  v.  O'Brien, 

140  III.  146,  29  N.  E.  904,  33  Am.  St. 
Rep.  221;  Mutual  Acci.  Ass'n  v.  Jacobs, 

141  111.  261,  31  N.  E.  414,  16  L.  R.  A. 
516,  33  Am.  St.  Rep.  302;  Bayor  v. 
American,  etc.,  Sav.  Bank,  157  111.  62, 
41  N.  E.  622;  Lanterman  v.  Travous, 
174  111.  459,  51  N.  E.  805;  Little  v. 
Chadwick,  151  Mass.  109,  23  N.  E. 
1005,  7  L.  R.  A.  570;  Sherwood  7'.  Mil- 
ford  State  Bank,  94  Mich.  78,  53  N.  W. 
923:  Westfall  z:  Mullen,  58  Minn.  5, 
59  N.  W.  633;  Shields  v.  Thomas,  71 
Miss.  260,  14  So.  84,  42  Am.  St.  Rep. 
458;  Mills  v.  Post,  7  Mo.  App.  519; 
S.  C.,  76  Mo.  426;  Midland  Nat.  Bank 
V.  Brightwell,  148  Mo.  358,  49  S.  W. 
994,    71    Am.    St.    Rep.    608;     Paul     v. 


Draper,  158  Mo.  197,  59  S.  W.  77,  81 
Am.  St.  Rep.  296;  Perth  Amboy  Gas- 
light Co.  z'.  Middlesex  County  Bank, 
60  N.  J.  Eq.  84,  45  Atl.  704;  Kip  v. 
Bank  (N.  Y.),  10  Johns  62;  People 
z:  Merchants,  etc.,  Bank,  78  N.  Y.  269; 
Cavin  z:  Gleason,  105  N.  Y.  256,  11 
N.  E.  504;  Roca  v.  Byrne,  39  N.  E. 
812,  145  N.  Y.  182,  39  Am.  St.  Rep. 
599;  Willoughby  z-'.  Weinberger.  15 
Okla.  226,  79  Pac.  777;  Ferchen  v. 
Arndt,  26  Or.  121,  37  Pac.  161,  29  L. 
R.  A.  664,  46  Am.  St.  Rep.  603;  Muh- 
lenberg r.  Northwest,  etc.,  Trust  Co., 
26  Or.  132,  38  Pac.  932,  29  L.  R.  A. 
667;  In  re  Thompson's  Appeal,  22 
Pa.  16;  Freiberg  v.  Stoddard,  161  Pa. 
259,  28  Atl.  1111;  In  re  Lebannon 
Trust,  etc..  Bank.  166  Pa.  622,  31  Atl. 
334;  Slater  v.  Oriental  Mills,  18  R.  I. 
352,  27  Atl.  443;  State  z:  Bank,  64  Tenn. 
(5  Baxt.)  1;  Downing  z:  Lellyett 
(Tenn.),  36  S.  W.  890;  Nonotuck  Silk 
Co.  v.  Flanders.  87  Wis.  237,  58  N.  W. 
383;  In  re  Plankinton  Bank,  87  Wis. 
378,  58  N.  W.  784;  Thuemmler  v. 
Barth,  89  Wis.  381,  62  N.  W.  94;  Burn- 
ham  V.  Barth.  89  Wis.  362,  62  N.  W.  96; 
Dowie  T'.  Humphrey,  91  Wis.  98,  64 
N.  W.  315;  State  v.  Foster,  5  Wyo. 
199,  38  Pac.  926,  29  L.  R.  A.  226,  63 
Am.  St.  Rep.  47.  Compare  Shute  v. 
Hinman,  34  Or.  578,  56  Pac.  412,  58 
Pac.   882,  47   L.   R.   A.   265. 

When  money  which  is  delivered  to  a 
bank,  even  though  it  be  for  some  speci- 
fied purpose,  as.  for  instance,  invest- 
ment in  a  mortgage  security,  has  been 
mingled  with  the  funds  of  the  bank, 
there  is  no  reason  why  the  depositor 
should  be  preferred  above  any  other 
creditor.  Wetherell  v.  O'Brien.  140 
III.  146,  29  N.  E.  904,  33  Am.  St.  Rep. 
221. 

A  depositor  in  a  bank  drew  a  certi- 
fied check  thereon  to  the  order  of  the 
president,  and  the  amount  of  the 
check  was  credited  to  a  special  ac- 
count, its  proceeds  being  used  to  pay 
semi-monthly  charges  which  the  de- 
positor was  bound  to  pay  for  the  hire 
of  a  ship.  Before  this  money  was  all 
paid  out,  the  bank  went  into  the  hands 
of  receivers,  and  on  the  day  when  the 
receivers     were    appointed    there     ap- 


§  80  (_7dd) 


INSOLVENCY   AND  DISSOLUTION. 


623 


Effect  of  Confusion  of  Trust  Fund. — In  other  words  when  the  trust 
fund  can  not  be  identihed  or  traced  into  some  specific  estate  or  substituted 


peared  on  the  books  of  the  bank  to  be 
in  other  banks  and  on  hand  less  than 
So. 000,  of  which  amount  only  about 
$2,000  was  received  by  the  receivers  in 
currency  and  checks.  This  latter 
amount  was  deposited  on  the  day  that 
the  receivers  were  appointed,  and  noth- 
ing was  ever  realized  from  the  bal- 
ances in  other  banks.  Held  that,  since 
the  special  trust  fiuid  created  by  the 
drawing  of  the  certified  check  had  not 
been  kept  separate  by  the  bank,  but 
the  onlj'  money  on  hand  at  the  time 
it  stopped  business  did  not  -belong  to 
that  fund,  so  that  the  money  belonging 
thereto  could  not  be  traced  or  identi- 
fied, the  depositor  was  not  entitled  to 
receive  the  balance  belonging  to  such 
fund  in  preference  to  other  creditors 
of  the  bank.  Italian  Fruit,  etc.,  Co., 
z'.  Penniman,  100  Md.  698,  1  L.  R.  A., 
X.    S.,    252,    61    Atl.    694. 

D  employed  A,  a  private  banker,  to 
look  after  property  in  Lansing,  giving 
him  a  draft  on  Boston  for  $1,000,  out 
of  which  to  pay  for  certain  repairs.  A 
credited  D  for  $1,000,  and  sent  the 
draft  to  a  Xew  York  bank,  in  the 
usual  course,  for  collection,  and  the 
proceeds  were  placed  to  A's  general 
credit.  The  drafts  and  deposits  between 
the  two  banks  were  constantly  chang- 
ing. Held,  that  D,  on  the  insolvency  of 
A,  was  not  entitled  to  full  payment  as  a 
trust  fund,  but  must  share  pro  rata 
with  other  creditors.  Edson  v.  Angell, 
58  Mich.  336,  25   X.  W.  307. 

Where  a  receiver  was  appointed  for 
an  insolvent  bank  pendente  lite,  and 
funds  ordered  to  be  distributed  were, 
on  dismissal  of  the  suit,  returned  to 
the  bank,  and  expended  by  it  in  the 
usual  course  of  its  business,  and  the 
bank  itself  afterwards  declared  other 
dividends  in  favor  of  the  same  credit- 
ors, which  were  not  claimed,  and  were 
also  expended,  all  such  dividends  lost 
their  identity  as  a  trust  fund,  and  did 
not  pass  to  a  subsequent  receiver  of 
the  bank  as  a  particular  fund.  Rock- 
well V.  Portland  Sav.  Piank,  31  Or. 
431.  50  Pac.   566. 

Where  a  fund  held  by  a  bank  as 
trustee  ha-;  been  mingled  with  the  gen- 
eral assets  of  tlie  l)ank,  the  benefi- 
ciaries of  the  fund  have  no  lien  upon 
the  assets  of  the  bank  therefor,  and 
under  a  general  assignment  by  the 
bank  for  the  benefit  of  its  creditors 
prior  to  the  Act  of  March,  1894,  regu- 
lating voluntary  assignments,  such 
beneficiaries  are  not  entitled  to  priority 


in  the  distribution  of  the  assigned 
estate.  Xew  Farmers'  Bank's  Trus- 
tee V.  Cockrell,  106  Ky.  578,  21  Ky.  L. 
Rep.   177,  51   S.  W.  2. 

Where  a  banker  received  a  check  to 
take  up  a  mortgage,  and  thereafter  in- 
formed the  holder  that  the  maker  of 
the  check  desired  to  pay  the  mortgage, 
whereupon  the  holder  sent  it  to  the 
bank  tor  collection  and  received  tue 
banker's  receipt  therefor,  without 
knowledge  that  he  had  already  re- 
ceived the  amount  of  the  mortgage, 
and  three  days  thereafter  the  banker 
failed,  having  made  no  distinction  be- 
tween the  money  so  received  and  other 
moneys  paid  in  in  the  course  of  his 
business,  all  of  which  the  banker  de- 
posited to  the  credit  of  a  general  de- 
posit account  in  another  bank,  the 
amount  so  received,  though  a  trust 
fund,  was  thereby  so  mingled  that  it 
could  not  be  identified;  and  hence  the 
owner  of  the  mortgage  was  not  en- 
titled to  be  paid  as  a  preferred  cred- 
itor by  the  banker's  receiver.  Moninger 
V.  Security  Title,  etc.,  Co.,  90  111.  App. 
246. 

A  county  whose  funds  are  deposited 
in  a  bank  that  fails  has  no  preference 
over  other  depositors,  to  the  bank  as- 
sets, where  the  identity  of  the  funds 
has  been  lost.  San  Diego  County  v. 
California  Xat.  Bank,  52  Fed.  59,  dis- 
approved. Multnoman  z'.  Oregon  Nat. 
Bank,  61   Fed.  912. 

Deposits  by  state  officers, — Where  a 
check  payable  to  two  persons  as  gov- 
ernment officers  is  indorsed  by  one  of 
them  for  both,  by  indorsement  show- 
ing their  official  character,  and  depos- 
ited in  a  bank  to  be  credited  to  his 
individual  account,  and  thereby  be- 
comes mingled  with  the  funds  of  the 
bank,  the  fact  that  the  check  was  in- 
trusted to  them  as  officers  can  not  be 
urged  by  the  payees  to  charge  the  pro- 
ceeds as  a  trust  fund  in  the  hands  of 
an  assignee  in  insolvency  of  the  Iiank, 
in  an  action  to  which  the  government 
is  not  a  party,  and  in  which  the  author- 
ity of  the  depositing  payee  to  act  for 
his  copayee  is  not  denied.  Mcldrum 
v.  Henderson,  7  Colo.  App.  356,  43 
Pac.   148. 

Rule  in  Wisconsin. — The  better  rule, 
as  stated  above,  was  the  rule  estab- 
lished by  a  number  of  cases  in  the 
supreme  court  of  Wisconsin  until  a 
return  to  the  above  rule  was  announced 
in    Xonotuck    Silk    Co.    z:    Flanders,    87 


624 


BANKS   AND  BANKING. 


§  80  (7dd) 


property,  and  the  means  of  ascertainment  fail,  the  trust  wholly  fails,  and 


Wis.  237,  58  N.  W.  383,  and  the  former 
cases   were    overruled. 

The  rule  in  Wisconsin  now  is  that 
where,  on  failure  of  a  bank,  it  appears 
that  money  deposited  in  trust  has 
been  dispersed,  the  cestui  que  trust 
must  prove  his  claim  as  a  general  cred- 
itor. Dowie  V.  Humphrey,  91  Wis.  98, 
64  N.  W.  315;  In  re  Plankinton  Bank, 
87  Wis.  378,  58  N.  W,  784;  Henry  v. 
Martin,  88  Wis.  367,  60  N.  W.  263; 
Burnham  v.  Barth,  89  Wis.  362,  62  N. 
W.  96;  Thuemmler  v.  Barth,  89  Wis. 
381,    62    N.    W.    94. 

Sufficiency  of  identification. — While 
it  may  not  be  necessary  to  point  to 
the  particular  pieces  of  money  or  the 
particular  bank  bills  that  were  depos- 
ited with  the  trustee,  if  the  trust  prop- 
erty be  money,  yet  there  must  be  a 
preservation  of  the  distinctiveness  of 
the  trust  fund.  The  means  of  ascer- 
taining the  identity  of  the  fund  fails 
where  the  money  has  "been  mixed  and 
confounded  in  a  general  mass  of  prop- 
erty in  the  bank  of  the  same  descrip- 
tion." Doyle  V.  Murphy,  22  111.  502, 
74  Am.  Dec.  165;  Trustees  v.  Kirwin, 
25  111.  73;  Wetherell  v.  O'Brien,  140 
111.  146,  29  N.  E.  904,  33  Am.  St.  Rep. 
221;  Union  Nat.  Bank  v.  Goetz,  138 
111.  127,  27  N.  E.  907,  32  Am.  St.  Rep. 
119. 

That  a  banker,  who  has  since  as- 
signed for  the  benefit  of  creditors, 
knew  that  moneys  deposited  with  him 
by  plaintiff  were  county  moneys,  and 
that  the  assignee  came  into  possession 
of  moneys  in  the  bank  at  the  time  of 
the  failure,  does  not  sufficiently  iden- 
tify the  moneys  in  the  hands  of  the 
assignee,  so  as  to  entitle  plaintiff  to  a 
preference.  Stevens  v.  Williams,  91 
Wis.   58,    64   N.   W.   422. 

It  makes  no  difference  whether  the 
fund  be  traced  into  a  bank  account, 
into  the  hands  of  an  individual,  or  a 
firm;  if  its  identity  can  be  established, 
and  no  superior  rights  of  innocent 
parties  have  intervened,  it  will  be  held 
for  the  benefit  of  the  cestui  que  trust. 
Nor  does  the  fact  that  it  has  been 
changed  or  altered  in  its  nature  or 
character  affect  the  relation  between 
the  cestui  que  trust  and  the  trustee  or 
those  claiming  under  him.  Italian 
Fruit,  etc.,  Co^  v.  Penniman.  100  Md. 
698,  61  Atl.  694,  1  L.  R.  A..  N.  S.,  252. 
A  person  holding  a  certificate  of  a 
bank,  being  suspicious  of  the  bank's 
standing,  contemplated  withdrawing 
the  money,  but  only  withdrew  a  part, 
taking  a  certificate  for  the  balance; 
and    it    was    agreed    that    the    balance 


should  be  put  in  a  separate  package, 
subject  to  his  order,  but  this  was  noi 
done.  Held,  that  the  money  was  not 
sufficiently  distinct  from  the  other 
funds  of  the  bank  to  impress  a  trust 
in  his  favor  on  the  insolvency  of  the 
bank.  Bayor  z\  Schaffner  &  Co.,  51 
111.   App.   180. 

PubUc  funds  invested  in  state  bonds, 
— Act  Jan.  19,  1838  (chartering  the  Bank 
of  Tennessee),  §§  2,  3,  provided  that 
the  capital  of  such  bank  should  con- 
sist in  part  of  the  common  school 
fund,  "whether  the  same  is  vested  in 
stock  in  the  present  banks  of  the  state, 
or  in  the  hands  of  the  superintendent 
of  public  instruction,  or  in  the  hands 
of  the  county  agents  or  other  per- 
sons;" and  that  the  "money  belonging 
to  the  common  school  fund  which  now 
may  be  in  the  possession  of"  such  su- 
perintendent, etc.,  should  be  handed 
over  to  the  officers  of  such  bank.  Held 
that,  in  the  liquidation  of  such  bank 
pursuant  to  Act  Feb.  16,  1866,  such 
counties  as  deposited  school  funds  in 
the  bank  were  entitled  to  receive  from 
it  such  state  bonds  as  could  be  identified 
as  bonds  bought  with  such  school 
funds  in  pursuance  of  lav/,  but,  as  to 
such  of  those  funds  as  should  not  be 
so  traced  into  state  bonds  held  by 
the  bank,  the  counties  entitled  to  such 
funds  were  creditors  of  the  bank,  hav- 
ing no  priority  over  other  depositors 
or  general  creditors.  State  7'.  Bank, 
64  Tenn.   (5  Baxt.)  1. 

Presumption  as  to  identity. — Where 
a  bank  mingles  trust  funds  with  its 
own,  and  disperses  all  the  money — part 
of  it  by  investing  in  securities  or  other 
property,  taking  the  legal  title  thereto 
in  its  own  name — and  subsequently  be- 
comes insolvent,  there  is  no  presump- 
tion that  the  trust  funds  are  repre- 
sented by  the  securities  or  property, 
the  legal  title  to  which  is  in  the  bank. 
Burnham  z:  Barth,  89  Wis.  362,  62  N. 
W,  96. 

The  identification  must  be  made 
without  the  aid  of  a  legal  presumption. 
Cadwell  v.  King.  84  Iowa  228,  50  N. 
W.  975;  Seeley  v.  Seeley-Howe-Le  Van 
Co.,  128  Iowa  294,  103  N.  W.  961; 
Bruner  v.  First  Nat.  Bank,  97  Tenn. 
540,  37  S.  W.  286,  34  L.  R.  A.  532,  and 
see  note  in  connection  therewith;  At- 
kinson V.  Rochester  Printing  Co.,  114 
N  Y.  168,  21  N.  E.  178;  Farwell  v. 
Kloman,  45  Neb.  424,  63  N.  W.  798; 
Stilson  V.  First  State  Bank,  149  Iowa 
662.    129    N.   W.    70. 

But  where  a  banker  takes  on  de- 
posit trust   funds,   knowing  their  char- 


§  80  (7d) 


IXSOLVEXCV    AND    DISSOLUTIOX. 


625 


the  party  can  only  prove  as  a  general  creditor.ss  The  beneficial  owner, 
however,  always  has  a  remedy  against  the  wrongdoing  trustee  to  hold  him 
personally  liable  for  mingling  these  funds.*-* 

§  80  (7d)  Proceedings  to  Establish  Trust.— In  a  proceeding 
against  an  assignee  or  receiver  to  have  a  deposit  in  a  bank  declared  a  trust 
fund  in  the  hands  of  the  defendant  and  paid  in  full  as  a  preferred  claim, 
the  plaintiff  need  not  allege  or  prove  that  the  assets  were  transferred  to 
the  defendant,  as  this  is  a  matter  of  defense.'^^  And  in  such  proceeding 
the  general  rules  as  to  the  relevancy,  competency  and  admissibility  obtain.s^ 


acter,  and.  after  mingling  them  with 
his  own  funds,  draws  on  the  whole  in 
the  usual  course  of  business,  it  will 
be  presumed  that  the  money  so  with- 
drawn is  that  of  the  banker,  and  not 
the  trust  money.  State  v.  Foster,  5 
Wyo.  199,  38  Pac.  926,  29  L.  R.  A. 
226,  63  Am.  St.  Rep.  47,  following 
Knatchbull  v.   Hallett,   13  Ch.   Div.  696. 

Where  a  bank  holds  funds  on  deposit 
for  a  customer,  and  likewise  trust 
funds  to  be  used  for  a  particular  pur- 
pose, the  presumption  is  that  pay- 
ments made  by  it  for  the  customer  are 
from  the  deposit  and  not  from  the 
trust  funds,  and  the  person  entitled  to 
such  trust  funds  has  the  preference 
over  the  general  creditors  therefor. 
National  Life  Ins.  Co.  v.  Mather,  118 
111.    App.    491. 

Plaintifif  deposited  $80  with  a  bank  at 
about  12  o'clock,  when  the  bank  was 
insolvent,  and  it  closed  its  doors  at 
about  2  o'clock  the  same  day.  There 
was  deposited  during  the  day  about 
$12,000  and  the  bank  had  on  hand  in 
cash  when  it  closed  $20,000.  Held, 
in  an  action  by  plaintifif  against  the  re- 
ceiver, in  the  absence  of  evidence  that 
the  bank  had  paid  out  the  $80,  that  it 
would  be  presumed  that  it  had  used  its 
own  money  and  did  not  appropriate 
plaintiff's  money,  which  had  been  re- 
ceived by  fraud,  so  that  he  was  en- 
titled to  have  his  claim  paid  in  prefer- 
ence to  the  general  creditors.  Wil- 
loughby  V.  Weinberger,  15  Okl.  22G,  79 
Pac.    777. 

Where  the  evidence  discloses  that  a 
fund  on  hand  in  a  bank  showed  a  bal- 
ance in  excess  of  the  amount  of  the 
trust  fund  each  day  from  the  receipt 
of  the  money  until  the  doors  of  the 
bank  were  closed,  there  is  no  reason 
for  indulging  in  a  presumption  that  at 
some  time  during  those  days  the  funtl 
was  lower,  especially,  if  such  fact  were 
true,  the  fact  would  be  demonstrable 
from  the  books  of  the  bank.  In  re 
Johnson,   10:j   Mich.    109,   61    N.   W.   352. 

A   bank   collected   the   water   rates   of 

1    B  &  H— 40 


a  city,  receiving  in  payment  checks 
and  cash.  The  treasurer  of  the  water 
board  was  the  president  of  the  bank, 
and  the  deposit  of  such  collections  con- 
stituted a  trust  fund.  The  evidence 
showed  that,  from  a  certain  day  to 
the  day  on  which  the  bank  closed  its 
doors,  one-third  of  the  amount  paid  in 
for  the  water  board  was  paid  by 
checks,  and  the  balance  in  cash.  The 
amount  of  money  on  hand  at  the  time 
the  bank  closed  its  doors  was  greater 
than  the  amount  of  cash  received  for 
the  water  board.  Held,  in  the  ab- 
sence of  proof  to  the  contrary,  that  it 
will  be  presumed  that  the  amount  m 
cash  on  hand,  to  the  amount  deposited 
in  cash  to  the  credit  of  the  water 
board,  was  the  trust  fund.  Board  v. 
Wilkinson,  119  Mich.  655,  44  L.  R  A 
493,   78   N.   W.  893. 

83.  Effect  of  confusion  of  trust  funds. 
— Bank  v.  Smith,  21  Blatchf.  275; 
Bayor  v.  American,  etc.,  Sav.  Bank, 
157  111.  62,  41  N.  E.  622;  Burnham  v. 
Barth.    89    Wis.    3G2.    02    X.    W.    96. 

84.  Remedy  of  beneficial  owner. — 2 
Pom.    Eq.  Jur.,   §    1058. 

But  it  does  not  affect  the  question 
of  identification  that  an  action  may  lie 
against  the  defaulting  trustee  for  his 
wrongful  act.  Moninger  v.  Security 
Title,  etc.,  Co.,  90  111.  App.  246;  Lan- 
terman  v.  Travous,  170  111.  459,  51  N. 
E.    805. 

85.  Proceeding  to  impress  a  trust  on 
deposits. — In  a  proceeding  against  an 
assignee  for  creditors  to  have  a  de- 
posit made  with  the  assignor  before 
the  assignment  declared  a  trust  fund 
and  established  as  a  preferred  claim,  it 
need  not  appear  that  the  assignee  has 
any  of  the  assets  transferred  to  him 
by  the  assignment.  In  re  Knapp,  101 
Iowa  488.  70  N.   W.  626. 

86.  Evidence  in  suit  to  establish 
trust. — Wlicre  for  two  years  the  gen- 
eral agent  of  a  corporation  had  been 
accustomed  to  send  notes  to  a  bank 
for  collection,  and  tiie  bank  as  it  col- 
lected the  notes  at  different  times  gave 


626 


BANKS  AND  BANKING. 


§  80  (8a) 


§  80    (8)   Holders  of  Checks  or  Drafts— §  80   (8a)  In  General.— 

Though  there  is  some  conflict  in  the  cases,  yet  by  the  great  weight  of  au- 
thority, an  unaccepted  check  or  sight  draft  on  a  bank  does  not  operate  as 
an  assignment  of  the  drawer's  deposit  at  law  or  in  equity,  and  upon  the 
insolvency  of  the  bank  the  holder  of  the  draft  or  payee  must  share  pro  rata 
with  other  creditors,  unless  he  can  trace  into  the  hands  of  the  receiver 
money  or  property  which  belongs  to  the  drawer,  or  which  had,  before  the 
receivership,  been  set  apart  and  appropriated  to  the  payment  of  the  check, 
so  as  to  constitute  a  trust  fund.^"     Xoc  does  the  mere  charging  the  check 


the  agent  credit  on  its  books,  from 
time  to  time  remitting  all  the  balance 
due  the  corporation,  in  an  action  by 
the  corporation,  on  the  insolvency  of 
the  bank,  to  have  the  proceeds  of  the 
notes  declared  a  preferred  claim  as 
trust  funds,  it  was  not  error  to  re- 
fuse to  allow  a  witness  to  answer  a 
question  as  to  the  manner  in  which 
the  corporation  collected  its  accounts 
in  the  state,  is  not  being  shown  that 
the  bank  had  any  knowledge  of  the 
manner  in  which  the  corporation  did 
business  with  other  banks,  and  such 
question  not  being  material.  Mc- 
Cormick  Harvesting  Mach.  Co.  v. 
Yankton  Sav.  Bank,  1.5  S.  Dak.  196, 
87    N.   W.   974. 

In  an  action  against  the  receiver  of 
a  bank  to  have  the  proceeds  of  certain 
notes  collected  by  the  bank  declared 
a  preferred  claim  as  a  trust  fund,  the 
funds  in  the  bank  at  the  time  of  its 
insolvency  having  amounted  to  less 
than  plaintiffs  claim,  it  was  proper  to 
admit  the  evidence  of  judgments  re- 
covered by  certain  preferred  creditors 
of  the  bank,  in  order  to  show  that 
there  were  preferred  creditors,  en- 
titled to  share  pro  rata  in  the  funds 
in  the  bank  at  the  time  of  its  insol- 
vency. McCormick  Harvesting  Mach. 
Co.  V.  Yankton  Sav.  Bank,  15  S.  Dak. 
196,   87    N.   W.   974. 

It  was  not  error  to  sustain  an  ob- 
jection to  a  question  as  to  whether 
the  corporation  kept  or  authorized  a 
£;eneral  account  with  any  bank  outside 
of  certain  ones,  inasmuch  as  the  ques- 
tion in  issue  was  whether  the  trans- 
action between  the  corporation  and 
defendant  bank  was  such  that  the  re- 
lation of  debtor  and  creditor  existed. 
McCormick  Harvesting  Mach.  Co.  v. 
Yankton  Sav.  Bank,  15  S.  Dak.  196.  87 
N.  W.  974. 

87.  Rights  of  holders  of  checks  and 
drafts. — Fourth  St.  Xat.  Bank  r.  Yard- 
ley,  165  U.  S.  634,  41  L.  Ed.  855.  17  S. 
Ct.  439;  Sunderlin  v.  Mecosta  County 
Sav.  Bank,  116  Mich.  281,  74  N.  W. 
478;  Northern  Trust  Co.  v.   Rogers,  60 


Minn.  208,  62  X.  W.  273,  51  Am.  St. 
Rep.   526. 

This  rule  has  frequently  been  en- 
forced in  controversies  between  the 
holder  of  a  draft  and  the  assignee  or 
receiver  of  its  insolvent  drawer. 
Fourth  St.  Xat.  Bank  z\  Yardley,  165 
U.  S.  634,  41  L.  Ed.  855,  17  S.  Ct.  439; 
Covert  V.  Rhodes,  48  O.'St.  66.  27  N. 
E.  94.  and  cases  cited;  Attorney  Gen- 
eral 7'.  Continental  Life  Ins.  Co.,  71  N. 
Y.  325,  27  Am.  Rep.  55;  Akin  z:  Jones, 
93  Tenn.  353,  27  S.  W.  669,  25  L.  R.  A. 
523,  42  Am.  St.  Rep.  921;  Harrison  v. 
Wright,  100  Ind.  515;  Guthrie  Nat. 
Bank  r.  Gill.  6  Okl.  560.  54  Pac.  434; 
Reviere  r.  Chambliss,  120  Ga.  714.  48 
S.   E.  122. 

WTiere  a  depositor  in  a  bank  obtains 
from  it  two  drafts  upon  another  bank, 
paj'ing  therefor  b}^  checks  against  his 
deposit,  the  relation  between  the  bank 
and  the  depositor  with  respect  to  such 
drafts  remains  that  of  debtor  and  cred- 
itor, and  is  not  changed  to  a  fiduciary 
relation,  entitling  the  depositor,  upon 
the  bank  becoming  insolvent  before 
the  drafts  are  paid,  to  have  the  assets 
in  the  hands  of  its  receiver  applied 
by  preference  to  the  payment  of  such 
drafts  in  full.  Jewett  v.  Yardley,  81 
Fed.   920. 

A  banker's  draft,  drawn  and  payable 
within  the  county,  is  not  in  legal  effect 
a  check;  and  where,  before  presenta- 
tion to  the  bank  on  which  it  is  drawn, 
and  which  has  funds  to  meet  its  pay- 
ment, the  drawer  fails,  and  payment  is 
refused  on  that  account  by  the  drawee, 
and  the  funds  are  paid  over  to  the  re- 
ceiver of  the  drawer,  the  payee  is  not 
entitled  to  paj-ment  in  full  out  of  such 
funds,  but  must  prorate  with  the  other 
creditors.  Grammel  v.  Carmer.  55 
Mich.  201,  21  N.  W.  418,  54  Am.  Rep. 
363. 

Draft  on  correspondent  bank. — 
\\'here  a  bank  fails  and  passes  into  the 
hands  of  a  receiver  after  it  has  issued 
a  draft  on  a  correspondent  bank,  in 
which  it  has  funds  on  deposit,  and  the 
drawee    has   notice   of   the   receivership 


§  80  (8a) 


INSOLVENCY    AND    DISSOLUTION. 


627 


to  the  drawer  in  his  account  with  the  hank  and  returning  the  check  to  the 
drawer  as  paid,  amount  to  a  payment  of  the  check  and  appropriation  of  a 
specific  fund  or  property  of  the  bank  or  of  the  drawer  for  the  payment 
of  the  check.  By  charging  the  check  in  account,  the  bank  merely  reduced 
its  indebtedness  to  the  depositor  by  the  amount  of  the  check,  and  consti- 
tuted itself  debtor  to  the  holder  of  the  check  to  a  corresponding  amount. '^^ 
And  it  makes  no  difference  whether  the  check  is  sent  by  mail  to  the  bank 
upon  which  it  is  drawn,  or  is  presented  over  the  counter,  provided  it  is  sent 
for  payment  and  not  merely  for  collection. ^^ 


before  the  draft  is  presented  for  pay- 
ment, the  title  to  the  deposit  passes  to 
the  receiver,  and  the  holder  of  the 
draft  has  no  priority  over  other  credit- 
ors of  the  insolvent  bank.  Clark  v.  To- 
ronto Bank,  72  Kan.  1,  3  L-  R.  A.,  N. 
S..  8.3,  115  Am.  St.  Rep.  173,  82  Pac. 
582. 

The  petitioner  bank  received  a  check 
drawn  on  defendant  bank  and  mailed 
it  to  defendant  for  payment.  Defend- 
ant charged  and  returned  the  check  to 
the  drawer  as  paid,  and  sent  petitioner 
a  draft  on  a  third  bank  for  the  amount 
of  the  check.  Two  days  afterwards 
defendant  passed  into  the  hands  of  a 
receiver,  the  draft  remaining  unpaid. 
Petitioner  prayed  an  order  for  the  re- 
ceiver to  pay  to  it  the  amount  of  the 
draft,  on  the  alleged  ground  that  de- 
fendant's assets  came  to  the  receiver 
impressed  with  a  trust  in  favor  of  pe- 
titioner. It  was  held  that  the  order 
should  be  denied,  since  no  separate 
appropriation  of  a  part  of  defendant's 
assets  to  the  payment  of  the  draft  was 
traceable.  People  v.  Merchants',  etc.. 
Bank,  78  X.  Y.  269,  34  Am.  Rep.  532, 
distincruish'nc?'  Tn  re  Le  Blanc,  14  Hun 
8.  4  .Abb.   X.   C.  221. 

The  holder  of  a  cashier's  check 
drawn  on  a  bank  in  another  state  on 
no  particular  fund  is  not,  on  the  insol- 
vency of  the  drawee,  entitled  to  prefer- 
ence over  general  creditors.  Harrison 
V.   Wright,    100    Ind.    515. 

Assignment  for  creditors — Notice. 
— A  check  on  a  bank,  given  by  a  de- 
positor, does  not  bind  the  fund  against 
which  it  is  drawn  until  the  bank  has 
notice  thereof;  and,  therefore,  where 
a  general  assignment  is  made  by  such 
drawer,  and  notice  of  the  assignment 
is  received  by  the  bank  before  it  has 
notice  of  the  prior  check,  it  is  not 
liable  to  the  holder  for  such  fund.  La- 
clede Bank  7-.  Schuler,  120  U.  vS.  511, 
30  L.  Ed.  704,  affirming  27  Fed.  424, 
7   S.    Ct.    r,44. 

Certified  checks. — Drawing  ciiecks 
on  a  bank  at  the  time  of  making  a  de- 
posit   therein,    some    of    whicli    checks 


are  certified,  does  not  make  the  de- 
posit a  special  fund  to  meet  such 
checks,  in  the  absence  of  a  special 
agreement  to  that  efifect.  People  v. 
St.  Xicholas  Bank.  77  Hun  159,  28  N. 
Y.  S.  407,  58  X.  Y.  St.  Rep.  712;  S.  C, 
77  Hun  611,  28  X.  Y.  S.  421.  423.  59  X. 
Y.    St.    Rep.    881. 

The  certification  of  a  check  bj'  a 
bank  is  in  efifect  merely  an  acceptance, 
and  creates  no  trust  in  favor'  of  the 
holder  of  the  check,  and  gives  no  lien 
on  any  particular  portion  of  the  assets 
of  the  bank.  People  v.  St.  X^icholas 
Bank,  77  Hun  159,  28  XT.  Y.  S.  407,  58 
X.  Y.  St.  Reo.  712;  S.  C.  77  Hun  6ii. 
28  N.  Y.  S.  421,  423.  59  N.  Y.  St.  Rep. 
881. 

Conflict  in  authorities. — It  is  true 
that  there  is  great  conflict  with  regard 
to  the  question  whether  or  not  a  check 
is  an  assignment  of  the  drawer  or  his 
funds.  Of  late  years  some  text  writers 
and  a  few  courts,  while  admitting  the 
correctness  of  the  doctrine  as  applied 
to  drafts  or  ordinary  bills  of  exchange, 
have  expressed  a  strong  dissent  from 
its  applicability  to  checks.  Any  one 
interested  in  examining  the  arguments 
of  that  side  of  the  question  will  find 
them  fully  presented  in  2  Daniel  Xego- 
tiablc  Instruments,  §  1635,  et  seq.,  and 
Barnes  r.  Coates,  23  Am.  Law  Recr, 
X    S.,  188. 

88.  A  check  drawn  on  a  bank  by  a 
depositor  who  has  funds  enough  on 
deposit  to  coA-er  it,  when  presented  is 
presented  for  payment,  and  not  for 
collection,  and  its  pavmcnt  liy  draft, 
and  charging  the  drawer's  account 
with  the  amount  of  the  check  and  re- 
turning' it  to  him  as  paid,  do  not  con- 
stitute such  a  setting  apart  of  specific 
funds  that  its  property  will  pass  into 
the  hands  of  a  receiver  impressed  with 
a  trust  in  favor  of  the  payee  of  the 
draft,  in  the  event  that  the  draft  is 
dishonored.  People  7'.  Merchants',  etc., 
Bank,  78  X.  Y.  269.  34  .Am.  Rep.  532. 

89.  Where  the  holder  of  a  Iiank  check 
mails  it  tn  the  drawee  for  pnyment. 
with     instructions     to     remit      the      pro- 


628 


BANKS  AND  BANKING. 


§  80  (8/2a) 


§  80  (8b)  Rule  in  Equity.— But  in  equity  a  check  operates  an  equi- 
table assignment  pro  tanto  of  the  fund  on  which  drawn,. and  hence  a  re- 
ceiver or  assignee  of  the  bank  takes  the  assets  subject  to  this  superior 
claim. ^'^ 

§  80  (8c)  Holders  of  Protested  Paper.— The  holders  of  protested 
paper  of  an  insolvent  bank,  organized  under  the  general  banking  law,  are 
not  entitled  to  priority  in  payment  of  the  funds  in  the  hands  of  the  comp- 
troller over  the  holders  of  paper  not  protested. i^i 

§  80  (8d)  Drawers  of  Drafts  on  Consignment.— Where  the  plain- 
tiffs make  a  consignment,  and  at  the  same  time  send  their  bill  to  bankers 
at  the  point  of  consignment  for  collection,  upon  the  insolvency  of  the  bank 
the  complainants  may  impress  a  trust  on  so  much  of  its  assets  in  the  hands 
of  the  receiver  as  consist  of  the  debt  due  from  the  consignee.^- 

§  80  (8|)  Officers  and  Stockholders''--- §  80  (8|a)  Bank  Offi- 
cers.— Bank  officers  to  whom  the  bank  is  indebted  have  no  other  or  greater 
rights  than  the  other  creditors  of  the  institution,'^-^  and  they  may  even  be 


ceeds,  the  drawer  being  in  funds,  and 
the  check  is  charged  and  returned  to 
the  drawer  as  paid,  and  the  bank's  as- 
sets pass  to  a  receiver  before  the  pro- 
ceeds of  the  check  are  remitted,  the 
holder  is  not  entitled  to  a  preference 
as  to  assets  in  the  receiver's  hands,  un- 
less the  drawee  had  separated  from 
its  general  assets  and  placed  in  the 
hands  of  some  depositary  a  sum  suffi- 
cient to  pay  the  check,  for  the  express 
purpose  of  being  so  applied,  and  this 
fund  came  to  the  receiver  in  some 
form.  People  v.  Merchants',  etc., 
Bank,  78  N.  Y.  269,  34  Am.  Rep.  532. 

90.  Rule  in  equity  as  to  draft  on  a 
fund. — A  bank  made  an  assignment, 
after  drawing  a  draft  on  a  fund,  which 
the  drawee  delivered  to  the  assignee 
before  the  draft  was  collected.  Held, 
that  the  holder  of  the  draft  might  en- 
force his  lien  on  such  fund  in  the 
hands  of  the  assignee,  though  he  had 
previously  presented  his  draft  to  such 
assignee  as  a  claim  against  the  estate, 
which  was  allowed,  and  he  had  ac- 
cepted dividends  thereon.  First  Xat. 
Bank  v.  Coates,  8  Fed.  540,  3  Mc- 
Crary    9. 

91.  Shepherd  z'.  Guernsey  (N.  Y.),  9 
Paige    357. 

92.  Plaintiflfs  consigned  some  meat 
to  H.,  and  sent  the  bill  to  G.  &  Co., 
bankers,  for  collection.  H.,  who  had 
an  overdrawn  account  with  G.  &  Co., 
gave  his  check  on  them  for  the  amount, 
and  they  sent  exchange  on  New  York 
to  plaintiffs,  but  failed,  and  payment 
thereof  was  refused  by  the  New  York 


bank.  Held,  that  plaintiffs  were  en- 
titled to  recover  from  the  receiver  of 
G.  &  Co.  the  amount  of  the  check 
drawn  by  H.  out  of  the  assets  in  the 
receiver's  hands,  as  against  attaching 
creditors.  Ryan  v.  Paine,  66  Miss.  678, 
6   So.   320. 

A  person  directed  his  bank  to  pay 
certain  debts,  which  would  mature 
during  his  absence,  and  gave  a  check 
to  cover  the  amount.  The  bank  paid 
one  creditor  with  a  sight  draft  on  its 
own  correspondent,  and  failed  before 
the  draft  was  paid.  A  receiver  was  ap- 
pointed, and  plaintiff,  holder  of  the 
draft,  filed  a  bill  to  have  the  receiver 
declared  a  trustee  of  the  assets  for  its 
benefit.  Held,  that  a  trust  was  not 
created  by  the  mere  revocable  direc- 
tion of  the  debtor,  to  which  plaintiff 
was  not  a  party.  Louisville  Banking 
Co.  V.  Paine,  67  Miss.  678,  7  So.  462, 
distinguishing  Ryan  v.  Paine,  66  Miss. 
678,  6  So.  320,  on  the  ground,  that  there 
was  no  trust  but  a  mere  direction  to 
the  bankers  which  was  revocable  cit- 
ing as  authority  Van  Eaton  z:  Napier, 
63  Miss.  220;  Trustees  v.  Pace,  15  Ga. 
486;  Mayer  v.  Chattahoochee  Nat. 
Bank,  51  Ga.  325;  BoUies,  Banks,  §  44; 
1  Morse,  Banks,  §  398. 

93.  See,  also,  ante,  "Rights  of  Hold- 
ers  of  Circulating  Notes,"  §  79. 

Right  to  participate  in  distribution, 
see  ante,  "Claims  Provable  and  Estop- 
pel to  Claim,"  §  SO   (1). 

94.  No  priorities  allowed  bank  ofn- 
cers. — On  the  insolvency  of  a  bank, 
the  cashier  has  no  lien  upon  the  money 


§  80  (8>^b) 


IXSOLVEXCY   AND  DISSOLUTIOX. 


629 


postponed  to  other  creditors,  if  it  appears  that  the  insolvency  of  the  bank 
is  due  to  their  misfeasance  or  nonfeasance.^"^ 

§  80  (8^b)  Stockholders.— In  the  settlement  of  the  affairs  of  an  in- 
solvent bank,  nothing  is  to  be  repaid  to  stockholders,  until  after  payment 
of  all  the  debts  of  the  bank.^^     Even  though  the  capital  stock  of  the  bank 


in  the  bank,  for  the  payment  of  his 
deposit  or  salary.  Bruvn  v.  Middle 
Dist.  Bank  (N.  Y.),  9 '  Cow.  413,  1 
Paige   584. 

95.  In  a  suit  by  creditors,  who  are 
also  directors  and  officers  of  an  in- 
solvent banking  corporation,  to  mar- 
shal and  distribute  the  assets,  and  to 
charge  the  stockholders  with  their 
statutory  liabilities  to  creditors  for  de- 
ficiency of  assets,  where  it  appears 
that  the  insolvency  of  the  bank  is  due 
to  the  gross  mismanagement  and  neg- 
lect of  such  directors  and  ofificers, 
rendering  them  liable  to  creditors 
and  stockholders  for  losses  incurred 
thereb}',  they  ma}%  in  a  proper  case,  be 
postponed  as  creditors  until  the  debts 
of  all  other  creditors  have  been  fully 
paid.  Elliott  V.  Farmers'  Bank,  61  W. 
Va.   641,   57   S.    E.  242. 

96.  Stockholders  postponed  until 
creditors  paid. — New  Orleans  v.  Bank, 
3  La.  Ann.  96;  Hollister  v.  Hollister 
Bank,  41  N.  Y.  (2  Keyes)  245,  2  Abb. 
Dec.   367. 

"The  bill  holders,  and  other  credit- 
ors, of  a  bank  have  the  first  claim 
upon  its  stock  and  the  stockholders 
have  no  right,  until  all  the  other  cred- 
itors are  satisfied.  They  have  the  full 
benefit  of  all  the  profits  made  by  the 
establishment,  and  can  not  take  any 
portion  of  the  fund,  until  all  the  other 
claims  on  it  are  extinguished.  Their 
rights  are  not  to  the  capital  stock,  but 
to  the  residuum,  after  all  demands  are 
paid.  In  a  disposition  of  the  corpora- 
tion, the  bill  holders  and  the  stock- 
holders have,  each,  equitable  claims; 
but  those  of  the  bill  holders  possess, 
as  I  conceive,  a  prior  exclusive  equity." 
Marr  ?;.  Bank,  44  Tenn.  (4  Coldw.)  471. 

Section  6146,  Comp.  Laws  of  Michi- 
gan 1897,  provides  that:  "From  time 
to  time,  under  the  direction  of  the 
commissioner  of  the  banking  depart- 
ment, the  receiver  shall  make  ratable 
dividends  of  the  money  realized  or  col- 
lected by  him  on  all  such  claims  as 
may  have  been  proved  to  his  satisfac- 
tion or  adjudicated  in  a  court  of  com- 
petent jurisdiction,  and  the  remainder 
of  the  proceeds,  if  any,  after  the  costs 
and  expenses  of  such  proceedings  and 
all  debts  and  obligations  of  the  bank 
are  satisfied,   shall  be  paid  over  to  the 


stockholders  of  such  bank,  or  their 
legal  representatives  in  proportion  to 
the  stock  by  them  respectively  held." 
McGraw  v.  Union  Trust  Co.,  135  Mich. 
609,   98    N.   W.    390. 

Where  the  stockholder  is  an  estate. 
— The  fact  that  a  bank  president  in- 
vests, without  authority,  in  the  stock 
of  the  bank,  money  which  he  holds  as 
executor  of  an  estate,  and  a  few  days 
before  the  suspension  of  the  bank 
causes  the  stock  to  be  resold  to  the 
bank  at  par,  and  a  certificate  of  de- 
posit to  be  issued,  does  not  confer  upon 
the  estate  any  greater  rights  than  those 
of  a  stockholder,  or  allow  it  to  recover, 
as  against  creditors,  the  price  agreed 
upon.  In  re  Columbian  Bank,  147  Pa. 
422.  23  Atl.  626,  distinguishing  Farm- 
ers', etc.,  Nat.  Bank  v.  King,  57  Pa. 
202. 

Where  the  stockholder  is  the  state. 
— A  stockholder  of  an  insolvent  bank, 
even  though  the  state  itself  is  a  stock- 
holder, can  receive,  as  such,  none  of 
the  assets  until  the  creditors  are  fully 
satisfied.     Dabney  v.  Bank,  3  S.  C.  124. 

Persons  lending  bank  money  and  re- 
ceiving a  pledge  of  its  stock  are  cred- 
itors.— The  board  of  directors  of  a 
bank,  by  resolution,  authorized  the 
president  and  cashier  to  issue  to  the 
latter  400  shares  of  stock  in  considera- 
tion of  his  two  notes  for  $20,000  each, 
the  resolution  reciting  that  the  purpose 
was  to  enable  the  cashier  to  borrow 
money  on  the  stock  as  collateral  for 
the  use  of  the  bank,  and  that  the  bank 
would  "take  care  to  protect  him  in 
the  transaction."  The  stock  was  issued 
to  the  cashier  and  money  borrowed  by 
him  from  E.  &  Sons,  the  stock  being 
pledged  as  collateral.  The  money  thus 
obtained  by  him  was  deposited  in  the 
Iiank  to  his  credit,  less  the  discount, 
which  was  restored  to  him.  In  an  ac- 
tion by  the  stockholders  of  the  liank 
for  a  settlement  and  distribution  of 
the  bank's  assets,  E.  &  Sons  appeared 
and  sought  to  make  the  bank  liable  as 
its  creditors,  and  the  directors  per- 
sonally liable  on  the  ground  of  fraud. 
Held,  that  whether  the  stock  was  sold 
to  enable  the  cashier  to  raise  money 
to  pay  his  debt  to  the  bank,  or  for 
the  purposes  of  the  bank,  it  is  apparent 
that    llu-    l)ank    resorted    to    this    means 


630 


BANKS    AND    BANKING. 


80  (9aaa) 


is  legally  reduced,  such  action  does  not  of  itself  authorize  a  distribution  of 
the  bank's  assets  in  any  form  among  the  stockholders  in  a  sum  equal  to  the 
difference  between  the  original  and  the  reduced  amount  of  capital.  Such 
a  distribution  must  be  limited  to  the  extent  that  there  will  still  be  left  with 
the  bank  assets  equal  in  value  to  the  reduced  capital  stock.^'  But  stock- 
holders may  by  subrogation  succeed  to  the  priority  accorded  creditors.^^ 
And  stockholders,  after  dissolution,  may  buy  up  outstanding  claims  of 
creditors  and  become  entitled  thereby  to  be  substituted  in  their  place  in  the 
distribution  of  the  assets,  even  though  they  may  be  officers  of  the  insolvent 
bank.-'f» 

§  80    (9)    Dividends  and  Interest— §   80    (9a)    Dividends— §   80 
(9aa)  Right  to  Dividends— §  8  0  (9aaa)  In  General. i— The  creditors^ 


of  raising  money  for  its  own  benefit, 
and,  therefore,  E.  &  Sons  have  the 
right  as  creditors  of  the  bank  to  pri- 
ority over  stockholders.  Jones  v.  John- 
son, 86  Ky.  530,  9  Ky.  L.  Rep.  789,  6  S. 
W.   582. 

Necessity  for  presenting  checks. — 
One  to  whom  the  tax  collector  and 
treasurer  of  a  county  transfer  the 
preference  they  have,  under  Code 
1906,  §  3485,  on  insolvency  of  a  bank 
in  which  they  have  deposited  county 
funds,  loses  none  of  his  rights  by 
failure  to  present  to  the  bank  for  pay- 
ment checks  on  it,  which,  with  the  as- 
signment, they  have  given  him;  they, 
with  the  assignment,  operating  to 
transfer  jthe  deposits,  with  the  right  of 
priority  of  payment,  and  it  not  being 
intended  they  should  be  presented  for 
payment,  according  to  the  usual  course 
of  business,  as  the  bank  had  sus- 
pended. Commercial  Bank  7'.  Hardy, 
97   Miss.   755,   53   So.   395. 

97.  Effect  of  reducing  capital  stock. 
— 1  Cook,  Stock,  Stockh.  &  Corp.  Law 
(3d  Ed.),  §  289;  Strong  v.  Brooklyn, 
etc.,  Co.,  93  N.  Y.  426;  McCann  v. 
First  Nat.  Bank,  112  Ind.  354,  14  N.  E. 
251;  Kassler  v.  Kyle,  28  Colo.  374,  65 
Pac.  34. 

A  stockholders'  resolution  reducing 
the  capital  stock  of  a  bank  one-half, 
and  providing  that  each  stockholder 
should  surrender  one-half  of  his  stock, 
and  receive  long-time  certificates  ol 
deposit  therefor,  could  only  operate 
to  distribute  to  the  stockholders  the 
excess  ot  the  bank's  assets  over  its 
liabilities  and  stock  as  reduced;  and 
hence,  where  the  bank  was  insolvent 
at  the  time  the  resolution  was  passed, 
a  holder  of  such  certificates  of  deposit 
was  not  entitled  to  payment  in  priority 
over  other  creditors.  Kassler  z'.  Kyle, 
28   Colo.   374,   65   P.  34. 


98.  Rights  of  stockholders  to  subro- 
gation.— Stockholders  who  have  paid 
the  claims  of  depositors  are  subro- 
gated to  their  right  to  administer  the 
assets  in  the  hands  of  the  assignee. 
City   Bank  v.   Crossland,   65    Ga.   734. 

99.  A  bank  became  insolvent,  and 
made  an  assignment  for  the  benefit  of 
creditors.  The  charter  made  stock- 
holders personally  liable  for  an  amount 
equal  to  the  capital  stock.  After  the 
assignment,  the  vice  president  and  a 
director,  both  stockholders,  bought  up 
claims  of  depositors  at  a  discount  of 
50  per  cent.,  with  a  fund  raised  from 
contributions  of  stockholders,  and 
contended  that  they  were  entitled  to 
a  pro  rata  distribution,  based  upon  the 
face  value  of  these  claims.  This  con- 
tention was  objected  to,  on  the 
grounds  (1)  that,  at  the  time  of  the 
purchase  of  the  claims,  the  purchasers 
were  officers  of  the  bank;  (2)  that  the 
stockholders  owning  the  claims  so 
purchased  could  not  participate  in  the 
distribution  until  all  of  the  depositors 
should  be  paid.  Held,  that  neither 
objection  was  tenable.  Appeal  of 
Craig,  92  Pa.  396. 

1.  Estoppel  to  claim  preference  by 
acceptance  of  dividend  by  depositor  of 
trust  funds,  see  ante,  "Deposit  of 
Trust  Funds,"  §  80   (7). 

2.  Right  of  creditors  to  dividends. — 
National  Bank  v.  Mechanics'  Nat. 
Bank,  94  U.  S.  437,  24  L.  Ed.  176; 
Chemical  Nat.  Bank  t.  Armstrong.  8 
C.  C.  A.  155,  59  Fed.  379,  28  L.  R.  A. 
231;  In  re  Ziegler,  98  App.  Div.  117,  90 
N.  Y.  S.  681  (efifect  of  failure  to  prove 
claim). 

A  depositor  of  an  insolvent  state 
bank  drew  its  check  on  the  bank  on 
the  day  the  superintendent  of  banks 
took  possession  thereof.  On  the  next 
business  day.  a  national  bank,  which 
was  the   clearing  bank  in   the  clearing 


§  80  (9aaa) 


INSOLVENCY  AND  DISSOLUTION. 


631 


but  not  the  stockhoklers-  may  be  entitled  to  a  dividend  on  their  claims 
•after  the  principal  of  the  debts  allowed  is  paid.  A  stockholder  in  an  in- 
solvent bank,  with  knowledge  of  its  insolvency,  can  not  sell  his  stock 
to  it,  and  in  the  distribution  of  its  assets,  claim  a  dividend  on  the  price  or 
sum  the  bank  agreed  to  pay  him  for  it,  because  an  allowance  of  this  claim 
will  injure  the  creditors  of  the  bank  by  reducing  the  dividends  they  would 
otherwise  receive  from  its  assets,  and  proportionately  increase  their  losses."* 


house  association  for  the  state  bank, 
paid  the  checks,  which  were  drawn  in 
the  ordinary  course  of  business  and 
without  anticipation  of -the  insolvency 
of  the  state  bank.  Held  that,  since 
the  assets  of  the  state  bank  in  the 
hands  of  the  national  bank  as  clearing 
house  agent  were  pledged  only  to  save 
it  harmless  under  its  contract  to  clear, 
the  depositor  was  only  entitled  to  the 
same  percentage  on  its  whole  claim 
as  other  depositors  who_  drew  no 
checks  received,  and  the  right  of  the 
depositor  to  any  dividend  on  his  claim 
must  be  postponed  until  such  time  as 
the  other  creditors  have  received  a 
percentage  on  their  claims  equal  in 
amount  to  the  percentage  of  the  claim 
of  the  depositor  received  by  the  pay- 
ment of  its  checks.  People  v.  Bank, 
70   Misc.    Rep.   633,    127   N.   Y.   908. 

Payment  of  dividend. — When  a  de- 
positor is  entitled  to  dividends  from 
the  assignee  of  the  bank,  which  have 
not  been  declared  or  paid  by  reason  of 
the  controversy  in  the  suit,  he  will  be 
entitled  to  be  paid  out  of  the  fund  re- 
covered from  his  dividends  on  his  de- 
posit equal  to  those  paid  to  the  other 
depositors  with  interest  on  the  same 
from  the  time  the  same  would  have 
been  paid  if  there  had  been  no  contro- 
versy or  suit.  Lamb  v.  Cecil,  28  W. 
Va.  6.53,  approved  and  applied  in  Lamb 
r.  Pannell.  28  W.  Va.  663. 

Rights  of  holder  purchasing  bills  at 
discount. — Where  the  road  of  a  bank- 
ing and  railroad  company,  on  which 
bill  holders  had  a  lien  for  the  payment 
of  their  bills,  was  sold  under  a  decree 
to  raise  a  fund  for  the  payment  of  such 
bills,  it  was  held  that  the  bill  holders 
should  be  entitled  to  dividends  only 
on  the  amount  actually  paid  by  them, 
respectively,  for  their  bills,  and  not  on 
the  amount  originally  received  by  the 
bank.  Collins  r.  Central  Bank,  1  Ga. 
43.5. 

3.  It  is  clearly  the  law  in  California 
that  the  funds  of  an  insolvent  banking 
corporation  are  all  to  be  dispensed 
solely  for  the  benefit  of  its  creditors, 
and,  while  the  stockholder  may  be 
compelled    to    put    a    great    deal    into 


the  funds  of  such  a  corporation  in  the 
way  of  assessments,  he  is  not  as  _  a 
stockholder  permitted  to  share_  in  its 
dividends  either  by  subrogation  or 
-otherwise.  Civ.  Code,  §  309.  Sacra- 
mento Bank  v.  Pacific  Bank,  124  Cal. 
147,  56  Pac.  787,  45  L.  R.  A.  863,  71 
Am.    St.   Rep.   36. 

Injunction  against  dividends. — The 
separation  of  the  banking  from  the 
other  business  of  a  corporation,  foi 
the  purpose  of  winding  up  the  former, 
can  not  change  the  obligations  of  the 
company  to  creditors  or  stockholders; 
and  an  injunction  will  be  granted  to 
arrest  a  dividend  to  stockholders  if 
there  are  any  debts  created  by  former 
banking  operations  unpaid  or  unpro- 
vided for.  New  Orleans  v.  Commer- 
cial Bank,  3  La.  Ann.  96. 

4.  In  re  Columbian  Bank,  147  Pa. 
422,  23  Atl.  626. 

Where  the  director  of  a  bank,  after 
an  examination  of  its  aflfairs,  finds  it 
insolvent,  'and  consults  with  the  presi- 
dent in  reference  to  a  sale  of  his  stock, 
and  the  only  persons  known  to  him 
in  the  transaction,  or  mentioned  as 
probable  purchasers,  are  the  president 
and  cashier,  to  whom  he  delivers  the 
stock,  and  from  whom  he  receives  in 
exchange  the  interest-bearing  obliga- 
tion of  the  bank,  the  sale  must  be 
deemed  to  have  been  made  to  the  bank, 
and  the  fact  that  the  stock  is  after- 
wards formally  transferred  to  the 
cashier  for  his  worthless  note  is  only 
confirmatory  of  this  view.  In  re  Co- 
lumbian Bank,  147  Pa.  422.  23  Atl.  626, 
628. 

The  vice  president  of  a  bank,  after 
it  had  been  running  several  years, 
made  an  examination  of  its  affairs, 
which  "startled"  him,  and  caused  him 
to  resign  his  office.  He  determined 
also  to  sell  his  stock  at  auction,  but 
was  induced,  for  the  sake  of  the  bank's 
credit,  to  sell  it  jirivately  to  the  bank. 
Shortly  afterwards  the  bank  sus- 
pended, with  liabilities,  exclusive  of 
the  capital  stock,  amounting  to  $300,000, 
and  assets  of  about  one-third  that 
amount.  The  bills  receivable  and 
other    loans    appraised    as    good     were 


632 


BANKS  AND  BANKING. 


§  80  (9bbb) 


The  possession  of  collateral  security  does  not  affect  the  creditor's 
right  to  a  dividend  upon  the  full  amount  of  his  claim;  but  if  he  has  proved 
his  claim  he  can  collect  his  dividends  without  any  deduction  from  his  claim 
as  proven  for  collections  made  from  collateral  after  his  proof  of  claim  is 
filed. ^  But  a  creditor  of  an  insolvent  bank  is  not  entitled  as  against  other 
creditors  to  receive  dividends  out  of  the  general  funds  in  the  hands  of  a 
receiver  on  notes  held  as  collateral  security  and  indorsed  by  the  debtor,  in 
addition  to  dividends  on  the  principal  debt.*^ 

Failure  of  Creditor  to  Claim — Notice  of  Dividends. — Under  the 
New  York  General  Corporation  Law,  §§  263,  266,  where  a  receiver  of  a 
bank  had  failed  to  give  notice  of  prior  dividends,  creditors'  failing  to  claim 
the  same  did  not  forfeit  their  right  thereto,  but  the  dividends  should  be 
paid  into  court,  and  notice  given  of  such  right." 

§  80  (9bbb)  Rights  of  Purchasers  of  Claims.— Where  the  pur- 
chaser of  a  number  of  the  claims  of  creditors  owes  no  fiduciary  relation 
to  the  bank  or  its  stockholders,  he  is  entitled  to  a  dividend  on  the  full  face 


only  partially  available,  as  in  many  in- 
stances they  were  set  ofif  by  the  de- 
posit accounts  of  the  debtors.  The 
cash  resources  remaining  on  hand 
amounted  only  to  $1,285.93.  Held,  that 
the  bank  was  insolvent  when  it  bought 
the  stock,  and  that,  as  the  owner  of 
the  stock  was  chargeable  with  notice 
of  its  insolvency,  he  was  not  entitled 
to  claim,  with  creditors,  a  dividend  on 
the  amount  agreed  to  be  paid.  In  re 
Columbian  Bank,  147  Pa.  422,  23  Atl. 
626,  628. 

5.  Possession  of  collateral  as  affect- 
ing right  to  a  dividend. — Chemical 
Nat.  Bank  v.  Armstrong,  8  C.  C.  A. 
155,  28  L.  R.  A.  231,  59  Fed.  372;  Third 
Nat.  Bank  v.  Eastern  R.  Co.,  122  Mass. 
240;  Third  Nat.  Bank  v.  Haug,  82 
Mich.  607,  47  N.  W.  33,  11  L.  R.  A. 
327;  In  re  Burke,  25  R.  I.  302,  55  Atl. 
825;  First  Nat.  Bank  v.  Williamson 
(Tenn.),  35   S.  W,  573. 

Amount  of  dividends. — In  a  special 
proceeding  under  Gen.  Laws  1896,  c. 
178,  §  42,  et  seq.,  to  wind  up  a  bank 
through  a  receiver,  the  equity  rule,  al- 
lowing dividends  to  a  secured  creditor 
on  the  full  amount  of  his  claim,  ob- 
tains, and  not  the  insolvency  rule 
(chapter  274,  §  29),  allowing  dividends 
only  on  the  part  of  the  claim  in  excess 
of  the  value  of  the  securities;  chapter 
240,  §  1,  providing  that  statutory  pro- 
ceedings shall  follow  the  course  of 
equity  so  far  as  it  is  applicable,  and 
the  insolvency  law  being  suspended  by 
the  national  bankrupt  law.  In  re 
Burke,  25   R.  I.  302,  55  Atl.  825. 


But  a  creditor  of  an  insolvent  bank- 
ing corporation  in  the  hands  of  a  re- 
ceiver, holding,  as  collateral  to  his  de- 
posit in  the  bank,  notes  negotiated  and 
guaranteed  by  the  corporation,  will 
only  be  allowed  a  dividend  on  the 
amount  remaining  unpaid  after  he  has 
exhausted  such  securities.  Citizens' 
Bank  z'.  State,  8  Kan.  App.  468,  54  Pac. 
510. 

6.  First  Nat.  Bank  v.  Williamson 
(Tenn.),  35   S.   W.   573. 

Right  to  dividends  both  upon  princi- 
pal indebtedness  and  collateral. — A 
creditor  of  an  insolvent  bank  filed_  a 
bill  to  compel  the  receiver  to  pay  him 
ratably  with  all  of  the  creditors'  divi- 
dends on  its  direct  indebtedness  to 
him  of  $25,805.60,  principal  debt,  and 
also  pro  rata  dividends  on  all  the  col- 
lateral notes  and  warrants  he  holds  in- 
dorsed by  the  insolvent  bank.  The 
court  held,  that  the  creditor  was  not 
entitled  to  dividends  out  of  the  general 
funds  in  the  hands  of  the  receiver  on 
the  collateral  he  held,  in  addition  to 
the  dividends  he  received  on  the  prin- 
cipal indebtedness.  First  Nat.  Bank 
V.    Williamson    (Tenn.),   35    S.    W.    573. 

The  debt  of  a  bank  to  a  creditor  who 
holds  its  note,  and,  as  collateral,  notes 
indorsed  by  it,  as  regards  the  credit- 
or's right  to  dividends,  in  a  proceed- 
ing under  Gen.  Laws  1896,  c.  178,  §  42, 
et  seq.,  is  the  bank's  note  only.  In  re 
Burke,    25    R.    I.    302,    55    Atl.    825. 

7.  Failure  of  creditor  to  claim — 
Notice  of  dividends. — People  v.  Ger- 
men  Bank  (Sup.),  136  N.  Y.  S.  311. 


§  80  (9bb) 


INSOLVENCY  AND  DISSOLUTION. 


635 


of  the  claims,  though  he  purchased  them  for  fifteen  per  cent  of  their  face 
value.^ 

§  80  (9ccc)  Establishment  of  Right. — Where  a  creditor  of  a  bank 
whose  claim  is  secured  by  a  mortgage  proves  the  entire  claim,  an  order  of 
the  court  allowing  the  claim,  made  after  execution  of  the  mortgage,  is  final 
and  conclusive  as  to  the  right  to  participate  in  the  dividends  so  far  as  the 
effect  of  the  mortgage  is  concerned.^ 

§  80  (9bb)  Distribution  of  Dividend. — Under  the  New  York  Code 
an  objection  that  the  appointment  of  a  receiver  for  an  insolvent  bank  on 
the  attorney  general's  application  will  render  it  necessary  for  the  depositors 
to  await  the  result  of  final  judgment  before  receiving  any  dividends  is  not 
well  taken,  as  Code  Civ.  Proc,  §  1789,  empowers  the  court  to  direct  the 
temporary  receiver  to  make  distribution  among  depositors,  creditors,  and 
stockholders  before  final  judgment. ^"^ 

§  80    (9b)   Interest"— §  80    (9aa)  Right  to  and  Liability  for.— 

Creditors  may  receive  interest  on  dividends  paid  to  them,  if  they  are  dili- 
gent in  the  presentation  of  their  claims. ^^  jf  ^\^q  assets  of  the  corporation, 
when  fully  administered,  only  suffice  for  the  payment  of  the  principal  of 
the  debts  of  the  corporation,  the  statutory  liability  of  the  shareholders  may 
be  resorted  to  for  the  recovery  of  such  interest  as  would  have  been  re- 
coverable from  the  corporation,  had  it  continued  solvent,  without  receiver- 
ship.^^ 

§  80  (9bb)  Computation  of. — As  against  the  assets  of  an  insolvent 
bank,  interest  on  a  claim  is  calculated  only  to  the  date  of  the  suspension  and 


8.  Pahner  z'.  Bank,  72  Minn.  266,  75 
X.   \V.   .380. 

9.  Establishment  of  right  to  divi- 
dend.— A  bank,  after  selling  certain 
notes  and  indorsing  them,  became  in- 
solvent; and  the  receiver  appointed  re- 
quested the  purchaser  to  obtain  a 
mortgage  from  the  maker  of  the  notes 
as  security,  which  he  did.  Subse- 
quently the  claim  of  the  purchaser 
against  the  insolvent  bank  on  the  notes 
was  allowed,  and  the  receiver  was  or- 
dered to  pay  it,  with  other  liabilities. 
Held,  that  the  order  of  the  court  made 
after  the  execution  of  the  mortgage 
was  final  and  conclusive,  and  the  re- 
ceiver could  not  refuse  to  pay  the  pur- 
chaser when  a  dividend  was  ordered. 
Rockwell  V.  Portland  Sav.  P.ank,  39 
Or.   241,    64   Pac.    388. 

10.  Tefift  V.  North  River  Bank,  14  N. 
Y.  8,  26  Abb.  N.  C.  189. 

11.  See  post,  "Presentation  and  Pay- 
ment of  Claims,"  §  288. 

12.  Interest  on  dividends   should   not 


be  allowed  in  favor  of  one  who  volun- 
tarily delayed  presenting  his  claim 
until  long  after  the  dividends  were  de- 
clared, although  the  delay  was  due  to 
a  mistaken  belief  that  he  had  a  right 
to  pay  his  claim  in  full  from  col- 
laterals in  his  hands.  Chemical  Nat. 
Bank  v.  Armstrong.  8  C.  C.  A.  155,  59 
Fed.  372,  28   L.   R.  A.   231. 

Effect  of  receiving  dividends. — 
Where,  in  proceedings  against  a  bank- 
ing and  trust  company  for  the  seques- 
tration and  division  of  its  assets,  the 
sums  received  by  its  creditors  from  its 
assets  were  received  as  dividends  not 
as  payments,  and  there  was  no  action 
to  recover  the  principal  and  no  ac- 
ceptance or  even  offer  of  paj'mcnt  of 
the  principal  in  full  for  the  debt,  the 
acceptance  of  such  dividends  to  the 
amount  of  the  principal  did  not  bar 
the  creditors  from  recovering  interest. 
Flynn  v.  American  Banking,  etc.,  Co., 
104    Me.    141,    69    .^tl.    771. 

13.  Flynn  v.  American  Banking,  etc., 
Co.,    104    Me.    141,   no   Atl.   771. 


634 


BANKS    AND  BANKING. 


§  80  (9i^a) 


the  vesting  of  the  title  of  the  assets  in  the  receiver,^-*  unless  there  are  sur- 
plus assets  after  paying  the  indebtedness. ^^ 

§  80  (9cc)  Rate  of. — In  an  action  brought  by  the  attorney  general 
to  wind  up  the  affairs  of  an  insolvent  bank,  interest  at  the  contract  rate 
should  be  credited  on  the  accounts  of  creditors  to  the  date  the  receiver  took 
possession  of  the  bank's  assets,  and  thereafter  interest  is  not  allowable  as 
between  the  creditors  themselves,  but  is  allowable  against  the  bank,  and, 
if  the  assets  are  sufificient  for  the  payment  of  the  principal  indebtedness  as 
established  at  the  time  the  receiver  took  possession,  interest  should  be  paid 
at  the  legal  rate  before  distribution  of  surplus  to  stockholders. ^'^ 

§  80  (9^)  Set- Off— §  80  (9|a)  In  General. i"— Upon  the  insol- 
vency of  a  bank,  its  debtors  may  avail  themselves  of  any  indebtedness  of 
the  bank  to  them  as  a  set-off  against  their  indebtedness  to  the  bank.i*    And 


14.  Interest  on  claims  against  bank. 

White  V.   Knox,   111   U.  S.  784,  28   L. 

Ed.  603,  4  S.  Ct.  686;  Richmond  v. 
Irons,  121  U.  S.  27,  30  L.  Ed.  864,  7  S. 
Ct.  788;  Sexton  v.  Dreyfus,  219  U.  S. 
339,  55  L.  Ed.  244,  31  S.  Ct.  256;  Chem- 
ical Nat.  Bank  v.  Armstrong,  8  C.  C. 
A.  155,  59  Fed.  372,  28  L.  R.  A.  231; 
Bank  Comm'rs  v.  New  Hampshire 
Trust  Co.,  69  N.  H.  621,  44  Atl.  130; 
Bank  Comm'rs  v.  Security  Trust  Co., 
70  N.  H.  536,  49  Atl.  113;  Warrant  Fi- 
nance Co.'s  Case,  4  Ch.  App.  643;  In 
re  Joint-Stock  Discount  Co.,  5  Ch. 
App.    86. 

This  rule  is  based  both  upon  reason 
and  authority.  If  the  rule  were  other- 
wise, the  claimant  who  delayed  until 
the  last  to  file  his  claim  would  have 
his  negligence  rewarded  by  the  in- 
creased interest  which  he  would  re- 
ceive. New  York  Security,  etc.,  Co.  f. 
Lombard  Invest.  Co..  73   Fed.  537. 

Interest  does  not  run,  as  against  the 
estate,  after  the  assignment  or  de- 
clared insolvency,  unless  there  are 
funds  sufficient  on  hand  to  pay  all  of 
the  demands  and  accrued  interest; 
otherwise,  interest  is  to  be  allowed 
up  to  the  time  of  the  declared  insol- 
vency only.  Chemical  Nat.  Bank  v.  Arm- 
strong, 8  C.  C.  A.  155,  59  Fed.  372,  28 
L.  R.  A.  231;  White  v.  Knox,  111  U.  S. 
784,  28  L.  Ed.  603.  4  S.  Ct.  686;  Rich- 
mond V.  Irons,  121  U.  S.  27,  30  L.  Ed. 
864,  7  S.  Ct.  788;  National  Bank  v. 
Mechanics'  Nat.  Bank,  94  U.  S.  437,  24 
L.  Ed.  176;  Home  Sav.  Bank  7>.  Peirce, 
156  Mass.  307,  31  N.  E.  483;  New  York 
Security,  etc.,  Co.  v.  Lombard  Invest. 
Co.,  73"  Fed.  537. 

15.  Flynn  v.  American  Banking,  etc., 
Co..  104  Me.  Ul.  69  Atl.  771. 

Moreover,   where    there    is   a   surplus 


of  assets  it  shall  be  applied  to  the  pay- 
ment of  such  interests  before  any  dis- 
tribution is  made  among  shareholders. 
Flynn  z'.  American  Banking,  etc.,  Co., 
104  Me.  141,  69  Atl.  771. 

In  Maine  claims  against  insolvent 
banks  bear  interest  from  the  time  they 
are  filed,  provided  the  assets  are  more 
than  sufficient  to  pay  the  principal  of 
all  claims  allowed.  Rev.  Stats.  Maine 
1883,   ch.  47,  §   66. 

That  statute,  however,  was  de- 
signed for  banks  of  issue.  Flynn  z'. 
American  Banking,  etc.,  Co.,  104  Me. 
141,  69  Atl.  771. 

16.  People  V.  Merchants'  Trust  Co., 
187  N.  Y.  293,  79  N.  E.  1004.  affirming 
116  App.  Div.  41,  101  N.  Y.  S.  255,  fol- 
lowing dictum  in  People  i'.  American 
Loan,  etc.,  Co.,  172  N.  Y.  371,  65  N.  E. 
200. 

17.  Right  to  set  of¥  deposit  against 
debt  due  insolvent  bank,  see  post,  "Set- 
Off  by  Depositor,"  §  135. 

Set-off  by  receiver  against  claims 
against  estate,  see  ante,  "Presentation 
and   Payment  of  Claims,"  §  80. 

18.  Right  of  set  off  against  a  bank. — 
Finnell  r:  Nesbit  (Ky.),  16  B.  Mon. 
351;  Salladin  v.  Mitchell,  42  Neb.  859, 
61  N.  W.  127;  Davis  v.  Industrial  Mfg. 
Co.,  114  N.  C.  321,  19  S.  K.  371,  23  L. 
R.  A.  322. 

A  bank  received  on  deposit  a  check 
drawn  by  plaintiff  on  another  bank, 
and  carried  the  amount  to  the  credit 
of  his  agent,  upon  the  agreement  that 
he  would  take  for  part  of  the  sum  a 
draft  drawn  on  another  bank,  and 
would  not  immediately  check  out  the 
balance.  Before  the  draft  was  pre- 
sented the  drawer  bank,  which  was  in- 
solvent, passed  into  the  hands  of  a 
receiver,   without   having   provided   any 


§  80  (9/2b) 


IXSOLVEXCV    AXD    DISSOLUTION. 


635 


this  right  of  set-off  against  the  bank  is  not  affected  by  the  appointment  of 
a  receiver,  whether  the  debt  was  due  at  that  time  or  not,  and  whether  equi- 
table or  legal. ^'-^ 

Set-Off  by  Depositors. — Thus  the  right  of  a  depositor  to  set  oft'  a 
claim  for  his  deposit  on  the  insolvency  of  the  bank  against  a  debt  due  from 
him  to  the  bank  is  w^ell  settled. -'' 

§  80    (9 lb)    Conditions  Annexed  to  Exercise  of  Right. — But  the 

general  rule  that  the  right  to  a  set  oft"  depends  on  whether  the  defendant 
has  a  right  of  action  against  the  plaintift',  applies  in  the  case  of  set-off  by 
debtors  to  a  bank.-^  . 


funds  with  which  to  pay  it.  The  check, 
payment  of  which  had  been  stopped, 
came  to  the  possession  of  the  receiver, 
and  the  draft  belonged  to  plaintiff. 
Held,  that  plaintiff  was  entitled  in 
equity  to  have  the  amount  of  the  draft 
set  off  against  his  liability  on  the 
check.  Armstrong  v.  Warner,  49  O. 
St.  376,  31  N.  E.  877,  17  L.  R.  A.  46G. 
The  bank  A,  at  the  time  of  its  fail- 
ure, was  indebted  to  the  bank  B,  which 
subsequently  failed;  the  trustee  of  the 
bank  A  having  at  the  time,  on  deposit 
with  the  bank  B,  funds  of  the  trust  es- 
tate. Held,  that  the  receiver  of  the 
bank  B  was  not  entitled  to  set  oft", 
against  the  indebtedness  due  the  trustee 
of  the  bank  A  on  the  deposits,  the  in- 
debtedness due  the  bank  B  from  the 
bank  A;  nor  was  the  trustee  of  the 
bank  A  entitled  to  set  off,  against  the 
pro  rata  share  of  the  bank  B  in  the 
funds  of  the  bank  A,  the  indebtedness 
due  from  the  bank  B  on  account  of  the 
deposits;  but  each  was  only  entitled 
to  receive  from  the  other  a  pro  rata 
share  with  tlie  other  creditors.  Akin 
r.   Williamson    (Tenn.),   35   S.   W.   569. 

Checks  held  for  collection. — In  an 
action  by  an  assignee  for  benefit  of 
creditors  of  a  bank  to  recover  a  bal- 
ance due  from  another  bank,  a  check 
drawn  on  the  insolvent  bank,  which 
■came  into  the  hands  of  defendant  prior 
to  the  assignment,  and  to  which  no  de- 
fense is  set  up,  should  be  allowed  as  a 
set-off,  though  defendant  is  not  the 
owner  of  the  check,  but  holds  it  for 
collection.  Farmers',  etc.,  Nat.  Bank 
V.  Penn  Bank,  123  Pa.  283,  16  .\tl.  761, 
2  T..  R.  A.  273. 

Rule  in  Louisiana. — Tn  an  action  by 
a  Ijank,  in  liquifiatif)n  under  the  acts  of 
March  14  and  26,  1842,  to  recover  the 
amount  of  a  dividend  due  on  stock  held 
by  it  in  another  corporation  to  which 
it  was  indel)tcd  in  a  larger  sum  for 
money    on    deposit,    the    claim    of    the 


bank  must  be  held  to  be  discharged  by 
compensation,  pursuant  to  Act  April 
5,  1843,  §  2,  declaring  that  it  shall  be 
the  duty  of  banks  to  receive  in  offset 
of  del)ts  due  to  it  its  own  debts  when 
liquidated  and  part  due.  Citizens' 
Bank  zf.  Steam  Cotton  Press  (N.  Y.), 
11  Rob.  286. 

An  appeal  lies  under  Rev.  St.,  p.  135, 
§  17,  from  the  decision  of  receivers, 
who  refused  to  allow  a  set-off  in  a  case 
where  the  applicants  admitted  that  a 
bank  held  their  promissory  note,  but 
claimed  that  the  bank  was  largely  in- 
debted to  them  for  interest,  commis- 
sions, etc.  Jackson  z\  Receivers,  9  X. 
J.  Eq.  (1  Stockt.)  205. 

19.  In  re  Middle  Dist.  Bank  (N.  Y.), 
9  Cow.  414,  1  Paige  585,  19  Am.  Dec. 
452. 

20.  When  a  bank  stops  payment  or 
becomes  insolvent,  a  depositor's  right 
to  repayment  of  his  deposit  immedi- 
ately accrues  without  demand,  so  that 
at  the  time  the  assets  vest  in  the  cred- 
itors on  insolvency,  the  deposit  of  each 
depositor  is  due  and  entitles  its  owner 
to  use  it  as  a  set-off  against  any  delit 
held  by  the  bank  at  the  time  of  the 
transfer,  whether  due  then  or  not.  In 
one  case,  his  right  would  be  legal,  in 
the  other,  equitalile,  but  none  the  less 
to  be  protected  l^ecause  the  statute  law 
of  Ohio  recognizes  the  existence  of 
equitable  set-off  (Rev.  Stat.,  §  5076). 
Armstrong  v.  Law.  27  Wkly.  L.  Bull. 
100,  11  O.  Dec.  461;  Armstrong  v. 
Warner,  49  O.  St.  376.  31  N.  E.  877, 
17  L.  R.  A.  466  (affirming  21  Wkly.  L. 
Bull.  136,  10  O.  Dec.  434). 

21.  Inasmuch  as  the  holder  of  a 
check,  drawn  l)y  a  third  party  on  a 
bank,  has  no  action  against  the  bank 
in  case  of  refusal  to  pay,  he  can  not 
set  off  such  check  against  his  note  held 
by  the  bank.  Case  7'.  Henderson,  23 
La.  Ann.  49,  8  Am.  Rep.  590;  Case  v. 
Marchand,  23  La.  Ann.  60. 


636 


BANKS   AND   BANKING. 


§  80  (9/.C) 


§  80  (9|c)  Claims  That  May  Be  Used  as  Set-Offs.— Of  course 
only  such  debts  or  clamis  can  be  used  as  are  contemplated  by  the  statute 
of  set-off  m  the  particular  jurisdiction.-  Claims  against  the  bank  acquired 
after  its  insolvency  can  not  be  used  as  set-offs  against  debts  due  by  the 
defendant  to  the  bank.-^  Nor  can  a  debtor  of  a  bank,  after  notice  that  his 
creditor  had  assigned  the  debt  to  a  third  person,  to  secure  the  latter  for 
acceptances  made  for  the  creditor,  the  proceeds  of  which  had  been  received 


22.  Debt  due  by  contract.— In  ad- 
justing the  concerns  of  a  bank  by  re- 
ceivers of  its  assets,  the  bank  tax,  im- 
posed by  Rev.  St.,  c.  9,  §  1,  and  9.  36, 
§  45,  and  due  from  the  bank,  may  be 
set  ofif  against  money  due  from  the 
commonwealth  to  the  bank  on  loan. 
Commonwealth  v.  Phoenix  Bank 
(Mass.),  11   Mete.  120. 

"Mutual  credits." — Where,  at  the 
time  of  the  failure  of  the  bank,  one  of 
its  customers  was  indebted  to  it  on  a 
note  not  then  due,  but  which  matured 
a  few  days  thereafter,  and  the  bank 
was  also  indebted  to  him  for  deposits 
in  a  sum  exceeding  the  amount  of  the 
note,  such  claims  are  "mutual  credits," 
within  2  Rev.  St.,  p.  47,  §  36,  under 
which  it  is  the  duty  of  the  receiver  of 
the  bank  to  set  off  the  one  against  the 
other.  Jones  v.  Robinson  (N.  Y.),  26 
Barb.  310. 

Where,  on  the  insolvency  of  a  bank, 
the  lessor  of  its  banking  house  was  in- 
debted to  it  on  a  demand  note,  he  was 
not  entitled  to  set  ofif  a  claim  for  dam- 
ages for  breach  of  the  lease  by  the 
bank  against  its  claim  on  the  note. 
McGraw  v.  Union  Trust  Co.,  135  Mich. 
609,  98  N.  W.  390. 

Where  the  vice  president  and  attor- 
ney of  an  insolvent  bank  was  indebted 
to  it  on  notes  secured  by  mortgage,  he 
was  estopped  to  set  up  claims  arising 
from  a  liability  accruing  against  him 
as  surety  on  an  attachment  bond,  and 
for  money  which  he  borrowed  on  his 
personal  credit  and  gave  to  the  bank's 
cashier,  as  a  set-ofif  against  his  liabil- 
ity on  the  debt  due  the  bank;  and 
b.ence  he  was  not  entitled  to  maintain 
a  bill  to  restrain  the  receiver  of  the 
bank  from  foreclosing  the  mortgage. 
Chapman  v.  Cutrer  (Miss.),  29  So.  467. 

Unliquidated  claims. — Where  credit 
claims  exist  on  both  sides  between  an 
insolvent  bank  and  one  of  its  custom- 
ers, and  the  customer's  claim  _  is  not 
liquidated,  and  incapable  of  liquidation, 
without  the  aid  of  a  jury  or_  extrinsic 
evidence,  the  right  to  set-off  is  not  ab- 
solute; but  the  receiver  of  the  bank 
must  act  in  good  faith,  and  adopt  all 
proper  measures  to  liquidate  the  claim 


in  that  manner,  before  the  period  of 
distribution  arrives  In  re  Van  Allen 
(N.  Y.),  37  Barb.  225. 

Unascertained  indebtedness. — On  the 
distribution  of  the  assets  of  an  insol- 
vent bank,  only  the  direct  and  ascer- 
tained indebtedness  of  depositors  can 
be  set  ofif  against  their  ascertained 
claims  for  shares  in  the  money  to  be 
distributed.  In  re  Humboldt  Safe  De- 
posit, etc.,  Co.,  3  Pa.  Co.  Ct.  R.  621. 

A  claim  for  pay  for  services,  due  be- 
fore a  bank  closes  its  doors,  is  a  set- 
ofif  to  a  lial)ility  on  bills  discounted. 
Davis  V.  Industrial  Mfg.  Co.,  114  N.  C. 
321,  19  S.   E.  371,  23  L.   R.  A.  322. 

23.  Claims  acquired  after  insolvency. 
—Dyer  v.  Sebrell,  135  Cal.  597,  67  Pac. 
1036;  American  Bank  v.  Wall,  56  Me. 
167. 

In  an  action  by  the  receivers  of  a 
bank,  appointed  under  St.  1851,  c.  127, 
upon  a  debt  contracted  before  the  in- 
stitution of  proceedings  against  the 
bank,  the  defendant  may  set  off  debts 
due  from  the  bank. held  by  him  before 
the  commencement  of  such  proceed- 
ings, but  not  debts  purchased  since 
their  commencement,  although  before 
the  perpetual  injunction.  Colt  v.  Brown 
(Mass.),  12  Gray  233. 

Burden  of  proof. — If  a  party  wishes 
to  avail  himself  of  a  set-off  against  the 
claim  of  a  bank  which  has  failed,  and 
filed  a  bill,  asking  to  have  its  affairs 
administered  as  an  insolvent  corpora- 
tion, it  is  incumbent  upon  him  to  prove 
that  he  acquired  his  claim  before  the 
filing  of  the  bill,  when  the  rights  of  the 
creditors  attached.  Smith  v.  Moseby, 
56  Tenn.  (9  Heisk.)  501;  Lanier  v.  Gay- 
oso  Sav.  Inst.,  56  Tenn.  (9  Heisk.)  506. 
Where  a  defendant,  who  is  sued  on 
a  note  by  the  receiver  of  an  insolvent 
bank  which  has  failed  and  filed  a  bill 
asking  to  be  wound  up,  offers,  as  a 
set-off,  a  certificate  of  deposit  given 
by  the  bank,  the  burden  is  upon  liim 
to  show  that  he  received  it  previous 
to  the  filing  of  the  bill  by  which  the 
assets  of  the  bank  were  impounded  for 
the  benefit  of  all  its  creditors.  Smith 
V.  Moseby,  56  Tenn.   (9  Heisk.)   501. 


§  80  (9>4c) 


INSOLVENCY   AND   DISSOLUTION. 


637 


by  him,  and  after  notice  also  of  the  insolvency  of  the  assignor,  purchase, 
for  a  trifling  consideration,  desperate  claims  against  the  insolvent  creditor, 
for  the  purpose  of  tendering  them  in  payment  of  the  debt,  in  the  hands  of 
the  innocent  assignee.--*  The  purchase  of  depreciated  notes,  after  knowl- 
edge of  such  an  assignment,  is  an  act  of  bad  faith,  injurious  to  the  rights 
of  others.  It  is  immaterial  in  what  manner  the  knowledge  of  the  transfer 
was  acquired,  so  that  it  existed  at  the  time  of  the  purchase.-^ 

Unpresented  Checks. — \Miile  the  courts  differ  as  to  the  rights  of  a 
holder  of  a  check,  where  the  drawer  has  become  a  bankrupt  before  the  check 
is  presented,  it  seems  to  be  well  settled  that  in  case  of  the  insolvency  of  the 
drawee  bank  before  the  payment  of  the  check  the  holder  will  not  be  en- 
titled to  any  preference,  or  to  oft'set  the  unpresented  check  against  his  in- 
debtedness to  the  insolvent  bank.  To  allow  such  a  set-oft"  would  open  wide 
the  door  for  fraud  and  collusion.-'^ 

A  correspondent  bank,  indebted  to  an  insolvent  bank  on  open  account, 
is  entitled  to  apply  the  amount  thereof  on  an  indebtedness  due  to  the  cor- 
respondent bank  from  the  insolvent  bank.-" 


24.  Claims  purchased  to  be  used  as 
set-offs. — Notice  having  been  given  to 
a  debtor  that  his  creditor,  a  bank,  had 
transferred  the  debt  to  another  per- 
son as  collateral  security  for  accept- 
ances for  the  bank,  the  proceeds  of 
which  had  been  received;  that  the 
bank  had  become  insolvent;  and  that 
it  had  made  a  general  assignment  in 
trust  for  its  creditor — the  subsequent 
purchase  and  the  tender  of  the  depre- 
ciated notes  of  the  bank  to  the  attor- 
ney, or  agent  thereof,  or  its  general  as- 
signees in  payment  of  the  debt,  will 
not  defeat  the  claim  against  him  of  the 
transferee.  Philips  v.  Bank,  18  Pa. 
394.  See  in  accord  Bank  v.  jMarshall, 
66  Va.  (25  Gratt.)  378. 

25.  Philips  V.   Bank,   18   Pa.   394. 

It  is  not  necessary  that  notice  of  the 
transfer  be  given  to  the  debtor  by  the 
person  in  whose  favor  the  transfer  was 
made,  nor  is  it  necessary  that  it  'dc 
given  in  writing.  Philips  v.  Bank,  18 
Pa.  394. 

The  second  section  of  the  Act  of 
March  12,  1842,  provides  that  when  a 
bank  has  made  a  general  assignment  in 
trust  for  the  benefit  of  all  their  cred- 
itors, "the  assignees  shall  receive  in 
payment  of  del)ts  due  to  said  l)ank,  its 
own  notes  and  obligations."  If  this 
provision  be  limited  to  the  notes  and 
obligations  of  the  l)ank  wliich  the 
debtor  had  received  in  the  usual  course 
of  business  before  notice  of  the  assign- 
ment, its  justice  is  so  ol)vious  as  to  re- 
quire no  aid  from  the  statute.  By  the 
letter  and  spirit  of  tlic  statute  the  notes 


of  an  insolvent  bank  purchased  after 
notice  of  a  general  assignment  for  the 
benefit  of  its  creditors,  can  be  tendered 
only  in  payment  of  debts  "due  to  the 
bank,"  to  such  as  belonged  to  the 
bank  at  the  time  of  its  assignment,  and 
which  passed  to  the  assignees;  and  not 
to  such  debts  as  were  transferred  by 
the  bank  before  such  assignment  in 
good  faith  and  for  a  valuable  consid- 
eration, with  the  knowledge  of  the 
debtor.     Philips  v.  Bank,  18  Pa.  394. 

26.  A  debtor  of  an  insolvent  bank, 
which  has  made  an  assignment  for  the 
benefit  of  creditors,  can  not  set  off 
against  his  debt  to  the  bank  a  check 
drawn  in  his  favor  l)y  a  depositor  of 
the  bank,  and  not  presented  for  pay- 
ment until  after  the  assignment. 
Greene1)aum  v.  American,  etc.,  Sav. 
Bank,  70  111.  App.  407. 

Accordingly,  the  debtor  of  an  insol- 
vent bank,  which  has  assigned  for  the 
benefit  of  creditors,  can  not  set  off 
against  his  debt  a  check  drawn  in  his 
favor  by  a  depositor,  before  the  failure 
of  the  l)ank,  but  which  had  not  been 
presented  for  payment.  Northern 
Trust  Co.  V.  Rogers,  60  Minn.  208,  62 
N.  W.  273,  .51    Am.  vSt.   Rep.  526. 

27.  Brown  v.  vSheldon  State  Bank. 
]39   Iowa  83,  117  N.  W.  289. 

The  S.  bank,  having  cashed  an  ex- 
change for  the  L.  liank,  drew  a  draft 
on  the  L.  bank  for  the  amount,  and  in- 
dorsed the  same  to  the  N.  bank.  ft 
thereupon  wrote  a  letter  of  advice  lo 
the  N.  bank,  directing  it  to  credit  the 
imiouni   of  the  (h-afl  on  its  oi)en  (U'p<isit 


638 


BANKS    AND    BANKING. 


80  (914) 


§   80    (9id)   Estoppel  to  Interpose  Set- Off. —A  bank  is  not  estopped 

by  judgment  from  interposing  as  a  set-off  in  a  suit  by  creditors  the  claim 
of  the  bank  for  stock  subscriptions  and  other  liabiHties,  where  such  indebt- 
edness was  not  involved  in  the  former  suit.^s 

§  80    (9^)   Proceedings  to  Compel  Payment. -»— In  General.— The 

proceeding  to  compel  payment  of  his  claim  by  a  creditor  is  by  petition^o  in. 
the  court  where  the  insolvency  proceedings  are  pending,  though  proceedings 
•against  the  bank  have  been  stayed.-'^i  It  seems,  however,  that  it  is  within 
the  discretion  of  the  court  either  to  determine  claims  against  a  bank  re- 
ceiver by  petition  in  the  original  action  in  which  he  was  appointed  or  by  an 
independent  suit.^^  But  where  a  trustee  is  empowered  to  pay  claims  only 
after  allowance  by  commissioners  appointed  therefor,  he  can  not  be  com- 
pelled by  suit  in_a  federal  court  to  pay  claims  rejected  by  them.^- 


account,  but  through  inadvertence  the 
draft  was  not  inclosed  in  the  letter. 
While  the  draft  was  still  in  its  hands, 
the  S.  bank  failed,  and  the  draft  passed 
into  the  hands  of  its  receiver,  who  re- 
ceived credit  for  the  proceeds  thereof. 
Held,  that  the  letter  of  advice  was  not 
such  an  assignment  of  the  draft  as  to 
entitle  the  N.  bank  to  receive  the  pro- 
ceeds thereof  from  the  receiver,  for 
application  on  an  indebtedness  to  it 
from  the  insolvent  bank.  Brown  v. 
Sheldon  State  Bank,  139  Iowa  83,  117 
N.  W.  289. 

Mutual  debts  between  banks. —  If.  at 
the  time  one  bank  failed,  owing  an- 
other bank,  that  bank  also  owed  the 
first  bank,  obviously  the  proper  method 
of  settlement  would  have  been  to  offset 
one  debt  against  the  other,  under  the 
principles  laid  down  in  the  case  of 
Nashville  Trust  Co.  r.  Bank,  91  Tenn. 
336,  18  S.  W.  822,  15  L.  R.  A.  710. 
Akin  V.  Williamson  (Tenn.).  35  S.  \V. 
569. 

28.  Estoppel  to  interpose  set-ofT. — 
In  a  suit  by  creditors,  who  are  also  di- 
rectors and  officers,  of  an  insolvent 
corporation,  to  marshal  and  distribute 
the  assets,  and  to  charge  the  stock- 
holders with  their  statutory  liabilities, 
neither  the  bank  nor  its  creditors  or 
stockholders  are  estopped  from  ofifset- 
ting  against  the  debts  due  other  claim- 
ants or  their  assignees,  whether  by 
judgment  or  otherwise  (no  superior 
equities  intervening),  the  indebtedness 
of  such  claimants  to  the  bank  not  iri- 
volved  or  adjudicated  in  a  former  suit 
between  the  same  parties  or  their 
privies.  Elliott  z:  Farmers'  Bank.  61 
W.  Va.  641,  57  S.  E.  212. 

29.  See  ante,  "Assignments  for  Ben- 
efit of  Creditors,"  §  78. 


30.  Sufficiency  of  pleadings. — A  peti- 
tion for  tlie  allow-'uice  of  a  belated 
claim  against  an  insolvent  bank,  which 
in  apt  language  charged  that  the  de- 
fendant was  indebted  to  the  plaintiff 
in  a  sum  named,  was  not  demurrable 
because  it  also  alleged  that  the  owner- 
ship of  the  claim  was  disputed  and  in 
litigation  between  the  plaintiff  and 
another  party.  State  v.  Bank,  61  Neb. 
22.  84  N.  W.  406. 

Intervention. — A  creditor  of  an  in- 
solvent bank  corporation  organized 
under  the  state  law.  for  which  a  re- 
ceiver has  been  appointed,  should  ap- 
ply to  the  court  in  which  the  pro- 
ceedings are  pending  for  leave  to  in- 
tervene before  filing  his  petition 
therein  as  a  claimant.  Stone  v.  Ing- 
ham Circuit  Judee,  105  ^lich.  234,  63 
N.  W.  79. 

31.  Proceedings  to  adjudicate  claims. 
— Though  all  proceedings  have  been 
stayed  against  a  bank  in  liquidation 
under  Act  March  14,  1842,  No.  98,  §  29, 
a  creditor  may  sue  in  the  court  where 
the  proceedings  are  pending  to  have 
his  claims  recognized,  to  be  paid  in 
course  of  administration.  Gaillard  v. 
Citizens'  Bank  (La.),  11  Rob.  168. 

32.  Adjudication  of  claims  against 
receiver. — To  recover  moneys  depos- 
ited with  an  insolvent  bank,  the  party 
may  file  his  petition  in  the  action 
wherein  a  receiver  for  said  bank  has 
been  appointed.  Blake  z\  State  Sav. 
Bank,  12  Wash.  619,  41  Pac.  909.  _ 

33.  Allowance  of  rejected  claims. — 
Two  statutes  of  ]^Iississippi.  one  passed 
in  1843,  and  the  other  in  1846,  pro- 
vided that  where  the  charter  of  a  bank 
should  be  declared  forfeited,  a  trustee 
should  be  appointed  to  take  possession 
of    its    effects,    and    commissioners    ap- 


§  81 


INSOLVENCY   AND   DISSOLUTION. 


639 


§  81.  Distribution  of  Surplus.— A  judicial  forfeiture  of  the  charter 
of  a  bank  does  not  extinguish  the  habihties  of  debtors  to  the  bank;  but 
after  such  forfeiture,  and  a  winding  up  of  the  affairs  of  the  bank,  the  stock- 
holders are  entitled  to  any  surplus  that  may  remain  after  the  payment  of  its 
debts.3^  And  a  delinquent  debtor  can  not  in  such  case  plead  the  judgment 
of  forfeiture  as  against  a  trustee  seeking  to  reduce  his  debt  to  money  for 


pointed  to  audit  accounts  against  it. 
Where  these  steps  had  been  taken,  and 
the  commissioners  had  refused  to  al- 
low a  certain  account,  the  circuit  court 
of  the  United  States  had  no  right  to 
entertain  a  bill  filed  by  the  creditors 
to  compel  the  trustee  to  pay  the  re- 
jected account.  There  was  a  want  of 
jurisdiction.      Peale   v.    Phipps    (U.    S.), 

14  How.  368,  14  L.  Ed.  459:  Applied, 
Taylor  v.  Carryl  (U.  S.),  20  How.  583, 

15  L.  Ed.  1028;  Green  v.  Creighton, 
23  How.  90,  16  L.  Ed.  419;  Barton  v. 
Barbour,   104  U.   S.  126,  26   L.   Ed.  672. 

A  claim  by  the  trustee,  in  reconven- 
tion, was  not  a  waiver  of  the  exception 
to  the  jurisdiction,  being  made  condi- 
tionally, in  case  the  exception  to  the 
jurisdiction  should  be  overruled.  Peale 
V.  Phipps  (U.  S.),  14  How.  368,  14  L. 
Ed.  459. 

34.  Distribution  of  surplus  to  stock- 
holders.— Bacon  i'.  Robertson  (U.  S.), 
18  How.  480,  15  L.  Ed.  499,  affirmed; 
Lum  V.  Robertson  (U.  S.),  6  Wall.  277, 
18  L.  Ed.  742;  HoUister  v.  Hollister 
Bank,  41  N.  Y.  (2  Keyes)  245,  2  Abb. 
Dec.  367;  Marr  v.  Bank,  44  Tenn.  (4 
Coldw.)  471. 

A  trustee  of  the  property  of  a  bank- 
ing corporation,  appointed  under  a 
judgment  of  forfeiture  against  the 
corporation,  holds  the  surplus  of  the 
property,  after  paying  the  debts  of  the 
company  and  the  costs  of  administer- 
ing the  trust,  for  the  benefit  of  the 
stockholders.  Bacon  z<.  Robertson  (U. 
S.),  18  How.  480,  15  L.  Ed.  499. 

Upon  the  dissolution  of  a  l)ank,  a 
resolution  permitted  debtors  to  the 
bank  to  pay  their  debts  ir  otock  at  a 
certain  price,  and  also  provided  that 
dividends  should  be  paid  to  other 
stockholders  at  the  same  rale.  From 
time  to  time  dividends  were  allowed 
to  nondebtor  stockholders,  extending 
over  a  period  of  several  years,  whereby 
such  stockholders  suffered  a  disad- 
vantage with  respect  to  interest  as 
compared  with  debtors  who  turned 
their  stock  upon  their  delit?  immedi- 
ately after  the  passage  of  the  rf>solu- 
tion.  On  a  l)ill  by  tlie  nondebtor  stock- 
holders to  equalize  the   dividends,  held 


that,  since  those  who  paid  their  debts 
in  stock  prevented  an  accumulation  of 
interest  on  their  debts  from  the  time 
of  such  payment,  they  should  be_  re- 
garded, upon  subsequent  distributions 
of  the  fund,  as  if  they  had  received  in- 
terest on  their  stock  from  the  time  it 
was  applied  upon  their  debts.  Conoco- 
cheague  Bank  v.  Ragan  (Md.),  7  Gill 
&  J.  341. 

Estoppel  to  deny  title. — Where  a 
judgment  of  forfeiture  has  been  ren- 
dered against  a  bank,  and  a  trustee 
e.ppointed  to  take  charge  of  its  assets, 
his  title  to  the  assets,  after  payment 
of  the  debts,  is  subordinate  to  that  of 
the  stockholders,  and  he  was  estopped 
to  deny  their  right  to  a  distribution 
of  the  remaining  assets.  Bacon  r. 
Robertson  (U.  S.),  18  How.  480,  15 
L.    Ed.    499. 

And  a  bill  can  be  maintained,  filed 
by  a  number  of  stockholders  owing 
one-fifth  part  of  the  capital  stock,  su- 
ing for  themselves  and  such  of  the 
stockholders  as  were  not  citizens  of 
Mississippi,  nor  defendants  in  the  bill. 
Bacon  v.  Robertson  (U.  S.),  18  How. 
480,   15  L.   Ed.  499. 

Rights  of  ecclesiastical  societies. — 
The  charter  of  a  liank  provided  that 
ecclesiastical  societies  might  subscribe 
for  its  stock,  with  the  privilege  of 
withdrawing  their  subscriptions  at  any 
time,  on  giving  six  mo'Tths'  notice  to 
the  directors.  Pursuant  to  this  pro- 
vision, certain  ecclesiastical  societies 
subscribed  for  stock,  and  afterwards 
gave  the  required  notice  of  withdrawal. 
The  bank  afterwards  went  into  liquida- 
tion by  the  appointment  of  receivers, 
and  its  assets  proved  sufficient  for  the 
payment  of  all  lialiilitics,  leaving  in  the 
hands  of  the  receivers  funds  sufficient 
to  refund  to  the  privileged  stockhold- 
ers in  full  the  amounts  sulxscribed  by 
them,  with  a  balance  for  distribution 
among  the  general  stockholders.  Held, 
that  the  societies  were  stockholders, 
and  as  such  were  entitled  only  to  their 
proportion  of  the  assets  after  the  pay- 
ment of  debts,  and  tliat  no  distinction 
should  be  made  in  their  favor  in  the 
distril)ution  of  the  funds.  vStonington 
Bank   :•.    Baptist   Soc,  38   Conn.   577. 


640 


BANKS    AND    BANKING. 


85 


the  benefit  of  the  stockholders.^s     But  until  all  debts  are  fully  paid  there 
will  be  no  distribution  of  the  assets  among  stockholders-^^ 

§   82.  Civil  Liability  on  Insolvency.— See  ante.  "Officers  and  Agents," 
§  50-58  (6). 

§  83.  Criminal  Responsibility  on  Insolvency.— See  ante,  "Criminal 
Responsibility,"  §§  60-62. 

§  84.  Offenses. — See  ante,  "Criminal  Responsibility,"   §§  60-62. 

§   85.  Prosecution  and  Punishment. — See  ante,  "Criminal  Re- 
sponsibility," §  60-62. 

35.  Suit  by  trustee. — Lum  v.  Robert- 
son (U.  S.),  6  Wall.  277,  18  L.  Ed. 
742. 

Nor  can  a  delinquent  be  permitted 
to  show  (not  having  a  meritorious  de- 
fense to  the  suit)  that  the  former  trus- 
tee, the  nominal  plaintiff,  in  whose 
name  the  suit  is  brought,  is  no  longer 
the  real  party  in  interest.  Lum  v. 
Robertson  (U.  S.),  6  Wall.  277,  18  L. 
Ed.   742. 

36.  Where,  after  an  assessment  had 


been  levied  on  the  stockholders  of  an 
insolvent  bank  under  Act  April  5,  1849, 
to  enforce  their  persf>nal  li.ibility  for 
the  bank's  unsatisfied  debts,  there  re- 
mains a  sum  in  the  receiver's  hands 
arising  from  assets  not  anticipated  at 
the  time  of  the  assessment,  that  sum 
will  not  be  ordered  distributed  among 
the  stockholders  until  all  creditors  of 
the  bank  are  fully  paid.  Pruyn  v.  Van 
Allen    (N.   Y.),   39   Barb.   354. 


CHAPTER  VII. 

III.  Functions  and  Dealings. 

A.  Banking  Franchises  and  Powers,  and  Their  Exercise  in  General. 

§  86.   What   Are    Banking   Powers   in    General. 
§  86  (1)   Functions  In  General. 
§  86  (3)   Mode  of  Exercise. 
§  86  (3)   Place  of  Exercise. 
§  86  (4)   Incidental  and  Implied  Powers. 
§  87.  Construction  of  Charters  and  Banking  Laws. 
§  88.  Rules  of  Bank. 
§  89.  Customs  and   Usages. 

§  89   (1)  Admissibility  of   Evidence   and   Its   Sufificiency. 

§  89  (2)   Character  and   Effect. 

§  89   (3)   Presumption    of   Action    by    Directors. 

§  89  (4)   Particular  Customs. 

§  89   (4a)  As  to  Notice   of  Maturity  of   Negotiable   Paper. 
§  89   (4b)   As  to  Deposits  and   Checks  and  Payment  Thereof. 
§  89   (4c)  As  to  Collections. 
§  89   (4d)    As  to  Loans  and  Discounts. 
§  90.  Agency   of  Bank. 

§  91.  Purchasing  and  Holding  Bank's  Own  Stock. 
§  92.  Purchasing  and   Holding  Stock  in   Other   Corporations. 
§  93.  Property  and  Conveyances. 

§  94.  In  General. 

§   94   (1)   Acquisition   and   Holding. 
§  94   (2)   Disposal  of  Property. 

§  95.  Real  Property. 

§  95   (1)  Acquisition  and  Holding. 

§  95   (la)   Right   to  Acquire  and   Hold  Generally. 
§  95   (lb)   Right  to  Raise  Question  of  Authority. 
§   95   (Ic)   Conveyance    before    Incorporation    Complete. 
§  95   (Id)   Mortgages. 
§  95   (le)   Leases. 
§  95   (2)      Disposal  of  Property. 
§  96.    With   Respect  to  Contracts   in   General. 
§  96   (1)   Formality   and   Authentication. 
§  96  (2)   Notice  of  Limitations. 
§  96    (3)  Contracts  under  Seal. 
§  96  (4)   Contracts   between    Banks    Entered   into   by   Contracting   Officers 

Common  to  Both. 
§  96   (5)   Contract  to   Honor  Drafts. 
§  96   (6)   Subscription  Contract. 
§   96   (7)    Illegal  Contracts. 
§  96  (8)   Ultra  Vires  Contracts. 
§  96   (9)   Termination. 
§  97.  Borrowing  Money. 

§  98.   Bonds,    Assignments    and    Negotiable    Instruments. 
§  98   (1)   Bonds  and  Assignments. 
1   B  &  B— 41 


642 


BANKS    AND    BANKING. 


(1) 


§  98    (2)   Negotiable   Instruments. 

§  98   (2a)   Power  to  Make  and  Issue. 
§  98   (2b)   Power  to  Deal  Therein. 
§  99.  Guaranty  and  Suretyship. 
§  100.   Torts. 

§  101.  Effect  of  Acts  Ultra  Vires. 
§  101   (1)   In  General. 
§  101   (2)   Rights  Acquired  by   Bank. 
§  101    (3)    Rights   Acquired   against   Bank. 

III.  FUNCTIONS  AND  DEALINGS.i 

A.  BANKING   FRANCHISES   AND   POWERS,    AND   THEIR   EXER- 
CISE IN  GENERAL. - 

§  86.  What  Are  Banking  Powers  in  General— §  86  (1)  Func- 
tions in  General. — The  principal  functions  of  a  bank  are:  1,  To  receive 
and  pay  deposits ;  2,  to  issue  notes  of  circulation  redeemable  on  presentation 
at  its  counter ;   3,  to  buy  and  sell  exchange ;   and,  4,  to  loan  money .^ 

Banking  Powers. — Bank  charters  contain  an  infinite  variety  of  provi- 
sions. Some  are  exceedingly  restricted,  while  others  are  almost  unlimited, 
in  the  power  which  they  confer ;  and  the  shades  of  difiference  between  these 
two  extremes  are  so  numerous  that  it  would  be  impossible  to  form  any  defi- 
nite idea  of  what  were  the  powers  intended  to  be  granted  in  any  particular 
case.  The  consequence  is  that  a  body  of  men,  to  whom  banking  powers, 
in  the  abstract,  were  conceded,  would  be  placed  in  an  infinitely  better  condi- 
tion than  any  other  corporation  in  the  state.  Their  powers  would,  literally, 
be  unbounded,  in  consequence  of  the  very  defect  which  was  inherent  in 
their  creation.  That  they  were  without  law  would  be  a  passport  to  the 
exercise  of  all  law."*     The  expression,  "banking  powers,"  has  been  held  to 


1.  Functions  and  dealings. — Of  loan, 
trust  and  investment  companies,  see 
post,  "Functions  and  Dealings,'  §  315. 

Of  national  banks,  see  post,  ''Bank- 
ing  Powers,"   §   258,   et   seq. 

Of  savings  banks,  see  post,  "Powers 
in   General,"  §  295,  et  seq. 

2.  Of  national  banks,  see  post, 
"Banking  Powers,"  §  258;  "Effect  of 
Acts  Ultra  Vires,"  §  261;  "Powers  in 
General,"  §   295. 

Of  savings  banks,  see  post,  "Powers 
in   General,"  §   295. 

Of  branch  banks,  see  ante,  "Pow- 
ers,"  §   33    (3). 

Right  to  exercise. — See  ante,  "Right 
of  Banking  in  General,"  §  1. 

Transfer  and  sale  of  franchise. — See 
ante,  "Assignment  and  Transfer  of 
Rights,   Franchises,  etc.,"   §   30   (2). 

Forfeiture  of  franchise,  see  ante, 
"Grounds  for  Forfeiture  of  Franchise 
or   Dissolution,"   §    68. 


Powers  of  foreign  banks,  see  post, 
"Place  of  Exercise,"  §  86  (3). 

EfTect  of  acts  ultra  vires,  see  post, 
"EfTect   of  Acts  Ultra  Vires,"   §  101. 

What  are  banks  or  banking  privi- 
leges within  prohibition  of  unauthor- 
ized banking,  see  ante,  "What  Are 
Banks,"  §  2. 

3.  Principal  functions. —Godfrey  v. 
Terry,  97  U.  S.  171,  24  L.   Ed.  944. 

In  Chafin  v.  Lincoln  Sav.  Bank,  54 
Tenn.  (7  Heisk.)  499,  speaking  of  the 
rights  of  banks  to  exercise  the  par- 
ticular functions  of  banking,  it  is  said: 
"It  is  authorized  to  discount  notes;  to 
buy  and  sell  notes,  stock  and  uncur- 
rent  money;  deal  in  excliange,  gold 
and  silver,  bullion,  etc.  This  is  the 
language  by  which  the  privileges  of 
banking  have  been  given  by  the  leg- 
islature to  the  various  banks  which 
have   been   chartered." 

4.  Banking  powers. — State  v.  Wash- 
ington,  etc..   Library   Co.,   11    O.   96. 


§  86  (2) 


FUNCTIONS    AND   DEALINGS. 


643 


connote  the  idea  of  issuing  circulating  notes  only.=J  And  a  bank,  though 
owned  entirely  by  the  state,  is  a  mere  corporation,  possessing  no  greater 
powers  and  privileges  than  other  corporations,'*  unless  privileges  and  im- 
munities belonging  to  the  state  are  expressly  conferred  by  its  charter^ 

The  purposes  of  an  organization  are  very  material  in  determining 
whether  its  act  is  ultra  vires. ^ 

§  86  (2)  Mode  of  Exercise. — A  bank  acts  either  by  its  president  or 
directors,  or  their  agents,  or  by  its  stockholders.  In  the  exercise  of  its 
ordinary  functions  by  the  former ;  in  extraordinary  matters,  by  its  stock- 
holders.^ 


5.    As  connoting  issue  of  notes  only. 

— The  term  "lianking  powers"'  is  broad 
enough  to  include  the  powers  usually 
enjoyed  by  banking  associations,  such 
as  making  loans  and  discounts,  re- 
ceiving deposits  and  dealing  in  securi- 
ties, etc.,  as  well  as  issuing  bills  and 
notes  for  circulation  as  money;  and  at 
the  date  of  the  adoption  of  the  Ohio 
constitution  of  1851,  and  for  a  long  time 
prior  thereto,  the  commercial  world 
was  familiar  with  banks  of  deposit  and 
discount  as  well  as  banks  of  issue,  of 
which  on!}"  the  latter  made  and  issred 
notes  to  circulate  as  money,  the  pow- 
ers of  either  class  being  properlj^  de- 
nominated "banking  powers."  The 
phrase  used  by  the  constitution,  "as- 
sociations with  banking  powers,"  was 
susceptible,  however,  of  another  and 
restricted  meaning,  relating  only  to  the 
powers  employed  in  making  and  is- 
suing paper  money,  and  under  the 
Ohio  constitution  of  1851,  and  prior 
thereto,  "banking  powers"  meant  only 
this  power  of  issuing  money.  Dear- 
born V.  Northwestern  Sav.  Bank,  42  O. 
St.  617,  51  Am.  Rep.  851. 

The  term  "banking  powers,"  as  tised 
in  Ohio  Const.,  1851,  art.  13,  §  7,  pro- 
viding that  no  act  of  the  general  as- 
semi>ly  authorizing  associations  with 
"banking  powers"  shall  take  effect  un- 
til submitted  to  the  people,  relates 
only  to  the  power  to  issue  notes  or 
other  obligations  intended  to  circulate 
as  money.  Bates  v.  People's  Sav.,  etc., 
Ass'n,  42  O.  St.  655;  Dearborn  v. 
Northwestern  Sav.  Bank,  42  O.  St.  617, 
5]  Am.  Rep.  851;  Exchange  Bank  v. 
Hines,  3  O.  St.  1;  State  v.  Granville 
Alexandrian  Soc,  11  O.  1.  See,  also, 
Forrest  City,  etc.,  Bldg.  Ass'n  v.  Gal- 
lagher,  25    O.   St.   208. 

Thus  the  term  "banking  powers,"  as 
used  in  a  charter  provision  prohil)it- 
ing  the  exercise  of  banking  powers, 
does  not  prohibit  the  receiving  of  de- 


posits.     Corwin    v.    Urbana,    etc.,    Tns. 
Co.,  14  O.  7. 

And  the  advancing  of  money  by  a 
building  association  to  its  members 
is  not  the  exercise  of  banking  powers. 
Forrest  City,  etc.,  Bldg.  Ass'n  v.  Gal- 
lagher,  25   O.   St.   208. 

6.  Bank  owned  by  the  state. — Bank 
V.   Gibbs    (S.   C),   3    McCord   377. 

7.  Where  conferred  by  charter. — 
Mahone  v.  Central  Bank,  17  Ga.  111. 
See  post,  "Construction  of  Charters 
and    Banking    Laws,"    §    87. 

8.  Materiality  of  purposes  of  or- 
ganization.— Judgment,  Gause  v.  Com- 
monwealth Trust  Co.,  124  App.  Div.  438, 
108  N.  Y.  S.  1080,  which  .iffirmed  in  55 
Misc.  Rep.  110,  106  N.  Y.  S.  288;  S.  C, 
196    N.   Y.   134.   89   N.   E.   476. 

And  the  courts  treat  the  question  as 
it  relates  to  a  corporation  organized 
for  business  purposes,  where  the  only 
persons  interested,  other  than  its 
business  creditors,  are  its  stockhold- 
ers, and  their  only  interest  therein  is 
to  secure  dividends  upon  their  invest- 
ment, very  differeiUly  than  they  do  in 
the  case  of  a  lianking  corporation 
which  occupies  a  fiduciary  position. 
Judgment,  Gause  v.  Commonwealth 
Trust  Co.,  124  App.  Div.  438,  108  N. 
Y.  S.  1080,  which  affirmed  in  55  Misc. 
Rep.  110,  106  N.  Y.  S.  288;  S.  C,  196  N. 
Y.    134,    89    N.    E.    476. 

9.  By  officers  or  stockholders. — 
"When  we  speak  of  an  act  to  be  done 
by  a  bank  or  banks,  we  mean  an  act 
to  be  done  by  those  who  have  the  au- 
thority to  do  it.  If  it  be  an  act  within 
the  franchise  for  banking,  or  the  or- 
dinary power  of  the  bank  to  contract, 
and  it  is  done  by  the  president  and  di- 
rectors, or  by  their  agent,  we  saj-  the 
l)ank  (Hd  it,  and  every  one  understands 
what  is  meant.  If,  however,  an  act  is 
to  be  done  relative  to  the  institution, 
by  which  its  charter  is  to  be  in  any 
way    changed,    the    stockholders    must 


644 


BANKS    AND    BANKING. 


§  86  (3) 


§  86    (3)   Place  of  Exercise. ^^ — Foreign  Banking  Corporations. — 

While,  by  comity,  a  foreign  banking  corporation  may  do  business  within  a 
state,  this  is  only  in  the  absence  of  legislation  indicating  a  contrary  inten- 
tion,ii  and  if  the  law  creating  a  banking  corporation  does  not,  by  the  true 
construction  of  the  words  used  in  the  charter,  give  it  the  right  to  exercise 
its  powers  beyond  the  limits  of  the  state,  all  contracts  made  by  it  in  other 


do  it,  unless  another  mode  to  effect  it 
has  ijeen  provided  by  the  charter." 
Gordon  v.  Appeal  Tax  Court  (U.  S.), 
3  How.  133,  11  L.  Ed.  529.  See  post, 
"Grounds  and  Extent  of  Liability  in 
General,"  §  102,  et  seq.,  as  to  repre- 
sentation of  bank  by  officers  and 
agents. 

Execution  of  bond  as  depositary. — 
See   post,    "Special   Deposits,"    §    153. 

10.  Place  of  exercise. — Right  to  sue 
in  another  state,  see  post,  "Capacity  to 
Sue   and   Be   Sued,"   §  213. 

As  to  location  and  place  of  business, 
see  ante,  "Location  and  Place  of  Busi- 
ness," §  32. 

Foreign  corporation  carrying  on  busi- 
ness under  name  similar  to  domestic 
corporation,  see  ante,  "Statutory  Re- 
quirements,"  §   31    (l). 

11.  Rule  of  comity. — It  is  well  set- 
tled, that  by  the  law  of  comity  among 
nations,  a  banking  corporation  cre- 
ated by  one  sovereignty  is  permitted 
to  make  contracts  in  another,  and  to 
sue  in  its  courts;  and  that  the  same 
law  of  comity  prevails  among  the  sev- 
eral sovereignties  of  this  Union.  The 
public,  and  well-known  and  long-con- 
tintxed  usages  of  trade;  the  general  ac- 
quiescence of  the  stales;  the  particular 
legislation  of  some  of  them,  as  well  as 
the  legislation  of  congress;  all  concur 
in  proving  the  truth  of  this  proposi- 
tion. But  this  comity  is  presumed 
from  the  silent  acquiescence  of  the 
state.  Whenever  a  state  sufficiently 
indicates  that  contracts  which  derive 
their  validity  from  its  comity  are  re- 
pugnant to  its  policy,  or  are  considered 
as  injurious  to  its  interests,  the  pre- 
sumption in  favor  of  its  adoption  can 
no  longer  be  made.  Bank  v.  Earle,  13 
Pet.    5t!),    10   L.    Ed.   274. 

Alabama. — There  is  nothing  in  the 
constitution  or  laws  of  Alabama,  from 
which  this  court  would  be  justified  in 
concluding  that  the  purchase  of  bills 
of  exchange  by  a  foreign  banking  cor- 
poration within  the  state  of  Alibama, 
was  contrary  to  its  policy.  Bank  v. 
Earle  (U.  S.).  13  Pet.  519.  10  L.  Ed. 
274. 

Oliio. — General  right  to  transact 
business. — A    banking    corporation,  cre- 


ated by  the  laws  of  one  state,  has  ca- 
pacity to  tnake  a  contract  falling  within 
its  corporate  powers  in  any  other  state, 
unless  its  capacity  to  make  such  con- 
tract is  opposed  to  the  laws  or  the 
settled  policy  of  the  state  in  which  its 
exercise  is  attempted.  Such  contracts 
are  permitted  upon  principles  of 
comity  between  the  different  states  of 
this  Union,  and  in  furtherance  of  the 
intimate  commercial  relations  existing 
between  their  respective  citizens.  Pick- 
away County  Bank  v.  Prather,  13  O. 
St.   497. 

Michigan. — Banking  corporations  and 
corporations  within  the  contemplation 
of  the  banking  laws  of  Michigan  are 
not  within  the  provisions  of  the  act 
authorizing  foreign  corporations  to 
transact  business  in  Michigan.  New 
York  Mortg.  Co.  v.  Secretary,  150 
Mich.   197,    114    X.      W.   82. 

J'irginia. — Enforcement  of  primary 
contract. — A  bank  of  another  state  can 
not  enforce  a  primary  contract  made 
in  Virginia,  as  by  discounting  notes  or 
otherwise.  Bank  v.  Pindall,  23  Va.  (2 
Rand.)     465. 

It  would  not,  therefore,  be  permitted 
to  a  l:)ank  in  Ohio,  to  establish  an 
agency  in  Virginia,  for  discounting 
notes,  or  for  carrying  on  any  other 
banking  operations;  nor  could  they 
sustain  an  action  on  any  note  thus 
acquired  by  them.  But  this  would  not 
prevent  borrowing  money  from  a  bank 
in  Ohio,  or  restrain  one  citizen  of  Vir- 
ginia from  executing  to  another  citi- 
zen, or  to  a  foreigner,  a  note  payable 
at  the  banking  house  of  a  bank  legally 
constituted  in  Ohio;  nor  prevent  such 
bank  from  taking  an  assignment  of 
such  note  by  discounting  it  in  Ohio. 
No  douDt,  but  the  bank  may  recover  by 
suit  in  Virginia,  a  debt  thus  con- 
tracted. Bank  t'.  Pindall,  23  Va.  (2 
Rand.)    465. 

IVisconsin. — Kennedy  z'.  Knight,  21 
Wis.  340.  94  Am.  Dec.  543. 

Prohibition  of  carrying  on  business 
by  agent. — Mississif^pi. — A  liank  of  an- 
other state  can  not,  by  an  agent,  carry 
on  the  business  of  banking  in  this 
state.     Bank  z:  Stegall.  41   Mis*.  142. 


§  86  (3) 


FUNCTIONS    AND    DEALINGS. 


645 


states  would  be  void.^-  But  it  has  been  held  that,  in  the  absence  of  any 
statute  limiting  its  authority,  a  bank  organized  under  the  laws  of  one  state 
may  transact  an}-  business  within  the  scope  of  its  charter  in  other  states. ^^ 

The  Bank  of  the  United  States,  had,  constitutionally,  a  right  to  es- 
tablish its  branches  of  offices  of  discount  and  deposit  within  any  state.^"* 

In  State  of  Incorporation. — They  may  be  freely  exercised  anywhere 
therein,  if  unrestricted.^-"' 

What  Constitutes  Doing  Business  in  State  Contrary  to  Laws 
Thereof. — \\'here  a  note  and  mortgage  were  given  in  Wisconsin  to  secure 
payment  of  principal  and  interest  to  a  bank  in  New  York,  it  was  not  an 
attempt  on  the  part  of  the  bank  to  exercise  its  powers  of  banking  within  this 
state;  especially  as  the  liability  might  have  been  prior  to  the  note  and 
mortgage,  and  as  the  laws  of  \\'isconsin  did  not  forbid  a  foreign  bank  to 
take  securities  there  for  a  loan  previously  made.^^    And  under  a  statute  by 


12.  Right  must  be  given  by  law  of 
creation.— Bank  v.  Earle  (U.  S.),  13 
Pet.  519.  10  L.  Ed.  274.  See,  also, 
Metropolitan  Bank  v.  Godfrey,  23  111. 
579. 

Restriction  in  charter  or  general  law. 
— Although  a  general  law  prohibiting 
corporations  from  exercising  banking 
powers  unless  expressly  granted  would 
have  no  force  beyond  the  limits  of  the 
state,  a  similar  restriction  of  its  char- 
ter would  restrain  tlie  action  of  the 
corporation  wherever,  by  comity,  it 
might  be  permitted  to  exercise  its 
powers  and  functions.  Ohio  Life  Ins., 
etc.,  Co.  t".  Merchants'  Ins.,  etc.,  Co , 
30   Tenn.    (11    Humph.)    1. 

13.  Outside  of  state  of  incorporation. 
— Fawcett  r.  Mitchell,  etc.,  Co.,  133 
Ky.  3G1,  117  S.  W.  050.  See,  hn-.vover. 
Lane  &  Co.  v.  Bank,  56  Tenn.  (9 
Heisk.)  419,  where  it  v/as  held  that 
though  the  assets  of  a  bank  be  forced 
out  of  the  state  by  military  power,  yet 
its  corporate  rights  and  franchises  still 
remain — these  can  not  be  expelled; 
nor  can  the  l)ank  exercise  them  or 
tran.=plant  its  corporate  entity  bf^yond 
the  bounds  of  the  sovereignty,  vvhicli 
created   it. 

Yet  this  case  holds  that  a  bank  majs 
by  the  comity  of  states,  if  not  forbid- 
den by  its  charter,  make  a  contract  in 
another  state,  but  the  general  fran- 
chises conferred  by  its  charter  can 
only  be  exercised  within  tlie  govern- 
ment whose  creature  it  is.  Lane  &  Co. 
V.  Bank,  56  Tenn.  (9  Heisk.)  419.  And 
see  Talmadge  v.  North  .Xmerican  Coal, 
etc.,  Co.,  40  Tenn.  (3  Head)  337;  Mc- 
Cullough  V.  Moss  (N.  Y.).  5  Dcnio  507. 

Corporate  existence  recognized. — 
Banks  incorprjratcd  under  the  hivvs  of 
another  state,  without  any  intent  to 
evade   the   laws   of   Ohio,   for  the   pur- 


pose of  doing  business  chiedy  in  Ohio, 
having  an  ofifice  and  holding  their  an- 
nual meetings  in  the  incorporating 
state,  all  their  business  meetings,  how- 
ever, being  held,  for  convenience,  in 
Ohio,  will  not  be  treated  as  mere  as- 
sociations or  partnerships,  but  as  cor- 
porations. Second  Xat.  Bank  f.  Lovell, 
2  Cin.  R.  397,  13  O.  Dec.  972. 

Estoppel  to  deny  corporate  exist- 
ence.— An  officer  of  a  bank,  purport- 
ing to  be  incorporated  under  the  laws 
of  another  slate,  who  has  dealt  with 
the  bank  as  a  corporation,  as  by  lend- 
ing money  to  it,  can  not,  in  a  suit  for 
the  money,  deny  the  corporate  exist- 
ence of  the  bank.  Second  Xat.  Bank 
V.  Lovell,  2  Cin.  R.  397,  13  O.  Dec. 
972. 

14.  Location  of  branch  of  United 
States  bank. — :McCulloch  r.  Marvland 
(U.  S.),  4  Wheat.  316,  4  L.  Ed.  579. 

As  to  construction  of  §  5100,  (J.  S. 
Rev.  Stat.,  providing  where  the  "Usual" 
business  of  a  national  bank  shall  be 
transacted,  see  post,  "Location  and 
Place    of    Business,"    §    239. 

15.  Anywhere  in  state. — Where  a 
Itanking  corporation,  wliose  location 
and  place  of  business  is  at  Columbus, 
Ohio,  has  power  by  its  charter  to  deal 
in  bills  of  exchange,  without  restric- 
tion as  to  place,  it  may  purcliase  such 
l)ills  at  Cleveland,  Ohio,  for  the  pur- 
pose of  remitting  to  New  York  the 
proceeds  of  paper  belonging  to  the 
bank,  collected  at  Cleveland.  City 
Bank  v.  Beach,  Fed.  Cas.  No.  2,736, 
1  I^>latchf.  425.  See  ante,  "Location 
and    Place    of   Business,"   §   32. 

16.  What  constitutes  doing  business 
in  state  contrary  to  laws  thereof. — 
Kennedy  :■.  Knight,  21  Wis.  310,  94 
Am.  Dec.  513. 


646  BANKS    AND    BANKING.  §    86    (4) 

which  foreign  corporations  are  prohibited  from  keeping  an  office  within  the 
state  to  receive  deposits,  or  discount  notes,  etc.,  where  such  a  corporation 
authorizes  an  agent  to  attend  at  known  places  within  the  state  for  the 
purposes  specified,  such  places  are  offices  of  discount  and  deposit.^'^ 

Compliance  with  Conditions  Prescribed. — A  foreign  corporation  pur- 
chasing a  note  in  the  state,  and  having  no  purpose  to  do  any  other  act  in  the 
state,  is  not  "transacting  business"  in  the  state,  within  a  statute  providing 
that  a  foreign  banking  corporation,  "before  transacting  business"  in  the 
state,  must  record  a  power  of  attorney  in  each  county  where  it  has  "a  resi- 
dent agent,"  which,  so  long  as  the  company  has  "places  of  business"  in  the 
state,  shall  be  irrevocable. ^^  Nor  is  bringing  an  action  doing  business  under 
a  similar  statute  requiring  a  certificate  to  be  obtained  and  the  appointment 
of  an  agent  for  service  of  process. ^^  And  a  statute  prohibiting  any  one, 
except  a  body  corporate  expressly  authorized  by  law,  from  keeping  any 
office  to  receive  deposits,  or  discount  notes,  etc.,  includes  foreign  banking 
corporations.-'^ 

§  86  (4)  Incidental  and  Implied  Powers. — The  incidental  powers 
necessary  to  carry  on  a  banking  business  are  such  as  are  required  to  meet 
all  the  legitimate  demands  of  the  authorized  business,  and  to  enable  a  bank 
to  conduct  its  afifairs,  within  the  general  scope  of  its  charter,  safely  and 
prudently.  This  necessarily  implies  the  right  of  a  bank  to  incur  liabilities 
in  the  regular  course  of  its  business,  as  well  as  to  become  the  creditor  of 
others.  Its  own  obligations  must  be  met,  and  debts  due  to  it  collected  or 
secured.  The  power  to  adopt  reasonable  and  appropriate  measures  for 
these  purposes  is  an  incident  to  the  power  to  incur  the  liability  or  become 
the  creditor.  Obligations  may  be  assumed  that  result  unfortunately.  Loans 
or  discounts  may  be  made  that  can  not  be  met  at  maturity.  Compromises 
to  avoid  or  reduce  losses  are  often  the  necessary  results  of  this  condition 
of  things.  These  compromises  come  within  the  general  scope  of  the  powers 
committed  to  the  board  of  directors  and  the  officers  and  agents  of  the  bank, 
and  are  submitted  to  their  judgment  and  discretion,  except  to  the  extent 
that  they  are  restrained  by  the  charter  or  by-laws.     Banks  may  do,  in  this 

17.  Statute  forbidding  foreign  cor-  tion  shall  not  transact  business  in  the 
poration  to  keep  office  of  deposit  or  state  without  a  written  certificate  from 
discount  in  state. — Taylor  :■.  Bruen  (N.  the  superintendent  of  banks,  and  the 
Y.).    2    Barb.    Ch.   ?.01.  appointment    bj'    such     corporation    of 

18.  Compliance  with  conditions  pre-  the  superintendent  as  its  agent  for 
scribed. — Commercial  Bank  r.  Sher-  service  of  process.  Judgment,  Citi- 
man,  28  Ore.  573,  43  Pac.  6.58,  52  Am.  yens'  State  Bank  v.  Cowles,  39  Misc. 
St.  Rep.  811,  construing  Oregon  star-  Rep.  571,  80  N.  Y.  S.  598;  S.  C,  89 
nte.  App.  Div.  281,  86  N.  Y.  S.  38,  reversed 

19.  Bringing  of  action  not  doing  in  180  N.  Y.  346,  73  N.  E.  33,  105  Am. 
business. — The  mere  bringing  of  an  ac-  St.  Rep.  765,  but  on  other  grounds; 
tion  on  a  negotiable  instrument  by  a  Western  Nat.  Bank  z'.  Kelly,  95  N.  Y. 
foreign    bank    is    not     doing      business  S.   574,   48    Misc.    Rep.   366. 

within    the    state,    under     the     banking  20.     Statute    requiring    incorporation, 

law  (Laws  1892,  p.  1861,  c.  689,  §§  31,  —Taylor  r.  Bruen  (X.  Y.),  2  Barb. 
32),   providing   that   a   foreign   corpora-       Ch.    301. 


§  87 


FUNCTIONS    AND    DE:auNGS. 


647 


behalf,  whatever  natural  persons  could  do  under  like  circumstances.-^ 

Implied  Powers. — In  the  absence  of  any  denial  thereof  in  the  charter, 
a  bank  has  certain  implied  powers  which  are  as  complete  as  if  they  were 
expressly  given. '-- 

Definition  and  Regulation  by  Legislature. — The  legislature,  by  whose 
fiat  the  corporation  exists,  and  whose  creation  it  is,  may  prescribe  and  reg- 
ulate the  mode  of  its  operation,  and  in  what  manner  its  powers  shall  be 
exercised.  It  may  by  special  restriction  in  the  charter  define  and  limit  the 
incidental  powers  which  the  corporation  shall  possess ;  and  so  far  as  this 
is  done,  the  statute  and  not  the  common  law  will  determine  what  those 
powers  are.-^ 

§  87.  Construction  of  Charters  and  Banking  Laws.-^ — Charter 
as  Limit  of  Powers. — The  powers  of  a  banking  corporation  are  limited  by 
its  charter,  both  as  to  what  it  can  do,  and  how  and  bv  whom  it  can  act,-''  or 


21.  Incidental    and    implied    powers. 

— First  Nat.  Bank  z\  National  Exch. 
Bank,  92  U.  S.  122,  127,  23  L.  Ed.  679, 
51   How.   Prac.  320. 

22.  Implied  powers. — Wroten  v. 
Armat,   72   Va.    (31    Gratl.)    22S. 

23.  Definition  and  regulation  by  leg- 
islature.— Crocker  v.  Whitney,  71  N. 
Y.  l()l;  citing  Bank  v.  Dandridge  (U. 
S.),  12  Wheat.  64,  6  L.  Ed.  552;  Head 
v.  Providence  Ins.  Co.  (U.  SJ,  2  Cranch 
127,  2   L.   Ed.  229. 

24.  Construction  of  charters  and 
banking  laws. — Construction  of  spe- 
cial charters,  see  ante,  "Wature  and 
Formation  in  General,"  §  22;  "Special 
Charters  or  Acts,"  §  25;  "Extension  or 
Renewal,"  §  30  (1). 

Creation  of  banks  by  general  law, 
see   ante,   "General   Laws,"   §   26. 

In  reference  to  contracts  of  bank, 
see  post,  "Contracts  in  General,"  §  96, 
et  seq. 

in  reference  to  power  of  bank  to 
borrow  money,  see  post,  "Borrowing 
Money,"   §  97. 

Tn  reference  to  power  of  bank  to 
hold  and  convey  property,  see  post, 
"Property  and  Conveyances,"  §  93, 
et   seq. 

In  reference  to  purchasing  and  hold- 
ing l)ank's  own  stock,  see  post,  "Pur- 
chasing and  Holding  Bank's  Own 
Stock."    §   91. 

In  reference  to  purchasing  and  hold- 
ing stock  in  other  corporations,  sec 
post,  "Purchasing  and  Holding  Stock 
in   Other   Corporations,"   §   92. 

Statutes  concerning  riglit  of  l)ank- 
ing,  see  ante,  "Construction,  Charter 
and  By-Laws,"  §  34. 


As  to  locality  for  transaction  of 
business,  see  ante,  "Location  and  Place 
of    Business,"   §   32. 

Results  of  incorporation,  see  ante, 
"Results   of   Incorporation,"   §  23  (3). 

Charter  as  contract,  and  amendment 
or  repeal,  see  ante,  "Charter  as  Con- 
tract, and  Amendment  or  Repeal," 
§    23    (3b). 

Of  foreign  corporations. — Sec  ante, 
"Foreign  Banks,"  §  18;  "Location  and 
Place  of  Business,"  §  32;  "Place  of 
Exercise,"    §    86    (3). 

25.  Charter  as  limit  of  powers. — 
Thweatt  7'.  Bank,  81  Ky.  1,  4  Ky.  L. 
Rep.  557;  Wroten  v.  x'Vrmat,  72  Va.  (31 
Gratt.)  228;  Lofiford  v.  Wyckof¥,  4 
Hill  442. 

A  banking  corporation  can  make  no 
contracts,  and  do  no  acts,  oiiher  within 
or  without  the  state  which  creates  it, 
except  such  as  are  authorized  by  its 
charter;  and  those  acts  must  also  be 
done,  by  such  officers  or  agents,  and 
in  sucli  manner,  as  the  charter  au- 
thorizes. Bank  v.  Earle  (U.  S.),  13 
Pet.  519.  10  L.  Ed.  274.  See  Waters- 
Pierce  Oil  Co.  V.  Texas,  177  U.  S.  28, 
44  L.  Ed.  657,  20  S.  Ct.  518;  Pacific  R. 
Removal  Cases,  115  U.  S.  1,  29  L.  Ed. 
319,  5  S.  Ct.  1113;  Bartholomew  v. 
Hentley,   1    O.    St.   37. 

The  correct  doctrine  as  to  tiie 
power  of  corporations  to  engage  in 
banking  is  tliat.  even  in  the  absence 
of  statutory  restriction,  a  corporation 
has  no  right  to  exercise  banking  func- 
tions unless  such  right  l)e  conferred 
by  its  charter,  either  directly  or  hy 
necessary  implication.  Morris  7'.  Way, 
16  O.  469;  Miami  Exporting  Co.  v. 
Clark,    13    O.    1;    State   r.    Washington, 


648 


BANKS    AND    BANKING. 


87 


where  the  charter  has  been  amended,  by  the  amended  charter.-*^ 

Like  other  corporations,  banking  associations  can  only  exercise  the 
powers,  and  carry  on  the  business,  which  the  statute  under  which  they  are 
created  has  authorized  them  to  exercise  and  carry  on,  either  in  terms  or  by 
necessary  impHcation.^'^ 

Power  of  Legislature  to  Restrict. — Under  a  clause,  in  an  act  of  in- 
corporation, that  the  action  of  the  corporation  shall  be  "subject  to  such  rules 
and  regulations  as  the  legislature  from  time  to  time  may  think  proper  to 
make,"  the  legislature  may  restrict  such  corporation  from  exercising  the 
franchise  of  banking;    it  not  being  expressly  granted. ^^ 

Under  Charters  Granted  for  Other  Purposes.— And  banking  powers 
can  not  be  exercised  under  charters  granted  for  other  purposes,  whether 
prohibited  or  merely  not  mentioned.-^ 


etc.,  Library  Co.,  11  O.  96;  State  v. 
Granville   Alexandrian   Soc,   11   O.   1. 

Continuation  of  incorporation  under 
state  government. — A  constitutional 
provision  (of  Ind.),  tliat  the  Bank  of 
Vincennes  shall  be  considered  as  an 
incorporated  bank,  gives  no  new^  pow- 
ers or  privileges  to  that  bank,  but 
merely  continues  it  under  the  state 
government,  as  it  was  under  that  of 
the  territory.  State  Bank  v.  State 
(Ind.),    1    Blackf.    267. 

Provision  conferring  the  like  privi- 
leges as  another  bank. — A  provision 
in  a  bank  charter  under  Const.  1812, 
"that  it  shall  have  the  like  privileges, 
etc.,  as  are  now  accorded  by  law  to" 
another  bank,  will  confer  on  the 
former  all  privileges  granted  the  lat- 
ter. Mechanics',  etc.,  Bank  v.  Rowly. 
2    La.    Ann.    ,372. 

Charter  authority  to  grant  evidences 
of  debt.— The  charter  of  a  railroad 
company  authorized  it  to  grant  such 
evidences  of  debt  incurred  by  the  com- 
pany as  might  by  the  by-laws  thereof 
be  directed,  to  such  an  amount  as 
might  be  deemed  necessary  for  trans- 
acting its  business.  Held,  that  this 
provision  did  not  authorize  the  com- 
pany to  issue  notes  for  general  cir- 
culation, or  otherwise  exercise  bank- 
ing powers.  People  v.  River  Raisin, 
etc.,  R.  Co.,  12  Mich.  389,  86  Am. 
Dec.   64. 

Power  to  hold  any  estate,  real  or 
personal,  and  dispose  thereof. — A 
grant  of  power,  in  an  act  of  incorpora- 
tion, "to  hold  any  estate,  real  or  per- 
sonal, and  the  same  to  sell,  grant,  or 
dispose  of,  or  bind  by  mortgage,  or 
in  such  other  manner  as  they  shall 
deem  most  proper  for  the  best  in- 
terests of  the  corporation,"  does  not 
confer  upon   such   corporation   banking 


privileges.  State  v.  Granville  Alexan- 
drian Soc,  11  O.  1;  State  v.  Washing- 
ton,   etc..    Library    Co.,    11    O.    96. 

26.  Amendment  enlarging  powers  of 
savings  bank  so  as  to  do  general  bank- 
ing.— An  act  reciting  that  a  corpora- 
tion since  its  organization  had  con- 
ducted a  savings  bank,  but  that  it 
desired  to  have  its  corporate  powers 
increased  and  enlarged  to  enable  it  to 
conduct  a  general  banking  business, 
and  then  authorizing  and  empowering 
it  to  borrow  money,  receive  money  on 
deposit,  ancf  pay  interest  thereon,  to 
lend  money  on  real  or  personal 
security,  discount,  buy  or  sell  com- 
mercial paper,  and  to  do  or  transact  a 
general  banking  business,  gives  the 
bank  adequate  authority  to  transact  a 
general  banking  business,  notwith- 
standing ambiguity  and  inconsistency 
in  provisions  of  the  act.  including  a 
provision  that  the  bank  should  be  sub- 
ject to  the  statutory  provisions  relat- 
ing to  security  and  guarantee  com- 
panies. State  V.  German  Sav.  Bank, 
103  Md.  196,  63  Atl.  481,  construing 
Maryland   Acts   1898,   p.   808,   c.   266. 

27.  Like  other  corporations  in  this. 
— Safford  V.  Wyckoff  (N.  Y.),  4  Hill 
442. 

2S.  Power  of  legislature  to  restrict. 
— State  7'.  Granville  Alexandrian  Soc, 
11    O.   1. 

29.  Charters  for  other  purposes.— 
State  V.  Stebbins  (Ala.),  1  Stew.  299; 
]\Iorris  v.  Way,  16  O.  469;  Miami  Ex- 
porting   Co.    V.    Clark,    13    O.    1. 

Under  insurance  charters.— Banking 
does  not  pertain  to  the  functions  of  an 
insurance  company,  and  can  not  be  ex- 
ercised 1:)y  such  a  company  simply  be- 
cause not  included  in  the  grant;  and 
a  fortiori,  if  prohibited  by  the  very 
terms    of    the    charter    whose    "rights 


§  87 


FUNCTIONS    AND    DEALINGS. 


649 


Provisions  Conferring  on  State  Bank  the  State's  Rights  and  Priv- 
ileges.— A  charter  provision  conferring  on  a  state  bank  the  rights,  powers, 
privileges  and  immunities  of  the  state  has  been  held  applicable  to  all  evi- 
dences of  debt  owned  by  the  bank.-^*^ 


and  privileges"  are  conferred  upon  it, 
as  well  as  by  general  law.  Ohio  Life 
Ins..  etc.,  Co.  v.  ^Merchants"  Ins..  etc., 
Co.,  30  Tenn.  (11  Humph.)  1;  Mem- 
phis z\  Memphis  City  Bank,  91  Tenn. 
S74,   19   S.   W.   1045. 

An  act  incorporating  an  insurance  com- 
pany, giving  the  directors  power  to 
make  such  by-laws,  rules,  and  regu- 
lations as  they  shall  deem  proper, 
touching  the  management  of  the  stock 
and  effects  of  the  corporation  and  the 
investment  of  its  funds  which  the  busi- 
ness of  insurance  maj'  not  actively  em- 
ploy, gives  no  right  to  invest  such 
stirplus  funds  in  banking  operations. 
People  V.  Utica  Ins.  Co.  (X.  Y.),  15 
Johns.  353,  8  Am.  Dec.  243. 

And  charter  authority  to  make 
loans,  to  create  debts,  and  make 
promissory  negotiable  notes,  does  not 
confer  the  right  to  carry  on  banking. 
People  V.  Utica  Ins.  Co.  (X.  Y.),  15 
Johns.   353,   8   Am.   Dec.   243. 

Although  the  preamble  to  the  act 
incorporating  the  Utica  Insurance 
Company  states  that,  the  objects  of 
said  company  Ijeing  laudable,  it  should 
be  liberally  encouraged.  People  v. 
Utica  Ins.  Co.  (N.  Y.),  15  Johns.  353, 
8   Am.   Dec.   243. 

Under  building  and  loan  charter. — - 
A  l)uilding  and  loan  association,  can 
not  engage  in  the  banking  business. 
State  V.  Oberlin  Bldg.,  etc.,  Ass'n,  35 
O.  St.  258.  See,  also,  State  v.  Green- 
ville Bldg.,  etc..  Ass'n,  29   O.   St.  92. 

Under  social  club  charter. — Tiie 
charter  of  a  social  library  club  which 
merely  gave  the  corporation  capacity 
of  suing  and  being  sued,  of  making 
contracts,  a  common  seal,  the  power 
to  make  by-laws,  and  of  acquiring, 
holding  and  disposing  of,  by  mortgage 
or  in  such  other  manner  as  it  should 
deem  most  proper  for  its  best  interest, 
any  estate,  real  or  personal,  did  not 
give  the  corporation  lianking  powers. 
State  V.  Washington,  etc.,  Uil^rarj-  Co., 
11   O.  90. 

Under  power  to  employ  capital  in 
any  lawful  moneyed  trans.^ction. — The 
act  incfjrporaling  a  company,  authoriz- 
ing the  employment  of  its  surplus 
capital  in  the  purchase  of  public  or 
other  stock,  or  in  any  other  moneyed 
transactions  not  inconsistent  with  the 
constitution    and    laws    of   the    state    or 


of  the  United  States,  having  been 
passed  before  any  restraining  act  ren- 
dering banking  illegal  if  carried  on  l)y 
corporations  not  specially  created  for 
banking  purposes,  said  company  has 
the  right  of  doing  banking  business, 
and  is  not  afifected  by  the  restraining 
acts,  the  original  act  having  never 
been  repealed.  People  v.  Manhattan 
Co.    (X.   Y.),  9   Wend.   351. 

Power  to  hold,  sell  and  encumber 
any  estate. — A  grant  of  power,  in  an 
act  of  incorporation,  "to  hold  an}'  es- 
tate, real  or  personal,  and  the  same  to 
sell,  grant,  or  dispose  of,  or  bind  by 
mortgage,  or  in  such  other  manner  as 
they  shall  deem  most  proper,  for  the 
best  interest  of  the  corporation,"  does 
not  confer  upon  such  corporation 
banking  privileges.  State  v.  Granville 
Alexandrian   Soc,   11   O.   1. 

Under  power  to  draw  and  sell  bills 
of  exchange. — The  provision  of  a  char- 
ier that  the  corporation  "shall  have 
power  to  draw  and  sell  drafts  or  bills 
of  exchange  on  the  different  citie;,s  to 
which  they  may  ship  their  merchan- 
dise" does  not  confer  any  banking 
privileges  upon  it.  Smith  i\  State,  21 
Ark.   294. 

Power  to  receive  trusts  and  to  loan 
surplus  funds. — The  grant  to  a  cor- 
poration of  the  power  to  receive,  in 
trust  for  any  person,  moneys  or  other 
valuable  things,  and  to  give  an  ac- 
knowledgment therefor,  and  to  loan 
its  surplus  funds,  does  not  authorize  it 
to  conduct  a  general  banking  bvisiness. 
Memphis  City  Bank  r.  Tennessee,  161 
U.  S.  186,  40  L.  Ed.  664,  16  S.  Ct.  468, 
affirming  19   S.  W.   1045. 

30.  Charter  conferring  on  state  bank 
the  rights  and  privileges  of  the  state. 
—The  provisions  of  Act  1829,  §  12, 
amending  the  charter  of  the  Central 
Bank,  and  vesting  in  the  corporation 
the  rights,  powers,  privileges,  or  im- 
munities reserved  by  law  or  accruing 
tf»  tlic  state  in  virtue  of  its  sovereign 
capacity  in  regard  to  the  collection  of 
bonds,  notes,  etc.,  due  to  it  or  to  be- 
come due,  does  not  apply  only  to  such 
bonds,  notes,  etc.,  as  were  originally 
transferred  to  the  liank  l)y  the  state, 
or  the  renewals  thereof,  but  to  all  evi- 
drncc-  of  dcl)t  owned  bv  the  I)ank. 
Malionr  r.   Central   Bank.   17   Ga.    111. 


650 


BANKS    AND    BANKING. 


89  (1) 


Construction  Strict. — The  charter  will  be  construed  strictly  against  the 
stockholders  and  in  favor  of  the  state,  and  no  privileges  or  powers  will  be 
implied. ^^ 

As  Question  for  Jury. — ^^'hether  a  bank  used  its  power  of  collecting  its 
debts  as  a  pretext  for  embarking  in  a  business  foreign  to  that  for  which  it 
was  created  and  which  it  was  authorized  to  conduct,  or  whether  it  made  a 
proper  use  of  it  in  furtherance  of  its  legitimate  business  is  a  proper  ques- 
tion for  the  jury.^2 

§  88.  Rules  of  Bank.^s — ^.s  to  Banking  Hours. — Banks  may  es- 
tablish reasonable  hours  for  transacting  business  at  the  bank,^'*  but  such  a 
rule  is  to  be  construed  as  referring  to  ordinary  banking  business  only.^^ 

§  8  9.  Customs  and  Usages^*^ — §  89  (1)  Admissibility  of  Evi- 
dence and  Its  Sufficiency. — Evidence  of  the  custom  and  usage  of  a  bank 
in  the  transaction  of  business  with  its  customers  is  admissible  to  raise  a 
prima  facie  presumption  of  fact  in  aid  of  other  testimony. 2"     And  it  would 


31.  Construction. — Bank  v.  Com- 
monweahh,  19  Pa.   144. 

32.  As  question  for  jury. — Reynolds 
V.   Simpson,   74   Ga.   454. 

33.  Rules  of  bank. — Constitution  and 
by-laws,  see  ante,  "Constitution,  Charter 
and  By-Laws,"  §  34. 

34.  Rules  of  bank  as  to  receiving 
general  deposits,  see  ante,  "Offenses 
of  Persons  Dealing  with  Bank,"  §  21. 

Rules  as  to  special  deposits,  see 
post.    "Special    Deposits,"   §    153. 

Customs  and  usages,  see  post,  "Cus- 
toms   and    Usages,"    §    89. 

As  to  banking  hours. — Jones  v. 
Coos  Bank  (N.  H.),  Smith  249;  Mar- 
shall V.  Wells,  7  Wis.  1,  73  Am.  Dec. 
381. 

"Day"  in  banking  parlance. — The 
"day"  in  banking  parlance,  means 
simply  the  few  hours  set  apart  by 
usage  as  banking  hours.  Banking 
hours  are  so  far  recognized  by  the 
courts  that  any  transaction  in  the  or- 
dinary course  of  banking  business, 
which  is  to  be  had  with  the  bank  on 
any  day,  must  be  had  within  banking 
hours  upon  that  day.  First  Nat.  Bank 
V.  Payne.  85  Va.  890,  9  S.  E.  153,  3 
L.   R.   A.  284. 

35.  Construction. — A  rule  of  a  l^ank 
that  business  therewith  must  be  trans- 
acted in  banking  hours,  must  be  con- 
strued as  referring  to  the  ordinary 
business  of  the  bank,  and  not  to  the 
sending  or  receiving  of  packages  or 
messages.  Marshall  v.  Wells,  7  Wis. 
1,  73  Am.  Dec.  381. 

36.  Customs  and  usages. — Defense 
of  custom  in  action  against  bank  for 
failure      to      fix      endorser,      sec      post. 


"Failure  to  Fix  Liability  of  Indorser 
or  of  Drawer  of  Check  or  Draft," 
§    172. 

37.  Evidence  of  custom  and  usage. 
— Knickerbocker  Life  Ins.  Co.  t.  Pen- 
dleton, 115  U.  S.  339,  29  L.  Ed.  432,  6  S. 
Ct.  74;  Renner  v.  Bank  (U.  S.),  9 
Wheat.  581,  6  L.  Ed.  166;  Mills  v. 
Bank,  11  Wheat.  431,  6  L.  Ed.  512; 
Bank  v.  Triplett  (U.  S.),  1  Pet.  25,  7 
L.  Ed.  37;  Fowler  v.  Brantly  (U.  S.), 
14  Pet.  318,  10  L.  Ed.  473;  Bank  v. 
New  England  Bank  (U.  S.\  1  How. 
234,  11  L.  Ed.  115;  Thompson  v.  Riggs, 
5  Wall.  663,  18  L.   Ed.  704. 

"The  public  charter  of  the  business 
of  a  bank,  the  strict  regulations  under 
which  its  business  is  usually  trans- 
acted, the  care  required  of  its  officers 
and  agents  in  performing  their  duties, 
bring  the  case  fully  within  the  opera- 
tion of  the  rule  which  allows  usage 
and  the  course  of  business  to  be  shown 
for  the  purpose  of  raising  a  prima  facie 
presumption  of  fact  in  aid  of  collateral 
testimony."  Knickerbocker  Life  Ins. 
Co.  V.  Pendleton,  115  U.  S.  339,  29  L. 
Ed.    432,    6    S.    Ct.    74. 

"A  bank  is  a  quasi  public  institution. 
Its  officers  have  regular  and  set  duties 
to  perform,  directly  affecting  the  fi- 
nancial transactions  of  the  entire  pub- 
lic. It  is  essential  to  the  public  in- 
terest that  these  duties  should  be  per- 
formed with  invariable  certainty  and 
exactness.  The  business  community 
relies  upon  such  performance,  and,  at 
least  after  the  lapse  of  a  considerable 
time,  it  should  be  presumed  that  these 
duties  have  been  performed  and  busi- 
ness done  in  accordance  v/ith  the  cus- 


§  89  (2) 


FUNCTIONS    AND    DEALINGS. 


651 


seem  that  if  a  custom  could  be  established  by  the  uniform  course  of  busi- 
ness of  several  banks  in  a  given  locality,  it  might  be  done  by  one  where 
there  was  but  one.-^'^  But  a  single  case  is  not  sufficient  to  establish  a  gen- 
eral usage  of  a  bank.^Q 

A  Question  of  Fact,  Not  of  Opinion  of  Witnesses. — The  existence 
of  a  general  usage  prevailing  among  banks  must  be  established  as  a  fact, 
and  not  as  a  matter  of  judgment  or  opinion  of  witnesses  deduced  from  the 
manner  of  dealing  in  a  few  instances  in  particular  banks.'* *^ 

§  89  (2)  Character  and  Effect. — But  an  usage,  to  be  binding,  must 
be  general,  as  to  place,  and  not  confined  to  a  particular  bank,  and,  in  order 
to  be  obligatory  must  have  been  acquiesced  in,  and  become  notorious,  and 
must  be  reasonable.'* ^     It  must  be  certain  and  uniform,  and  there  must  be 


torn  and  course  of  business  of  the 
bank.  The  degree  of  exactness  with 
which  they  have  been  performed  by  a 
particular  bank  is  matter  of  proof,  de- 
pending upon  the  custom  and  course 
of  business  of  that  bank,  and  is  mat- 
ter of  consideration  for  the  jury." 
Knickerbocker  Life  Tns.  Co.  v.  Pen- 
dleton. 115  U.  S.  339,  29  L.  Ed.  432, 
6    S.    Ct.    74. 

The  testimony  of  the  president  of 
the  bank,  explanatory  of  the  conduct 
of  its  officers  when  certain  drafts 
came  back  protested,  stating  the  usage 
of  the  bank  in  such  matters,  is  admis- 
sible. Goetz  V.  Bank,  119  U.  S  5.')],  30 
L.   Ed.  515,  7  S.  Ct.  318. 

The  usage  of  issuing  certificates  of 
deposit  by  a  teller  of  a  bank  is  not 
evidence  to  prove  a  usage  of  certify- 
ing checks.  Mussey  v.  Eagle  Bank 
(Mass.),    9    }vletc.    300. 

Custom  to  pass  exchange  to  credit 
of  foreign  customers. — The  general 
custom  of  a  ijank  to  pass  exchange 
drawn  by  shippers  of  cotton,  on  their 
foreign  customers,  to  their  credit  and 
allow  them  to  pay  for  the  cotton  by 
their  local  checks  was  not  only  admis- 
silde  as  evidence  on  the  question  as  to 
whether  such  drafts  were  deposited  to 
the  credit  of  the  shippers  or  to  their 
sellers,  but  was  conclusive  against  the 
right  of  the  bank  to  claim  the  profits 
of  the  shippers  on  their  sale  by  reason 
of  a  lien  which  they  claimed  on  the 
cotton  for  a  del)t  due  the  bank  by 
the  seller.  Farmers',  etc..  Bank  v. 
vSIayden,  8  Tex.  Civ.  App.  63,  27  S.  W. 
424,  citing  Wootters  v.  Kaufman,  73 
Tex.  395,  11  S.  W.  390.  See  post,  "Re- 
lation between  Bank  and  Depositor 
for  Collection,"  §  loG,  as  to  collection 
generally. 

Custom  of  banks  as  to  means  for 
safe-keeping  of  funds. — !n  an  action  by 


a  bank  against  its  agent  for  a  failure 
to  account  for  money  of  which  the 
agent  had  been  robbed  by  a  burglar 
who  entered  his  office  in  the  night, 
evidence  is  not  admissible  on  the  part 
of  the  agent  to  show  that  it  was  the 
custom  of  another  bank  to  furnish  its 
agents  with  safes  in  which  to  keep  its 
money,  but  he  may  show  that  it  is  on 
their  safes  and  vaults,  and  not  the 
fastenings  of  their  rooms,  that  banks 
generally  rely  for  protection.  Wright 
V.  Central   R.,  etc.,  Co..   16  Ga.  38. 

Custom  of  bankers  to  borrow  money 
on  time  notes. — Evidence  of  the  cus- 
toni  of  bankers  of  a  particular  place  to 
borrow  money  on  time  notes  is  admis- 
sible to  show  that  the  execution  of 
such  a  note  by  a  banking  firm  of  that 
place  would  be  in  the  ordinary  course 
of  business.  Crain  v.  First  Nat.  Bank, 
114    111.    516,   2   N.   E.   486. 

As  to  "day." — See  ante,  "Rules  of 
Bank,"   §   SS. 

38.  Sufficiency  of  evidence  to  estab- 
lish.—Bank  V.  Triplett  (U.  S.).  1  Pet. 
25,  7  L.  Ed.  37;  Morse  on  Banks,  vol. 
1.  §  221;  Sahlicn  v.  Bank,  90  Tcnn. 
221,    16    S.   W.   373. 

39.  Single  case  insufficient. — Duvall 
V.  Farnu-rs"   Bank   (Md.),  9  Gill  &  J.  31. 

40.  A  question  of  fact,  not  of  opinion 
of  witnesses. — Chesapeake  Bank  i'. 
Swain.   29    Md.   483. 

41.  Character  of  usage. — Grissom  v. 
Commercial  Nat.  Bank,  87  Tenn.  350, 
10  S.  W.  774,  3  L.  R.  -A..  273.  10  \m. 
St.  Rep.  669;  Mussey  7-.  Eagle  Bank 
(Mass.),    9    Mete.    306. 

The  federal  supreme  court,  by  sev- 
eral decisions,  have  sanctioned  the 
usages  of  banks,  in  making  demand  and 
LHving  notice  of  ncMipayment,  varying 
from  the  law  mercliant.  Renner  v. 
P.aiik  (U.  S.).  9  Wheat.  581.  6  L.  Ed. 
166;    Mills  V.   Bank    (U.   S.),    II    Wheat. 


652 


BANKS    AND    BANKING. 


§  89  (2> 


reasonable  ground  to  suppose  that  the  custom  was  known  to  both  parties 
to  the  contract,  as  it  is  upon  this  supposition  that  the  parties  are  presumed 
to  have  contracted  with  reference  to  it.-*-  And  a  party  deahng  with  a  bank, 
with  knowledge  of  its  usage  in  contravention  of  the  general  commercial 
law,  will  be  bound  by  the  usage.^-^     But  not  to  contradict  a  rule  of  law,^* 


431,  6  L.  Ed.  512,  and  in  some  in- 
stances where,  in  this  respect,  notes 
left  in  a  bank  for  collection,  have  been 
placed  on  a  different  footing  from 
notes  discounted.  Cookendoifer  7'. 
Preston  (U.  S.),  4  How.  317,  11  L.  Ed. 
992.  But  these  usages  had  been  of 
long  standing  and  of  general  notoriety. 
Rights  had  grown  up  under  them 
which  could  not  be  disregarded  with- 
out injury  to  commercial  transactions. 
Adams  v.  Otterback  (U.  S.),  15  How. 
539.    14    L.    Ed.    805. 

Where  a  note  was  made  payable  at 
a  certain  bank,  and  by  the  agreement 
between  the  parties  it  was  moreover 
expressly  stipulated,  that  it  should  be 
sent  to  that  bank  for  collection;  if, 
then,  any  custom  or  practice  other 
than  general  commercial  usage  were 
to  control  the  management  of  the 
note,  it  was  the  usage  of  that  bank, 
certainly  not  the  particular  Tisage  of 
other  banks  not  mentioned  in  the  con- 
tract, and  perhaps  never  within  the 
contemplation  of  the  parties  to  that 
contract.  Camden  v.  Doremus  (U.  S. ), 
3    How.    515,    11    L.    Ed.    705. 

A  custom  of  banks  not  to  correct 
mistakes  in  the  receipt  or  payment  of 
money,  unless  discovered  before  the 
person  leaves  the  room,  is  illegal  and 
void.  Gallatin  v.  Bradford  (Ky.),  1 
Bibb   209. 

A  usage  that  a  bank  which  has  cer- 
tified by  mistake  a  note  as  good  can 
not  correct  such  mistake  is  unreason- 
able. Second  Nat.  Bank  v.  Western 
Nat.  Bank,  51  Md.  128,  34  Am.  Rep. 
300. 

As  to  appointment  of  discount  and 
examining  committees. — The  custom 
of  appointing  discount  and  examining 
committees  to  attend  to  the  details 
of  the  management  of  the  business  of 
a  bank  is  a  reasonable  one.  Stone  z'. 
Rottman,   183   Mo.   552,   82    S.   W.   76. 

42.  Certainty,  uniformity  and  notice. 
— Grissom  x:  Commercial  Nat.  Bank,  87 
Tenn.  350,  10  S.  W.  774,  ?  L.  R.  A. 
273.  10  Am.  St.  Rep.  669,  citing  Dabney 
V.  Campbell,  28  Tenn.  (9  Humph.) 
680;  Saint  f.  Smith.  41  Tenn.  (l 
Coldw.)  51;  Adams  v.  Otterbach  (U. 
S.),  15  How.  539,  14  L.  Ed.  805;  Allen 
T'.  St.  Louis  Nat.  Bank,  120  U.  S. 
20,   30  L.    Ed.   573,   7    S.    Ct.   4G0. 


43.  Notice  of  usage. — Merchants' 
Bank  z:  Central  Bank,  1  Ga.  418,  44 
Am.   Dec.   665. 

The  known  custom  of  a  bank,  and 
its  ordinary  modes  of  transacting 
business,  enter  into  the  contract  of 
those  giving  notes,  for  the  purpose  of 
having  them  discounted  at  the  bank,, 
and  the  parties  to  such  notes  must  be 
understood  as  having  agreed  to  govern 
themselves  by  such  customs  and  modes- 
of  doing  business,  whether  they  had 
actual  knowledge  of  them  or  not.  Ren- 
ner  v.  Bank  (U.  S.),  9  Wheat.  581,  6- 
L.  Ed.  166;  xMills  v.  Bank  (U.  S.),  11 
Wheat.  431,  6  L.  Ed.  512;  Bank  v, 
Triplett  (U.  S.),  1  Pet.  25.  7  L.  Ed.  37; 
Fowler  z'.  Brantly  (U.  S.),  14  Pet.  318, 
10  L.  Ed.  473;  Wiseman  r.  Chiappella 
(U.   S.),  23   How.   368,   16   L.   Ed.   466. 

A  reasonable  custom  or  usage  of  a 
bank  in  the  transaction  of  business 
with  its  customers,  may  be  binding 
upon  such  customers,  though  not  upon 
third  persons  vinless  known  and  as- 
sented to  by  them.  Renner  z'.  Bank  (U. 
S.),  9  Wheat.  581,  6  L.  Ed.  166;  Yeaton 
z:  Bank  (U.  S.),  5  Cranch  49,  3  L. 
Ed.   33. 

A  reasonable  usage  or  custom  of  a 
l)ank  in  the  transaction  of  business 
Avith  its  customers,  particularly  when 
universal  among  the  banks  of  the  lo- 
cality, is  binding  upon  parties  who 
have  resorted  to  the  bank  governed  by 
such  usage,  to  make  paper  negotiable, 
whether  such  usage,  is  known  to  them 
or  not.  Bank  r.  Triplett  (U.  S.),  1 
Pet.  25,  7  L.  Ed.  37,  citing  Renner  v. 
Bank  (U.  S.).  9  Wheat.  581,  6  L.  Ed. 
166;  Mills  z:  Bank.  11  Wheat.  431,  6 
L.   Ed.   512. 

44.  Can  not  contradict  rule  of  law. — 
Allen  z:  St.  Louis  Nat.  Bank,  120  U. 
S.  20,  30  L.  Ed.  573,  7  S.  Ct.  460;  Ver- 
milye  z'.  Adams  Exp.  Co.  (U.  S.),  21 
Wall.  138,  22  L.  Ed.  609;  Thompson 
v.  Riggs  (U.  S.),  5  Wall.  663.  18  L. 
Ed.  704;  First  Nat.  Bank  z'.  Nelson, 
105  Ala.  180,  16  So.  707;  Mussey  v. 
Eagle  Bank  (Mass.).  9  Mete.  306; 
Corn  Exch.  Bank  z:  Nassau  Bank,  91 
N.  Y.  74,  43  Am.  Rep.  655;  Shaw  v. 
Jacobs.  89  Iowa  713,  55  N.  W.  333,  56 
N.  W.  684.  21  L.  R  A.  440,  48  Am. 
St.    Rep.    411. 

"Bankers,    brokers,    and    others    can 


§  89  (2)- 


FUNCTIONS    AND    DEALINGS. 


653 


not,  as*was  attempted  in  this  case,  es- 
tablish by  proof  a  usage  or  custom  in 
dealing  in  such  paper,  which,  in  their 
own  interest,  contravenes  the  estab- 
lished commercial  law.  If  they  have 
been  in  the  habit  of  disregarding  that 
law,  this  does  not  relieve  them  from 
the  consequences  nor  establish  a  dif- 
ferent law."  Vermilye  7'.  Adams  Exp. 
Co.  (U.  S.),  21  Wall.  138,  23  L.  Ed. 
609. 

As  to  days  of  grace  on  drafts. — 
"Evidence  of  the  usage  of  banks  to 
regard  drafts  drawn  upon  them,  pay- 
able at  a  day  certain,  as  checks,  and 
not  entitled  to  days  of  grace,  is  inad- 
missible as  evidence  to  control  the 
rules  of  law  in  relation  to  such  pa- 
per." Thompson  z'.  Riggs  (U.  S.),  5 
Wall.    663,    18    L.    Ed.    704. 

As  to  payment  of  checks. — A  cus- 
tomer of  certain  bankers  at  Washing- 
ton, D.  C,  in  times  when,- specie  pay- 
ments having  been  lately  suspended, 
coin  was  acquiring  one  value  and  cur- 
rency (paper  money)  another  and  less, 
deposited  with  them  both  coin  and  pa- 
per money;  the  different  deposits  be- 
ing entered  in  his  pass  book,  the  one 
as  "coin"'  the  other  as  "currency,"  etc. 
Debts  being  at  this  time  payable  by 
law  only  in  coin,  the  bankers  requested 
their  customer  to  make  his  full  bal- 
ance coin,  which  he  did.  Congress 
passed,  about  eight  months  afterwards, 
an  act  making  certain  treasury  notes 
lawful  money  for  the  payment  of 
debts.  The  depositor  went  on  de- 
positing "coin,"  and  "treasury  notes" 
then  regarded  as  currency,  and  both 
were  entered  accordingly.  He  after- 
wards drew  for  "coin,"  for  a  part  of 
his  deposit,  exceeding  the  coin  de- 
posited after  the  legal  tender  act,  and 
his  check  was  paid  in  coin.  He  after- 
wards drew  for  "coin" — the  bulk  of 
his  coin  balance  deposited  before  the 
legal  tender  act.  Coin  was  refused  and 
tender  made  of  the  notes  declared  by 
congress  a  legal  tender.  On  suit 
brought  to  recover  the  market  value 
of  the  coin  drawn  for — the  bank  teller 
having  testified  among  other  things 
that  "after  the  suspension,  and  par- 
ticularly after  the  act  making  treas- 
ury notes  a  legal  tender,  his  employers 
uniformly  made  with  customers  de- 
positing with  them  a  difference,  in  re- 
ceiving and  paying  their  deposits,  be- 
tween coin  or  specie  and  paper 
money,  and  in  all  cases  when  the  de- 
posit was  in  coin  they  paid  the  checks 
of  their  customers  in  coin  when  they 
called  for  coin,  otherwise  they  paid 
•currency,    treasury    or    bank    notes" — 


the  plaintiff  offered  evidence  to  show 
"tliat  the  usage  and  mode  of  dealing 
between  the  said  parties  as  set  out 
in  the  testimony  of  the  teller  was  uni- 
formly used  and  practiced  by  all  the 
banks  and  bankers  of  the  District  of 
Columbia  with  their  customers."  It 
was  held,  that  the  evidence  was  rightly 
excluded.  Thompson  v.  Riggs  (U.  S.), 
5    Wall.    663,    18    L-    Ed.    704.' 

As  to  relation  arising  from  deposit 
of  money.— "The  general  rule  of  law 
is,  that  if  a  merchant  deposits  money 
with  a  bank,  the  title  to  the  money 
passes  to  the  bank,  and  the  latter  be- 
comes the  debtor  of  the  merchant  to 
that  amount;  and  it  is  not  perceived 
that  the  evidence  offered,  if  it  had 
been  admitted,  could  have  had  any 
other  effect  than  to  control  that  gen- 
eral rule  of  law,  as  it  is  not  pretended 
that  the  evidence  showed  a  special  de- 
posit or  any  special  contract.  Viewed 
in  any  light  consistent  witli  the  other 
evidence  in  the  record,  the  testimony 
was  either  entirely  immaterial  or  in- 
admissible, as  tending  to  control  the 
well-settled  rules  of  law."  Thompson 
V.  Riggs  (U.  S.),  5  Wall.  663,  18  L. 
Ed.  704.  See  post,  "Relation  between 
Bank  and  Depositor  in  General,"  §  119, 
as  to  relation  arising. 

To  change  values  fixed  by  law. — The 
special  custom  of  bankers  in  a  par- 
ticular locality  can  not  change  values 
as  fixed  by  law;  and  can  not,  there- 
fore, give  a  right  to  enforce  payment 
in  depreciated  paper.  Marine  Bank 
V.  Chandler,  27  111  ,)2.j.  81  Am.  Dec. 
249. 

A  usage  for  a  teller  to  certify  a 
check  as  "Good,"  to  enable  the  holder 
to  use  it  at  his  pleasure,  is  bad,  even 
if  such  a  usage  is  shown.  Mussey  v. 
Eagle    Bank    (Mass.),   9   Mete.   306. 

Usage  to  discount  at  illegal  rate. — 
Evidence  of  a  usage  with  other  l)anks 
organized  under  the  same  law,  to  dis- 
count more  than  the  legal  rate  of  in- 
terest, upon  the  acquisition  of  Ijusi- 
ness  paper,  is  not  admissible  in  a  suit 
by  a  bank  upon  the  paper  so  dis- 
counted. Niagara  County  Bank  z'. 
Baker,  1.5  O.  v'^t.  68. 

To  change  legal  character  of  power 
of  attorney. — Evidence  of  a  custom 
among  l)anks  and  brokers  in  a  par- 
ticular cily  to  treat  registered  Virginia 
consols  as  negotial^le,  when  accom- 
panied by  a  power  of  attorney  authoriz- 
ing the  agent  to  sell,  is  not  admis- 
sible in  an  action  l)y  the  owner  of  the 
consols  against  a  bank  to  which  they 
have  been  pledged  by  the  agent  as  a 
security    for   his   own   debt,   as    no   cus- 


654 


BANKS    AND    BANKING. 


§  89  (3) 


or  to  dispense  with  documentary  evidence,  where  such  is  necessary .-is 

Effect  of  Custom  for  Transacting  Banking  Business.— The  courts 
recognize  and  enforce,  and  the  pubHc  and  individuals  must,  at  their  peril, 
take  notice  of  the  reasonable  and  lawful  customs  adopted  for  the  transac- 
tion of  commercial  business.'*^ 

Abandonment.— A  bank  which  has  ceased  to  follow  a  custom  can  not 
rely  thereon.^'^ 

§  89  (3)  Presumption  of  Action  by  Directors.— The  ordinary 
usage  and  practice  of  a  bank,  in  the  absence  of  counter  proof,  must  be  sup- 
posed to  result  from  the  regulations  prescribed  by  the  board  of  directors; 
to  whom  the  charter  and  by-laws  submit  the  general  management  of  the 
bank,  and  the  control  and  direction  of  its  officers.  It  would  be  not  only 
inconvenient,  but  perilous,  for  the  customers,  or  any  other  persons  dealing 
with  the  bank,  to  transact  their  business  with  the  officers,  upon  any  other 
presumption."*^ 


torn  can  change  the  legal  character  of 
the  power  of  attorney.  First  Nat. 
Bank  v.  Taliaferro,  72  Md.  164,  19  All. 
364. 

45.  Or  dispense  with  documentary 
evidence. — "Of  course,  proof  of  such 
custom  and  course  of  business  can  not 
dispense  with  documentary  evidence 
when  such  evidence  is  requisite  in  law 
to  verify  the  act  done,  or  to  make  it 
complete,  such  as  protest  and  notice 
of  dishonor,  when  these  are  necessary; 
and,  in  all  cases,  it  is  the  province  of 
the  jury  to  determine,  under  all  the 
circumstances  of  the  case,  the  weight 
to  be  given  to  the  evidence.  See  Rosen- 
thal V.  Walker,  111  U.  S.  185,  28  L. 
Ed.  305,  4  S.  Ct.  382."  Knickerbocker 
Life  Ins.  Co.  v.  Pendleton,  115  U.  S. 
339,  39  L.   Ed.   432,  6   S.   Ct.  74. 

46.  Effect  of  custom  for  transacting 
banking  business. — Howard  v.  Walker, 
92  Tenn.  452,  21  S.  W.  897,  citing 
Sahlien  v.  Bank,  90  Tenn.  221,  16  S. 
W.  373;  First  Nat.  Bank  v.  McClung, 
75  Tenn.  (7  Lea)  492,  40  Am.  Rep. 
66;  Bank  v.  Triplett  (U.  S.),  1  Pet.  25, 
7  L.  Ed.  37;  Mills  v.  Bank  (U.  S.),  11 
Wheat.  431,  6  L.  Ed.  512;  Commer- 
cial Bank  v.  Union  Bank,  11  N.  Y.  203, 
213;  Briggs  v.  Central  Nat.  Bank,  89 
N.  Y.  182.  affirming  61  How.  Prac.  250. 

An  agent  is  liable  to  suit  for  devia- 
tion from  a  custom  which  one  who 
deals  with  him  is  presumed  to  con- 
tract to  have  followed.  Sahlien  v. 
Bank,   90   Tenn.   221,    16    S.   W._373. 

As  to  manner  of  notice  to  directors. 
— An  established  custom  that  notice, 
etc.,  to  directors  of  a  bank  shall  be 
left  on  the  cashier's  desk,  is  binding  on 
the    directors    whose    notes    come    into 


the   bank.     Weld  v.   Gorham,   10   Alass. 
366. 

Effect  of  nonobservance — As  to 
character  and  form  of  transfers — No- 
tice of  irregularity. — The  custom 
among  bankers,  as  to  the  form  and 
character  of  transfers  of  a  particular 
class  of  securities,  when  not  complied 
with  as  to  securities  of  that  class  re- 
ceived by  a  bank,  is  sufficient  to  put 
the  bank  on  inquiry  as  to  ownership. 
Taliaferro  v.  First  Nat.  Bank,  71  Md. 
200,    17    Atl.    1036. 

47.  Abandonment. — IsbelU'.  Lewis,  98 
.■Ma.    550,    13    So.    335. 

48.  Presumption  of  regulation  of  di- 
rectors.— Minor  v.  Mechanics'  Bank 
(U.  S.),  1   Pet.  46,  7  L.   Ed.  47. 

The  established  usage  and  practice 
of  the  bank,  for  a  long  period,  known 
to  the  president  and  directors,  does, 
in  a  general  view,  in  reference  to  the 
principles  of  the  law  of  evidence,  af- 
ford a  presumption  of  the  approba- 
tion, assent  and  acquiescence  of  the 
president  and  directors,  as  to  such 
usage  and  practice;  though  the  bal- 
ances resulting  therefrom  were  not 
formally  communicated  to  the  direct- 
ors. Minor  v.  Mechanics'  Bank  (U. 
S.),  1  Pet.  46,  7  L.  Ed.  47. 

"In  the  case  of  the  Bank  of  the 
United  States  v.  Dandridge,  12  Wheat. 
64,  6  L.  Ed.  552,  the  subject  was  under 
the  consideration  of  this  court;  and 
circumstances,  far  less  cogent  than  the 
present,  to  found  a  presumption  of  the 
official  acts  of  the  board,  were  yet 
deemed  sufficient  to  justify  their  being 
laid  before  the  jury,  to  raise  such  a 
presumption.  If,  therefore,  the  usage 
and  practice  alluded  to,  in  the  instruc- 


§  89  (4b) 


FUNCTIONS    AND    DEALINGS. 


655 


§  89  (4)  Particular  Customs^-'— §  8  9  (4a)  As  to  Notice  of  Ma- 
turity of  Negotiable  Paper.— Banks  often  give  notice  to  their  customers 
of  the  approaching  maturity  of  their  promissory  notes  or  bills  of  exchange; 
but  they  are  not  obliged  to  give  such  notice,  and  their  neglect  to  do  it  would 
furnish  no  excuse  for  nonpayment  at  the  day.-'''^ 

§  89  (4b)  As  to  Deposits  and  Checks  and  Payment  Thereof. -^^ — 
As  to  Time  of  Deposit  and  Return  of  Unpaid  Check. — The  usage  of 
depositors  in  certain  banks  to  deposit  a  check  on,  or  the  next  day  after,  the 
day  on  which  it  was  received,  and  of  the  bank  immediately  to  return  any 
checks  from  the  clearing  house  which  the  bank  has  not  funds  to  cover,  held 
to  be  reasonable.^^ 

Custom  of  Passing  Checks  Payable  to  Persons  or  Bearer  by  De- 
livery Only. — A  custom  of  passing  checks  payable  to  a  person  "or  bearer" 
by  delivery  only  does  not  afifect  the  operation  of  a  statute,  requiring  such 
checks  to  be  construed  as  payable  to  a  person  "or  order. "•"'^ 

Usage  Dispensing  with  Cashier's  Signature  to  Certificate  of  De- 
posit.— Such  a  usage,  allowing  the  certificate  to  be  signed  by  another  offi- 
cer, as  the  president,  has  been  sustained. ^^ 


tion,  were  within  the  legitimate  au- 
thority of  the  board,  and  such  as  its 
written  vote  might  justify,  there  would 
be  no  question,  in  this  court,  that  it 
ought  to  have  been  given."  Minor  v. 
Mechanics'  Bank  (U.  S.),  1  Pet.  46, 
7   L.  Ed.  47. 

49.  Particular  customs. — As  to  means 
for  safe-keeping  of  funds,  see  ante, 
"Admissibility  of  Evidence  and  Its 
Sufficiency,"   §   89    (l). 

As  to  borrowing  money  on  time 
notes,  see  ante,  "Admissibility  of  Evi- 
dence  and   Its   Sufficiency,"   §   89    (1). 

As  to  "day,"  see  ante,  "Rules  of 
Bank,"   §   88. 

As  to  issue  of  certificate  of  deposit 
by  teller,  see  ante,  "Admissibility  of 
Evidence  and  Its  Sufficiency,"  §  89   (l). 

As  to  passing  exchange  to  credit  of 
foreign  shippers,  see  ante,  "Admis- 
sibility of  Evidence  and  Its  Suffi- 
ciency," §  89   (1). 

As  to  notice  to  directors,  see  ante, 
"Character  and  Effect,"  §  89  (2).  And 
see,  generally,  "Admissibility  of  Evi- 
dence and  Its  Sufficiency,"  §  89  (1); 
"Presumption  of  Actioii  I)y  Directors," 
§    89    Ci). 

50.  Custom  to  give  notice  of  ma- 
turity of  paper  not  binding. — Thomp- 
son V.  Knickerbocker  Life  Ins.  Co., 
104    U.    S.    252,    20    L.    Ed.    7G,J. 

The  indorser  on  a  note  discounted 
by  a  bank  is  not  bound  l)y  a  usage  of 
the  bank  to  merely  notify  nonresident 
makers    of    the    maturity    of    the    note, 


instead  of  demanding  payment.  Bank 
V.  Deneale.  Fed.  Cas.  No.  846,  2 
Cranch    C.    C.    488. 

In  an  action  by  a  bank  on  a  note 
held  by  it  as  collateral,  it  was  not  er- 
ror to  reject  evidence  of  a  custom  of 
banks  to  send  notices  to  persons 
wliose  names  were  on  notes  held  as 
collateral,  and  that  no  such  notice  had 
been  sent  to  defendant,  as  no  rule  of 
law  required  the  sending  of  such  no- 
tice, and  plaintiff  had  not  adopted  such 
custom.  Williams  v.  National  Bank, 
70  Md.  343,  17  Atl.  382.  See,  also,  ante, 
"Character   and    Effect,"   §   89    (2). 

As  to  giving  notice  of  dishonor,  see 
post,  ".As  to  Collections."  §  89   (4c). 

51.  As  to  deposits,  checks  and  pay- 
ment thereof. — See,  also,  ante,  "Cliar- 
acter  and  Effect,"  §  89  (2),  as  to  chang- 
ing rule   of  law. 

As  to  medium  for  repaying  deposits. 
— See  post,  "Repayment  in  General," 
§   133. 

.'\s  to  correcting  mistakes,  see  ante, 
"Cliaractcr  and   Effect,"   §   89    (2). 

52.  As  to  time  of  deposit  and  return 
of  unpaid  check. — Marrctt  :'.  Brackett, 
CO    .Me.  r)24. 

53.  Custom  of  passing  checks  pay- 
able to  person  or  bearer  by  delivery- 
cnly.— First  Xat.  I'-ank  v.  Nelson,  lO.I 
Ala.  180,  16  So.  707,  construing  Ala. 
Code,  §  1761. 

54.  Usage  dispensing  with  cashier's 
signature  to  certificate  of  deposit. —  In 
an     action     against     llu'     indorser    of    a 


^56  BANKS    AND    BANKING.  §    89    (4b) 

Usage  Modifying  Usual  Rule  as  to  Transmission  of  Checks  for 
Collection.— Such  a  usage,  held  to  vary  the  usual  rule  of  law,  was  held  in 
an  early  case  to  be  the  custom  of  sending  checks  once  a  week  to  New  York 
City  by  steamer  from  an  outlying  point,  Bridgeport,  Conn.^^ 

As  to  Legal  Effect  of  Transfer  of  Check.— The  legal  effect  of  the 
transfer  of  a  check  under  the  law  merchant  can  not  be  modified  by  usage.^'^ 

Custom  as  to  Mode  of  Opening  Account  with  Unknown  Party.  Not 
Writing  His  Name. — In  an  action  to  recover  money  deposited  by  one 
who  could  not  write  his  name,  which  money  had  been  paid  by  the  bank  to 
a  third  person  on  a  forged  indorsement,  it  appeared  that  it  was  the  general 
custom  of  banks,  where  a  person  unknown  to  a  bank  brought  money  for 
deposit,  gave  a  name  as  his  own,  and  asked  for  a  certificate,  there  being  no 
suspicious  circumstances,  to  issue  to  him  such  certificate  in  the  name  given, 
on  his  signing  the  signature  book,  if  he  could  write,  without  further  inquiry, 
and  pay  the  money  on  return  of  the  certificate  indorsed  with  the  name  writ- 
ten in  the  signature  book ;  but  that,  where  the  depositor  could  not  write  his 
name,  it  was  the  custom  to  ask  questions,  the  answers  to  which  were  entered 
in  the  signature  book  as  a  means  of  identification.  It  was  held,  that  it  was 
error  to  refuse  to  instruct  the  jury  that,  if  they  found  the  custom  so  to  be, 
the  action  on  the  part  of  defendants'  bank  in  following  it  was  not  neg- 
ligence/'^" 

Customs  of  Bookkeeping. — In  an  action  against  a  bank  to  recover  a 
deposit,  the  cashier  testified  that  plaintiff  had  not  made  the  alleged  deposit. 
He  was  then  allowed  to  testify  as  to  certain  customs  of  the  bank  relative 
to  keeping  its  books,  by  reason  of  which  the  transaction  would  appear  if  it 
had  occurred  as  alleged.  Such  customs  and  usages  may  be  shown  to  cor- 
roborate the  testimony  already  given.-'^'^ 

Usage  to  Hold  Checks  until  Receipt  of  Funds  to  Meet.— An  oil 
dealer  left  at  his  bank  a  check  for  $1,500,  drawn  in  his  favor'1:)y  B.      There 

certificate  of  deposit  issued  by  an  as-  in  an  action  by  the  indorsee  against 
sociation  in  fact,  organized  under  the  the  maker,  evidence  that,  by  a  custom 
general  banking  law  of  New  York,  among  bankers,  where  a  check  is 
which  certificate  was  signed  by  the  drawn  on  a  bank  and  presented  to  an- 
president,  but  not  by  the  cashier,  it  ether  bank,  it  is  passed  to  the  credit 
was  held  that  the  want  of  a  cashier's  of  the  customer,  but  that  the  credit 
certificate  was  unavailing  as  a  defense.  so  given  is  treated  as  a  receipt  for  the 
because  the  association  might,  by  a  check,  and  not  as  a  payment,  is  m- 
course  of  practice,  render  itself  liable  admissible,  as  the  indorsement  and 
on  such  instrument,  though  not  ex-  check  evidence  the  agreement  between 
ecuted  in  the  mode  prescribed.  Kil-  the  payee  and  indorsee,  and  the  trans- 
gore   7'.    Bulkley,   14   Conn.   .Sfi2.  ler    of    the    check    is    governed    by    the 

55.  Usage  modifying  usual  rule  as  law  merchant.  Shaw  <'.  Jacobs,  89 
to  transmission  of  checks  for  collec-  Iowa  713,  55  N.  W.  333.  56  N.  W.  684, 
tion.— Bridgeport  Bank  r.  Dyer.  19  21  L.  R.  A.  440.  48  Am.  St.  Rep.  411. 
Conn.   136.  57.    Custom   as   to   mode   of   opening 

56.  As  to  legal  effect  of  transfer  of  account  with  unknown  party  not  writ- 
check.— Where  a  check  is  payable  to  ing  his  name.— Fiore  v.  Ladd,  22  Or. 
a    named    person    or    bearer,    and    the  202,   29   Pac.   435. 

payee  indorses  it  in  blank,  and  delivers  58.       Customs       of       bookkcepmg.— 

it  to  a  bank,  and  receives  credit  for  it,       Meighen  z'.  Bank,  25  Pa.  288. 


§    89    (4c)  FUNCTIONS    AND    DEALINGS.  657 

were  no  funds  of  B.  at  the  bank  at  that  time,  and  the  check  was  left  there 
under  an  agreement  with  the  bank  officials  that  they  would  see  it  paid  out 
of  the  first  unappropriated  funds  of  B.  coming  in.  Large  sums  were  sub- 
sequently deposited  by  B.,  but  they  were  not  unappropriated.  Plaintiff  of- 
fered to  show  that  it  was  the  custom  and  usage  of  the  banks  of  the  city  to 
receive  the  checks  of  oil  dealers,  and  hold  the  same  for  future  payment  as 
soon  as  the  drawees  would  deposit  funds  sufficient  to  meet  them.  The  evi- 
dence was  properly  excluded,  as  it  was  neither  an  oft'er  to  prove  a  special 
custom  nor  a  special  course  of  dealing  between  the  bank  and  plaintiff'.^" 

As  to  Right  of  Bank  to  Apply  Deposit  to  Depositor's  Note. — The 
note  of  a  bank  depositor  payable  at  his  bank  is  not  equivalent  to  a  check, 
and  the  bank  has  no  authority  to  pay  such  note  to  the  holder  in  the  absence 
of  authority  from  the  maker  so  to  do,  or  a  general  usage  giving  the  bank 
such  authority ;  and  where  the  evidence  to  prove  such  usage  showed  that  it 
was  not  uniform  among  banks,  in  some  cases  depending  on  circumstances, 
and  in  others  not  existing  at  all,  the  depositor,  having  no  knowledge  thereof, 
is  not  bound  by  it.^" 

As  to  Duty  of  Bank  Paying  to  Another  Bank  a  Check  with  Forged 
Indorsement  to  Detect  Forgery. — Where  a  bank  pays  a  check  drawn 
upon  it  to  a  bank  in  the  same  city,  which  has  received  it  from  a  depositor, 
with  a  forged  indorsement,  evidence  that,  by  usage  among  banks  in  that 
city  it  was  the  duty  of  the  former  bank  to  examine  and  satisfy  itself  of  the 
genuineness  of  the  indorsement,  and  to  return  the  check  immediately  to  the 
latter  bank  if  not  good,  is  incompetent  as  it  contradicts  a  rule  of  law.*^^ 

As  to  Officer  Authorized  to  Certify  Check. — A  usage  allowing  a  teller 
to  certify  a  check  as  good,  to  enable  the  holder  to  use  it  afterwards  at  his 
pleasure,  is  bad.*^- 

§  89  (4c)  As  to  Collections. — In  General. — Where  a  payee  of  a 
draft  selects  a  bank  as  his  collecting  agent,  he  is  presumed  to  know  the 
methods  by  which  such  transactions  are  effected  through  banking  customs, 
and  actual  ignorance  of  them  is  of  no  avail  as  an  excuse.^^ 

59.  Usage  to  hold  checks  until  re-  ience  of  the  bank  or  of  its  customers 
ceipt  of  funds  to  meet. — Jolmston  z\  required  it,  certified  that  checks  were 
I'arker   Sav.    Bank,   101    Pa.    ')97.  "t^ood,"    which    were    drawn      on      the 

60.  As  to  right  of  bank  to  apply  hank  by  its  customers,  when  funds  to 
deposit  to  depositor's  note.— Grissom  the  amount  of  such  checks  were  to  the 
v.  Commercial  Xat.  Rank.  87  Tcnn.  ^rc/l't  of  the  drawers,  and  that  his  so 
350  10  S  W  774  3  L  R.  A.  273  10  doing-  was,  in  some  instances,  known 
Xni    St    Rep    fif)9.  '   '       ■      ■                '  to    the    bank,    and    was    not    forbidden, 

'      '  ". '         J   ,  "'  r  u      1  •        ...  and  that  it  was  the  usage  of  the  tellers 

61.  As  to  duty  of  bank  paymg  to  an-       ^^  ^^,^^^  ,^^,^^.^   ^^   ^^   ^,^^   ^^^^^^   ^,^i„„ 

other    bank    a    check    with    forged    m-  ^^^^   ^^^^    warrant   a  jury   to   infer   that 

dorsement     to     detect     forgery.-Corn  ^,^^  .^,^  ^^  ^^  j^i,^„  ^.^^  ,^„  original. 

hxch.    I.ank  !■.   Nassau   Bank.   Ul    N.   \.  i^i^^rcnt,    implied   novver    of   the    teller; 

.4,  43  Am.   Rep.   r..-,,-,.  .^^      ^^^^^^         Mussey     z:      Eagle      I^ank 

62.  As   to   officer   authorized   to    cer-  (Mass.),  9  Mete.  300. 

tify    check. — Evidence    that    the    teller  63.    In   general. — Howard   v.   Walker, 

'if   a   bank,    during   all    the    time   of   his       ()o  Tenn.  4r)3,  21    S.  W.'897.     See,  also, 
bobbng    office,    whenever    the    conven-       -1,1^^,  "Character  and   Effect,"  §  89   (2). 

]    B  &  B— 42 


658  BANKS    AND    BANKING.  §    90 

As  to  Giving  of  Notice. — Plaintiffs,  doing  a  banking  business,  after 
abandoning  a  practice  to  give  notice  of  the  dishonor  of  notes  by  mail  not- 
withstanding that  the  indorser  and  holder  lived  in  the  same  town,  could 
not  rely  on  such  custom,  even  though  it  continued  to  prevail  among  other 
banks.*^^ 

As  to  Right  to  Proceeds  of  Note  Collected. — A  custom  among  banks 
of  sending  bills  and  notes  from  one  to  the  other  for  collection,  and  of  pass- 
ing the  avails,  when  paid,  to  the  credit  of  the  bank  so  sending  it,  and  to 
the  debt  of  the  bank  receiving  it,  can  not  affect  the  claim  of  a  third  person 
to  the  avails  of  a  bill  which  he  has  committed  to  one  of  them  for  coUec- 
tion.*55 

Usage  as  to  Holding  for  Collection  after  Presentation  and  Prom- 
ise of  Payment. — A  person  sending  paper  to  a  bank  for  collection,  without 
special  instructions,  is  bound  by  a  custom  of  the  bank  to  hold  paper  sent 
to  it  for  collection  for  some  days  after  presenting  it  and  receiving  a  promise 
of  payment,  if  such  usage  is  not  in  violation  of  the  general  law.^'' 

§  89  (4d)  As  to  Loans  and  Discounts.''— As  to  Effect  of  Pledge 
of  Property  by  Factor  for  Individual  Benefit. — A  pledge  of  cotton  by 
a  factor  to  a  bank  as  security  for  advances  made  by  the  bank  to  the  factor 
in  his  individual  capacity,  if  not  otherwise  binding  on  the  owner  and  con- 
signor of  the  cotton,  is  not  made  so  by  a  general  usage  of  trade  between 
the  banks  and  cotton  factors  in  the  place  where  they  do  business,  not  shown 
to  be  known  to  the  consignors  or  other  owners  of  cotton. *^^ 

As  to  Forwarding  Draft  for  Acceptance  after  Discount. — A  bank's 
previous  practice  in  this  respect,  of  doing  what  the  law  did  not  require  of  it, 
does  not  obligate  it  to  continue  so  to  act.^^ 

§  90.  Agency  of  Bank. — A  bank  has  power  to  act  as  agent  in  the  col- 
lection and  remission  of  money,  though  it  be  due  and  payable  under  a  lease,^'' 

64.  As  to  giving  of  notice. — Isbell  v.  68.  As  to  effect  of  pledge  of  prop- 
Lewis,  98  Ala.  550.  13  So.  335.  See,  erty  by  factor  for  individual  benefit. — 
also,  ante,  "As  to  Notice  of  Maturity  Allen  f.  St.  Louis  Nat.  Bank,  120  U. 
of  Negotiable  Paper."  §  89  (4a),  as  to  S.  20,  30  L.  Ed.  573,  7  S.  Ct.  460. 
notice  of  maturity  of  negotiable  pa-  69.  As  to  forwarding  draft  for  ac- 
oer.  ceptance  after  discount. — In  an  action 


65.  As  to  right  to  proceeds  of  note 


against    a    bank    for    not    forwarding   a 


collected— Lawrence       z-.       Stonington  draft   for  acceptance,  after  discounting 

Bank,    fi    Conn.    521.                             '  ,'t    for    plaintiff,    the    fact    that    plaintiff 

„^     TT                  J.     \.   ij-        r            11^  had  been  the  constant  customer  ot  tne 

66.  Usage  as  to  holding  for  collec-  ^^^^  ^^^^^  ^^^  discounted  for  him 
tion  after  presentation  and  promise  of  ^^^^     ^^^^         ^^^     immediately     for- 

?ofT«  Q~w    .'7^    "•              '  warded     them     for     acceptance,     when 

2^1,   lb   b.    W.   373.  ^j^g  j^,^^   ^jj   j^Q^  require   it  so  to  do,  is 

67.  See,  also,  ante,  "Character  and  ^^  j^gt  reason  why  the  bank  should 
Effect,"  §  89   (2).  be  compelled  to  pursue  a  similar  course 

As  to  discount  at  illegal  rate,  see  .in  the  future.  Citizens'  Bank  v.  Graf- 
ante,  "Character  and   Effect,"  §  89   (2).  fin,  31  Md.  507,  1  Am.  Rep.  66. 

As    to    notice    of   maturity,    see    ante,  70.      Agency      of     bank. — Knapp     v. 

"As   to   Notice  of  Maturity  of   Negoti-  Saunders,    15    S.    Dak.    464,    90    N.    W. 

able   Paper,"  §   89    Ua).  137. 


§  91 


FUNCTIONS    AND    DEALINGS. 


659 


or  as  agent  in  the  collection  of  drafts  drawn  against  shipments." i 

§  91.  Purchasing  and  Holding  Bank's  Own  Stock.— While  a  bank 
may  own  and  sell  its  own  stock,'^  a  bank  can  not  purchase  its  own  stock, 
except,  perhaps,  where  the  purpose  is  to  secure  a  previously  existing  debt^^ 
and  then  it  can,  of  course,  sell  it  again,  taking  the  purchaser's  note.'^  It 
has.  however,  been  held  that  a  purchase  of  the  bank's  own  stock,  made  with 
capital  which  can  not  be  usefully  employed  in  loans,  is  legal.'^^  And  a  bank 
may  receive  a  transfer  of  its  stock  as  collateral  security  without  being  a 
purchaser  thereof."^ 

Under  Particular  Statutes  and  Charter  Provisions.— But  sometimes 
there  is  an  express  statutory  prohibition,' '  which  may  make  an  exception 
in  favor  of  a  right  to  purchase  to  prevent  loss  upon  a  debt  previously  con- 
tracted in  good  faith  on  security  deemed  adequate.' ^  Associations  for  bank- 
ing, organized  under  the  New  York  Act  of  April  18,  1838,  have  been  held 
not  "moneyed  corporations,"  within  the  New  York  statute  prohibiting 
"moneyed  corporations"  from  applying  any  of  its  capital  to  the  purchase 
of  their  own  stock.'^     The  provision  of  a  bank  charter  prohibiting  the  cor- 


71.  First  Xat.  Bank  v.  Baken,  17  N. 
Dak.  224,  116  N.   W.  92. 

As  to  agency  for  collection,  see  post, 
"Relation  between  Bank  and  Depos- 
itor  for    Collection,"   §   156.   et    seq. 

72.  Purchasing  and  holding  bank's 
own  stock.— Rdhison  :■.  Rcall.  26  Ga.  17. 

73.  Can  not  purchase  except  to  se- 
cure debt.— German  Sav.  Bank  v.  Wul- 
fekuhler,    19    Kan.    60. 

In  the  absence  of  statutory  restric- 
tion, a  solvent  banking  corporation, 
not  in  contemplation  of  insolvency  or 
dissolution,  as  against  creditors,  may 
purchase  its  own  stock  in  payment  oi 
a  previously  existing  debt  due  from 
the  stockholder.  Draper  v.  Blackwell, 
138   Ala.    182,   35    So.   110. 

A  bank  may  receive  its  own  stock 
from  stockholders  in  payment  of  debts 
previously  contracted  by  them,  and  in 
such  case  equity  will  not  compel 
former  stockholders  who  so  trans- 
ferred their  stock  to  reinstate  it  after 
the  transaction  has  been  long  ac- 
quiesced in  by  the  company.  Taylor 
V.   Miami   Exporting  Co.,  6  O.  176. 

74.  Power  to  sell  on  credit. — Where 
a  bank  purchases  its  own  stock  to 
protect  itself  from  loss,  it  may  sell 
said  stock  on  credit,  and  take  the  pur- 
chaser's note  with  the  stock  as  col- 
lateral security.  Union  Nat.  Bank  v. 
Hunt.  7   Mo.   :\pp.   42. 

75.  Purchasing  bank's  own  stock 
with  unemployed  capital.  —  Where, 
from  tlic  course  of  its  business,  the 
capital  of  a  ])ank  can  not  be  usefully 
employed    in    loans,    it    may    be    applied 


to  the  purchase  of  its  own  stock;  and 
on  the  resale  of  such  stock  the  stock- 
holders have  no  right  to  a  preference 
m  the  purchase,  nor  can  the  directors 
be  deemed  as  trustees,  and  on  that 
ground  restricted  from  the  purchase 
of  the  stock.  Hartridge  v.  Rockwell 
(Ga.),   R.    M.   Charlt.   260. 

76.  Transfer  as  collateral.— Where 
R.  gave  his  note  to  a  bank  in  pavment 
of  10  shares  of  its  capital  stock,  which 
were  transferred  back  to  the  bank  as 
collateral  security  for  the  note,  the 
transaction  was  not  fraudulent,  as  con- 
stituting a  purchase  by  the  bank  of 
its  own  stock.  Dalzell  v.  Commercial 
Bank,    82    Mo.    App.    264. 

77.  Statutory  prohibition. — A  stock- 
h  o  1  d  e  r  s'  resolution  reducing  the 
amount  of  capital  stock  of  a  bank  one- 
half,  and  providing  that  long-time  cer- 
tificates of  deposit  should  be  issued  to 
the  stockholders  in  payment  for  stock 
surrendered  by  them,  amounted  to  a 
sale  of  one-half  of  the  capital  stock 
to  the  bank  itself,  and  was  within  the 
prohibition  of  Mills'  Ann.  St.,  of  Colo- 
rado, §  510,  declaring  that  no  bank 
shall  be  the  holder,  as  purchaser,  of 
any  portion  of  its  own  stock.  Kassler 
V.    Kyle.   28   Colo.   374,   65    Pac.   34. 

78.  To  secure  debt. — Franklin  Bank 
V.  Commercial  Bank,  36  O.  St.  350,  38 
Am.   Rep.  594. 

79.  Under  statute  prohibiting  mon- 
eyed corporation  from  purchasing  own 
stock.— Lcavitt  r.  I'.latcliford.  17  X.  Y. 
521,  reversing  5  Barb.  9,  .-md  overrul- 
ing the   dictum   to   tiie   contrary   in    Gil- 


660 


BANKS    AND    BANKING. 


§  92 


poration  from  dealing  or  trading,  directly  or  indirectly,  in  buying  or  selling 
any  goods,  wares,  or  merchandise,  or  commodities  whatsoever,  does  not 
prohibit  the  bank  from  making  a  bona  fide  purchase  of  its  own  stock.s^ 

§   92.    Purchasing  and  Holding   Stock  in   Other   Corporations.— 

In  general,  a  bank  can  not,  without  express  authority,  purchase  or  subscribe 
for  stock  in  other  corporations,-^^  and  its  action  in  doing  so  can  not  be  vali- 
dated by  estoppel, '^3  and  certainly  not  where  expressly  prohibited  from  so 
doing.'^4  But  if  not  prohibited,  it  has  been  held  that  a  bank  might  accept 
stock  in  another  corporation;  e.  g.,  a  railroad  company,  in  satisfaction  of 
debts  owing  it  ;^"'  and  the  prohibitory  clause  usually  makes  this  an  excep- 
tion,^*' but  it  does  not  include  a  receipt  of  stock  in  pledge  for  a  contempo- 

not  be  validated  by  estoppel.  Hence 
such  a  corporation  can  not  be  held 
liable  for  an  assessment  as  a  stock- 
holder of  a  national  bank,  where  it 
purchased  the  stock  as  an  investment, 
although  it  retained  such  stock  until 
the  national  bank  became  insolvent, 
and  received  dividends  thereon.  Scho- 
field  v.  Goodrich  Bros.  Banking  Co., 
39    C.    C.    A.    76,   98   Fed.   271. 

84.  Express  prohibition. — Franklin 
Bank  z:  Commercial  Bank,  5  O.  Dec. 
339,  affirmed  in  36  O.  St.  350,  38  Am. 
Rep.  594. 

Where  a  bank,  which  is  prohibited 
by  law  from  taking  stock  in  another 
corporation  as  a  pledge  for  a  contem- 
porary loan,  takes,  in  such  manner, 
the  stock  of  another  bank,  it  has  no 
right  of  action  against  the  latter  bank 
for  its  refusal  to  transfer  the  stock, 
though  the  law  provides  that  any 
bank  violating  any  provision  of  the 
act  shall  forfeit  all  its  rights  and 
franchises,  which  forfeiture  can  only 
be  declared  in  a  proceeding  by  the 
state.  Franklin  Bank  r.  Commercial 
Bank,   36   O.    St.   350.   38   Am.    Rep.   594. 

85.  Acceptance  of  stock  for  debt. — 
It  is  consistent  with  the  powers  of  a 
bank  to  either  ov/n  stock  in  a  railroad 
company,  or  buy  a  railroad,  or  accept 
stock  in  a  new  company  in  satisfac- 
tion of  debts  owing  it,  and,  if  the  cor- 
poration in  which  it  has  accepted  stock 
has  violated  its  contract  by  consolidat- 
ing with  another  company,  the  bank, 
being  a  stockholder,  may  maintain  an 
action  against  the  corporation.  Deposit 
Bank  v.  Barrett,  11  Ky.  L.  Rep.  910, 
13   S.  W.  337. 

86.  Franklin  Bank  v.  Commercial 
Bank,  5  O.  Dec.  339,  affirmed  in  36  O. 
St.   350.   38   Am.   Rep.   594. 

The  Ohio  free  banking  act.  enacted 
March  21,  1851,  expressly  provided  that 
no  banking  company  organized  there- 
under   should    he    the    holder    or    pur- 


let  V.  Moody,  3  N.  Y.  479.  In  that 
case  the  decision  was  correct  for 
another  reason,  i.  e.,  that  the  purchase 
of  the  stock  by  the  insolvent  bank 
amounted  to  a  gift  of  the  amount  paid 
to  the  stockholder  and  afifected  credit- 
ors'   rights. 

80.    Charter    prohibition    of    purchase 

of     any     commodities Farmers',    etc., 

Bank  f.  Champlain  Transp.  Co.,  18  Vt. 
131. 

82.  Purchasing  and  holding  stock  in 
other  corporations. — One  corporation 
can  not  hold  stock  in  another  unless  a 
statute  confers  the  power  to  do  so,  and 
one  bank  organized  under  that  act  is 
not  liable  to  another  for  refusing  to 
transfer  to  it  stock  of  which  it  holds 
the  certificate  by  assignment.  Frank- 
lin Bank  V-  Commercial  Bank,  36  O. 
St.    350,    38    Am.    Rep.    594. 

A  banking  corporation  has  no  im- 
plied power  to  subscribe  for  railroad 
stock.  Nassau  Bank  v.  Jones,  95  N. 
Y.  115,  47  Am.  Rep.  14.  See,  also.  De- 
posit Bank  v.  Barrett,  11  Ky.  L.  Rep. 
910,  13  S.  W.  337. 

And  a  banking  corporation  can  not 
become  a  stockholder  in  an  insurance 
company.  Bank  v.  Hart,  37  Neb.  197, 
55  N.  W.  631,  20  L.  R.  A.  780,  40  Am. 
St.    Rep.    479. 

But  in  Goddin  v.  Crump,  35  Va.  (8 
Leigh)  120,  it  was  held,  that  a  statute 
authorizing  a  bank  to  subscribe  for 
stock  in  a  company  incorporated  to  ef- 
fect a  line  of  transportation  from  Ohio 
to  the  city  of  Richmond  (where  the 
bank  v/as  situated)  was  valid,  since  the 
purchase  of  such  stock  was  germane  to 
the  banking  business. 

83.  Not  validated  by  estoppel. — The 
purchase  by  a  corporation,  only  em- 
pov.'ered  by  its  charter  to  transact  a 
banking  business,  of  the  stock  of 
another  corporation,  as  an  investment, 
and  not  as  security  or  in  payment  ot 
a  debt,  is  ultra  vireS  and  void,  and  can 


§  92 


FUNCTIONS    AND    DEALING. 


661 


raneous  loan."*"  And  where  such  purchase  is  merely  uhra  vires  and  not 
prohibited,  it  has  been  held  that  the  bank  gets  title  to  the  stock  thereby.^s 
Particular  Statutory  and  Charter  Provisions  Considered. — Au- 
thority to  iuAest  in  personal  securities,  but  limiting-  the  stock  held  to  ten 
per  cent  of  the  capital,  is  sufficient,^'^  and  a  contract  to  sell  a  greater  amount 
than  this,  within  one  year  for  a  sum  named,  does  not  violate  this  limitation, 
as  it  is  not  a  purchase. ^°  A  statutory  requirement  of  reports  to  the  state 
auditor  of  the  value  of  stock  and  bond  investments  does  not  confer  any 
such  power.'' 1  The  fact  that  a  banking  law  specially  restricts  the  power 
of  the  banks  organized  thereunder  in  the  purchase  and  sale  of  real  estate 
does  not  justify  the  inference  that  the  bank  is  not  prohibited  from  purchas- 


chaser  of  any  portion  of  its  capital 
stock  or  of  the  capital  of  any  other 
incorporated  company,  unless  such 
purchase  should  be  necessary  to  pre- 
vent loss  upon  a  debt  previously  con- 
tracted in  good  faith,  on  security 
which,  at  the  time,  was  deemed  ade- 
quate to  insure  the  payment  of  such 
debt,  independent  of  any  lien  upon 
such  stock.  Franklin  Bank  v.  Com- 
mercial Bank,  36  O.  St.  350.  38  Am. 
Rep.  .594;  S.  C,  5  O.  Dec.  339.  As  to 
grounds  of  forfeiture,  see  ante, 
"Grounds  for  Forfeiture  of  Franchise 
or  Dissolution,"   §   68. 

87.  Pledge  for  contemporaneous  loan 
not  included. — Under  1  Swan  &  C.  St.. 
p.  170,  §  12,  prohibiting  a  banking  cor- 
poration from  holding  or  purchasing 
any  stock  in  another  corporation  un- 
less necessary  to  prevent  loss  on  a 
debt  previously  contracted,  a  bank  can 
not  take  stock  of  another  bank  as 
pledge  for  loan  made  at  the  same  time. 
Franklin  Bank  v.  Commercial  Bank,  36 
O.    St.   3.50,   38   Am.   Rep.   .594. 

88.  Where  purchase  merely  ultra 
vires  title  passes. — That  a  bank's  pur- 
chase of  stock  in  another  bank  was 
ultra  vires  did  not  prevent  it  from  get- 
ting title  to  the  stock,  both  because 
an  ultra  vires  contract  is.  simply  un- 
authorized and  not  forbidden  by  law, 
and  because  the  passing  of  title  de- 
pends on  the  intention  of  the  parties 
and  the  performance  of  the  requisite 
formalities,  by  the  parties,  regardless  of 
whether  they  are  engaged  in  an  illegal 
enterprise.  Metropolitan  Trust  Co.  7'. 
McKiiinon.    172   Fed.   846. 

89.  Authority  to  invest  in  personal 
securities. — Cause  z'.  Commonwealth 
Trust  Co.,  44  Misc.  -Rep.  46,  89  N.  Y. 
S.  723,  reversed  on  another  point  in 
100   App.    Div.   427,   91    N.    Y.    S.    847. 

90.  Agreement  to  take  and  sell. — A 
contract  whereby  a  lianking  corpora- 
tion   rirgaiiized    unrler    the    banking    law 


agreed  to  sell  for  plaintiff  certain  cor- 
porate stock  within  one  3  ear,  for  a 
sum  named,  is  not  in  violation  of  the 
New  York  Banking  Law  (Laws  1892, 
p.  1911,  c.  689),  §  159.  prohibiting  such 
a  corporation  from  holding  stock  ir> 
excess  of  ten  per  cent  of  its  capital: 
the  contract  not  showing  that  the  stock 
was  intended  by  the  parties  to  con- 
stitute part  of  the  capital  of  the  bank, 
or  that  it  was  intending,  or  that  plain- 
tifif  knew  it  was  intending,  to  invest 
any  trust  funds  in  the  stock  so  to  be 
sold.  Cause  z\  Commonwealth  Trust 
Co.,  44  ^lisc.  Rep.  46,  89  N.  Y.  S.  723, 
reversed  in  100  App.  Div.  427,  91  X.  Y. 
S.  847,  but  on  other  .crrounds. 

91.  Requirement  of  reports  of  value 
of  stock  investments. — Consol.  St. 
Neb.  1891.  p.  132,  §  294,  enacted  in 
1889,  requiring  state  l)anks  to  make 
reports  to  the  state  auditor  containing 
specified  information,  did  not  add  to 
the  powers  of  such  banks;  and  the  re- 
quirement therein  that  such  banks 
should  report,  among  other  things, 
"the  par  value  and  actual  market  value 
of  all  stock  or  bond  investments,"  did 
not  empower  them  to  purchase  the 
stock  of  other  corporations  as  an  m- 
vestment,  where,  under  the  prior  stat- 
utes, as  construed  by  the  supreme 
court  of  the  state,  they  were  without 
such  powers.  Schofield  ?'.  Goodrich 
Bros.  Banking  Co..  39  C.  C.  A.  76,  98 
Fed.    271. 

;\nd  the  provisions  of  a  general 
bankin.g  law  authorizing  the  state 
comptroller  to  change  for  other  stocks 
stocks  deposited  with  him  by  the  bank 
as  security,  and  requiring  the  bank  in 
its  semi-annual  return  to  state  the  shares 
of  stock  held  by  it  absolutely  and  as 
collateral,  does  not  authorize  or  tend 
to  authorize  the  bank  to  purchase  and 
sell  stocks  or  bonds  for  profit,  or  to 
pay  liabilities  with  the  proceeds 
thereof.     Tahnai-c  t'.    I'ell.   7   \     V.  328. 


662  BANKS    AND    BANKING.  §    94    (1) 

ing  and  selling  stocks  or  bonds.'^^  Nqi-  does  the  fact  that  all  bank  charters 
granted  by  a  state  prior  to  the  passage  of  a  general  banking  law  prohibited 
the  bank  from  dealing  in  stocks  justify  the  inference  that  a  bank  has  such 
power  as  incidental  to  the  banking  business.^^  A  power  to  discount  bills, 
notes  and  other  securities  confers  the  power  to  buy  from  a  stockholder  in 
another  bank  stock  therein. '^^ 

§  93.  Property    and    Conveyances-'^— §    94.  In  General'''^— 

§  94  (1)  Acquisition  and  Holding.— Implied  Power.— One  of  the  im- 
plied powers  of  a  bank  is  the  power  to  acquire  estate,  real  or  personal.^' 

Acquisition  of  Property  Incident  to  Engaging  in  Unusual  Occupa- 
tion and  Vice  Versa. — While,  generally  speaking,  a  bank  can  not  pur- 
chase property  for  the  purpose  of  engaging  in  an  occupation  foreign  to  the 
business  of  banking,'^^  yet,  where  a  banking  corporation  acquires  possession 
of  property,  either  by  a  lien  thereon  or  by  the  purchase  of  the  same,  for 
the  payment  of  a  debt  due  to  it,  and  expends  money  on  it,  or  furnishes  sup- 
plies either  for  its  preservation  or  to  carry  on  the  business  in  which  such 
property  is  employed,  with  a  view  to  rendering  it  productive,  in  order  to 
satisfy  the  debt  the  bank  holds  against  the  former  owner  of  the  property, 
it  is  not  chargeable  with  exceeding  its  corporate  powers  by  engaging  in  a 
business  beyond  the  scope  and  purposes  of  its  creation.^^  and,  to  save  itself 
from  loss,  a  banking  corporation  may,  under  its  general  powers,  take  an 
assignment  of  an  account  due  a  debtor  of  the  corporation,  as  well  as  other 
things  which  it  could  not  otherwise  do,^  or  may  receive  other  property  in 
which  it  is  not  authorized  to  deal  regularly. ^ 

92.  Implicarion  from  restriction  of  A  bank  may  purchase  any  personal 
power  as  to  land. — Talmage  z'.  Pell,  property  at  a  sale  on  an  execution  in 
7  N.  Y.  328.  its  own  favor,  or  under  a  mortgage  or 

93.  Implication  from  prohibition  in  pledge  of  the  property  taken  by  it  as 
all  previous  charters  but  not  in  this. —  security  for  a  loan.  Farmers',  etc., 
Talmage  v.   Pell,  7   N.   Y.   H28.  Bank  v.    Detroit,   etc.,   R.   Co.,   17   Wis. 

94.  Under    power    to    discount    bills,  372. 

notes   and   other  securities. — Latimer  z'.  Where  certain   banks  as   creditors  of 

Citizens'   State   Bank,   102  Iowa  162,   71  a    mining    company    obtained     a     trust 

N.   W.   225.  deed  of  the  mining  company's  property 

95.  Property  and  conveyances. — Dis-  to  secure  payment  of  their  demand, 
position  of  property  by  officers  or  they  had  power  to  buy  in  the  property 
agents,  see  post,  "Disposition  of  Prop-  at  sales  thereof  to  protect  their  rights 
erty,"   §    104.  under    their    security.    Missouri    State 

Of   national  banks,   see   post,   "Prop-  Bank  v.  St.  Louis  Foundry  (Mo.  App.), 

erty  and  Conveyances,"  §  259.  129   S.  W.  433. 

96.  Branch  banks,  see  ante,  "Powers,"  Purchase  of  judgment  prior  to  bank's 
§    33    (3).                                                                     mortgage A     bank,     having    a    mort- 

97.  Implied  power. — W  r  o  t  e  n  v.  gage  on  a  tract  of  land,  has  a  clear 
Armat,   72   Va.    (31   Graft.)    228.  right   to   purchase   a   judgment  being  a 

98.  Unusual  occupation. — Veasey  v.  lien  thereon,  if  the  object  was  to  pro- 
Graham,  17  Ga.  99,  63  Am.  Dec.  228;  tect  itself  and  secure  the  payment  of 
Morris   t.    Hall,   41   Ala.    510.  its    own    claim.       Brown    v.    Hogg,    14 

99.  When  engaging  in  unusual  occu-       111.    219. 

pation    proper. — Reynolds    r.    Simpson,  2.    Reception    of    property    in    which 

74   Ga.   454.  unauthorized    to    deal. — Sacker's    Har- 

1.    Steps    to    prevent    loss. — Bank    z:  bor     Bank     ?'.      Lewis     County     Bank 

Tamblyn,  7   Mo.  App.  571.  (N.   Y.),    11    Barb.   213. 


§  94  (1) 


FUNCTIONS    AND    DEALINGS. 


663 


Part  Ownership  of  Property  Arising  from  Purchase  of  Partnership 
Shares. — Where  a  national  bank  became  the  owner  of  nine  shares  in  a 
partnership,  not  having  the  power  to  become  a  partner,  it  became,  in  legal 
effect,  a  part  owner  of  the  property  of  the  syndicate,  which  ownership  is 
in  its  nature  several,  and  the  bank,  through  its  trustee,  having  managed  this 
several  interest  in  connection  with  the  trustees  of  the  other  shares  as  to 
their  interests,  the  bank  became  and  was  liable  for  its  share  of  the  expenses 
of  purchasing,  managing,  handling,  holding,  improving  and  disposing  of 
the  property.^ 

Particular  Charters  and  Statutes  Construed. — See  note  4. 

Personal  Property  Generally. — A  statute  which  expressly  empowers 
banks  to  acquire  real  estate  sold  on  execution  in  their  favor,  or  under  mort- 
gages made  to  them  as  security  for  loans,  or  where  such  real  estate  is  con- 
veyed to  them  in  satisfaction  of  debts  previously  contracted,  does  not,  by 
implication,  abridge  their  power  to  acquire  personal  property  in  like  ways.^ 

State  Stocks  and  Bonds. — Under  a  banking  law  expressly  empower- 
ing the  banks  formed  thereunder  to  deal  in  certain  kinds  of  personal  prop- 
erty, among  which  state  bonds  are  not  mentioned,  and  giving  the  banks  all 
incidental  powers  as  might  be  necessary  to  transact  the  business  defined,  a 
bank  has  no  authority  to  purchase  state  bonds,  for  sale  and  profit,  or  with 
the  proceeds  to  pay  existing  liabilities.^'  But  it  may,  ex  necessitate  rei,  ac- 
quire and  hold  such  stocks  as  it  is  required  by  law  to  deposit  from  time  to 


3.  Part  ownership  of  property  aris- 
ing from  purchase  of  partnership 
shares. — Merchants'  Nat.  Bank  v. 
Wehrmann,  69  O.  St.  160,  68  N.  E.  1004. 
See,  also,  ante,  "Partnerships  and 
Joint-Stock    Companies,"    §   24. 

4.  Particular  charter  provisions. — A 
charter  provision  that  the  "bank  shall 
not  deal  in  articles  of  goods,  wares,  or 
merchandise,  in  any  manner  whatever, 
unless  it  be  to  secure  a  debt  due  the 
said  bank,  incurred  by  the  regular 
transactions  of  the  same,  as  is  pro- 
vided for  in  this  act,"  means  that  the 
bank  shall  not  buy  and  sell  goods, 
wares,  or  merchandise  for  the  purpose 
of  gain,  or  do  the  ordinary  business 
of  a  merchant  or  trader  or  engage  in 
the  business  of  broker  or  commission 
merchant.      Bates   v.    Bank,   2  Ala.   451. 

A  contract,  by  which  the  State 
Bank  lent  a  large  sum  of  money,  tak- 
ing bills  of  exchange  at  nine  months 
for  payment  thereof,  and  receiving  at 
the  time,  and  as  one  of  the  conditions 
of  the  loan,  a  quantity  of  cotton,  with 
authority  to  ship  it  to  a  foreign  port, 
and  sell  it  for  the  account  and  at  the 
risk  and  expenses  of  the  owners,  and 
to  credit  his  bill  with  the  amount  of 
the  net  proceeds,  adding  the  difference 


of  exchange  between  this  state  and 
the  place  where  the  cotton  was  sold, 
is  not  dealing  in  "goods,  wares,  or 
merchandise,"  within  this  section  of 
the  charter.     Bates  v.  Bank,  2  Ala.  451. 

The  act  prohibiting  banks  from  trad- 
ing in  bonds  or  judgments  and  pur- 
chasing pre-existing  debts  did  not  pro- 
hi])it  a  bank,  which  was  closing  its 
business,  from  taking  an  assignment 
of  a  judgment  against  a  third  person 
in  part  payment  for  the  sale  of  its 
banking  house.  Harwood  v.  Ramsey 
(Pa.),    15    Serg.    &    R.   31. 

Charter  provision  authorizing  buy- 
ing; receiving  and  holding. — A  bank, 
under  a  provision  of  its  charter  that 
"it  is  made  capable  of  buying,  receiv- 
ing, and  holding  property  and  estate 
of  whatsoever  nature,  and  the  same 
to  alien  and  dispose  of  at  pleasure," 
may  receive  cotton  as  collateral  se- 
curity, and  ship  and  sell  the  same. 
Commercial  Bank  v.  Nolan  (Miss.),  7 
How.   508. 

5.  Personal  property  generally. — 
I'armcrs',  etc.,  Bank  v.  Detroit,  etc., 
R.   Co.,    17   Wis.   :572. 

6.  State  stocks  and  bonds. — Talmage 
7'.    Pell,  7   N.   Y.   .-528. 


664 


BANKS    AND    BANKING. 


§  94  (2) 


time  with  the  comptroller." 

§  94  (2)  Disposal  of  Property.— A  banking  corporation  may  sell 
any  of  its  property,  when  not  restricted  by  charter  or  previous  law,  as  freely 
as  an  individual,  when  not  involved  in  the  transaction  of  unauthorized 
branches  of  business.^  And  the  assets  of  an  unincorporated  bank  may  be 
lawfully  disposed  of  by  the  owner  to  secure  or  pay  the  just  claims  of  any 
of  his  just  creditors." 

Transfer  of  Assets  in  Consideration  of  Assumption  of  Liabilities. 

An  agreement  by  which  one  bank  assigns  and  transfers  to  another  all 

its  assets  in  consideration  of  the  latter's  assumption  of  all  its  liabilities  is 
valid,  where  the  assets  transferred  are  sufficient  to  satisfy  all  the  debts 
assumed.^'* 


7.   Right   to   acquire   and  hold  stocks 
for      deposit     with      comptroller.— The 

general  banking  law,  in  its  provision 
for  the  deposit,  from  time  to  thne, 
with  the  comptroller,  of  state  stocks 
to  an  unlimited  amount,  assumes,  and 
therefore,  in  legal  intendment,  de- 
clares, that  the  associations  to  be 
formed  under  it,  and  who  were  to  make 
such  deposits,  had,  and  were  intended 
to  have,  authority,  in  virtue  either  of 
the  specific  or  of  the  incidental  bank- 
ing powers  expressly  conferred  upon 
them,  to  acquire  and  hold  such  stocks 
in  the  same  manner,  and  for  the  like 
purpose,  as  other  individuals,  whether 
singly  or  in  partnership,  carrying  on 
business  as  private  bankers.  Curtis  v. 
Leavitt  (N.  Y.),  17  Barb.  309.  See 
also,  Comstock  v.  Willoughby  (N.  Y.), 
Lalor's  Supp.  (Hill  &  Denio)  271; 
Tracy  v.  Talmage,  18  Barb.  456,  9 
How.   Prac.   530. 

8.  Disposal  of  property. — Planters 
Bank  V.  Sharp  (U.  S.).  6  How.  301,  Vi 
L.    Ed.    447. 

The  sale  by  a  bank  of  a  quantity  of 
butter,  which  it  had  received  in  set- 
tlement of  a  debt  due  to  it  is  no  vio- 
lation of  the  provision  in  its  charter 
that  it  shall  not,  directly  or  indirectly, 
deal  or  trade  in  buying  or  selling  any 
goods,  wares,  merchandise,  or  com- 
modities whatever,  unless  in  selling 
the  same  when  truly  pledged  by  way 
of  security  for  debts  due  to  the  said 
corporation;  and  the  purchase  of  the 
butter  by  another  bank  having  a  simi- 
lar restrictive  clause  in  its  charter,  it 
appearing  to  be  an  isolated  transaction 
of  buying  on  the  part  of  such  bank,  is 
not  within  the  restriction  which  pro- 
hibits dealing  or  trading  in  buying  and 
selling  any  goods,  etc..  but  is  a  lawful 
transaction.  "  Sacket's   Harbor   Bank  v. 


Lewis  County  Bank  (N.  Y.),  11  Barb. 
213. 

A  banking  corporation  may  make  a 
valid  transfer  of  a  security  held  by  it 
to  secure  a  debt  owing  by  such  corpo- 
ration. Gillett  V.  Campbell  (N.  Y.),  1 
Denio   520. 

Release  of  mortgage. — A  mortgage 
to  a  bank  is  released,  without  being 
delivered  up,  where  the  directors  of 
the  bank  pass  a  resolution  releasing  it, 
holding  the  personal  security  only,  to 
enable  the  mortgagor  to  improve  the 
property,  and  he  does  so  and  conveys 
the  property,  and  no  claim  is  made  on 
the  mortgage  till  ten  years  later,  and 
then  by  the  bank's  assignee.  In  re 
Bank.   109  Wis.   672,  85   N.   W.  501. 

9.  Assets  of  unincorporated  bank.— 
Longfellow  V.  Barnard,  58  Neb.  612,  79 
N.  W.  255.  76  Am.  St.  Rep.  117.  affirmed 
on  rehearing  in  59  Neb.  455,  81 
N.    W.    307. 

10.  Transfer  of  assets  in  considera- 
tion of  assumption  of  liabilities. — 
Mitchell  c'.  Beckman,  64  Cal.  117,  28 
Pac.    110. 

The  City  Bank  of  New  Orleans, 
three  days  before  the  expiration  of  its 
charter,  in  good  faith,  sold  and  trans- 
ferred all  its  banking  assets,  by  assign- 
ment, to  the  Louisiana  State  Bank,  in 
consideration  of  an  undertaking  by  the 
latter  bank  to  discharge  all  the  liabili- 
ties of  the  former,  which  were  war- 
ranted not  to  exceed  a  specified 
amount.  Held,  that  this  transaction 
was  within  the  corporate  powers  of 
the  contracting  parties,  and  that  the 
Louisiana  State  Bank  thereby  became 
an  assignee,  within  the  meaning  of  the 
statutes  of  this  state,  competent  to 
prosecute  an  action  in  the  name  of  the 
City  Bank  of  New  Orleans.  Stetson 
V.  City   Bank,  12  O.  St.  577. 


§  95   (la) 


FUNCTIONS    AND    DEALINGS. 


665 


§   95. Real  Property"— §   95    (1)   Acquisition  and  Holding— 

§  95  (la)  Right  to  Acquire  and  Hold  Generally.— While,  generally 
speaking,  an  incorporated  bank  may  lawfully  be  the  owner  of  real  estate 
only  in  the  cases  and  mode  allowed  by  its  charter  or  the  law  under  which 
it  was  incorporated,!-  such  a  bank  is  usually  authorized  to  take  and  hold 
land  for  its  immediate  accommodation  or  to  acquire  same  in  satisfaction 
of  debts. !3     And  it  may  take  and  hold  lands  as  security  for  debts  due  it. 


11.  Power  of  national  bank,  see 
post,  "Property  and  Conveyances," 
§   359. 

12.  Necessity  for  charter  authority. 
— Metropolitan  Bank  z\  Godfrey,  23 
111.  579;  State  Bank  z\  Brackenridge 
(Ind.),   7    Blackf.   395. 

A  corporation  organized  under  a 
private  act,  and  authorized  to  engage 
in  a  general  banking  and  real-estate 
business,  the  act  providing  that  the 
corporation  shall  be  subject  to  the 
provisions  of  any  general  law  here- 
after passed  on  the  subject  of  banking, 
trust,  and  deposit  companies,  is  subject 
to  the  provisions  of  an  Act,  limiting 
the  right  of  banking  corporations  to 
hold  real  estate,  and  providing  that  all 
corporations  with  banking  powers,  ex- 
isting by  virtue  of  any  special  charter, 
shall  be  subject  to  the  provisions  of 
the  act.  Henderson  Loan,  etc.,  Ass'n 
V.  People,  163  111.  196,  45  N.  E.  141, 
construing   111.   Act   of  June   16,   1887. 

13.  For  immediate  accommodation 
or  in  satisfaction  of  debts.-^Banks  v. 
Poitiaux,  24  Va.  (3  Randj  136,  15  Am. 
Dec.  706;  Bennett  v.  Union  Bank,  24 
Tenn.  (5  Humph.)  612;  Nashville  v. 
Bank,   31   Tenn.    (1   Swan)   269. 

Where  a  statute  authorizes  a  bank 
to  hold  as  much  real  property  as  may 
be  requisite  for  its  immediate  accom- 
modation, in  relation  to  the  conve- 
nient transaction  of  its  business,  and 
no  more,  the  bank  may  purchase  more 
land  than  is  necessary  for  the  erection 
of  a  banking  house,  build  fireproof 
houses  on  so  much  as  shall  not  be 
necessary  for  the  banking  house,  for 
the  greater  security  of  the  bank  build- 
ing, and  sell  them  out  to  third  per- 
sons. Banks  v.  Poitiaux,  24  Va.  (3 
Rand.)   136,  15  .Am.   Dec.  706. 

.Ample  power  for  that  purpose  was 
conferred  by  the  second  section  of  the 
charter,  by  which  a  bank  was  author- 
ized at  any  time,  to  buy,  receive  and 
possess  all  kinds  of  property,  either 
real  or  personal,  and  to  loan,  negotiate 
and  dispose  of  the  same,  by  taking 
mortgages  and  by  discounting  on  bank- 
ing principles,  on  such  security,  and  al 
such   credit  as  they  shall   think   advisa- 


ble, provided  it  does  not  exceed  in 
value  the  double  of  their  capital;  and 
they  shall  have  the  power  of  selling, 
transferring,  and  renting  said  property, 
and,  in  short,  to  enjoy  and  dispose  of 
it,  at  their  own  pleasure  and  discretion, 
etc.  The  fifteenth  section  of  the  char- 
ter, it  is  true,  limits  this  general  power, 
by  providing  that  the  lands,  effects, 
goods  or  merchandise  whatsoever, 
which  the  said  corporation  shall  hold, 
shall  be  only  such  as  shall  be  requisite 
for  the  convenient  transaction  of  its 
business,  and  such  as  shall  have  been 
bona  fide  mortgaged  or  pledged  to  it 
by  way  of  satisfaction  of  debts  pre- 
viously contracted.  These  sections 
evidently  gave  the  bank  full  power  to 
acquire  and  hold  property  of  every 
kind,  convenient  for  the  transaction  of 
a  banking  business,  or  obtained  as  a 
security  for  debts,  and  were  certainly 
designed  to  interpose  no  obstacle  to 
the  safe  and  convenient  discharge  of 
all  the  proper  functions  of  a  banking 
institution,  but  only  to  prohil)it  the 
bank  from  engaging  in  business  wholly 
foreign  from  the  objects  and  business 
contemplated  by  its  charter.  Stetson 
7'.   City   Bank,   12  O.   St.  577. 

"A  banking  house  has  no  immediate 
connection  with  the  privileges  granted 
by  the  state  to  the  bank,  and  is  only 
incidentally  necessary  to  their  enjoy- 
ment." Union  Bank  v.  State,  1? 
Tenn.   (9  Yerg.)   490. 

\  banking  corporation  has  no  im- 
plied power  to  buy  and  sell  real  estate 
except  to  secure  buildings  in  which  to 
transact  its  business.  Thweatt  v. 
P.ank,  81    Ky.   1,   4   Ky.   L-    Rep.   557. 

Necessity  of  seal. — A  contract  made 
by  a  bank  for  the  purchase  and  sale  of 
real  estate  is  not  invalid  because  not 
made  under  the  common  seals  of  the 
bank.  I'anks  v.  Poitiaux,  24  Va.  (3 
Pand.)  136.  15  Am.  Dec.  706,  citing 
Bank  t'.  Patterson  (U.  S.),  7  Cranch 
299,  3  L.  Ed.  351;  Legrand  r.  Hamp- 
den Sidney  College,  19  Va.  (5  .Munf.) 
324. 

In  payment  of  debts. — Banks  may 
receive  real  estate  in  payment  of 
del)ts  due.     Thoniaston    P.ank  7'.  Stinip- 


666 


BANKS    AND    BANKING. 


95    (la) 


contracted  in  its  legitimate  business,!^  and  generally  may  acquire  and  hold 
land  to  secure  itself  from  loss  in  the  transaction  of  its  authorized  business, 
although  not  expressly  authorized  to  deal  in  real  estate,  or  prohibited  there- 
from.i5     But  the  purchase  of  property  at  foreclosure  sale  under  a  first  mort- 


son,  21  Me.  195;  Merchants'  Bank  v. 
Harrison,  39  Mo.  433,  93  Am.  Dec.  285; 
Sherry  v.  State  Bank  (Ind.),  8  Blackf. 
542. 

A  banking  corporation,  having  by 
its  charter  power  to  acquire  real  estate 
in  "satisfaction  of  debts,"  took  from 
ihe  holder  of  a  sheriff's  certificate  of 
sale,  after  it  had  become  absolute,  an 
assignment  of  all  his  right,  and  then 
received  the  sheriff's  deed.  The  as- 
signment was  expressed  to  be  "for 
value  received."  In  the  absence  of 
proof  of  any  other  consideration,  it 
would  be  presumed  that  the  corpora- 
tion had  taken  the  assignment  within 
its  proper  powers,  "in  satisfaction  of 
debts,"  and  that  it  would  hold  the  real 
estate  by  virtue  of  the  sheriff's  deed. 
Chautauque  County  Bank  v.  Risley,  19 
N.   Y.   369,  75  Am.   Dec.   347. 

Where  one  conveyed  land  to  a  bank 
in  exchange  for  drafts  held  by  the 
bank,  to  which  the  grantor  was  not 
a  party,  nor  in  any  way  interested,  such 
purchase  is  not  authorized  by  1  Rev. 
St.,  p.  94,  authorizing  the  bank  to  hold 
real  estate  conveyed  to  it  in  satisfac- 
tion of  debts  previously  contracted  In 
the  course  of  its  dealings.  State  Bank 
■V.  Coquillard,  6  Ind.  232. 

14.  As  security  for  debts. — Nashville 
V.  Bank,  31  Tenn.  (1  Swan)  269;  Ben- 
nett V.  Union  Bank,  24  Tenn.  (5 
Humph.)  612;  Thomaston  Bank  v. 
Stimpson,  21  Me.  195;  Sparks  v.  State 
Bank   (Ind.)    7   Blackf.  469. 

A  statute  providing  that  banks  shall 
not  own  real  estate  more  than  suffi- 
cient for  the  conduct  of  their  business, 
i-.nless  taken  in  payment  of  debts,  does 
not  prevent  the  taking  of  real  estate 
as  security  for  loans.  Alexander  v. 
Brummett    (Tenn.),   42    S.    W.    63. 

Bona  fides  necessary — Benefit  to 
bank  not  essential An  act  of  incor- 
poration, authorizing  a  bank  to  hold 
such  lands  as  are  bona  fide  conveyed 
to  it  in  satisfaction  of  debts,  does  not 
prohibit  the  bank  from  accepting  land 
in  discharge  of  a  debt,  though  such 
transaction  would  not  be  beneficial  to 
the  bank;  the  intention  being  only  to 
restrict  the  right  to  cases  where  the 
loan  should  be  real,  and  not  merely 
colorable.  Baird  7'.  Bank  (Pa.),  n 
Serg.   &   R.   411. 

15.  To  prevent  loss  generally. — State 


Security  Bank  v.  Hoskins,  130  Iowa 
339,  106  N.  W.  764,  8  L.  R.  A.,  N.  S., 
376;  Martin  v.  Branch  Bank,  15  Ala. 
587.   50  Am.  Dec.   147. 

An  act  by  which  banks  are  per- 
mitted to  take  mortgages  or  other 
liens  on  lands,  to  secure  debts  already 
existing,  impliedly  permits  them  to  buy 
in  lands  on  which  they  hold  such  liens 
for  the  better  security  of  their  claims, 
though  an  express  prohibition  exists 
against  their  purchasing  and  holding 
real  estate.  Ingraham  v.  Speed,  30 
Miss.    410. 

Under  Missouri  Laws  1856-57,  regu- 
lating banking  institutions,  a  bank  may 
hold  such  real  estate  as  may  be  con- 
veyed to  it  in  payment  of  debts  pre- 
viously contracted  in  good  faith  and 
without  a  view  to  the  purchase  thereof, 
and  may  purchase  real  estate  at  sales 
upon  judgments  and  decrees  in  favor 
of  the  bank,  where  it  shall  be  pur- 
chased in  order  to  secure  the  debt. 
Merchants'  Bank  v.  Harrison,  39  Mc>. 
433,   93  Am.   Dec.   285. 

The  circumstances  that  there  are  in- 
cumbrances on  the  real  estate  of  a  per- 
son indebted  to  a  bank  is  no  objection 
to  a  bona  fide  purchase  of  the  prop- 
erty by  the  bank,  subject  to  the  incum- 
brances, in  consideration  of  its  own 
claim  on  part  of  it.  Sherry  .v.  State 
Bank   (Ind.),  8   Blackf.  542. 

Under  a  bank's  charter  authorizing 
it  to  hold  real  estate  "such  as  shall  be 
conveyed  to  it  in  satisfaction  of  debts 
previously  contracted  in  the  course  of 
its  dealings,"  when  property  is  about 
to  be  sold  under  executions  in  which 
lhe  liank  is  not  interested,  the  execu- 
<^ion  debtor  being  also  indebted  to  the 
bank,  such  bank  may  become  a  pur- 
chaser if  necessary  to  secure  its  own 
debt,  provided  the  purchase  is  made 
bona  fide,  in  consideration  of  its  own 
debt  or  some  portion  of  it;  but  if  the 
purchase  be  for  an  amount  less  thai> 
the  judgment  debts,  so  that  no  part  or 
the  debt  due  the  bank  is  extinguished, 
it  is  unauthorized.  Sherrv  v.  State 
Bank    (Ind.).    8    Blackf.    542. 

At  greater  price  than  necessary  to 
secure  debt. — Under  a  charter  author- 
izing a  bank  to  purchase  real  estate  at 
sales  upon  judgments  obtained  for 
debts  due  the  bank,  it  may  make  such 
purchase   at    a   greater  price   than   nee- 


§  95  (lb) 


FUNCTIONS    AND    DEALINGS. 


667 


gage,  to  protect  an  unlawful  loan  made  on  second  mortgage,  was  unlawful.^'^ 
Purchase  for  Purpose  of  Subsequent  Sale. — \\  here  a  bank  was  au- 
thorized to  hold  real  estate  for  the  accommodation  of  its  business  only,  ex- 
cept when  received  bona  fide  as  security,  or  in  payment  of  a  pre-existing 
debt,  or  as  purchaser  on  an  execution  in  its  own  favor,  it  was  held  that  the 
bank  had  not  authority  to  buy  land  to  sell  again,  and  that  a  court  of  equitv 
would  not  lend  its  aid  to  enforce  such  contract  against  either  party. ^" 

Foreign  Banks. — Since  banks  organized  under  the  general  law  of  a 
sister  state  are  corporations  which  can  exercise  only  such  powers  in  Illinois 
as  the  law  of  their  creation  confers,  they  can  not  acquire  and  hold  lands  in 
Illinois,  except  on  the  terms  and  conditions  imposed  by  the  la\y  of  their 
creation. 1^ 

§  95  (lb)  Right  to  Raise  Question  of  Authority. — Where  a  bank 
is  incompetent  by  its  charter  to  take  a  title  to  real  estate,  a  conveyance  to  it 
is  not  void  but  only  voidable ;  the  sovereign  alone  can  object.  It  is  valid 
until  assailed  in  a  direct  proceeding  instituted  for  that  purpose. ^^ 


«ssary  to  secure  its  own  debt.  Sherry 
V.  State  Bank   (Ind.),  8  Blackf.  542. 

Want  of  power  of  a  bank  or  its  trus- 
tee to  hold  real  estate. — Want  of 
power  of  a  bank,  or  of  its  trustee  in 
insolvency,  to  purchase  and  hold  real 
estate,  does  not  render  void  an  ar- 
rangement whereby  land  subject  to  a 
lien  in  favor  of  the  bank  and  also  to 
other  incumbrances,  is  discharged  of 
those  incimibrances,  by  aid  of  money 
advanced  from  the  assets  of  the  bank, 
and  then  sold,  and  the  whole  proceeds 
realized  for  the  bank;  provided  the 
legal  title  is  not  passed  through  the 
bank  or  trustees.  Zantzingers  v.  Gun- 
ton    (U.    S.),   19   Wall.  .32.  22   L.  Ed.   96. 

Acceptance  of  transfer  from  stock- 
holder to  cover  deficit  in  capital. — Ac- 
ceptance  by  a  bank  of  real  estate 
transferred  to  it  by  a  stockholder  to 
cover  a  deficit  in  the  capital  is  not 
ultra  vires.  Brown  v.  Bradford,  10:^ 
Iowa  .378,   72   N.   W.   648. 

16.  Purchase  to  protect  unlawful 
loan. — Williams  v.  McKay.  46  X.  T. 
Eq.    2;-).    18    Atl.    824. 

17.  Purchase  for  purpose  of  subse- 
quent sale.^Bank  7'.  Niles  (Mich.),  l 
Doug.   -ini.  41    .Am.   Dec.  .')7.t. 

18.  Foreign  banks. — Metropolitan 
Bank  v.   Godfrey,  2.3   111.   .'■)79. 

19.  Right  to  question  acquisition  of 
real  estate. — Reynolds  v.  Crawfords- 
villc  I'irst  Nat.  Bank,  112  U.  S.  40.5, 
28  L.  Ed.  733,  .5  S.  Ct.  213,  citing  Union 
Nat.  Bank  v.  Matthews,  98  U.  S.  621, 
2.5  L.  Ed.  188;  National  Bank  v.  Whit- 
ney, 103  U.  S.  99.  26  L.  Ed.  443;  Swope 
V.  Leffingwell,  105  U.  S.  3,  26  L.  Ed. 
'939.      See   Zantwingers    v.   Gunton     (U. 


S.).  19  Wall.  32,  22  L.  Ed.  96;  First 
Xat.  Bank  v.  National  Exch.  Bank, 
93  U.  S.  122,  23  L.  Ed.  679,  51  How. 
Prac.  320;  Banks  v.  Poitiaux,  24  Va  (3 
Rpnd  )   136.   15  Am    Dec.  '706. 

The  disability  of  a  national  bank  to 
take  and  hold  property  under  its  char- 
ter, can  not  be  made  the  ground  of  a 
writ  of  error  to  the  decision  of  the 
state  court  by  a  party  seeking  to  en- 
join the  completion  of  the  transaction, 
but  setting  up  no  title  in  themselves. 
They  do  not  claim  for  themselves  a 
right,  title,  privilege  or  immunity 
under  the  national  banking  law.  Mil- 
ler V.  Lancaster  Bank,  106  U.  S.  542, 
27   L.    Ed.   289,   1   S.   Ct.   536. 

If  a  bank  buys  land  outright  in  vio- 
lation of  statute,  a  private  party  can 
derive  no  advantage  therefrom,  since 
the  law  imposes  no  forfeiture  for  its 
violation,  and  the  only  effect  of  its 
transgression  would  be  to  subject  the 
bank  to  proceedings  in  behalf  of  the 
state  to  vacate  its  charter.  Litchfield 
V.  Preston,  98  Va.  5.30,  37  S.  E.  6,  con- 
struing  Va.    Code,    §    1163. 

Where  the  charter  of  a  bank  author- 
ized it  to  have,  hold,  purchase,  and  re- 
tain lands,  etc.,  and  to  sell  them,  "pro- 
vided that  such  lands,  which  the  said 
corporation  are  hereby  enabled  to  pur- 
chase and  hold  shall  extend  only  to 
lots,  etc.,  necessary  for  the  business  of 
the  bank,"  the  bank  miglit  purchase 
land  in  distant  county,  though  it  cculd 
retain  only  an  estate  defeasible  by  the 
commonwealth.  Leazure  v.  Hillegas 
(Pa.),  7  Serg.   &   R.  313. 

The  validity  of  a  lease  executed  by 
a   bank   cati    not    be    assailed     as     I)cing 


668 


BANKS    AND    BANKING. 


§  95  (Id) 


§   95    (Ic)   Conveyance   before   Incorporation   Complete. — And   a 

conveyance  to  a  bank  before  its  incorporation  is  complete  can  not  be  treated 
as  a  nullity  by  the  grantor,  but  is  valid  when  the  government  does  not  com- 
plain.-" 

§  95  (Id)  Mortgages.— It  seems  that  a  bank,  in  the  absence  of  any 
restriction  imposed  by  its  charter,  may  take  a  mortgage  to  secure  anticipated 
liabilities  as  well  as  pre-existing  ones,2i  or  it  may  take  an  assignment  of  a 


ultra  vires  as  to  the  bank  by  one  not 
a  party  thereto.  Lechenger  v.  Mer- 
chants' Nat.  Bank  (Civ.  App.),  96  S. 
W.  638,  affirmed  in  101  Tex.  646, 
no  op. 

Specific  performance  by  bank. — It 
is  no  defense  to  a  bill  filed  by  a  bank 
for  the  specific  performance  of  a  con- 
tract made  with  one  who  had  agreed 
to  give  his  bond  and  deed  of  trust  for 
certain  lands  conveyed  to  him  by  the 
bank,  that  the  charter  creating  the 
bank  did  not  confer  a  right  on  the 
plaintiff  to  make  a  purchase  and  sale 
of  the  property  in  question.  The  crea~ 
tion  of  a  corporation  gives  to  it 
amongst  other  powers  as  an  incident 
to  its  existence  and  without  any  ex- 
press grant  of  such  powers,  that  of 
buying  and  selling.  But  its  power 
may  be  limited,  restrained  or  pro- 
hibited, either  by  the  charter  creating 
the  corporation,  or  by  a  general  law. 
Banks  r.  Poitiaux.  24  Va.  (3  Rand.)  136, 
15  Am.  Dec.  706.  Approved  in  Wroten 
V.   Armat,  72  Va.   (31  Gratt.)   228. 

Quo  warranto. — In  the  Banks  v.  Poi- 
tiaux, 3  Rand.  136,  it  was  held,  that 
under  an  act  of  assembly  authorizing  a 
bank  to  hold  so  much  real  property 
as  may  be  requisite  for  its  immediate 
accommodation  in  relation  to  the  con- 
venient transaction  of  its  business,  and 
no  more;  the  bank  may  purchase  more 
ground  than  is  necessary  for  the  erec- 
tion of  a  banking  house,  build  fire 
proof  houses  on  the  vacant  land,  for 
the  greater  security  of  the  banking 
house,  and  sell  them  out  to  third  per- 
sons. And  that,  even  if  the  bank  vio- 
lated its  charter  in  so  doing,  the  only 
proceeding  against  it  would  be  by  quo 
warranto.  Wroten  v.  Armat,  72  Va. 
(31   Gratt.)   228. 

Where  the  law  imposes  no  forfeiture 
for  its  violation,  the  only  effect  of  its 
transgression  in  that  respect  would  be 
to  subject  the  bank  to  the  proceedings 
in  behalf  of  the  state  to  vacate  its 
charter.  Litchfield  v.  Preston,  98  Va. 
530,  37  S.  E.  6;  citing  Banks  v.  Poi- 
tiaux. 24  Va.  (3  Rand.)  136,  15  Am. 
Dec.  706,  as  authority.     A  cause  of  for- 


feiture can  not  be  taken  advantage  of^ 
or  enforced  agamst  a  corporation,  col- 
laterally or  incidentally,  or  in  any 
other  mode  than  by  direct  proceed- 
ing, for  that  purpose,  against  a  corpo- 
ration, so  that  it  may  have  an  oppor- 
tunity to  answer.  And  the  govern- 
ment creating  the  corporation  -can 
alone  institute  such  proceedings;  since 
it  may  waive  a  broken  condition  of  a 
contract  made  with  it  as  well  as  an 
individual.  Greenbrier  Lumber  Co.  v. 
Ward,  30  W.  Va.  43,  3  S.  E.  227,  quot- 
ing from  Angell  and  Ames  on  Corpo- 
rations (10th  Ed.),  §  777,  and  citing 
Banks  v.  Poitiaux,  24  Va.  (3  Rand.)  130, 
1.5  Am.  Dec.  706,  to  sustain  the  propo- 
sition. Banks  v.  Poitiaux,  24  Va.  (3 
Rand.),  136,  15  Am.  Dec.  706,  is  also 
cited  in  Fayette  Land  Co.  v.  Louis- 
ville, etc.,  R.  Co.,  93  Va.  274,  24  S.  E. 
1016;  Chesapeake,  etc.,  R.  Co.  v. 
\\alker,   100  Va.  69,  40  S.   E.  633. 

20.  Conveyance  before  incorporation 
complete. — Although  under  the  act  of 
congress  of  July  1st,  1863,  a  bank 
created  by  a  territorial  legislature  can 
not  legally  exercise  its  powers  until 
the  charter  creating  it  is  approved  by 
congress,  yet  a  conveyance  of  land  to 
it,  if  the  charter  authorize  it  to  hold 
land,  can  not  be  treated  as  a  nullity  by 
the  grantor  who  has  received  the  con- 
sideration for  the  grant,  there  being  no 
judgment  of  ouster  against  the  corpo- 
ration at  the  instance  of  the  govern- 
ment. Smith  V.  Sheeley  (U.  S.),  12 
Wall.   358,  20  L.   Ed.  430. 

"Conceding  the  bank  to  be  guilty  of 
usurpation,  it  was  still  a  body  corpo- 
rate de  facto,  exercising  at  least  one 
of  the  franchises  which  the  legislature 
attempted  to  confer  upon  it,  and  in 
such  a  case  the  party  who  makes  a 
sale  of  real  estate  to  it,  is  not  in  a 
position  to  question  its  capacity  to 
take  the  title,  after  it  has  paid  the  con- 
sideration for  the  purchase."  Smith 
V.  Sheelev  (U.  S.),  12  Wall.  358,  20  L. 
Ed.  430. 

21.  Mortgages.— Crocker  v.  Whitney, 
71   N.   Y.   161. 


§  95  (Id) 


FUNCTIONS    AND    DEALINGS. 


669 


mortgage.--  And  a  statute  giving  authority  to  take  a  mortgage  for  a  lim- 
ited time,  is  directory  as  to  the  time,  and  a  mortgage  for  a  longer  time  is 
good.-^  A  mortgage  will  be  presumed  to  have  been  duly  executed  in  ac- 
cordance with  the  charter.-'*  and  a  mortgage  taken  to  secure  a  loan,  made  at 
the  time,  is  valid  under  an  authority,  in  an  act  of  incorporation,  to  take  mort- 
gages to  secure  debts  previously  contracted. -•"•  And  a  deed  of  trust  to  secure 
a  debt  is  a  mortgage,  and  is  embraced  by  the  authority  given  to  a  bank  in  its 
charter  to  hold  land  mortgaged  to  it  as  security.-''' 

Mortgage  Not  Raised  or  Released  by  Probate  Sale. — A  probate  sale 
of  property  so  mortgaged,  unless  with  the  bank's  consent,  does  not  release 
the  incumbrance,  which  may  be  enforced  against  the  purchaser. 2" 

Foreclosure. — Under  a  statute  providing  that  it  shall  be  lawful  for  banks 
to  purchase,  hold,  and  convey  real  estate  mortgaged  to  them  in  good  faith, 
and  such  as  it  shall  purchase  at  sale  under  decrees  or  mortgage  foreclosures 
under  securities  held  by  them,  a  bank  can  foreclose  a  mortgage  by  advertise- 
ment.-^    A  provision  in  the  charter  of  a  bank,  for  it  to  dispose  of  its  se- 


22.  Assignment. — The  provision  in 
the  charter  of  a  banking  company  that 
"the  corporation  shall  not,  directly  or 
indirectly,  deal  or  trade  in  anything 
except  bills  of  exchange,  promissory 
notes,  gold  or  silver  bullion,  or  the 
sale  of  goods  which  shall  be  the  pro- 
duce of  its  lands,"  does  not  restrain 
the  bank  from  taking  an  assignment 
of  a  mortgage  to  secure  a  debt  to  the 
bank.  Trenton  Banking  Co.  v.  Wood- 
ruff,  2   X.   J.   Eq.   117. 

23.  Limitation  of  duration  construed 
as  directory. — The  liquidation  act  au- 
thorized the  bank  of  the  state  to  take 
mortgages  to  secure  doubtful  debts, 
and  to  extend  payment  of  such  debts 
"not  exceeding  two  years."  Where 
Lhe  payment  of  a  note  was  extended  a 
longer  time,  and  a  mortgage  taken  as 
security,  it  was  held  that  the  clause  in 
the  statute  must  be  considered  di- 
rectory, and  that  the  mortgage  was 
not  void.  Magruder  v.  State  Bank,  18 
Ark.  9.  Stock  mortgages,  see  ante, 
"Subscription  to  and  Issue  of  Stock," 
§  39. 

24.  Presumption  of  due  execution. 
— A  note  and  mortgage,  appearing  on 
their  face  to  be  executed  to  the  State 
I'ank  in  its  corporate  name,  will  l)e 
presumed  to  have  been  taken  in  con- 
formity with  the  charter  of  the  bank, 
nntil  the  contrary  is  shown;  and, 
therefore,  an  objection  that  they  are 
void,  it  not  appearing  that  they  were 
received  by  the  bank  through  the 
agency  of  one  of  its  Ijranches,  is  not 
tenHl)le.  Sparks  v.  State  Bank  (Ind.), 
7    P.lackf.   409. 

Under      Xew      York      Banking      .\ct 


April  18,  18.38,  §  24,  authorizing  a  bank- 
ing association  to  hold  such  real  estate 
as  may  be  mortgaged  to  it  in  good 
faith,  and  providing  that  all  convey- 
ances of  such  real  estate  shall  be  made 
to  such  officer  as  shall  be  indicated  for 
that  purpose  in  the  articles  of  associa- 
tion, a  bona  fide  mortgage  made  di- 
rectly to  a  bank  in  New  York  is  valid, 
though  the  articles  designate  the  pres- 
ident as  the  officer  to  take  convey- 
ances; the  object  in  permitting  convey- 
ances to  be  made  to  an  officer  of  the 
bank  was  merely  to  facilitate  business, 
and  not  to  prohibit  the  bank  from  tak- 
ing title.  Kennedv  v.  Knight,  21  Wis. 
340,   94   Am.   Dec.   543. 

25.  To  secure  contemporaneous  loan. 
—Silver  Lake  Bank  z<.  North  (N.  Y.), 
4  Johns.  Ch.  370;  Planters'  Bank  v. 
Sharp  (U.  S.),  6  How.  301,  12  L.  Ed. 
447;  Neilson  v.  Lagow,  12  How.  98,  13 
L.    Ed.    9()'.i. 

26.  Deeds  of  trust.— Bennett  v. 
Union  P,ank,  24  Tenn.   (5   Humph.)  G12. 

27.  Mortgage  not  raised  or  released 
by  probate  sale — The  rule  that  a  pro- 
bate sale  raises  mortgages,  attaching 
them  to  the  proceeds,  is  inapplicable 
to  the  Bank  of  Louisiana  and  other 
banks  by  whose  charters  mortgages 
in  their  favor  are  not  affected  by  any 
sale  or  change  of  title,  by  descent  or 
otherwise.  Williams  z'.  Bank,  17  La. 
:'>78;  Citizens'  Bank  v.  Buisson  (La.), 
7  Rob.  M)(\;  Linion  IJank  t'.  Marigny 
(La.),    11     Rob.   209. 

28.  Foreclosure. — Gage  v.  Sanborn, 
10()  Mich.  2t)9,  (•)!  N.  W.  32,  construing 
Michigan    statute. 


670 


BANKS    AND    BANKING. 


§  95  (2> 


curities  ''in  all  respects  as  natural  persons  may  do  under  the  common  law,"' 
abrogates  the  requirement  of  an  act  requiring  the  intervention  of  a  court 
of  equity  to  sell  mortgaged  property.^^ 

§  95  (le)  Leases. — A  lease  of  a  building  by  a  bank  was  not  ultra 
vires,  where  it  was  leased  to  exchange  the  use  of  a  part  of  it  for  a  building 
suitable  to  its  purposes,  and  which  could  not  be  procured  otherwise. ^^ 

§  95  (2)  Disposal  of  Property. — Power  to  Sell. — A  bank  may  as- 
sign or  convey  any  property  held  by  it,  and  may  enter  into  the  common 
covenants  of  guaranty  or  warranty,  on  making  such  assignment  or  convey- 
ance.^i  Authority  given  to  a  bank,  by  its  charter,  to  take  real  estate  in 
payment  of  its  debts,  either  by  conveyance  or  purchase  under  judgments  in 
its  favor,  includes  the  power  of  selling  and  conveying  the  same.^^ 

Requisites  and  Sufficiency  of  Deed. — In  the  absence  of  any  statutory 
requirement  to  the  contrary,  a  deed  of  conveyance  by  a  banking  corporation 
is  properly  executed  when  its  cashier,  on  behalf  of  the  bank,  and  by  its 
authority,  affixes  thereto  the  corporate  seal,  and  subscribes  his  name  as  such 
cashier ;  and  in  such  case  the  cashier  is  the  proper  person  to  acknowledge 
the  deed.-"^^ 

Power  to  Mortgage. — Where  the  act  of  incorporation  declares  that  a 
bank  shall  be  capable  of  conveying  any  real  estate  in  its  possession,  for  the 


29.  Hahn  v.  Pindell  (Ky.).  3  Bush 
189. 

30.  Leases. — Lechenger  v.  Mer- 
chants' Nat.  Bank  (Civ.  App.),  96  S. 
W.  638,  affirmed  in  101  Tex.  646,  no  op. 

31.  Power  to  sell. — Talman  v. 
Rochester  (N.  Y.).  18  Barb.  123;  Peo- 
ple V.   Brown   (N.  Y.),  5  Wend.  590. 

32.  Under  authority  to  take  real 
estate  for  debts. — People  f.  Brown 
(N.   Y.),   5   Wend.   590. 

Sale  of  land  by  one  bank  to  another. 
— Where  a  bank  lawfully  buys  land  to 
secure  an  existing  debt,  and  conveys  it 
to  another  bank,  a  tenant  in  posses- 
sion has  no  right  to  refuse  to  deliver 
the  possession,  or  to  enjoin  the  owner 
from  taking  steps  to  recover  the  pos- 
session, on  the  ground  that  the  sale 
from  one  bank  to  the  other  was  void. 
Miller  v.  National  Bank,  4  Ky.  L. 
Rep.  25. 

33.  Requisites  and  sufficiency  of 
deed. — Sheehan  7:  Davis,   17  O.   St.  571. 

A  conveyance  sealed  by  the  corpo- 
rate seal,  and  signed  by  the  president 
and  cashier,  need  not,  in  the  absence 
of  any  special  evidence,  be  acknowl- 
edged on  behalf  of  the  corporation  by 
any  one  except  the  cashier.  Merrill  :■. 
Montgomery,    25    Mich.    73. 

An  acknowledgment  of  a  chattel 
mortgage   by   the   president   and   secre- 


tary of  a  bank  as  the  mortgagors 
therein  named,  is  not  executed  as  the 
statute  of  Illinois  requires,  and  is 
invalid  against  third  persons,  when 
the  property  is  to  remain  with  mort- 
gagor. First  Nat.  Bank  t'.  Baker,  62 
111.   App.  154. 

Yet  where  a  deed  by  its  terms  was 
made  by  the  Farmers'  Bank  of  Mis- 
souri in  its  corporate  name,  and  was 
signed  by  it  in  the  usual  form,  conclud- 
ing: "In  witness  whereof,  I,  Stephen 
G.  Wentworth,  as  president  of  the 
Farmers'  Bank  of  Missouri,  by  direc- 
tion of  the  board  of  directors,  have 
hereunto  subscribed  my  name  and 
caused  the  common  seal  of  the  bank 
to  be  hereto  affixed" — which  was 
signed:  "S.  G.  Wentworth,  President 
of  the  Farmers'  Bank  of  Missouri," 
and  the  official  seal  of  the  bank  was 
affixed  at  the  proper  place.  It  was 
held,  that  under  Wag.  St.  p.  273,  §  5, 
providing-  that  any  private  corporation 
authorized  to  hold  real  estate  may 
convey  it  by  deed,  sealed  with  the 
common  seal  of  the  corporation  and 
signed  by  the  president,  the  deed  was 
that  of  the  bank,  and  it  was  unneces- 
sary that  it  should  be  signed  in  the 
corporate  name  of  the  bank  by  its 
president.  Shewalter  7'.  Pirner,  55  Mo. 
318. 


§  96  (1) 


FUNCTIONS    AND    DEALINGS. 


671 


use  of  the  corporation,  the  bank  may  mortgage  it  to  secure  the  payment  of 
its  debts.^^  And  a  constitutional  and  statutory  general  provision  will  not 
affect  the  right  of  a  bank  under  its  prior  charter  to  execute  a  mortgage, 
where  such  right  has  not  been  surrendered.^^ 

§  96.  With  Respect  to  Contracts  in  GeneraP'^''— §  96  (1)  For- 
mality and  Authentication. — As  a  general  proposition,  where  the  char- 
ter of  an  incorporation  prescribes  the  particular  mode  in  which  its  contracts 
shall  be  made  or  authenticated,  that  mode  must  be  pursued. ^"^  If  no  definite 
rule  is  to  be  found,  either  in  the  charter  or  by-laws  of  the  institution,  in 
regard  to  the  manner  and  form  in  which  its  acts  and  contracts  shall  be  evi- 
denced, then  it  seems  general  usage,  and  the  course  of  business  of  similar 
institutions  is  to  govern ;  the  officers  will  be  presumed  to  have  been  invested 
with  the  customary  authority,  and  their  acts,  within  the  scope  of  such  usage, 
practice,  and  course  of  business,  will  be  binding  on  the  institution,  in  favor 
of  the  third  person  having  no  knowledge  to  the  contrary .^"^     There  can  be  no 


34.  Power  to  mortgage. — People  v. 
Brown  (N.  Y.),  5  Wend.  590;  Ward  %'. 
Johnson,   95   111.  215. 

Where  a  banking  corporation  was 
by  its  charter  authorized  to  purchase, 
hold,  and  convey  any  estate,  real  or 
personal,  for  the  use  of  the  corpora- 
tion, and  afterwards  the  right  to  hold 
real  estate  was  restricted  to  so  much 
as  was  necessary  for  its  accommoda- 
tion in  the  transaction  of  business,  it 
was  held  that  the  corporation  had 
power  to  mortgage  such  real  estate  as 
was  necessary  for  its  accommodation, 
to  secure  a  debt  of  the  corporation. 
Leggett  V.  New  Jersey  Manufacturing, 
etc.,  Banking  Co.,  1  N.  J.  Eq.  541,  23 
Am.    Dec.   728. 

35.  Charter  rights. — A  constitutional 
provision  prescribing  the  mode  in 
which  the  indebtedness  of  corporations 
is  to  be  incurred,  and  an  act,  carrying 
the  same  into  efifect,  held  not  to  pre- 
clude collection  of  a  mortgage  debt  of 
a  bank  whose  charter  authorized  such 
debt  and  mortgage.  Ahl  v.  Rhodes, 
84  Pa.  319;  Lewis  v.  Jeffries,  86  Pa. 
340. 

As  to  power  to  borrow  generally, 
see  post,  "Borrowing  Money,"  §  97. 

35a,  In  respect  to  deposits,  see  post, 
"Relation  between  Bank  and  Depositor 
in   General,"  §   119,  et  seq. 

In  respect  to  collection,  see  post, 
"Relation  between  Bank  and  Depos- 
itor for  Collection,"  §   156,  et  seq. 

Of  national  banks,  see  post,  "In  Gen- 
eral," §  260  {\)\  "Guaranty  or  In- 
demnity,"  §   260   (4). 

Of  loan,  trust,  and  investment  com- 
panies, see  post,  "Functions  and 
Dealings,"  §  315. 


Representation  of  bank  by  officers 
and  agents,  see  post,  "Contracts," 
§    105. 

Estoppel  to  set  up  want  of  power  to 
exempt  from  liability. — See  post,  "Es- 
toppel to  Deny  Authority  of  Officer  or 
Agent,"  §  113. 

Contract  between  banks  as  to  dispo- 
sition of  proceeds  of  discounted  paper, 
see  post,  "Application  of  Proceeds," 
§   182. 

Contract  for  custody  and  transmis- 
sion of  public  funds. — See  post,  "Spe- 
cial  Deposits,"   §   153. 

In  respect  to  exchange,  money,  se- 
curities and  investments,  see  post,. 
"Power  to  Deal  in  Exchange,  Money, 
and    Securities,"   §    188,   et   seq. 

In  respect  to  circulating  notes,  see 
post,  "Nature  and  Requisites,"  §  196, 
et  seq. 

In  respect  to  loans  and  discounts, 
see  post,  "Power  to  Make  Loans  in 
General,"  §  176,  et  seq. 

Agreements  as  to  medium  in  which 
remittances  to  be  made,  see  post,  "Lia- 
bility in   General,"  §   169. 

Agreements  as  to  liability  for  short- 
age and  counterfeits  in  exchanges,  see 
post,  "Payment  of  Forged  or  Altered 
Paper,"  §  190. 

Agreement  to  pay  check  on  condi- 
tion of  payment  of  drawer's  notes,  see 
post,   "Notes   Payable  at   Bank,"  §   144. 

36.  Formality  and  authentication. — 
Northern  Bank  v.  Johnson,  -15  Tenn. 
(5  Coldw.)  88;  Neiffer  v.  Bank,  38 
Tenn.   (1    Head)   IC.a. 

37.  Northern  Bank  v.  Johnson,  45 
Tenn.  (5  Coldw.)  88;  Neiffer  v.  Bank, 
38  Tenn.  (l  Head)  162.  See  post, 
"Grounds    and    Extent    of    Liability    in 


672 


BANKS    AND    BANKING. 


§  96  (5) 


doubt,  however,  that  a  bank,  or  other  corporation,  may  be  authorized  to 
contract  in  a  prescribed  mode,  either  by  its  charter  or  by-laws,  or  general 
usage ;  it  may  depart  from  the  prescribed  mode,  and  render  itself  liable 
upon  contracts  executed  or  authenticated  in  a  different  mode.^^ 

§  96  (2)  Notice  of  Limitations. — If  one  deals  with  a  bank,  he  knows 
that  it  is  banking  business  that  that  bank  is  authorized  to  transact,  and  none 
other.  He  has  the  same  general  knowledge  that  the  officers  of  the  bank 
have.-^^ 

§  96  (3)  Contracts  under  Seal. — Where  the  act  incorporating  a 
bank  contains  no  express  provision  authorizing  the  corporation  to  make 
contracts,  it  follows  that,  upon  principles  of  the  common  law,  it  might  con- 
tract under  its  corporate  seal.^^  And  it  may  be  bound  by  a  contract,  though 
not  executed  under  the  corporate  seaL'^^ 

§  96  (4)  Contracts  between  Banks  Entered  into  by  Contracting 
Officers  Common  to  Both. — Where  a  majority  or  all  of  the  contracting 
officers  of  two  banks  were  common  to  both,  that  fact  alone  does  not  make 
a  contract  between  the  two  banks,  entered  into  by  such  contracting  officers, 
absolutely  void  and  incapable  of  ratification,  but  such  contract  will  be  sub- 
ject to  close  judicial  scrutiny  when  questioned  at  the  proper  time,  and  will 
be  set  aside  upon  the  appearance  of  unfairness. ^^ 

§  96  (5)  Contract  to  Honor  Drafts. — A  bank's  letter  promising  to 
honor  drafts  has  been  held  to  constitute  a  continuing  contract  to  do  so  until 
revoked  or  canceled.'*-^ 


General,"  §  102,  et  seq.,  as  to  repre- 
sentation of  bank  by  officers  and 
agents. 

38.  Neiffer  z'.  Bank,  38  Tenn.  (1 
Head)   162. 

39.  Notice  of  limitations. — First  Nat. 
Bank  z\  Commercial  Xat.  Bank,  99 
Tex.  118,  87  S.  W.  io:)2. 

40.  Power  to  contract  under  seal. — 
Bank  v.  Patterson  (U.  S.j,  7  Cranch 
299,   3  L.   Ed.   351. 

41.  Seal  not  essential. — Bank  z\  Gutt- 
schlick  (U.  S.),  14  Pet.  19.  10  L.  Ed. 
335. 

42.  Contracts  between  banks  en- 
tered into  by  contracting  officers  com- 
mon to  both. — City  Xat.  Bank  z'.  Mer- 
chants", etc.,  Xat.  Bank  (Civ.  App.), 
105   S.   W.   338. 

Where  the  president  and  cashier  of 
the  defendant  bank  solicited  the  plain- 
tiff bank  to  deposit  its  money  with  de- 
fendant bank  and  agreed  to  pay  the 
plaintiff  bank  3  per  cent  per  annum 
on  daily  balances  it  was  held  that  in 
the  absence  of  evidence  tending  to 
show  concealment,  deception  or  fraud, 
or   that   defendant's   officers   who   were 


in  control  of  its  business  did  not  have 
actual  knowledge  of  the  transaction,  the 
fact  that  the  president  of  defendant 
bank  was  also  vice-president  of  plaintiff 
l)ank  did  not  render  the  contract  void 
on  the  ground  that  his  interest  was 
adverse  to  the  stockholders  in  defend- 
ant bank.  City  Nat.  Bank  zk  Mer- 
chants', etc.,  Nat.  Bank  (Civ.  App.), 
105  S.  W.  338. 

43.  Contract  to  honor  drafts. — In 
Fel:)ruary,  1883,  plaintiff  bank  wrote  to 
defendant  bank:  "G.  was  at  our  office 
to-day,  and  arranged  for  us  to  cash  his 
stock  tickets,  and  draw  on  him  for  the 
amount  and  exchange  with  the  tickets 
attached.  He  referred  us  to  you,  say- 
ing you  would  say  such  drafts  would 
be  paid  through  your  bank  all  right. 
Please  advise  us  regarding  it  and 
oblige."  Defendant  replied  February 
19,  1883:  "We  will  pay  your  drafts  on 
G.  with  his  stock  tickets  attached." 
Thereafter  the  plaintiff  cashed  such  of 
G.'s  stock  tickets  as  were  presented, 
and  drew  on  him  for  the  amounts,  and 
forwarded  the  drafts  with  the  tickets 
attached  for  collection  of  defendant. 
These   transactions   took    place    two   or 


§  96  (8) 


FUNCTIONS   AND   DEALINGS. 


673 


§  96  (6)  Subscription  Contract.— A  subscription  to  an  enterprise 
for  building  a  creamery  made  by  the  president  and  directors  of  a  bank  for 
the  bank  is  ultra  vires,  and,  if  canceled  before  the  enterprise  is  carried  out, 
is  not  enforceable  against  the  bank.^^ 

§  96  (7)  Illegal  Contracts.— Illegal  Contracts  Relating  to  Cir- 
culating Notes. — Contracts  by  a  bank  with  corporations  which  could  not 
lawfully  emit  bills  or  notes  for  circulation,  to  receive  and  put  into  circula- 
tion such  bills  and  notes,  have  been  held  illegal  so  far  as  they  contemplated 
putting  such  paper  into  circulation,  but  legal  so  far  as  the  mere  receipt  of 
such  paper  was  concerned.'is  And  a  note  to  a  bank,  made  to  give  it  a  false 
credit,  is  unenforcible  bv  the  bank.-*'^' 

§  96  (8)  Ultra  Vires  Contracts.— The  burden  of  showing  illegality 
rests  on  the  party  alleging  it."*" 

Agreement  to  Procure  Release  of  Mortgage.— An  agreement  by  a 
bank  to  procure  a  release  of  a  mortgage  held  by  a  third  person  upon  lands 
on  wdiich  the  bank  also  had  a  mortgage,  although  not  primarily  an  agree- 
ment relating  to  banking,  yet,  when  made  to  secure  payment  of  the  debt  due 
the  bank,  is  not  ultra  vires.-* '^ 


three  times  a  week,  and  sometimes  less 
frequently.  The  drafts  varied  from 
$.':;00  to  $12,000,  and  the  aggregate  from 
February  19,  1883,  to  November  8,  1888, 
was  over  $600,000.  The  defendant 
paid  the  drafts  and  charged  them  to 
G..  whether  his  account  was  good  for 
them  or  not.  but  it  refused  to  pay  the 
two  drafts  in  suit  drawn  November  7 
and  8,  1888,  for  $389.92  and  $4,789.05, 
respectively.  It  was  held  that,  con- 
sidered with  reference  to  the  situation 
of  the  parties,  and  their  subsequent 
acts  evincing  their  own  understanding, 
the  letter  of  February  19,  1883,  muse 
be  construed  as  a  continuing  promise, 
and  not  merely  as  one  to  pay  drafts 
for  stock  tickets  which  the  plaintiff  had 
already  cashed,  or  arranged  to  cash; 
and  that  the  consideration  was  suffi- 
ciently disclosed  to  satisfy  the  statute 
of  frauds.  Drovers'  Nat.  Bank  v.  Al- 
bany  County    Bank.   44    Fed.    183. 

44.  Subscriptions.— Holt  r.  WinfieM 
Bank,   2',    Fed.   812. 

45.  Illegal  contracts  relating  to  cir- 
culating notes. — Whetstone  r.  Bank,  9 
.Ma.  87.5,  affirming  Branch  Bank  v. 
Crocheron,  .5  Ala.  250. 

As  to  circulating  notes,  see  post, 
"Nature   and    Rr(|uisites,"   !^    1 '.)(;,   et   set]. 

46.  Note  made  to  bank  to  give  it  false 
credit. — If  a  note  be  made  to  a  l)ank, 
without  consideration,  for  the  purpose 
of  enabling  the  corporation,  by  includ- 
ing it  as  a  part  of  its  funds,  to  make 
a   coloiable   and   false   statement  of  its 

1   B   &   B— 43 


actual  position,  although  it  might  have 
been  a  just  cause  for  the  revocation 
of  its  charter,  and,  perhaps,  of  indict- 
ment of  the  persons  concerned  for  a 
conspiracy  to  defraud,  yet  the  bank 
can  not  maintain  an  action  on  such 
note.  Agricultural  Bank  v.  Robinson, 
24  Me.  274,  41  Am.   Dec.  385. 

47.  Ultra  vires  contracts — Burden  of 
showing  illegality. — An  agreement  be- 
tween a  banking  corporation,  located 
in  Wisconsin,  and  commission  mer- 
chants in  the  city  of  New  York,  by 
which  the  former  is  to  consign  produce 
to  the  latter  for  sale  on  commission, 
against  which  drafts  are  to  be  drawn, 
and  to  keep  the  drawees  in  funds  to 
meet  the  same,  in  cases  where  con- 
signments are  not  made,  is  not  nec- 
essarily illegal,  in  the  absence  of  any- 
thing to  show  what  powers  are  pos- 
sessed by  the  bank,  bv  virtue  of  its 
charter.  Perkins  f.  Church  (N.  Y.), 
31    Barb.   84. 

Effect  of  ultra  vires  contracts. — See 
nost,  "Effect  of  Acts  Ultra  \'ires." 
§   101. 

Representation  of  banks  by  officers 
and  agents  and  estoppel  of  bank  to 
deny  authority.  Sec  post,  "Crounds 
'Mid  Extent  of  Lialiility  in  General," 
§  102,  ct  seq.:  "Estoppel  to  Deny 
.\uthority   of   Orficcr   of   .\gcnt."   §    113. 

48.  Agreement  to  procure  release  of 
mortgage. — McCraith  v.  National  Mo- 
Iiawk  \'alley  Bank,  104  N.  Y.  414,  10 
X.   E.  802. 


674 


BANKS   AND   BANKING. 


§97 


Shipment  of  Stock,  on  Which  Bank  Has  Advanced  Money,  in 
Bank's  Name.— Stock  may  be  shipped  in  the  name  of  a  bank  which  has 
advanced  money  thereon,  for  its  protection,  without  infringing  a  prohibition 
against  employing  its  moneys  in  trade  or  commerce  by  buying  and  selhng 
chattels.4-' 

Execution  of  Undertakings  in  Judicial  Proceedings.— It  is  not  within 
the  powers  of  an  incorporated  state  bank  to  pledge  its  credit  as  a  mere  mat- 
ter of  accommodation  by  executing  undertakings  in  judicial  proceedings-^*^ 

§  96  (9)  Termination. — A  contract  between  a  bank  and  a  partnership 
is  terminated  by  the  subsequent  admission  of  new  members  without  bank's 
consent. ^^ 

§  97.  Borrowing  Money."*- — Power  of  Bank  to  Borrow. — Under 
the  decisions  of  the  federal  courts,  the  borrowing  of  money  is  not  out  of  the 
usual  course  of  banking  business,  but  the  existence  of  such  power  is  a  ques- 
tion of  fact,  to  be  resolved  by  the  usage  of  the  parties  or  of  the  community.^^ 


49.  Shipment  of  stock,  on  which  bank 
has  advanced  money,  in  bank's  name. 
— Where  a  bank  carried  a  person  for 
the  money  he  used  in  buying  and  ship- 
ping stock  to  market,  and  returns  for 
the  sales  were  made  to  the  bank,  and 
the  statement  for  money  received 
placed  to  his  credit,  and  certain  stock 
belonging  to  him  was  shipped  in  the 
name  of  the  bank  for  its  protection 
against  loss  for  money  furnished  to 
buy  stock,  the  bank,  at  the  most,  was 
merely  acting  as  agent  for  the  other, 
and  the  transaction  was  not  within 
Missouri  Rev.  St.  1899,  §  1291,  pro- 
hibiting a  bank  from  employing  its 
moneys  in  trade  or  commerce  by  buy- 
ing and  selling  chattels.  Griffin  v. 
Wabash  R.  Co.,  115  Mo.  App.  549,  91 
S.  W.   1015.  .  .      . 

50.  Execution  of  undertakings  in  ]U- 
dicial  proceedings. — Sturdevant  v. 
Farmers",  etc..  Bank,  62  Xeb.  472.  87 
N.  W.  156,  affirmed  on  rehearing  m 
Sturdevant  Bros.  &  Co.  v.  Farmers', 
etc..  Bank,  69   Neb.  220,  95  N.  W.  819 

51.  Termination. — A  firm  authorized 
a  bank  to  cash  drafts  drawn  on  it  by 
its  agent.  It  thereafter  notified  the 
bank  that  it  would  pay  drafts  on  actual 
consignments.  The  cashier  answered, 
promising  to  require  a  shippmg  bill. 
The  firm  did  not  reply,  but  contmued 
to  accept  and  pay  drafts  drawn  by  the 
agent  and  cashed  by  the  bank,  without 
requiring  a  bill  of  lading.  Held,  that 
any  contract  in  regard  to  requiring 
bills  of  lading  was  made  with  the  then 
existing  firm,  and  ceased  on  the  sub- 
sequent admission  of  two  clerks  as 
members,    without   the    consent    of   the 


bank.      National    Bank   v.    Hall,    101   U. 
S.   43,  25   L.    Ed.   822. 

Where  the  bank  acted  in  good  faith, 
and  the  agent  absconded  with  the  pro- 
ceeds of  two  drafts,  in  an  action  by 
the  firm  to  recover  the  amount  thereof 
from  the  bank,  it  was  held,  that  the 
letters  constituted  no  contract,  and  the 
bank  was  not  responsible  to  the  firm 
for  cashing  the  drafts  without  bills  of 
lading  attached.  National  Bank  v. 
Hall,   101   U.   S.   4.3,  25    L.   Ed.   822. 

52.  Borrowing  money. — See,  also, 
post,  "Bonds,  Assignments  and  Nego- 
tiable Instruments,"  §  98  (2),  as  to 
bonds  and  notes,  etc. 

As  to  power  to  mortgage,  see  ante, 
"Disposal  of  Property,"  §  95   (2). 

As  to  custom  of  borrowing  money 
on  time  notes,  see  ante,  "Admissibility 
of  Evidence  and  Its  Sufficiency,"  § 
89    (1). 

53.  Power  to  borrow. — Of  national 
banks,  see  post,  "Banking  Powers," 
§   358. 

Power  to  borrow  as  a  question  ot 
fact.— Auten  z\  United  States  Nat. 
Bank,  174  U.  S.  125,  43  L.  Ed.  920, 
19  S.  Ct.  628;  Aldrich  v.  Chemical  Nat. 
Bank.  176  U.  S.  618.  44  L.  Ed.  611,  20  S. 
Ct.   498. 

A  power  so  useful  can  not  be  said 
to  be  illegitimate,  and  declared  as  mat- 
ter of  law  to  be  out  of  the  usual  course 
of  business  and  to  charge  everybody 
connected  with  it  with  knowledge  that 
it  may  be  in  excess  of  authority.  It 
would  seem,  if  doubtful  at  all,  more 
like  a  question  of  fact,  to  be  resolved 
in  the  particular  case  by  the  usage  of 
the   parties   or  the  usage   of  communi- 


§  97 


FUNCTIONS   AND  DEALINGS. 


675 


And  the  weight  of  authority  is  that  a  bank  with  general  powers  may  borrow 
money,^^  under  an  incidental  and  auxiliary  power,  not  expressed,  but  implied 
from  those  which  are  expressed. ^-^     But  it  has  been  held  that  a  bank  that 


ties.  It  is  important  also  to  observe 
that  the  court  said  that  Western  Nat. 
Bank  v.  Armstrong,  152  U.  S.  346,  38 
L.  Ed.  470.  14  S.  Ct.  572,  was  not  to 
be  regarded  as  an  adjudication  to  the 
contrary.  Aldrich  v.  Chemical  Nat. 
Bank,  176  U.  S.  618,  44  L.  Ed.  611,  20 
S.  Ct.  498. 

"The  very  object  of  banking  is  to 
aid  the  operation  of  the  laws  of  com- 
merce by  serving  as  a  channel  for  car- 
rying money  from  place  to  place,  as 
the  rise  and  fall  of  supply  and  demand 
require,  and  it  may  be  done  by  redis- 
counting  the  bank's  paper  or  by  some 
other  form  of  borrowing."  Auten  v. 
United  States  Nat.  Bank,  174  U.  S.  125, 
43  L.  Ed.  920,  19  S.  Ct.  628. 

It  was  said  in  an  earlier  case  that 
while  a  bank,  in  certain  circumstances, 
may  become  a  temporary  borrower  of 
money,  yet  such  transactions  w^ould 
be  so  much  out  of  the  course  of  ordi- 
nary and  legitimate  banking  as  to  re- 
quire those  making  the  loan  to  see  to 
it  that  the  officer  or  agent  acting  for 
the  bank  had  special  authority  to  bor- 
row money.  Here  a  loan  of  $200,000. 
negotiated  by  the  vice  president,  was 
held  to  be  unauthorized.  Western  Nat. 
Bank  v.  Armstrong,  152  U.  S.  346,  38 
L.  Ed.  470,  14  S.  Ct.  572. 

In  Aldrich  v.  Chemical  Nat.  Bank, 
176  U.  S.  618,  44  L.  Ed.  611,  20  S.  Ct.  498. 
commenting  on  and  distinguishing  this 
case,  it  was  said:  "In  the  view  we  take 
of  the  present  case  it  is  not  necessary 
to  extend  this  opinion  by  a  review  of 
the  numerous  authorities  which,  it  is 
contended,  support  the  general  propo- 
sition that  a  national  bank  is  entitled 
under  the  law  of  its  creation  and  in 
the  conduct  of  its  business  to  borrow 
money,  and  that  the  lender  is  not 
ol)liged  to  show  that  the  officer  or  agent 
acting  for  the  bank  had  special  author- 
ity to  negotiate  the  loan.  If  the  pres- 
ent case  depended  upon  that  question 
it  might  be  necessary  to  consider 
whether  the  language  in  Western  Nat. 
Bank  v.  Armstrong,  152  U.  S.  346,  38 
L.  Ed.  470,  14  S.  Ct.  572,  required  mod- 
ification." 

"In  Western  Nat.  Bank  v.  .\rmstrong, 
152  U.  S.  346,  38  L.  Ed.  470,  14  S.  Ct. 
572,  the  defendant  bank  did  not  receive 
or  get  the  benefit  of  the  money  alleged 
to  have  been  loaned  to  it  at  the  in- 
stance of  its  vice  president.  This  court 
took    care  in    that  case    to    say  that    it 


did  'not  appear  that  the  bank  ever  got 
a  penny  of  the  borrowed  money  or  any 
benefit  or  advantage  whatever  by  rea- 
son of  the  transaction.' "  Aldrich  v. 
Chemical  Nat.  Bank,  176  U.  S.  618.  44 
L.   Ed.  611,  20  S.  Ct.  498. 

"All  their  deposit  certificates,  or 
bank  book  credits  to  individuals  are 
debts  of  the  bank,  and  which  it  is  a 
legitimate  and  appropriate  part  of  its 
business  as  a  bank  to  incur  and  to  pay. 
The  same  may  be  said,  also,  of  all  its 
bank  notes,  or  bills,  they  being  merely 
promises  or  debts  of  the  bank,  payable 
to  their  holders,  and  imperative  on 
them  to  discharge.  See  Bank  v.  Pat- 
terson (U.  S.),  7  Cranch  299,  3  L.  Ed. 
351;  Bank  v.  Earle  (U.  S.),  13  Pet.  519, 
10  L.  Ed.  274."  Planters'  Bank  v. 
Sharp  (U.  S.),  6.  How.  301,  12  L.  Ed. 
447. 

54.  Tuttle  V.  National  Bank,  48  111. 
App.  481;  Ringling  v.  Kohn,  6  Mo. 
App.  333;  Donnell  v.  Lewis  County 
Sav.  Bank,  80  Mo.  165;  Leavitt  v.  Yates 
(N.  Y.),  4  Edw.  Ch.  134;  Leavitt  v. 
Blatchford  (N.  Y.),  5  Barb.  9;  Curtis 
V.  Leavitt,  15  N.  Y.  9,  affirming  17  Barb. 
309;  Barnes  v.  Ontario  Bank,  19  N.  Y. 
152;  Safiford  v.  Wyckoff  (N.  Y.)  4  Hill 
442. 

65.  An  incidental  implied  power. — 
Curtis  V.  Leavitt,  15  N.  Y.  9. 

The  power  expressed  in  a  bank 
charter  to  receive  deposits  is,  by  nec- 
essary implication,  power  to  receive 
money  as  a  loan,  and  to  assign  or 
mortgage  negotiable  instruments.  Ward 
V.  Johnson,  95  111.  215;  Curtis  v.  Leavitt 
(N.  Y.),  17  Barb.  309,  affirmed  with 
modification  in  15  N.  Y.  9. 

Massachusetts. — Under  the  Massa- 
chusetts statute,  a  bank  is  not  prohib- 
ited from  borrowing  of  another  bank 
money  payable  on  demand  with  inter- 
est, but  :s  prohibited  from  borrowing- 
money  of  another  bank  payable  at  a 
future  day  certain.  Commonwealth  v. 
Bank  (Mass.),  4  Allen  1.  See  now 
Rev.  Laws  of  Mass.  1902,  Ch.  115,  §  40. 

New  York. — The  power  to  borrow 
money  and  to  give  appropriate  assur- 
ances for  the  payment  of  the  debt  is 
incidental  to  corporations,  and  espe- 
cially banking  corporations.  Curtis  v. 
Leavitt,  15  N.  Y.  .App.  9. 

Laws  1829,  c.  94,  §  35,  forbidding 
banks,  "subject  to  the  provisions  of 
this  act,''  from  issuing  notes  or  bills, 
unless  payable  on  demand  and  without 


676 


BANKS   AND   BANKING. 


§97 


borrows  money  upon  which  it  pays  interest  is  competing  with  its  customers, 
and  engaged  in  operations  quite  foreign  from  the  object  of  its  organization. 
Legitimate  banking  is  lending,  and  never  borrowing,  on  interest.^c 

Estoppel  to  Deny  Power.— But  when  the  bank  receives  and  uses  the 
proceeds  of  such  a  loan,  by  its  being  placed  to  its  credit  with  notice  to  it,  it 
can  not  deny  its  liability  to  account  therefor.^' 

Rediscount  of  Paper.— A  rediscount  by  a  bank  of  its  bills  receivable, 
though  it  indorses  the  same,  and  becomes  contingently  liable  for  their  pay- 
ment, is  not  a  borrowing  of  money  by  the  bank,  but  has  more  the  character- 
istics of  a  sale,  and  the  bank  may  be  estopped,  by  allowing  such  a  practice, 
to  deny  authority  therefor.^s 

Secret  Loans.— If,  for  the  purpose  of  enabling  a  bank  to  borrow  with- 
out having  its  printed  statements  show  it  as  a  borrower,  another  bank  credits 


interest,  has  no  application  to  banking 
associations  formed  under  the  law  of 
1838;  and  does  not,  therefore,  render 
void  bonds  given  for  money  borrowed 
and  payable  at  a  future  time.  Curtis 
z'.  Leavitt,  15  N.  Y.  9,  affirming  but 
modifying  17  Barb.  309.  See,  also,  Lea- 
vitt V.  Yates  (N.  Y.).  4  Edw.  Ch.  134; 
Leavitt  v.  Blatchford  (N.  Y.),  5  Barb. 
9;  Barnes  v.  Ontario  Bank,  19  N.  Y. 
152. 

56.  Not  an  ordinary  banking  power. 
—Stark  County  Bank  7'.  ^McGregor,  6 
O.  St.  45. 

57.  Receipt  of  proceeds  of  loan  by 
bank  makes  it  liable.— A  national  bank 
having  used  in  its  business  money 
which  its  vice  president  obtained  as  a 
loan  to  it  from  another  national  bank 
can  not  deny  all  liability  to  account 
for  the  same  upon  the  ground  that  the 
loan  was  not  negotiated  by  it  or  by  its 
direction,  as  well  as  upon  the  ground 
that  it  could  not  itself  have  legally 
borrowed  the  money  from  the  other 
bank.  The  statutes  relating  to  national 
banking  associations  do  not  require 
that  such  a  defense  be  sustained.  Aid- 
rich  V.  Chemical  Nat.  Bank,  176  U.  S. 
618,  44  L.  Ed.  611.  20  S.  Ct.  498;  Wy- 
man  r.  Wallace.  201  U.  S.  230,  50  L- 
Ed.  738.  26  S.  Ct.  495;  Frenzer  v.  Wal- 
lace, 201  U.  S.  244,  50  L.  Ed.  742,  26  S. 
Ct.  498;  Poppleton  t'.  Wallace,  201  U. 
S.  245,  50  L.  Ed.  743.  26  S.  Ct.  498. 

"The  fact  that  after  the  Fidelity 
Bank  had  been  credited  on  the  books 
of  the  Chemical  Bank  with  the  $300,000. 
H.  (its  vice  president)  fraudulently 
caused  himself  to  be  credited  on  the 
books  of  the  Fidelity  Bank  with  a  like 
sum,  is  a  matter  with  which  the  Chem- 
ical Bank  had  no  connection  and  can 
not  afifect  its  right  to  demand  a  return 


of  the  money  which  went  (as  the 
Chemical  Bank  in  good  faith  supposed 
it  would)  into  the  treasury  of  the  Fi- 
delity Bank  and  was  by  it  used  in 
meeting  its  current  obligations.  The 
dishonesty  of  H.  in  his  management  of 
the  affairs  of  the  Fidelity  Bank  did  not 
discharge  that  bank  from  the  obliga- 
tion under  which  it  came  by  using  hi 
its  business  the  money  obtained  by  its 
vice  president  under  the  guise  of  a 
loan  to  the  bank."  Aldrich  v.  Chemical 
Nat.  Bank.  176  U.  S.  618,  44  L.  Ed. 
611.  20  S.  Ct.  498. 

''In  ^Merchants'  Bank  v.  State  Bank, 
10  Wall.  604.  644,  19  L.  Ed.  1008,  in 
which  one  of  the  questions  was  as  to 
the  liability  of  a  bank  on  account  of 
certain  certificates  issued  by  its  cash- 
ier and  of  certain  purchases  of  gold 
made  by  him,  the  court  said  that  if  the 
certificates  and  the  gold  actually  went 
into  the  bank  which  the  cashier  as- 
sumed to  represent,  then  the  bank  was 
liable  for  money  had  and  received, 
whatever  may  have  been  the  defect  in 
the  authority  of  the  cashier  to  make 
the  purchase."  Aldrich  v.  Chemical 
Nat.  Bank,  176  U.  S.  618,  44  L.  Ed.  611, 
20  S.  Ct.  498. 

And  a  long  habit  of  a  bank,  in  com- 
mon with  other  banks  of  same  locality, 
of  rediscounting  its  bills  receivable  in 
large  amounts  through  the  president 
and  cashier,  with  the  knowledge  of  the 
directors  of  the  practice,  will  estpp 
the  bank  from  denying  their  authority 
in  the  premises,  there  being  no  attend- 
ant circumstances  to  arouse  suspicion. 
United  States  Nat.  Bank  7-.  First  Nat. 
Bank,  24  C.  C.  A.  597.  79  Fed.  296.    _ 

58.  Rediscount  of  paper.— United 
States  Nat.  Bank  v.  First  Nat.  Bank, 
24  C.  C.  A.  597,  79  Fed.  296.  See  pre- 
ceding paragraph. 


§  98  (2a) 


FUNCTIONS    AND    DEALINGS. 


677 


a  sum  to  the  borrower's  account,  and  charges  the  same  to  a  special  account, 
and  takes  an  individual  guaranty  note  from  the  borrower's  directors, 
amounts  drawn  on  the  credit  constitute  a  loan  to  the  bank,  and  not  to  its 
directors. ^^' 

Right  Unaffected  by  Insolvency. — An  incorporated  bank  may  borrow 
money  in  the  prosecution  of  its  business  and  secure  its  payment  by  collaterals 
or  otherwise,  and  the  fact  that  it  is  insolvent  at  the  time  the  loan  is  obtained 
does  not  impair  or  deprive  the  bank  of  its  power  or  the  right  to  negotiate 
the  loan  and  secure  payment  thereof,  unless  it  is  forbidden  by  statute.*"'^ 

Usury. — Loans  to  banks  are  subject  to  the  usury  laws.*'^ 

§  98.  Bonds,  Assignments  and  Negotiable  Instruments^- — §  98  (1) 
Bonds  and  Assignments.— A  bank  may  give  bonds  and  assignments  for 
the  purpose  of  meeting  its  lawful  obligations.*^^ 

§  98  (2)  Negotiable  Instruments'-"-— §  98  (2a)  Power  to  Make 
and  Issue. — It  is  difficult  to  deduce  any  general  rule  as  to  the  power  of  a 
bank  to  make  or  issue  negotiable  paper,  controlled  as  the  question  is  by  con- 
stitutional  and   statutory   provisions,^"^    although   the   power   to   give   notes 


59.  Secret  loans. — American  Exch. 
Nat.  Bank  z:  First  Nat.  Bank,  27  C.  C. 
A.  274,  82  Fed.  961. 

60.  Right  unaffected  by  insolvency. 
— Harris  z'.  Randolph  County  Bank, 
157  Ind.  120.  60  X.  E.  1025. 

61.  Loans  subject  to  usury  laws. — 
A  banking-  corporation  having  sus- 
pended paj'ment,  a  committee  was  ap- 
pointed to  procure  a  loan  sufficient  to 
enable  the  bank  to  resume  business. 
It  made  application  to  a  trust  company 
for  aid  to  enable  it  to  resume  specie 
payments.  The  company  agreed  to  is- 
sue its  certificate  of  deposit  for  £48.000 
sterling,  payable  in  London,  with 
interest  at  5  per  cent,  the  banking  com- 
pany to  deliver  bills  of  credit  for 
£50.000,  payable  to  the  trust  company 
in_  sterling  money,  at  $5  to  the  pound, 
with  interest  at  6  per  cent  per  annum. 
The  agreement  was  carried  out  accord- 
ingly. Held,  that  the  transaction  v/as 
in  substance  a  loan  of  money  by  the 
trust  company  to  the  bank,  and  was 
therefore  subject  to  the  statutes  pro- 
liibiting  usury.  Dry  Dock  Bank  v. 
American  Life  Ins.,  etc.,  Co.,  3  N.  Y. 
344. 

62.  Bonds,  assignments  and  negoti- 
able instruments. — Authority  of  offi- 
cers or  agents,  see  post,  "Bills,  Notes, 
and   Securities,"  §   109. 

General  power  to  borrow,  see  ante, 
"Borrowing   Money,"  §  97. 

64.  Bonds  and  assignments. — "This 
court,  in  the  United  States  r.  Robert- 
son   (U.    S.),  5    Tet.  64],  8    L.    Ed.    257, 


has  expressly  recognized  the  authority 
of  a  bank  to  give  bonds  and  assign- 
ments to  pay  its  deposit  debtors.  In 
that  case,  'the  directors  agree  to  pledge 
to  the  government  of  the  United  States 
the  entire  estate  of  the  corporation  as 
a  security  for  the  payment  of  the  orig- 
inal principal  of  the  claim,'  etc.  (p. 
048).  And  such  a  pledge  or  transfer  was 
held  there  to  be  valid."  Planters' 
Bank  z'.  Sharp  (U.  S.),  6  How.  301,  13 
L.  Ed.  447. 

Power  to  borrow  money. — See  ante, 
"Borrowing  Money,"  §  1)7. 

Power  to  loan  and  discount. — See 
post,  "Power  to  Make  Loans  in  Gen- 
eral," §  176;  "Power  of  Discount,"  § 
177. 

Right  and  mode  of  exercise  of  pow- 
ers.— -See  post,  "Grounds  and  Extent 
of   Liability  in   General."   §    102.   et  seq. 

65.  Negotiable  instruments. — .'\s  to 
bill  drawn  by  bank  in  violation  of  char- 
ter being  void,  see  post,  "Effect  of  .'\cts 
Ultra  Vires,"  §  101. 

Effect  of  ultra  vires,  sec  post,  "Ef- 
fect of  Acts  LUtra  Vires,"  !^   101. 

66.  Controlled  by  constitutional  and 
statutory  provisions. — Under  a  con- 
slittuion  ])roliil)iting  the  legislature 
from  estal)bsliing  or  incorporating  any 
bank  or  I)anking  company  or  moneyed 
institution,  for  the  jMirpose  of  issuing 
liills  of  credit,  or  bills  payable  to  or- 
der or  bearer,  except  under  the  condi- 
tions prescribed,  no  corporation  has 
autliority  to  issue  promissory  notes 
unK'Ss   given    it   expressly   or   by   im))li- 


678 


BANKS  AND  BANKING. 


§  98  (2a) 


would  usually  go  with  the  power  to  borrow  money/^'  But  some  statutes 
merely  prohibit  or  restrict  the  issue  of  notes  intended  to  be  used  as  money, 
and  authorize  the  issue  of  notes  in  the  ordinary  form  for  the  purpose  of 
legitimate  banking  business,68  and  such  a  distinction  has  been  read  into  a 
statute  where  it  was  not  expressed.^a  In  New  York  the  old  statute  of  1840 
invalidated  all  notes  of  a  banking  association  unless  payable  on  demand  and 
without  interest,  and  a  guaranty  of  such  note  was  likewise  void.'^  Where  a 
statute  enacted  that  all  notes  issued  by  unincorporated  banking  companies 
should  be  void,  and  not  recoverable,  and  a  later  act  repealed  so  much  of  the 
former  act  as  prevented  the  holder  of  such  notes  from  recovering  against 
the  drawers,  the  holder  of  such  note,  issued  after  the  former  act  and  before 
the  latter,  might  recover  against  the  members  of  the  company  J  ^ 


cation,  as  incident  to  the  purpose  of 
its  creation.  James  v.  Rogers,  23  Ind. 
451,  construing  Indiana  Constitution, 
Art.  11,  §  1. 

A  note  by  a  bank  organized  under 
the  laws  of  the  territory  of  Okla- 
homa as  subscription  to  secure  the 
construction  of  a  railroad  is  ultra 
vires  and  void,  as  in  violation  of  Wil- 
son's Rev.  &  Ann.  St.  1903,  §  242,  set- 
ting forth  the  business  which  a  bank 
may  be  permitted  to  lawfully  conduct. 
Arkansas,  etc..  R.  Co.  v.  Farmers', 
etc.,  Bank,  21   Okl.  322.  96  Pac.  765. 

67.  Western  Nat.  Bank  v.  Armstrong, 
152  U.  S.  346,  38  L.  Ed.  470,  14  S.  Ct. 
572. 

68.  Notes  issued  in  transaction  of 
legitimate  business. — Under  Rev.  St.  of 
Wisconsin,  1858,  c.  71,  banking  as- 
sociations are  authorized  to  issue  bills 
and  notes  in  the  ordinary  form  for  the 
purposes  of  their  legitimate  business, 
but  are  prohibited  by  the  tenth  sec- 
tion of  the  act  from  issuing  them  to 
l)e  circulated  as  money.  Rockwell  v. 
Elkhorn   Bank,   13   Wis.   653. 

69.  Rev.  St.  of  Wisconsin,  1858,  c. 
71,  §  10,  providing  that  the  bills  and 
notes  of  any  banking  association  in- 
tended to  be  put  in  circulation  as 
money  shall  be  payable  on  demand, 
and  without  interest,  where  the  bank's 
business  is  conducted,  does  not  apply 
to  a  promissory  note  given  in  the  or- 
dinary course  of  business.  Rockwell 
z:  Elkhorn  Bank,  13  Wis.  653.  See 
contra  Swift  r.  Beers  (X.  Y.),  3  Denio 
70,    construing    New    York    statute. 

70.  New  York. — Under  the  Act  of 
1840,  all  promissory  notes,  made  by  a 
banking  association,  unless  made  pay- 
able on  demand  and  without  interest, 
tliough  not  intended  to  circulate  as 
money,    are    illegal    and    void,    and    a 


guaranty  of  such  a  note  is  likewise 
void.  Swift  r.  Beers  (N.  Y.),  3  Denio, 
70;  Leavitt  v.  Palmer,  3  N.  Y.  19, 
51  Am.  Dec.  333;  Ontario  Bank 
V.  Schermerhorn  (N.  Y.).  10  Paige  109; 
Leavitt  V.   Blatchford,  17  N.  Y.  521. 

Associations  under  the  general  bank- 
ing law  have  no  authority  to  make 
bills  of  exchange,  or  issue  any  nego- 
tiable paper,  except  under  the  sanction 
of  the  comptroller,  and  in  the  form 
required  by  statute.  Safiford  v.  Wyck- 
off  (N.  Y.).  1  Hill  11,  reversed  on 
other   grounds   in   4    Hill   442. 

Post  notes,  issued  by  banking  as- 
sociations, having  been  decided  to  be 
absolutely  void,  it  was  held  that  an 
assignment  of  securities,  made  by  a 
banking  association  to  trustees,  as  a 
collateral  security  for  such  post  notes, 
was  also  void,  and  transferred  no  title 
to  the  assignees.  Tylee  r.  Yates  (N. 
Y.),    3    Barb.    222. 

Trust  deed  to  secure  illegal  notes 
also  illegal. — A  bank  organized  under 
the  general  law  issued  negotiable 
promissory  notes  payable  in  twelve 
months,  with  interest,  and  delivered 
them  to  a  creditor  on  account  of  a 
previous  liability  of  the  bank.  The 
bank  executed  a  trust  deed  at  the  same 
time  to  secure  the  payment  of  the 
notes.  The  notes  were  illegal  and 
void,  under  St.  1840,  p.  406,  §  4,  pro- 
hibiting banks  from  issuing  any  note 
unless  payable  on  demand  without  in- 
terest. Held,  that  the  trust  deed  was 
also  illegal  and  void.  Leavitt  v.  Pal- 
mer, 3  N.  Y.  19,  51  Am.  Dec.  333;  Lea- 
vitt V.  Blatchford,  17  N.  Y.  521,  revers- 
ing 5  Barb.  9. 

71.  Retrospective  validating  act.— 
Hess  V.  Werts  (Pa.),  4  Serg.  &  R. 
356,  construing  old  Pennsylvania  stat- 
ute. 


§  98  (2b) 


FUXCTIONS  AXD  DEALINGS. 


679 


§  98  (2b)  Power  to  Deal  Therein.'- — In  General. — It  may  be  stated 
that  the  power  to  deal  in  promissory  notes  falls  under  general  banking  pow- 
ers, unless  prohibited  by  law.''^^  and  the  fact  that  a  charter  prescribes  the 
kinds  of  paper  in  which  a  bank  may  deal,  in  the  ordinary  course  of  its  busi- 
ness, does  not  prohibit  it  from  taking  paper  of  other  descriptions,  where  it 
becomes  necessary  to  secure  a  debt  previously  contracted,  and  which  could 
not  be  collected  in  the  usual  way."^ 

Taking  Note  as  Deposit  Conditionally. — A  note  deposited  with  a 
bank  with  the  understanding  that,  in  certain  contingencies,  it  is  to  be  de- 
livered back  to  the  maker,  is  a  transaction  ultra  vires,  where  charter  pro- 
vides that  the  bank  shall  have  power  "to  carry  on  the  business  of  receiving 
money  on  deposit  and  to  allow  interest  thereon,  giving  the  person  depositing 
credit  therefor."" ^ 

Power  to  Purchase. — Power  to  discount  notes  imports  power  to  pur- 
chase them.'*^  A  banking  corporation  engaged  in  the  general  banking  busi- 
ness has,  in  the  absence  of  any  restriction  in  its  charter,  the  power  to  buy 


72.  Purchase  of  bills  of  exchange  by 
foreign  corporation,  see  ante,  "For- 
eign   Banks,"   §   18. 

As  to  recovery  on  note  acquired 
through  unauthorized  indorsement,  see 
post,  "Effect  of  Acts  Ultra  Vires," 
§    101. 

As  to  recovery  on  note  purchased 
without  authority,  see  post,  "Effect  of 
Acts  Uhra  Vires,"  §  101. 

73.  Power  to  deal  in  promissory 
notes. — State  Bank  v.  Criswell,  15  Ark. 
230. 

Dealings  in  exchange  and  securities, 
see  post,  "Power  to  Deal  in  Exchange, 
Money,  and  Securities,"  §  188;  "Pur- 
chase and  Sale  of  Exchange,"  §  192; 
"Purchase  and  Sale  of  Stock  or 
Securities,"  §  194;  "Dealings  in  Ex- 
change, Money,  and  Securities,"  §  271. 

Notes  ii-^tended  to  circulate  as 
money,  see  post,  "Power  to  Issue 
or  Circulate,"  §  197;  "Restrictions  upon 
Issue  or  Circulation,"  §  198;  "Circulat- 
ing Notes,"   §   272. 

Power  of  bank  to  discount  paper, 
see  post,   "Power  of  Discount,"   §   177. 

Purchasing  notes  signed  1)y  officers 
and  others,  see  post,  "Requisites  and 
Validity  of  Loan   or  Discount,"   §   178. 

A  bank  prohibited  by  its  charter 
from  making  loans  at  a  greater  rate 
of  discount  than  one-half  of  1  per 
centum  for  thirty  days,  and  also  from 
dealing  in  anything  I)ut  bills  of  ex- 
change, gold  or  silver  l)ullion,  l)ank 
stock,  United  States  stock,  treasury 
notes,  and  goods  really  pledged  for 
money  lent,  and  not  redeemed  in  time, 
is  not  prohibited  from  dealing  in  prom- 
issory  notes,   provided   the   rate   of  dis- 


count is  limited  to  the  rate  fixed  by  its 
charter.  Commonwealth  v.  Commer- 
cial Bank,  28  Pa.  391. 

A  statute  prohibiting  corporations 
not  expressly  incorporated  for  banking 
purposes  from  "discounting  bills,  notes, 
or  other  evidences  of  debt,"  and  from 
"buying  and  selling  bills  of  exchange," 
being  penal  in  its  nature,  must  be 
strictly  construed;  and  hence  the  pro- 
hibition against  buying  and  selling 
"bills  of  exchange"  will  not  be  ex- 
tended to  promissory  notes.  American 
Life  Ins.,  etc.,  Co.  v.  Dobbin  (N.  Y.), 
Labor's  Supp.  (Hill  &  Denio)  252,  Con- 
struing old  New  York  statute. 

74.  Lagow  f.  Badollet  (Ind.),  1 
Blackf.  416,  12  Am.  Dec.  258. 

The  charter  provision  restraining  the 
Farmers'  &  Mechanics'  Bank  of  Indi- 
ana from  trading  in  anything  but  l)ills 
of  exchange,  etc.,  does  not  proliiliit  it 
from  taking  a  promissory  note,  payable 
in  two  years  to  the  president  and  di- 
rectors at  their  office  of  discount  and 
deposit,  to  secure  the  payment  of  a 
deljt  owed  by  the  maker.  John  v. 
Farmers',  etc..  Bank  (Ind.),  2  Blackf. 
367,  20  Am.  Dec.  119. 

75.  Taking  note  as  deposit  condition- 
ally.— First  Nat.  Bank  t'.  Citizens' 
Bank,  Fed.  Cas.  No.  4,802.  See,  also, 
post,  "Deposit  Other  than  Money,"  § 
122. 

76.  Power  to  purchase. — Pape  v.  Cap- 
itol Bank  of  Topcka,  20  Kan.  440,  27 
Am.  Rep.  18:?;  Atlantic  State  Bank  v. 
Savery,  82  N.  Y.  201,  affirming  18  Flun 
:!n.  See  contra.  Farmers'  &  Mechanics' 
I'.ank  7'.  Baldwin,  23  Minn.  198,  23  Am. 
Rep.   683. 


680 


BANKS  AND  BANKING. 


§  98  (2b) 


notes  outrightJ"  And  the  power  is  given  by  a  charter  authorizing  the  pur- 
chase of  chattels  and  effects  of  whatsoever  kind,'^  unless  specifically  re- 
strained J  ^ 

Power  to  Transfer  and  Assign. — ^^'here  there  is  no  evidence  to  show 
that  the  charter  of  a  bank  contains  any  restriction  or  limitation  on  the  bank's 
power  of  negotiating  or  indorsing  notes  or  bills  of  exchange,  the  presump- 
tion will  be  that  the  bank  has  power.^o  /i^  bank  may  sell  and  transfer  a 
negotiable  note  discounted  by  it  either  before  or  after  maturity,  the  same 
as  any  other  holder. ^^  And  under  a  charter  authorizing  a  bank  to  hold  any 
property  of  any  kind  whatever,  and  to  dispose  of  the  same  for  its  good,  the 
bank  may  transfer  notes  made  to  it,^-  or  under  a  charter  authorizing  dis- 
counts,^^  and  the  contract  between  the  maker  of  a  note  and  the  payee,  a 
bank,  must  be  governed,  as  to  the  latter's  right  to  transfer  the  note,  by  the 


77.  Salmon  Falls  Bank  v.  Leyser,  116 
Mo.  51.  22  S.  W.  504. 

78.  Bank  v.  Norton  (Ky.),  3  A.  K. 
Marsh  422;  Bank  v.  Price,  1  Mo.  54. 

But  where  power  was  given  to  a 
railroad  and  banking  company  to  hold 
land  and  personal  estate  of  any  kind 
whatever,  the  general  words  were  held 
to  embrace  only  estate  of  the  same  na- 
ture as  that  previously  indicated — that 
is,  such  as  was  required  for  the  pur- 
poses of  a  railroad,  and  for  the  ordi- 
nary business  of  banking — and  not  to 
embrace  promissory  notes,  which  were 
to  be  presumed  not  to  be  referred  to 
by  that  section,  because  expressly  pro- 
vided for  in  another  section.  ]McIntyre 
V.  Ingraham,  35  ]\Iiss.  25. 

79.  Where  specifically  restrained. — 
Under  an  act  incorporating  a  bank,  and 
authorizing  it  to  purchase  and  possess 
lands,  tenements,  goods,  chattels,  and 
effects,  of  whatsoever  kind  or  quality, 
and  restraining  it  from  trading,  except 
in  bills  of  exchange,  gold  and  silver, 
etc.,  the  bank  has  no  power  to  pur- 
chase promissory  notes.  Bank  t'. 
Simpson,  1  Mo.  184 

80.  Power  to  transfer  and  assign. — 
Robb  V.  Ross  County  Bank  (X.  Y.\  41 
Barb.  586;  ]\Iyers  f.  De  Lee  (La.),  1 
Rob.  516;  Crocket  v.  Young  (:\Iiss.),  1 
Smedes  &  M.  241. 

A  bank  may,  bj^  the  indorsement, 
transfer  a  negotiable  note  in  payment 
of  its  liability.  Crocket  v.  Young 
(Miss.),  1  Smedes  &  I\L  241.  See  con- 
tra Payne  v.  Baldwin  (Miss.),  3 
Smedes  &  AL  661,  where  it  is  held  that 
where  the  right  to  transfer  notes  by 
indorsement  is  not  expressly  conferred 
upon  a  bank  by  its  charter,  as  it  is  not 
essential  to  enable  the  bank  to  carry 
on  its  banking  operation,  it  is  not  nec- 


essarily implied  by  its  charter.     Payne 
V.  Baldwin  (Aliss.),  3  Smedes  &  M.  661. 

And  a  bank  charter  providing  that 
the  corporations  shall  have  power  to 
"purchase  and  possess  lands,  tene- 
ments, and  hereditaments,  and  personal 
estate  of  any  kind  whatever,  *  *  * 
and  to  sell  and  dispose  of  the  same,'" 
does  not  authorize  the  bank  to  assign 
promissory  notes.  Mclntyre  v.  Ingra- 
ham, 35  i\Iiss.  25. 

And  a  grant  of  all  the  right?  and 
privileges  necessary  to  construct  and 
operate  a  railroad,  and  to  conduct  a 
banking  business,  wnth  power  to  "deal 
in  exchange,  and  in  bank  and  other 
public  stocks,"  and  "to  issue  notes," 
etc.,  does  not  carry  with  it  implied  au- 
thority to  assign  promissorj^  notes. 
^IcTntyre  v.   Ingraham,  35   ]\Iiss.  25. 

But  a  statute  prohilMting  banks  from 
assigning  notes  which  they  have  dis- 
counted, does  not  apply  to  a  case 
where  a  note  is  not  paid  by  the  maker 
at  maturitA',  and  the  bank  assigns  it  to 
the  indorser,  and  pavment  is  made  by 
him.  Wade  r.  Thrasher  (Miss.),  10 
Smedes  &  M.  358. 

81.  Marvine  7'.  Hymers,  12  N.  Y. 
223 

And  a  bank  may  legally  transfer  an 
overdue  promissorj'^  note  discounted 
and  owned  by  the  bank,  and  which  has 
not  been  paid  at  maturity.  Marvine  v. 
Hymers.   12   X.   Y.   223. 

82.  Charter  authorizing  acquisition 
and  disposition  of  property  generally. 
—Planters'  Bank  v.  Sharp  (U.  S.).  6 
How.  301,  12  L.  Ed.  447,  where  it  is 
held  that  a  subsequent  statute  attempt- 
ing to  take  away  this  right  impairs  the 
obligation   of  a   contract. 

83.  Charter  authorizing  discounts. — 
Planters"  Bank  t.  Sharp  (U.  S.),  6 
How.  301,  12  L.   Ed.  447. 


§  99 


FUNCTIONS   AND  DEALINGS. 


681 


law  existing  at  the  time  of  the  making  of  the  note.^^ 

§  99.  Guaranty  and  Suretyship.'*"' — Power  to  Guaranty. — The  guar- 
anty by  a  bank,  without  benefit  to  itself,  of  the  debt  of  another  in  which  it 
has  no  interest,  is  beyond  its  powers. ^^  For  a  bank  has  no  power  to  make  a 
guaranty  except  for  the  protection  of  its  own  rights,  or  as  an  incident  to  the 
transaction  of  its  own  business,  unless  specially  authorized  by  law.^"  But 
for  its  own  protection  or  incidentally  to  transacting  its  own  business,  it  may 
give  a  guaranty.*'* 


84.  Law  in  force  when  note  executed 
governs. — Planters"  Bank  v.  Sharp  (U. 
S.),  6  How.  301,  12  L.  Ed.  447. 

85.  Guaranty  and  suretyship. — 
Guaranty  of  note,  see  ante,  "Negotia- 
ble  Instruments."   §   98   (2). 

By  national  bank,  see  post,  "Guar- 
anty or  Indemnity,''  §  260   (4). 

Applying  bank  deposit  to  liability  as 
guarantor  or  surety. — See  post,  '"Ap- 
ph-ing  Deposit  to  Liability  as  Indorser, 
Guarantor,   or   Surety,"'   §   134    (3). 

86.  Power  to  guaranty. — Mine,  etc., 
Supply  Co.  V.  Stockgrowers'  Bank,  98 
C.  C.  A.  229,  173  Fed.  859;  Bowen  v. 
Needles  Nat.  Bank,  36  C.  C.  A.  553,  94 
Fed.  925;  Farmers',  etc.,  Bank  v. 
Butchers',  etc..  Bank,  16  N.  Y.  125. 

87.  Ayer  v.  Hughes,  87  S.  C.  382,  69 
S.  E.  657;  Bacon,  etc.,  Co.  v.  Farmers' 
Bank,  79  Mo.  App.  406;  Seligman  v. 
Charlottesville  Nat.  Bank,  3  Hughes 
647,  Fed.  Cas.  No.  12.642;  Johnston  v. 
Charlottesville  Nat.  Bank,  3  Hughes 
657,   Fed.  Cas.   No.  7,425. 

"Such  a  corporation  exceeds  its 
powers  when  it  becomes  the  mere 
surety  for  another,  upon  a  contract  in 
which  it  has  no  interest,  or  lends  its 
credit  in  any  form  for  the  exclusive 
benefit  of  other  parties.  Such  a  con- 
tract is  ultra  vires,  and  can  not  be  en- 
forced against  the  bank  by  any  person 
cognizant  of  the  facts."  Farmers',  etc., 
Bank  v.  Butchers,  etc..  Bank,  ]G  N.  Y. 
125. 

A  bank,  in  selling  bonds  which  do 
not  belong  to  it,  may  contract  with  the 
purchaser  to  repurchase  them  at  par 
on  demand;  but  it  can  not  give  a  valid 
guarantee  of  their  payment.  First 
Nat.  Rank  v.  Schaeffer,  16  O.  C.  C.  457, 
9  O.  C.  D.  182. 

88.  For  its  own  protection  and  in- 
terest.— Ayer  v.  Hughes.  87  S.  C.  382, 
69  S.  E.  657;  Talman  v.  Rochester  City 
Bank  (N.  Y.\  18  Barb.  123;  People's 
Bank  v.  National  Bank,  101  U.  S.  181, 
25  L.  Ed.  907;  Commercial  Nat.  Bank  v. 
Pirie,  27  C.  C.  A.  171,  82  Fed.  799; 
Thomas  v.  City  Nat.  Bank,  40  Neb. 
."lOI.  58  N.  W.  943.  24  L.  R.   k.  263. 


Guaranty   of   bond   and   mortgage. — 

A  bank  may  guaranty  the  payment  of 
a  bond  and  mortgage  to  a  party  who 
has  advanced  money  upon  them,  where 
it  is  agreed  that  the  proceeds  thereof 
shall  belong  to  the  bank,  although  they 
may  not  have  been  assigned  to  the 
bank.  Talman  v.  Rochester  City  Bank 
(N.  Y.),  18  Barb.  123. 

Guaranty  of  paper  sold. — L-  as 
cashier  of  defendant,  proposed,  bj^  let- 
ter, to  sell  plaintiffs  a  bill  of  exchange 
drawn  by  B.  &  Co.  for  $5,000,  at  the 
price  of  principal,  interest,  and  current 
rate  of  exchange  of  the  same.  S.  & 
Co.  by  letter,  accepted  the  proposi- 
tion, and  forwarded  the  money  in  pay- 
ment. L.  received  the  money,  and  gave 
credit  as  expressed  by  letter  to  plain- 
tiffs, inclosing  a  bill  by  F.  &  Co., 
strangers  to  plaintiffs  (and  indorsed 
without  recourse  by  M.,  a  stranger,  and 
not  indorsed  by  defendant),  for  .$5,000, 
charging  therefor  the  same  price,  in- 
forming them  the  B.  &  Co.  bill  was 
gone,  and  adding,  but  this  bill  is  per- 
fectly safe.  To  which  the  plaintiffs 
replied  by  letter — "Your  favor  with 
stated  inclosure  is  received,  and  is 
very  satisfactory."  S.  &  Co.  were  un- 
able by  use  of  due  diligence  to  collect 
the  bill.  It  was  held  that  the  cashier 
L.  was  to  be  regarded  as  the  agent 
of  the  defendant,  in  the  transaction. 
The  affirmation  of  the  cashier,  accom- 
panying the  bill  sent  to  the  plaintiffs, 
that  the  "bill  is  perfectly  safe," 
amounted  to  a  warranty,  or  a  repre- 
sentation in  the  nature  of  a  guaranty, 
on  the  part  of  the  defendant,  that  the 
bill  was  collectible.  Sturges  &  Co.  v. 
Rank,  11  O.  St.  153,  78  .\m.  Dec.  296. 
See,  also.  Union  Nat.  Rank  v.  First  Nat. 
Bank,  45  O.  St.  236,  13  N.  E.  884. 

A  note  payable  to  a  national  bank 
was  indorsed  by  a  state  bank  whicli 
was  in  process  of  dissolution,  and  to 
whose  business  the  national  bank  suc- 
ceeded. The  name  of  the  national 
bank  had  been  substituted  for  that  of 
the  state  bank  in  its  note  blanks,  and 
the    note    was    written    on    a    blank    so 


682 


BANKS   AND   BANKING, 


§  99 


Accommodation  Indorsement  or  Guaranty.— No  banking  or  other  cor- 
poration is  authorized  to  make  an  accommodation  indorsement,  nor  is  such 
binding,  unless  it  appear  that  plaintiff  discounted  in  good  faith,  and  on 
representation  that  the  property  in  the  note  was  in  the  corporation.^^ 

Power  to  Guarantee  Payment  of  Draft  for  Accommodation.— It  is 
against  pul)lic  policy  for  a  bank  to  guaranteee  the  payment  of  drafts  for  the 
purpose  of  accommodation  only.  Under  this  rule,  a  bank  in  Cincinnati  hav- 
ing euaranteed  a  draft  sent  to  South  Carolina,  in  payment  for  melons  which 
were  to  be  of  a  certain  grade  delivered  in  Cincinnati,  and  discounted  by 
payer,  is  not  liable  thereon,  the  melons  having  been  found  to  be  of  inferior 
grade  and  purchaser  having  notified  the  Cincinnati  bank  to  refuse  payment 
of  the  draft.^"^ 

Obtaining,  Negotiating  and  Guarantying  Mortgage  Loans.— Obtain- 
ing, negotiating,  and  guarantying  mortgage  loans  is  not  a  banking  business.^^ 

Estoppel  to  Deny  Liability. — There  is  authority  for  holding  that  the 
bank  may  be  estopped  to  deny  its  liability  on  the  guaranty,  notwithstanding 
the  contract  was  ultra  vires,  as  when  the  other  party  relied  and  acted  thereon 
to  his  injury."'- 

Cashier's  Check.— But  a  cashier's  check,  issued  by  a  bank  to  pay  the 


changed.  There  was  an  agreement  be- 
tween the  banks  that  notes  held  by  the 
state  bank,  and  guarantied  by  it,  should 
be  received  by  the  national  bank.  Sev- 
eral purchases  of  notes  had  been  made 
by  the  national  bank  under  the  agree- 
ment, and  some  notes  had  been  selected 
by  a  committee,  but  the  note  in  ques- 
tion did  not  appear  in  the  list  of  those 
so  purchased  or  selected.  The  note 
was  made  by  a  depositor  in  the  state 
bank  to  satisfy  an  overdraft.  The 
overdraft  was  satisfied  on  its  books, 
and  the  note  was  credited  to  the  state 
bank  on  the  books  of  the  national 
bank.  It  was  held,  that  a  judgment  in 
favor  of  the  national  bank  against  the 
state  bank,  as  guarantor  of  the  note, 
on  the  ground  that  the  note  was  origi- 
nally given  to  the  state  bank,  and 
transferred  to  the  national  bank  pursu- 
ant to  the  agreement,  would  not  be  dis- 
turbed. DeScllem  7\  Iowa  City  Bank, 
101   Iowa  566,  70  N.  W.  702. 

State  bonds  issued  through  bank. — 
Where  a  state  made  a  loan  on  bonds 
issued  by  it  through  a  bank,  it  was 
within  the  scope  of  the  powers  of  the 
hank  to  guaranty  the  bonds.  Dabney, 
etc.,  Co.  r.  Bank,  3  S.  C.  124. 

Bonds  of  railroad  controlled  by  it. — 
The  Central  Railroad  &  Banking  Com- 
pany of  Georgia,  which  was  given  by 
its  charter  full  banking  powers,  which 
it  exercised,  had  power  thereunder  to 
guaranty  the  bonds  of  a  railroad  com- 


pany of  which  it  owned  a  majority  of 
the  stock,  where  such  guaranty  was 
made  for  its  own  purpose  and  advan- 
tage. Central  R.,  etc.,  Co.  v.  Farmers' 
Loan,  etc.,  Co.,  52  C.  C  A.  149,  114  Fed. 
263. 

89.  Accommodation  indorsement  or 
guaranty. — Central  Bank  v.  Empire 
Stone  Dressing  Co.  (N.  Y.),  26  Barb. 
23;  ISIorford  v.  Farmers'  Bank  (N.  Y.), 
26  Barb.  568;  Bacon,  etc.,  Co.  v.  Farm- 
ers' Bank,  79  Mo.  App.  406. 

\  bank,  and  therefore  its  cashier, 
has  no  authority  to  guaranty  commer- 
cial paper  or  to  become  an  accommo- 
da'tion  indorser  thereon,  even  though 
the  i^arty  accommodated  uses  the 
money  borrowed  for  the  payment  of  a 
demand  due  the  bank.  Bacon,  etc.,  Co. 
V.  Farmers'  Bank,  79  Mo.  App.  406. 

90.  Power  to  guarantee  payment  of 
draft.— National  Bank  v.  City  Hall 
Bank,  9  O.  Dec.  827. 

91.  Obtaining,  negotiating  and  guar- 
antying mortgage  loans.— Kiggins  z. 
Munday.  19  Wash.  233,  52  Pac.  855. 

92.  Estoppel  to  deny  liability.— 
Bowen  z\  Needles  Nat.  Bank,  36  C.  C. 
A.  553,  94  Fed.  925.  See  contra,  as  to 
national  banks.  Merchants'  Bank  v. 
Baird,  160  Fed.  642.  See,  also.  Farm- 
ers', etc..  Bank  7-.  Butchers',  etc..  Bank, 
16  N.  Y.  125;  National  Bank  r.  Atkm- 
son,  55  Fed.  465;  People's  Bank  v.  Na- 
tional Bank,  101  U.  S.  181,  25  L.  Ed.  907. 


§    100  FUNCTIONS   AND  DEALINGS.  683 

debt  of  another,  is  presumptively  within  its  powers,  and  the  legal  presump- 
tion is  that  the  bank  and  its  officers  have  discharged  their  duty  and  acted 
within  their  powers.  And  where  a  bank  in  making  a  loan  agreed  with  the 
loanee  and  one  of  the  loanee's  creditors  to  pay  a  debt  of  the  former  to  the 
latter  by  delivering  to  the  creditor  its  cashier's  check  and  a  note  with  some 
cash,  and  charge  the  amount  against  the  loan,  and  the  cashier's  check  only 
was  delivered,  it  was  held,  upon  the  bank's  repudiation  of  the  whole  trans- 
action as  ultra  vires,  that  the  cashier's  check  evidenced,  not  a  guaranty  of 
another's  debt,  but  an  original  contract  of  the  bank  made  to  serve  its  own 
interest  in  consideration  of  its  receipt  of  the  commercial  paper  of  the  loanee 
or  other  adequate  security  for  the  repayment  of  that  amount  and  interest. ^^ 

§  100.  Torts. '-'^ — Fraud  Generally. — A  bank  may  legitimately  receive 
on  deposit  the  moneys  of  a  gambler,  with  reason  to  believe  that  it  was  won  in 
gaming ;  but  when,  with  knowledge  that  such  depositor  is  obtaining  the 
money  by  fraud,  it  acts  in  aid  of  the  wrongful  means  by  which  the  money  is 
obtained,  it  is  liable  therefor.^'^ 

Deceit  in  Making  False  Statement  as  to  Financial  Condition  of 
Customer. — If  a  bank,  in  order  to  increase  its  deposits  or  to  sell  its  col- 
lateral, through  its  board  of  directors  makes  or  causes  to  be  made  false  state- 
ments concerning  the  financial  condition  of  one  of  its  customers,  to  a  third 
person,  for  the  purpose  of  misleading  him,  it  is  liable  for  deceit  if  loss  re- 
sults :  or  if,  having  made  such  statements,  it  conspires  with  its  customer  to 
make  the  same  public,  to  accomplish  the  same  purpose,  it  is  liable  to  one 
who  acts  upon  it  to  his  injury. ^"^ 

Liability  for  Negligence  in  Bidding  on  Bonds. — A  firm  dealing  in 
bonds  at  Cleveland,  Ohio,  requested  a  bank  at  Mctoria,  Texas,  to  deposit 
$1,000  with  a  certain  county  board  at  that  place,  to  protect  the  firm's  bid  on 
certain  bonds,  advertised  for  sale  by  the  board.  The  bank  complied  with  the 
request,  but,  before  doing  so,  had  notice  of  such  facts  as  would  have  in- 
formed an  ordinarily  prudent  person  that  there  was  a  mistake  in  the  bid, 

93.  Cashier's  check.— Mine,  etc..  Sup-  'ties,  with  which  alone  he  was  enal>lcd 
ply  Co.  V.  Stockerowers'  Bank,  98  C.  1"  conduct  his  scheme  and  _  collect 
C.  A.  229.  173  Fed.  8.59.  drafts,   etc.,    drawn   In^   the   victims   he- 

a/i    rw, '.        -ITT  r  ,       ,       c     cc  fore  payment  could  be  stopped,  and  the 

94.  Torts. — Wrongful  acts  of  officers         a-  r   ^u      i       i     ^i  i     ^        -.^u 
,            .                    f  i.-iir          f  1    \    ,.    "       officers    of   the    bank    themselves,    with 

and  agents,  see  post,     Wrongful  Acts,         ,  ,    ,       ,.1    4.  .i        •  .•  .     *^    1  ^ 

o  119  Kiiowledee  that  the  victims  were  to  be 

^  ......  .        .  .  defrauded,  drew  drafts  for  such  victims, 

95.  Liabibty  for  money  fraudulently  ^nd  telegraphed  to  other  banks  to  as- 
obtained.— W  right  V.  Stewart.  KiO  Fed.  certain  the  victim's  responsibilitv.  the 
OO.J,  altirmcd  in  77  C.  C.  A.  499.  147  Fed.  i^^nk  as  a  corporation  was  lial)lc  as  a 
321.  party  to  the  scheme,  and  an  action  will 

Where  a  l^anking  corporation,  know-  lie    against    the    bank    to    recover    back 

ing   that   defendant   B.   and   his   associ-  the    money    so    obtained.      Stewart    z'. 

ates    were     engaged     in     a    confidence  Wright.  77  C.  C.  A.  499,  147   T'^ed.  .121. 

game,    assisted    in    the    furtherance    of  96.  Deceit  in  making  false  statement 

the  scheme,  both  by  representing  to  the  as    to   financial   condition    of    customer, 

victims   as   they   were    brought   in    that  — Judgment   80    Fed.    1013,    reversed    in 

B.  was  a   man   of  standing,   entitled   to  Mindman  ?'.   First   Nat.   Bank,  .39   C.   C. 

credit,  and  l)y  lending  B.  banking  facil-  A.  1,  9S  Fed.  r>Ci2.  48  L.  R.  .\.  210. 


684 


BANKS   AND   BANKING. 


101   (1) 


and  that  the  deposit  would  be  of  no  avail  to  the  firm.  It  was  held  that  the 
loss,  if  any,  should  be  borne  by  the  bank.'*" 

Nondisclosure  to  Heir  of  Ancestor's  Deposit  and  Retention  Thereof 
no  Tort. — A  banker  is  not  hable  in  damages  to  the  heir  of  a  depositor  be- 
cause, though  knowing  that  the  heir  had  no  knowledge  of  the  deposit,  he 
volunteered  no  information  to  the  heir,  but  accepted  her  check  on  another 
bank  in  payment  of  a  valid  claim  held  by  him  against  her  as  heir.  There  was 
no  tort,  and  even  a  breach  of  contract  would  only  have  arisen  upon  the  re- 
fusal, upon  demand,  to  pay  over  the  deposit. ^^ 

Malicious  Prosecution— Wrongful  Arrest.— A  bank  is  not  liable  for 
the  false  arrest  of  a  depositor  which  is  not  the  proximate  result  of  a  breach 
of  contract  caused  by  the  dishonoring  of  a  check  of  the  depositor.^^ 

§  101.  Effect  of  Acts  Ultra  Viresi— §  101  (1)  In  General.— Ul- 
tra vires  acts,  even  where  prohibited  by  statute  without  imposing  any  pen- 
alty or  forfeiture,  are  not  necessarily  invalid  as  to  private  parties,^  for  the 


97.  Liability  for  negligence  in  bid- 
ding on  bonds. — First  Nat.  Bank  v. 
Hayes,  64  O.  St.  100,  59  N.  E.  893. 
See,  also,  post,  "Effect  of  Acts  Ultra 
Vires,"  §  101,  as  to  liability  for  negli- 
gence in  performing  ultra  vires  act. 

98.  Nondisclosure  to  heir  of  ances- 
tor's deposit  and  retention  thereof  no 
tort. — Hamilton  z'.  Toner,  17  Ind.  App. 
389,  4fi  N.  E.  921. 

99.  Malicious  prosecution — Wrong- 
ful arrest. — A  depositor  in  the  W.  liank 
drew  his  check  for  the  amount  of  his 
deposit  and  forwarded  it  through  the 
H.  bank  for  collection  with  the  under- 
standing that  he  would  not  draw  any 
cash  on  it  until  the  check  was  reported 
paid.  The  check  was  reported  paid, 
whereon  the  depositor  checked  out  of 
the  H.  bank  the  amount  thereof.  Sub- 
sequently the  H.  bank  was  notified  that 
the  check  had  been  dishonored  by  the 
W.  bank  for  want  of  funds  as  shown 
by  its  books.  The  cashier  of  the  H. 
bank  reported  the  matter  to  the  sher- 
iff and  county  attorney,  and  the  de- 
positor was  arrested  for  swindling. 
The  check  was  dishonored  because 
defendant  bank  had  credited  deposit 
by  plaintiff  to  the  wrong  account.  The 
arrest  of  the  depositor  was  without  the 
knowledge  of  the  \V.  bank.  After  the 
arrest,  the  W.  bank  informed  the  offi- 
cer holding  the  depositor  that  the  check 
was  dishonored  for  want  of  funds. 
The  officer  holding  the  depositor  un- 
der arrest  would  have  released  him 
only  on  orders  from  the  sheriff.  It 
was  held,  that  the  W.  bank  was  not 
liable  for  the  false  arrest  of  the  depos- 
itor   because    the    arrest    was    not    the 


"In    General," 
see  post,  "Powers  in 


proximate  result  of  the  breach  of  the 
contract  caused  by  the  dishonoring  of 
the  check.  Western  Nat.  Bank  v. 
White  (Tex.  Civ.  App.),  131  S.  W.  828. 
1.  Effect  of  acts  ultra  vires. — Con- 
tracts and  notes  of  persons  engaged  in 
unauthorized  banking,  see  ante.  "Valid- 
ity of  Transactions  and  Liabilities  In- 
curred,'' §  9. 

Effect  of  ultra  vires  discount  or  loan, 
see  post,  "Requisites  and  Validity  of 
Loan  or  Discount,"  §  178. 

National  banks,   see  post,  "Statutory 
Provisions,"     §    234; 
261   (1). 

Savings  banks, 
General,"   §  29.5. 

Validity  of  security  for  notes  il- 
legally taken  or  issued  by  banks,  see 
ante,  '"Bonds,  Assignments  and  Nego- 
tiable Instruments,"  §  98. 

With  respect  to  contracts  in  gen- 
eral, see  ante,  "With  Respect  to  Con- 
tracts in  General,"  §  96. 

As  to  liability  of  bank  for  acts  of  of- 
ficers and  agents,  see  post,  "Estoppel 
to  Deny  Authority  of  Officers  or 
Agent,"   §   113. 

As  to  acquiring  and  holding  prop- 
erty, see  ante,  "Acquisition  and  Hold- 
ing," §  94  (1);  "Right  to  Raise  Ques- 
tion of  Authority,"   §  95   (lb). 

As  to  ultra  vires  loans,  see  post, 
"Power  to  Make  Loans  in  General," 
§    176. 

2.  Ultra  vires  acts  not  necessarily  in- 
valid.—It  has  been  held  repeatedly  that 
where  the  provisions  of  the  national 
banking  act  prohibit  certain  acts  by 
banks  or  their  officers,  without  impos- 
ing any  penalty  or  forfeiture  applicable 


§  101   (2) 


FUNCTION'S   AND   DEALINGS. 


685 


doctrine  of  ultra  vires  has  no  application  in  favor  of  banking  corporations 
for  wrongs  committed  by  them.^ 

§  101  (2)  Rights  Acquired  by  Bank.— While  a  bank  derives  no 
rights  of  any  kind  under  action  taken  in  express  violation  of  its  charter/  and 
the  same  is  true  where  an  act  is  declared  by  statute  to  be  a  misdemeanor, 
although  not  in  express  terms  prohibited  or  declared  void,^  yet,  where  such 
action  is  not  expressly  prohibited,  but  merely  unauthorized,  the  bank  may 
acquire  rights  thereunder.*"' 


to  particular  transactions  which  have 
been  executed,  their  validity  can  be 
questioned  only  by  the  United  States, 
and  not  by  private  parties.  Thompson 
e-.  St.  Nicholas  Xat.  Bank.  146  U.  S. 
240.  36  L.  Ed.  056,  13  S.  Ct.  66,  citing 
Union  Nat.  Bank  v.  Matthews,  98  U. 
S.  621.  25  L.  Ed.  188;  National  Bank  v. 
Whitney,  103  U.  S.  99,  26  L.  Ed.  443; 
First  Nat.  Bank  z:  Stewart.  107  U.  S. 
676,  27  L.  Ed.  592.  2  S.  Ct.  778;  Logan 
County  Nat.  Bank  v.  Townsend,  139 
U.  S.  67,  35  L.  Ed.  107,  11  S.  Ct.  496. 
See  Schuyler  Nat.  Bank  v.  Gadsden, 
191  U.  S.  451,  48  L.  Ed.  258,  24  S.  Ct. 
129;  Scott  v.  Deweese,  181  U.  S.  202,  45 
L.  Ed.  822,  21  S.  Ct.  585;  McBroom  v. 
Scottish  Mortff.,  etc..  Co  .  153  U.  S.  318. 
38  L.  Ed.  729,  14  S.  Ct.  852;  Union  Gold 
]Min.  Co.  V.  Rocky  Mountain  Nat.  Bank, 
96  U.  S.  640.  24  L.  Ed.  648:  Fortier  v. 
New  Orleans  Nat.  Bank,  112  U.  S.  439, 
28  L.  Ed.  764.  5  S.  Ct.  234;  Reynolds  v. 
Crawfordsville  First  Nat.  Bank.  112  U. 
S.  405,  28  L.  Ed.  733,  5  S.  Ct.  213; 
Lantry  v.  Wallace,  182  U.  S.  536,  45 
L.  Ed.  1238.  21    S.   Ct.  878. 

As  to  certification  of  checks,  see 
post,  "Certified  Checks  or  Notes,"  § 
145. 

As  to  national  banks,  see  post, 
"In  General."  §  261    (i),  et  seq. 

3.  Ultra  vires  doctrine  inapplicable. — 
First  Nat.  Bank  r:  Graham,  100  U.  S. 
699,  25  L.  Ed.  750. 

But  a  national  bank  may  plead  the 
nullity  of  an  ultra  vires  act.  California 
Bank  r.  Kennedy,  167  U.  S.  362,  42  L. 
Ed.  198.  17  S.  Ct.  831;  First  Nat.  Bank 
V.  Hawkins.  174  U.  S.  364,  43  E.  Ed. 
1007,  19  S.   Ct.  730. 

The  only  penalty  prescribed  by  bank- 
ing act  for  ultra  vires  acts  of  a  national 
bank,  is  a  revocation  of  its  charter. 
National  Bank  v.  Whitney,  103  U.  S. 
00,  26  L.  Ed.  443.  See  post.  "Effect  of 
Acts  Ultra  Vires."  §  261.  et  seq. 

Acts  of  officers  and  agents. — See 
post,  "Grounds  and  Extent  of  Liabil- 
ity in  General,"  §  102;  "Estoppel  to 
Deny  Authority  of  Officer,  or  .-Xgcnt," 
§  113. 


Acceptance  of  special  deposits  with- 
out charter  authority. — See  post, 
"Grounds  and  Extent  of  Liability  in 
General."  §  102;  "Estoppel  to  Deny 
Authority  of  Officers  or  Agent."  §  113. 

4.  No  rights  acquired  by  bank  un- 
der action  prohibited  by  charter. — 
Davis  z'.  Bank,  Fed.  Cas.  No.  3,626,  4 
McLean  387;  Swindell  &  Co.  v.  Bain- 
bridge  State  Bank,  3  Ga.  App.  364,  60 
S.  E.  13;  Literstate  Trust,  etc.,  Co.  v. 
Reynolds,  127  La.  193.  53  So.  520; 
Franklin  Bank  z:  Commercial  Bank, 
36    O.  _  St.    350.    38    Am.    Rep.    594. 

A  bill  drawn  by  a  bank,  in  express 
violation  of  its  charter,  is  void,  and 
can  not  be  set  up  by  such  bank  in 
payment.  Davis  z\  Bank.  Fed.  Cas. 
No.   3.626.   4   McLean   .Tsr. 

Notes  discounted  contrary  to  char- 
ter.— Where  a  corporation  was  for- 
bidden by  charter  to  discount  notes 
or  exercise  any  banking  privilege,  it 
can  not  recover  on  a  note  so"  dis- 
counted. Philadelphia  Loan  Co.  v. 
Towner.    13    Conn.    249. 

Purchase  of  property  contrary  to 
law  as  exception.— See  ante.  "Right  to 
Raise  Question  of  Autlinrity."  §  05  (lb). 

5.  Action  made  criminal  by  statute. 
— Pinney  z:  First  Nat.  Bank,  68  Kan. 
223,   75    Pac.    119. 

6.  Where  action  unauthorized,  not 
expressly  prohibited.— Neillsville  Bank 
T'.  Tiitliill,  4  Dak.  205,  30  N.  W.  154; 
Metropolitan  Trust  Co.  z'.  McKinnon. 
172  Fed.  846;  Aliller  7-.  National  Bank. 
4  Ky.  L.  Rep.  25;  Barrow  r.  Bank,  2 
La.  Ann.  453;  Farmers',  etc..  Bank  z>. 
Harrison,  57  Mo.  503;  Gloversvillo 
Bank  z'.  Burr  (N.  Y.).  27  Hun  109: 
Lechenger  z'.  Merchants'  Nat.  Bank 
(Civ.  App.),  96  S.  W.  638.  afiirmed  in 
101  Tex.  646,  no  op.;  Wroten  7'.  .A.rtnat, 
72  Va.  (31  Gratt.)  228;  Banks  v. 
Poitiaux.  24  Va.  (3  Rand.)  136,  15  .\m. 
Dec.  706;  Litchfield  z:  Preston,  08  Va. 
530.   37    S.    E.   6. 

Recovery  on  note  purchased  without 
authority- — In  an  action  by  a  banking 
corporation  on  a  note,  against  the 
m.iker,   it  is  no  defense   that  the  bank 


686 


BANKS   AND  BANKING. 


§    101    (3) 


§  101  (3)  Rights  Acquired  against  Bank. — Notice  of  Limitations 
on  Power. — One  purchasing  notes  of  a  bank  organized  under  a  public  law 
is  chargeable  with  notice  of  the  limitation  fixed  by  the  law  on  the  power  of 
the  bank  to  issue  the  notes.'^  And  it  has  been  held  that  where  a  person  sells 
bonds  or  stocks  to  a  bank  in  the  teeth  of  a  positive  prohibition  of  such  pur- 
chases by  the  bank,  the  seller  can  not  recover  the  price  of  the  bank.'^     But 


has  no  authority  to  purchase  the  note. 
Black  V.  First  Nat.  Bank,  96  Md.  399, 
54   Atl.   88. 

A  bank  may  recover  on  a  note  pur- 
chased by  it,  though  the  transaction 
is  ultra  vires,  if  it  appears  to  have  been 
a  "discount,"  within  the  usual  accepta- 
tion of  the  term.  Neillsville  Bank  v. 
Tuthill,   4    Dak.   295,   30   N.   W.   154. 

Where  a  bank  indorsed  a  certain 
note  for  a  commission,  got  it  dis- 
counted, and,  upon  nonpayment  by  the 
maker,  paid  the  note  and  had  it  rein- 
dorsed  to  itself,  held,  that  the  bank, 
having  received  the  money  thereon, 
was  entitled  as  owner  to  maintain  suit 
on  the  note,  although  its  indorsement 
was  ultra  vires.  Gloversville  Bank  v. 
Burr  (N.  Y.),  27  Hun  109. 

Ultra  vires  transfer  of  note.^Gen- 
erally,  one  who  is  not  a  party  to  a  con- 
tract can  not  attack  it  as  ultra  vires, 
and  the  maker  of  a  note  transferred  by 
one  banking  corporation  to  another 
(for  the  purpose  of  liquidating  the  af- 
fairs of  the  corporation  originally 
named  in  the  note  as  payee)  can  not 
defend  in  an  action  thereon  on  the 
ground  that  the  contract  whereby  the 
note  was  transferred  was  ultra  vires. 
Quinn  v.  First  Nat.  Bank,  8  Ga.  App. 
235,   68   S.   E.    1010. 

An  accommodation  indorser  of  a 
note,  which  has  been  transferred  by 
the  holder,  an  insolvent  bank,  to  trus- 
tees, for  the  benefit  of  creditors,  who 
afterwards  renews  the  note  in  the 
hands  of  the  trustees,  can  not  ques- 
tion the  power  of  the  bank  to  transfer 
the  note  under  the  charter,  for  he  was 
a  debtor  and  not  a  creditor  interested 
in  the  assets  of  the  bank,  and,  as  such, 
entitled  to  interfere.  Housum  v. 
Rogers,   40   Pa.   190. 

Negotiation  of  water  bonds — Recov- 
ery of  profits. — The  negotiation  of 
water  bonds  by  a  bank,  if  ultra  vires, 
is  not  malum  in  se,  and  can  only  be 
taken  advantage  of  by  the  state.  The 
cashier,  through  whom  the  contract 
was  made,  can  not  set  it  up  in  defense 
of  an  action  by  the  bank  to  recover 
the  profits  of  the  transaction.  Mt. 
Vernon  Bank  v.  Porter,  52  Mo.  App. 
244. 


Carrying  on  business  purchased  for 
self-protection. — The  right  of  a  bank 
to  purchase  under  execution  a  stock 
of  raw  material  for  its  protection,  and- 
continue  the  business  of  inanufactur- 
ing,  in  the  name  of  a  trustee,  can  not 
be  collaterally  attacked;  the  ultra  vires 
acts  of  the  bank,  which  are  voidable 
only,  can  only  be  impeached  by  the 
government.  Lippincott  v.  Longbot- 
tom,  6  Pa.  Co.  Ct.  Rep.  503.  Ultra 
vires  lease  by  bank,  see  ante,  "Leases,"^ 
§  95  (le). 

Ultra  vires  partnership,  see  ante, 
"Partnerships  and  Joint-Stock  Com- 
panies,"   §   24. 

Sales  of  land  by  one  bank  to  another, 
see  ante,  "Disposal  of  Property," 
§  95   (2). 

As  to  acquisition  of  stock  contrary 
to  law,  see  ante,  "Purchasing  and 
Holding  Stock  in  Other  Corporations," 
§   93. 

7.  Rights  acquired  against  bank — 
Notice  of  limitation  on  power. — Root 
c'.  Wallace,  Fed.  Cas.  No.  12,039,  4  Mc- 
Lean 8. 

There  can  be  no  recovery  on  the 
notes  against  the  bank,  nor  can  the 
notes  or  their  contracts  be  received  in 
evidence  to  support  an  action  by  the 
indorsee  against  the  indorser.  Root  v. 
Wallace,  Fed.  Cas.  No.  12,039,  4  Mc- 
Lean 8. 

8.  Sale  of  honds  or  stocks  against 
positive  prohibition, — Where  a  bank  is 
authorized  by  law  to  purchase  stocks 
necessary  for  deposit  as  security  for 
its  circulating  notes,  and  all  other  pur- 
chasers are  declared  to  be  invalid,  a 
person  who  sells  bonds  to  the  bank 
is  bound  to  know  the  purpose  for 
which  the  bank  is  buying  them,  and 
can  not  recover  the  price  if  the  con- 
tract is  prohibited.  Tracy  v.  Talmage 
(N.  Y.),  2  Edm.  Sel.  Cas.  467. 

Banking  associations  have  no  other 
authority  than  to  carry  on  the  busi- 
ness of  banking,  and  therefore,  when 
such  an  association  buys  state  stocks 
to  sell  again,  and  this  is  known  to  the 
vendor,  and  gives  for  them  its  cer- 
tificates of  deposits,  and  assigns  mort- 
gages as  security  for  the  payment 
thereof,  such  transaction  being  illegal. 


§  101   (3) 


FUXCTIOXS  AND  DEALINGS. 


687 


under  the  statutes  of  Xew  York  prohibiting  a  banking  institution  from  issu- 
ing a  draft  payable  at  a  future  time,  where  money  is  advanced  upon  such  a 
draft,  in  good  faith,  by  a  corporate  body  of  another  state,  who  are  not  pre- 
sumed to  have  notice  of  such  statutes,  they  are  entitled  to  recover  the  same 
back ;  the  money  thus  advanced  being  considered  as  having  been  paid  with- 
out consideration.^ 

Prohibitory  Statute  Not  Retroactive.— \\  here  a  banking  association, 
being  indebted  to  its  agent  abroad,  executed  bonds  payable  in  England  at  a 
future  time,  and  secured  by  an  assignment  of  certain  property  in  trust,  and 
prior  to  the  date  when  a  statute  forbidding  banks  to  issue  notes  or  bills  pay- 
able at  a  future  time,  took  effect,  transmitted  the  bonds  to  the  agent,  to  be 
sold  in  order  to  protect  the  existing  indebtedness  of  the  association,  and  to 
secure  future  advances  by  its  agents,  and,  until  such  sale,  to  be  held  in  pledge 
for  the  same  purposes,  it  has  been  held,  that  such  of  the  bonds  as  had  been 
delivered  by  the  pledgees  to  creditors  of  the  company  as  security  for  a  pre- 
existing debt  were  valid  in  the  hands  of  such  creditors. ^o 

Estoppel  to  Plead.— Where  a  contract  between  a  national  bank  and 
another  party  has  been  fully  performed,  and  the  bank  has  received  a  benefit 
from  such  performance,  it  is  held  estopped  to  plead  that  the  contract  is  ultra 
vires  as  being  in  excess  of  its  charter  powers. ^i 


the  assignment  of  the  mortgages  is 
void.     Talmage  v.  Pell,  7  N.  Y.  328. 

And  the  bank,  or  a  receiver  thereof, 
may  set  up  the  bank's  want  of  au- 
thority to  enter  into  such  transaction 
to  impeach  the  mortgages,  as  the  ex- 
press grant  of  the  power  to  deal  in 
certain  kinds  of  personal  property  and 
evidences  of  debt  is  a  prohibition  of 
a  general  power  of  trading  in  stocks. 
Talmage  v.  Pell,  7  N.  Y.  328. 

Where,  upon  the  deposit  of  money 
in  a  bank,  the  depositor  received  a 
book  containing  the  cashier's  certifi- 
cate thereof,  stating  tliat  the  deposit 
was  to  remain  for  a  certain  time,  it 
was  held  that  such  agreement  was  il- 
legal and  void,  under  Rev.  St.,  c.  36, 
§  57,  prohibiting  contracts  by  banks 
for  the  payment  of  money  at  a  future 
day  certain,  and  that  no  action  could 
be  maintained  against  the  bank  upon 
such  express  contract.  White  v.  Frank- 
lin Bank  (Mass.),  22  Pick.  181. 

But  the  money  might  be  recovered 
in  an  action  commenced  before  the  ex- 
piration of  the  time  named,  witliout 
any  previous  demand,  the  parties  not 
being  in  pari  delicto  and  the  action 
Ijcing  in  disaffirmance  of  the  illegal 
contract.  White  v.  Franklin  Bank 
(Mass.),  22   Pick.   181. 

9.  Recovery  of  money  advanced  in 
good  faith   as   paid  without   considera- 


tion.—Bank  c'.  Dodge   (X.  Y.").  8  Barb. 
233. 

10.  Prohibitory  statute  not  retroac- 
tive.—Curtis  V.  Leavitt,  15  N.  Y.  9,, 
construing   a    New    York   Act    of   1840. 

11.  Estoppel  to  plead. — First  Nat. 
Bank  v.  Greenville  Oil,  etc.,  Co.,  24 
Tex.    Civ.    App.    645,    60    S.   W.    828. 

A  bank  after  receiving  property  con- 
tracted for  by  its  president,  while  en- 
joying the  fruits  of  the  transaction, 
can  not  be  absolved  from  the  perform- 
ance of  its  obligation  to  others  as- 
sumed by  its  ofticers  as  a  means  of 
getting  possession  of  the  property,  on 
the  plea  that  its  acts  were  ultra  vires. 
Panhandle  Nat.  Bank  v.  Emery,  78 
Tex.   498,  15   S.  W.  23. 

A  bank  acting  in  connection  with 
the  paj'ee  of  certain  notes,  and  shar- 
ing the  profits  arising  from  the  trans- 
action in  which  they  were  given,  is 
estopped  from  denying  its  power  to 
contract  such  partnership  relation, 
when  attempting  to  reap  the  lienefits 
arising  therefrom  by  enforcing  the 
collection  of  the  notes  through  the 
courts.  Gill  V.  First  Nat.  Bank  (Tex. 
Civ.   App.),  47   S.  W.  751. 

Where  a  liank  solicits  deposits  from 
another  bank  and  agrees  to  pay  two 
per  cent  per  annum  on  daily  balances, 
it  will  not.  after  receiving  and  retain- 
ing sucli  deposits  for  several  months, 
be    allowed    to    repudiate    the    contract 


BANKS   AND   BANKING. 


101     (3) 


Recovery  on  an  Assumpsit.— Recovery  has  been  allowed  upon  an  as- 
sumpsit on  the  ground  that,  although  the  security  be  void,  yet  the  transac- 
tion is  only  forbidden  as  to  the  bank  and  not  as  to  the  other  party.^- 

Recovery  by  Party  without  Notice  of  Irregularities  or  Want  of 
Authority. — Where  persons  have  been  induced  to  lend  money,  or  part  with 
valuable  securities,  on  the  notes  of  a  bank,  which  on  their  face  appear  to  be 
within  the  legitimate  business  of  banking,  such  persons  ought  to  be  protected 
by  a  court  of  equity.^^ 


and  refuse  to  pay  the  interest  merely 
because  one  of  its  managing  officers 
was  common  to  both.  City  Xat.  Bank 
V.  Merchants',  etc.,  Nat.  Bank  (Tex. 
Civ.   App.),    10.5   S.   W.   33S 

12.  Recovery  on  an  assumpsit. — One 
who  receives  a  postdated  draft  issued 
l)y  a  banking  association,  taking  effect 
upon  delivery,  in  consideration  of  a 
loan  made  by  him,  can  recover  the 
amount  on  an  assumpsit,  even  though 
the  security  be  void,  because^  the  stat- 
ute only  forbids  the  bank  to  issue,  and 
not  the  lender  to  receive,  such  drafts. 
Oneida  Bank  v.  Ontario  Bank,  21  N. 
Y.  490. 

And  the  transferee  of  a  draft,  void 
as  above,  succeeds  to  the  payee's 
right  of  action  against  the  drawer. 
Oneida  Bank  v.  Ontario  Bank,  21  X. 
Y.    490. 

Money  received  under  ultra  vires 
contract  never  performed. — Where 
money  is  deposited  with  the  cashier  of 
a  bank  under  an  agreement  that  it 
shall  be  invested  by  the  bank  in  bonds 
and  stocks,  the  bank  is  liable  for  the 
leturn  of  the  money,  no  investment 
liaving  been  made,  though  the  agree- 
ment for  its  investment  by  the  bank 
was  ultra  vires.  L'Herbette  v.  Pitts- 
field  Nat.  Bank,  162  Mass.  137,  38  N. 
E.  308,  44  Ain.  St.  Rep.  354.  See,  also, 
White  V.  Franklin  Bank  (Mass.),  22 
Pick.  181,  for  right  to  recover  de- 
posit made  under  illegal  contract.  See 
this  case,  set  out  supra. 

Liability  for  proceeds  of  illegal  sale 
of  bonds. — A  bank  holding  funds,  the 
proceeds  of  bonds  sold  by  it  for  a 
customer,  must  account  to  him  there- 
for, although  a  sale  of  bonds  by  it  was 
unlawful.  Smith  z\  Philadelphia  Nat. 
Bank    (Pa.),   34  Leg.   I"t.   86. _ 

13.  Recovery  by  party  without  no- 
tice of  irregularities  or  want  of  au- 
thority.—Leavitt  r.  Yates  (N.  Y.\  4 
Edw.  Ch.  134;  Safford  v.  Wyckofif  (N. 
Y.),  4  Hill  442. 

In  ultra  vires  cashier's  check. — 
Where  a  national  bank  issues  its  cash- 
ier's check  to  a  county  treasurer,  who 


is  short  in  his  official  accounts,  to  en- 
able him  to  make  a  settlement  with 
the  county,  and  the  check  is  turned 
over  to  the  county  commissioners, 
who  deposit  it  with  another  bank  in 
legular  course  of  business  without  no- 
tice of  irregularities  in  its  issue,  in 
an  action  by  the  latter  bank  on  the 
check  the  bank  which  issued  the  check 
can  not  assert  a  want  of  power  to  is- 
sue it,  nor  the  existence  of  any  fact 
that  might  be  a  defense  as  between 
itself  and  the  county  treasurer  in  his 
individual  capacity.  Sioux  Falls  Nat. 
Bank  v.  First  Nat.  Bank,  6  Dak.  113, 
50    N.   W.   829. 

The  bank  with  which  the  same  is  de- 
posited in  the  regular  course  of  busi- 
ness, and  which  has  no  notice  of  ir- 
regularities, is  entitled  as  a  matter  of 
law  to  a  verdict  in  an  action  thereon. 
Sioux  Falls  Nat.  Bank  r.  First  Nat. 
Bank.   6   Dak.   113,   50   N.   W.   829. 

Loans  in  excess  of  limit. — One  lend- 
ing money  to  a  bank  limited  by  its 
articles  of  incorporation  to  the  bor- 
rowing of  money  not  in  excess  of  a 
specified  sum.  to  an  amount  less  than 
the  specified  sum,  without  having  rea- 
son to  know  that  the  limit  has  been 
exceeded  by  other  loans  made  _  to  it 
when  added  to  the  loan  made,  is  not 
affected  by  the  limitation  in  the  ar- 
ticles. Citizens'  Bank  v.  Bank,  31  Ky. 
L.   Rep.   3G5,   103    S.   W.  249. 

Liability  for  general  deposit  received 
after  powers  ended. — Where  a  statute, 
provides  that  any  l)ank  which  may  de- 
sire to  close  the  business  of  circulat- 
ing its  bills  may  file  a  certificate  of 
the  fact  with  the  auditor.  Section  4 
provides  that,  after  filing  such  cer- 
tificate, the  bank  shall  cease  to  do 
any  banking  business,  or  to  have  any 
banking  powers  except  to  wind  up  its 
concerns,  collect  and  pay  debts,  and 
to  sue  and  be  sued  for  such  debts,  it 
was  held,  that  where  a  bank,  after  fil- 
ing such  certificate,  accepts^  a  deposit 
from  one  who  has  no  notice  of  the 
certificate,  such  depositor's  right  to  re- 
cover against  the  bank  is  not  aflfected 


§  101   (3) 


FUNCTIONS  AND  DEALINGS. 


689 


Liability  Incurred  Where  Action  Merely  Ultra  Vires,  Not  Prohib- 
ited.— As  between  a  bank  and  those  who  contract  with  it  in  an  unauthor- 
ized business,  the  new  enterprise  would  become  a  part  of  its  appropriate 
business,  in  the  conduct  of  which  it  would  be  liable  for  the  acts  of  its 
a  gents.  1"* 

Particularly  Where  the  Transaction  Has  Been  Fully  Performed  by 
the  Other  Party. — Where  a  contract  was  not  immoral,  was  fully  performed 
by  the  other  party,  and  the  bank  received  and  retained  the  benefits,  the  plea 
of  ultra  vires  is  unavailing.^^ 


by  section  4.  Northern  Bank  t'.  Zepp, 
3>^    Til.    180,    construing:    Illinois   statute. 

Liability  for  special  deposits  re- 
ceived without  authority. — Xotwith- 
standing  the  act  ot  incorporation  gives 
no  authority  to  a  bank  to  receive  spe- 
cial deposits,  and  although  there  is  no 
regulation  in  its  by-laws  relative  to 
such  deposits,  yet  where  they  are 
regularly  received,  with  the  knowledge 
of  the  directors,  the  bank,  and  not  its 
agents,  will  incur  the  liabilities  of 
I  ailee.  Foster  v.  Essex  Bank,  17  Mass. 
479,   9   Am.   Dec.  168. 

14.  Liability  incurred  where  action 
merely  ultra  vires,  not  prohibited. — 
Hagerstown  Bank  i\  Loudon  Sav. 
Fund   Soc.    (Pa.),   3   Grant   Cas.   135. 

Unauthorized  issue  of  negotiable  pa- 
per.— \\  here  an  association  having  no 
authority,  under  the  general  banking 
law.  to  issue  negotiable  paper,  never- 
theless issues  the  saine  in  ordinary 
form,  it  will  be  binding  on  the  asso- 
ciation in  favor  of  a  bona  fide  indorsee, 
and  this  notwithstanding  it  be  signed 
by  the  cashier  only.  Safford  v.  Wyck- 
off  (X.  Y.),  4  Hill  442,  reversing  1 
Hill   11. 

Semble  that  a  negotiable  note  or  bill 
of  exchange,  though  given  by  a  bank- 
ing corporation  having  only  an  inci- 
dental right  of  issuing  such  paper  in 
certain  special  cases,  must  be  presumed 
to  have  been  legally  issued  until  the 
contrary  appear.  Safford  z\  Wyckoff 
(X.   Y.),   4   Hill  442. 

Tt  seems  that  it  would  be  otherwise, 
however,  as  between  the  association 
and  one  not  occupying  the  position  of 
a  bona  fide  holder,  if  it  appeared  that 
the  draft  or  bill  was  issued  l)y  way 
of  loan,  or  for  the  purpose  of  being 
put  in  circulation  as  money.  Safford 
V.  Wyckoff  (X.  Y.),  4  Hill  442. 

How  far  these  associations  may,  as 
incidental  to  the  general  powers  ex- 
pressly conferred  on  them  by  statute, 
issue  negotiable  paper,  without  the 
sanctir>n  of  the  conii)troller;  e.  g.,  for 
1    B    &   B— 44 


the  payment  of  their  debts,  the  trans- 
fer of  their  funds,  etc.,  is  discussed 
and  considered  in  Safford  r.  Wvckoff 
(N.  Y.),  4  Hill  442.  See,  also,"  ante, 
"Power  to  Make  and  Issue,"  §  98  (2a), 
as  to,  power  to  make  and  issue  negoti- 
able instruments. 

Liability  on  subscription  to  stock  in 
another  bank. — The  defense  of  ultra 
vires  is  not  open  to  a  bank  against  a 
liability  in  subscribing  to  the  stock  of 
another  bank,  when  the  contract  has 
been  fully  executed  by  the  other  bank, 
?nd  is  not  malum  in  se  or  malum  pro- 
hibitum. City  of  Goodland  f.  Bank, 
74   Mo.  App.  365. 

15.  Transaction  fully  performed  by 
ether  party. — Tootle  v.  First  X'^at. 
Bank,  6  Wash.  181,  33  Pac.  345,  citing 
2    Morse   on    Banks,   §   740. 

A  bank  receiving  from  a  debtor 
property  valued  at  much  more  than  the 
debt,  under  an  agreement  by  its  offi- 
cers to  pay  the  surplus  to  other  cred- 
itors of  the  debtor,  can  not  set  up  the 
defense  of  ultra  vires  in  an  action  by 
the  creditor  to  recover  his  share  of  the 
surplus.  Tootle  r.  First  Nat.  Bank.  G 
Wash.   181,  33   Pac.  345. 

While  an  arrangement  l)etween  the 
cashier  of  a  bank  and  a  depositor, 
whereby  the  bank  was  to  pay  the  lat- 
ter's  overdraft  for  stock  purchased, 
covering  the  same  by  passing  the  draft 
on  to  the  commission  company  1o 
which  the  stock  was  shipped,  was  in 
excess  of  the  charter  powers  given 
banks  by  Rev.  St.  1899,  c.  12,  art.  8, 
yet,  when  executed  by  the  drawing  of 
checks  and  the  giving  of  drafts  for  an 
amount  sufticient  to  cover  the  checks, 
it  would  1)0  upheld  and  enforced  by 
the  courts.  York  v.  Farmers'  Bank. 
105   Mo.  .\pp.  127,  79  S.  W.  968. 

.\n  ultra  vires  contract  whereby  a 
i)anking  institution  agreed  to  sell  plain- 
tiff's slock  within  a  year  for  a  certain 
sum,  and  pay  such  sum  to  plaintiff, 
which  does  not  appear  to  l)c  illegal, 
immoral,   or  against   public   policy,   and 


690 


BANKS   AND  BANKING. 


101     (3) 


Liability  on  Ground  of  Negligence. — Where  the  premium  on  the  mort- 
gagor's life  insurance  is  inckided  in  the  mortgage  as  a  part  of  the  principal, 
and  the  mortgagee  neglects  to  keep  the  policies  alive,  he  himself  becomes  the 
insurer;  and  if  the  mortgagee  is  a  bank,  and  can  not  be  an  insurer  for  want 
of  power,  it  may  be  held  liable  on  the  ground  of  negligence.^^ 

Liability  on  Collateral  Contract. — The  fact  that  a  bank's  charter  pro- 
hibited the  loan  of  moneys  on  stocks  and  other  personal  securities  will  not 
avoid  a  pledge  of  stock  so  as  to  defeat  the  action  of  a  broker  who  was  em- 
ployed by  the  bank  to  sell  the  stock. ^"^ 


which  is  fully  performed  by  plaintifif, 
can  not  be  repudiated  by  the  bank. 
Cause  V.  Commonwealth  Trust  Co., 
44  Misc.  Rep.  46,  89  N.  Y.  S.  723,  case 
reversed  in  100  App.  Div.  427,  91  X.  Y. 
S.  847,  on  ground  that  the  complaint 
was  insufficient. 

Where  a  bank  has  received  the  pro- 
ceeds of  a  sale  of  bonds  held  by  it  for 
speculative  purposes,  effected  by 
means  of  fraud  on  the  part  of  its  man- 
aging officer,  it  can  not  avoid  liability 
for  his  fraud  on  the  purchaser  on  the 


ground  that  its  business  of  buying  and 
selling  bonds  was  ultra  vires.  Judg- 
ment. 23  :\Iisc.  Rep.  368,  52  N.  Y.  S. 
61,  affirmed.  Carr  r.  National  Bank, 
etc.,  Co..  43  App.  Div.  10,  59  N.  Y.  S. 
618,  judgment  affirmed  in  167  N.  Y. 
375,  60  N.   E.  649,  82  Am.   St.   Rep.  725. 

16.  Liability  on  ground  of  negli- 
gence.— Soule  t'.  Union  Bank  (N.  Y.), 
4.5  Barb.  111.  See,  also,  ante,  "Torts," 
§  100.  as  to  torts  generall3^ 

17.  Liability  on  collateral  contract 
— Sistare   z:    Best.   88   N.    Y.    527. 


CHAPTER   VIII. 
B.  Representatiox  of  Bank  by  Officers  and  Agents. 

§  102.   Grounds  and  Extent  of  Liability  in  General. 

§  102   (1)   General    Principles    upon     Which    Bank     Held     Liable    to     Third 

Persons. 
§  102  (2)   Power  of  Directors  to  Define  and  Fix  Duties. 
§  102  (3)   Manner  of  Prescribing  Powers  and  Duties. 
§  102   (4)   Manner   of   Contracting   or   Representing. 

§   102  (5)    Representative    Capacity    of    Particular    Officers    Considered. 
§   102    (5a)    Directors. 
§  102   (5b)   President— Vice-President. 
§   102   (5c)   Cashier. 

§   102   (oca)   General    Nature    and    Extent    of   Cashier's    Powers 

and   Duties. 
§  102   (ocb)   Applicability  of  the   Rules  of  Agency. 
§   102   (5d)   Teller. 
§  103.   Statutory  Provisions. 

§  104.    Disposition    or    Encumbrance    of    Property — Acquisition    of    Property. 
§  104   (1)   Power  of  Directors,  Generally. 
§  104  (2)   Power  of  President. 
§  104  (3)   Powers  of  Cashier. 

§   104   (4)  Consideration  for  Transfer  of   Bank's   Property. 
§  104  (5)   Disposition,    Encumbrance,   or   Lease   of   Real    Estate. 
§  104   (6)   Assignments   for  Benefit  of  Creditors. 
§  104   (7)   Acquisition   of   Property  by   Officers   for   Bank. 
§  105.   Contracts. 

§  105   (^)   General  Principles. 
§  105  (1)   Directors. 
§  105  (2)   President. 
§  105   (3)   Cashier. 

§  10'5   (3a)   In  General. 

§  105   (3b)   Particular  Powers  Considered. 
§  106.  Deposits. 

§  106  (1)   In  General. 
§  106  (2)   President. 
§  106  (3)  Cashier. 
§   106  (4)  Teller. 
§  106   (5)   Directors. 
§   107.  Collections. 

§  107    (1)   In  General. 
§  107  (2)   President. 
§  107   (3)  Cashier. 
§  107   (4)    Teller. 
§   107   (5)   Attorney. 
§  108.     Loans  and  Discounts. 
§  108   (1)   In  General. 
§   108   (2)    Directors. 
§  108   (3)   Committee. 
§   108   (4)   President. 


692  BANKS   AND   BANKING. 

§  108   (5)   Cashier. 

§  108   (6)  Treasurer  and   General   Manager. 
§  109.  Bills,  Notes  and  Securities. 
§  109  (1)   In   General. 
§   109   (3)   President   and   Vice-President. 
§  109  (2a)  President. 
§  109   (2b)  Vice-President. 
§  109   (3)   Cashier. 
§   109   (4)     Directors. 
§  109   (5)  Clerk  and  Actuary. 
§  110.  Actions. 

§  110   (1)    Directors. 
§  110  (2)   President. 
§  110  (3)   Cashier. 
§  110   (4)   Treasurer. 
§  111.    Representations  or  Admissions. 
§  111   (1)   In    General. 
§  111   (2)   Directors. 
§  111   (3)   President. 
§   111   (4)   Cashier. 
§   111   (5)   Teller. 
§  112.  Wrongful   Acts. 

§  112   (1)   In    General. 

§   112   (2)  Torts    of    Managing    Officer    and    Cashier    Generally. 
§  112   (2a)   Acts  Not  within  Corporate  Capacity. 
§  112   (2b)   Acts  without  Scope  of  Authority. 
§.112   (3)   Particular  Torts   or  Wrongful   Acts. 
§  112   (3a)   Fraud. 

§  112   (3aa)   In   General. 

§   112   (3ab)   Fraud  in  Obtaining  Loan  for   Bank. 
§  112   (3ac)   Fraud  in   Receiving  Deposits. 
§  112  (Sad)    Depreciating   Collaterals. 
§  112   (3ae)   Fraud  in  Procuring  Note. 
§  112   (3af)   Fictitious   Entry  of  Credit. 

§  112   (3ag)    Deposit  of  Worthless  Check  in  Another  Bank. 
§  112   (3ah)   Conspiracy  to  Defraud  Third  Person. 
§  112   (3ai)   Bank's    Retaining   Benefits   of  Transaction. 
§  112   (3aj)   Fraudulent  Acts  in   Personal  Transactions. 
§  112    (3aja)   In    General. 
§  112   (3ajb)    Use    of    Name    of    Bank. 
§   112   (3ajc)    Buying   and    Selling    Stock. 
§  -112   (3ajd)   Fraud    on    Depositor. 
§   112   (3ak)   Application    of    Principle    of    Estoppel. 
§  112   (3al)   Proof  of   Fraud. 
§  112  (3b)   False    Representations   as   to   Credit   of   Another. 
§   112   (3c)   Slander    of    Credit. 
§   112   (3d)   Negligence. 

§  112   (3e)   Receiving   Foreign    Bank    Note    in    Payment. 
§   112   (3f)   Organization   of   Another   Bank   in    Evasion  ^^f  Charter. 
§  112   (3g)   Attempt  to  Prefer  Bank  Officer  to  Other  Creditors. 
§   112   (4)    Embezzlement  and   Misappropriation. 
§    112   (4a)   In   General. 
§   112   (4b)   Misappropriation   of   Deposits. 


§    102    (1)  REPRESENTATION    OF    BANK.  693 

§  112   (4ba)   In   General. 

§  112   (4bb)   Special   Deposits  for  Safe-Keeping. 
§   112   (4c)   Money   Received   for   Transmission. 
§  112   (4d)   Collateral  Security. 
§  112   (4e)   Paper  Left  for  Collection. 

§  112   (4f)   Right  of  Bank  to  Money  or  Paper  Used  to  Conceal  Em- 
bezzlement. 
§  112    (4g)    Recovery  by  Bank. 
§  113.  Estoppel  to   Deny  Authority  of  Officer  or  Agent. 
§  113   (1)   In   General. 

§   113  (2)   Receiving  and   Retaining   Benefits   of   Transaction. 
§  113   (3)   Delay  or  Acquiescence. 
§  113  (4)   Prejudice  to  Other  Party. 
§  113   (5)   Loss  to  One  of  Two  Innocent  Persons. 
§  113   (6)    Attempt  to  Enforce. 
§  113   (7)   Receiver  or  Assignee  for  Creditor. 
§  113   (8)   Estoppel  of  Person   Dealing  with   Bank. 
§  114.  Ratification. 

§  114  (1)  Authority  and  Acts  Which  May  Be  Ratified. 
§  114  (2)   What  Constitutes  and  Requisites. 
§  114  (2a)    In   General. 
§  114   (2b)   Knowledge  of  Facts. 
§  114   (2c)   Negligence. 
§  114   (2d)   Delay  or  Acquiescence. 

§   114   (2e)   Receiving    and    Retaining    Benefits    of    Transaction. 
§  114  (2f)  Attempt  to   Enforce  Contract. 
§  114   (2g)   Assertion   of   Individual    Liability   of   Officer. 
§  114  (2h)   Bank   Seeking  to   Indemnify   Itself  against   Fraud. 
§  114    (3)   Operation  and  Effect. 
§  114    (3a)   In  General. 
§  114  (3b)  Adoption  of  Entire  Contract. 
§  114  (4)  Pleading  and  Proof. 
§  115.  Rights  Acquired  by  Bank. 
§  116.  Notice  to  Officer  or  Agent. 
§   116  (1)   In  General. 

§  116  (2)   In  Respect  to  Discounts  and  Securities. 
§  116  (3)   In  Respect  to  Deposits. 

§  116  (4)   Notice   Received   in   Private   Business   or   Outside   Scope   of   Du- 
ties. 
§  116   (5)    Notice   to   Directors. 
§  116  (6)   Notice  of  Officer's  Own  Fraud. 
§  117.  Individual  Interest  of  Officer  or  Agent  as  Affecting  Person  Dealing  with 

Bank. 
§  118.  Evidence  as  to  Authority. 

B.  REPRESENTATION  OF  BANK  BY  OFFICERS  AND  AGENTS. 

§   102.  Grounds  and  Extent  of  Liability  in  General— §   102    (1) 
General  Principles  upon  Which  Bank  Held  Liable  to  Third  Persons.— 

Banking  cor]jorations  are  .subject  to  the  general  principles  which  govern  the 
relation  of  principal  and  agent  as  between  individuals,  and  like  individuals 
they  must  be  held  to  a  just  responsibility  for  the  acts  of  their  agents  done 


694 


BANKS  AND  BANKING. 


§  102  (1) 


within  the  scope  of  their  authority,  real  or  apparent,  and  for  their  frauds 
and  torts  perpetrated  in  the  performance  of  or  connected  with  the  business 
of  their  agency,  observing,  of  course,  the  difference  as  to  the  manner  in  which 
the  corporation  acts,  and  taking  into  consideration  the  fact  that  it  can  act 
only  through  its  officers  and  agents.^     The  officers  and  agents  of  a  bank  are 
held  out  to  the  public  as  having  authority  to  act  according  to  the  general 
usage,  practice,  and  course  of  their  business,  and  their  acts  within  the  scope 
of  such  usage,  practice  and  course  of  business,  will,  in  general,  bind  the  bank 
in  favor  of  third  persons  having  no  knowledge  and  charged  with  no  notice 
to  the  contrary.     The  presumption  is  that  they  have  been  invested  with  all 
the  authority  customarily  exercised  by  such  officers  and  agents,  and  all  their 
acts  within  the  scope  of  such  usage,  practice,  and  course  of  business  will 
bind  the  bank  in  favor  of  third  persons  having  no  knowledge  to  the  con- 
trary.-    Stating  the  proposition  conversely,  banking  corporations,  like  nat- 
ural'persons,  are,  in  general,  bound  by  the  acts  and  contracts  of  their  agents 
only  when  such  agents  are  acting  within  the  scope  of  their  actual  authority, 
or  when  such  acts  and  contracts  are  within  the  general  scope  and  apparent 
sphere  of  their  duties.     For  acts  and  contracts  not  within  the  general  scope 
and  sphere  of  the  agent's  duties,  the  bank  is  not  liable  unless  there  has  been 
a  previous  special  authority  or  a  subsequent  ratification.^ 

When  Bank  Bound  by  Acts  and  Contracts  beyond  Apparent  Scope 
of  Agent's  Authority.— Under  some  circumstances,  tlie  bank  may  be  bound 
upon  the  acts  and  contracts  of  its  agents  even  though  they  go  beyond  the 


1.  General    principles     upon      which 
bank   held   liable   to    third     persons.— 

Goddspeed  r.  East  Haddam  Bank.  22 
Conn.  530;  Sturges  &  Co.  t'.  Bank,  11 
O.  St.  153,  78  Am.  Dec.  296;  Wheless 
V.  Second  Nat.  Bank,  60  Tenn.  (1  Baxt.) 
469;  Ohio  Life  Ins.,  etc..  Co.  z'.  Mer- 
chants' Ins.,  etc.,  Co.,  30  Tenn.  (11 
Humph.)  1;  Jackson  Ins.  Co.  v.  Cross, 
56    Tenn.    (9    Heisk.)    283. 

2.  Authority  of  officer  or  agent— Pre- 
sumption— Notice. — jNlinor  r.  Mechan- 
ics' Bank  (U.  S.).  1  Pet.  46,  7  L.  Ed. 
47;  Case  v.  Citizens'  Bank,  100  U.  S 
446,  25  L.  Ed.  695;  Creswell  v.  Lanahan, 
101  U.  S.  347,  25  L.  Ed.  853;  United 
States  z'.  City  Bank  (U.  S.),  21  How. 
356,  16  L.  Ed.  130;  United  States  v. 
Robertson  (U.  S.),  5  Pet.  641,  8  L.  Ed. 
257,  per  Baldwin,  J.,  dissenting.  Bank 
V.  Jones  CU.  S.),  8  Pet.  12,  8  L.  Ed. 
850;  Bank  7:  Dandridge  (U.  S.),  12 
Wheat.  64,  6  L.  Ed.  552;  National  Bank 
7'.  Atkinson,  55  Fed.  465;  Rich  v.  State 
Nat.  Bank.  7  Neb.  201,  29  Am.  Rep. 
382;  Thomas  v.  Citv  National  Bank, 
40  Neb.  501,  58  N.  W.  943,  24  L.  R.  A. 
263;  Eastman  v.  Coos  Bank,  1  N.  H. 
23;  Lloyd  v.  West  Branch  Bank.  15  Pa. 
172,  53  Am.  Dec.  581;  Neiffer  f.  Bank, 
38  Tenn.    (1   Head)    162. 


3.  Acts  must  be  within  real  or  ap- 
parent scope  of  authority. — National 
Bank  i'.  Atkinson,  55  Fed.  465;  Reed 
r.  Powell  (La.),  11  Rob.  98;  State  z: 
Commercial    Bank    (Miss.),    6    Smedes 

6  M.  218,  45  Am.  Dec.  280;  Jones  r. 
First  Nat.  Bank,  3  Neb.  (Unof.)  73, 
90  N.  W.  912;  Rich  z:  State  Nat.  Bank, 

7  Neb.  201,  29  Am.  Rep.  382;  Thomas 
z:  City  Nat.  Bank,  40  Neb.  501,  58  N. 
W.  943,  24  L.  R.  A.  263;  Bank  v.  Hooke, 
41  Tenn.  (1  Coldw.)  156;  Northern 
Bank  z:  Johnson,  45  Tenn.  (5  Coldw.) 
88;  Neiffer  v.  Bank,  38  Tenn.  (l  Head) 
162. 

The  powers  and  duties  of  bank  ofti- 
cers  being  defined  by  its  charter  and 
by-laws,  they  will,  when  acting  within 
their  sphere,  represent  the  corporation, 
and  bind  it  by  their  acts;  but  in  other 
matters  they  can  only  represent  or 
act  for  it  when  authorized  by  a  reso- 
lution of  the  board  of  directors.  Reed 
f.   Powell    (La.).   11   Rob.   98. 

Acts  of  a  bank  officer  outside  the 
usual  scope  of  his  authority  in  a  mat- 
ter to  which  the  bank  is  not  a  party 
and  of  which  it  had  no  notice  are  not 
binding  on  the  bank.  Jones  z'.  First 
Nat.  Bank.  3  Neb.  (Unof.)  73,  90  N. 
W.  912. 


§    102    (1)  REPRESENTATION   OF  BANK.  695 

usual  and  apparent  scope  of  the  duties  ordinarily  incident  to  the  position, 
as  where  it  has  allowed  a  cashier  or  other  officer  to  exercise  a  general  au- 
thority for  a  considerable  length  of  time  in  respect  to  the  business  of  the 
bank  which  would  not  ordinarily  come  within  the  scope  of  his  duties  as  such 
cashier  or  agent.  Xor  is  there  any  incongruity  or  departure  from  general 
principles  in  this,  since  it  is  merely  the  application  of  the  very  general  prin- 
ciple that  as  regards  third  persons  the  officers  and  agents  must  be  deemed 
clothed  with  whatever  powers  the  bank  has  held  them  out  as  possessing  in 
the  same  degree  as  if  the  authority  had  been  expressly  granted.^  But  where, 
under  the  general  statutes  or  under  the  act  of  incorporation,  the  general  man- 
agement of  the  business  of  the  bank  and  the  interests  of  the  shareholders  is 
confided  to  the  board  of  directors,  with  power  to  them  to  elect  or  appoint 
the  president  and  cashier  and  define  their  duties,  it  will  be  presumed,  in  the 
absence  of  anything  in  the  act  of  incorporation  to  the  contrary,  and  in  the 
absence  of  anything  in  the  record  to  show  whether  such  duties  have  ever 
been  defined,  that  the  president  and  cashier  are  clothed  with  only  such  powers 
as  are  usually  and  ordinarily  incident  to  their  respective  offices,  and  that  all 
other  powers  needful  to  the  management  of  the  bank  and  its  business  reside 
in  the  board  of  directors  alone  ;-^  and  in  order  that  the  circumstances  of  a  par- 
ticular case  may  be  sufficient  to  raise  a  presumption  of  authority  in  a  pres- 
ident, cashier,  or  other  agent  to  bind  the  bank  in  matters  beyond  the  scope 
of  his  usual  authority,  it  must  be  shown  that  his  act  was  in  some  way  au- 
thorized by  the  board  of  directors,  or  that  the  bank  was  in  some  manner  a 
party  to  the  circumstances,  or  chargeable  with  knowledge  of  them.^  If  the 
transaction  itself  is  not  in  the  usual  course  of  business  or  is  one  which 
required  specific  authority  on  the  part  of  the  cashier  or  other  agent  to  per- 
form it,  the  person  dealing  with  him  will  be  required  to  show  either  that  he, 
in  fact,  had  authority  to  do  the  act,  or  that  he  was  held  out  as  having  it; 
otherwise,  it  will  be  held  to  have  been  done  without  authority." 

Same — Ultra  Vires  Acts. — Of  course,  if  the  act  done  by  the  cashier  or 
other  officer  is  such  that  the  directors,  under  the  charter  and  general  laws  of 
the  state,  could  not  confer  upon  him  the  power  to  do,  or  such  an  act  as  the 

4.     When    bound    upon    acts    beyond  need  be  shown.     Tourtelot  v.  Whithed, 

apparent    scope    of     agent's      duties. —  9  X.  Dak.  407,  84  X.  W.  8. 

Sherwood    v.    Home    Sav.     Bank,      ];;l  5.     President    and    cashier    presumed 

Iowa  528,  109  N.  W.  9;  Wing  i.  Com-  to    have    only    powers    ordinarily    inci- 

mercial,   etc.,    Bank,    103    Mich.    565,   61  dent  to  position.— HodKc  v.  First  Nat. 

N.    W.    1009;    Tourtelot   v.    Whithed,    9  Bank.    6;j    Va.    (22    Gratt.)    51.     To   the 

X.   Dak.   407,  84   X.   W.   8.  same    effect,    see    Neiffer    7'.    Bank,    38 

Where  the  members  of  the  board  of  Tenn.  (1  Head)  162;  Northern  Bank  v. 

directors    of   a   bank   have    for    months  Johnson,   45  Tenn.   (5   Cokhv.)   88. 

ceased    to    exercise    the     functions      of  6.   Same— Circumstances  raising  pre- 

thcir   offices,   and   have   abandoned   the  sumption   of   authority   in    matters   be- 

management    and    control    of    the    cor-  yond  ordinary  scope  of  duties.— Wheat 

porate    business    entirely  to  the    presi-  r.  P.ank, '.)  Ky.  L.  Rep.  7:iS,  5     v^.   W.   .'?05; 

dent  of  the  bank,  it  will  be  presumed  Ex  parte   Rickey,  31   Nev.  82,  100  Pac. 

that  such  officer  was  authorized  to  do,  134. 

in  the  name  of  the  bank,  whatever  the  7.   Same— What  third  person  required 

bank  might  lawfully  do,  and  no  special  to    show.— Lamb    v.    Cecil,    2S    W.    \  a. 

authorization  or  ratification  of  his  acts  653. 


696 


BANKS  AND  BANKING. 


§  102   (1) 


directors  themselves  could  not  do,  then  no  such  authority  could  be  presumed, 
no  matter  if  it  were  shown  that  the  officer  habitually  exercised  such  powers.^ 
Persons  deahng  with  the  bank  are  bound  to  take  notice  of  all  restrictions 
upon  the  powers  of  its  officers  and  agents  contained  in  its  charter  or  in  the 
general  statutes  ;^  and  while  the  public  is  not  supposed  to  have  notice  of  the 
apportionment  of  duties  relating  to  bank  matters  among  the  bank  officers,i*> 
it  is  presumed  to  know  the  extent  of  the  general  powers  of  a  cashier.^ 

Operation  of  Restrictions  upon  Agent's  Apparent  Powers.— If  the 
bank  undertakes  to  restrict  the  powers  of  an  officer  or  agent  so  that  he  does 
not  possess  all  the  power  ordinarily  incident  to  his  position,  such  restriction, 
in  order  to  be  available  as  against  third  persons,  must  be  brought  to  their 
notice.  In  other  words,  as  to  them,  the  rule  is  that  where  the  agency  or 
authority  is  special  and  limited,  they  must  ascertain  its  existence  and  ex- 
tent;  but  where  the  agent  is  held  out  as  being  possessed  of  certain  powers 
or  occupies  a  position  to  wliich  certain  powers  are  usually  and  ordinarily 
incident,  then  they  have  the  right  to  rely  upon  the  presumption  that  he 
actually  has  the  authority  which  he  is  held  out  as  having,  or  which  would 
ordinarily  be  implied  from  his  occupancy  of  such  position,  and  they  are  not 
affected  by  any  secret  restrictions  of  which  they  have  no  notice. i- 


8.  Ultra  vires  acts. — First  Nat. 
Bank  r.  Kimberlands,  16  W.  Va.  555; 
Hodge  f.  First  Nat.  Bank,  63  Va.  (22 
Gratt.)   51. 

This  was  the  case  in  Hodge  z'.  First 
Nat.  Bank,  63  Va.  (22  Gratt.)  51,  Judge 
Moncure  there  saying:  "The  directors  of 
a  bank  can  not  release  without  consid- 
eration a  debt  due  the  bank;  and  a 
fortiori  they  can  not  empower  the 
president  so  to  do."  First  Nat.  Bank 
V.    Kimberlands,    16   W.   Va.    555. 

But  see  Hagerstown  Bank  v.  Loudon 
Sav.  Fund  Soc.  (Pa.),  3  Grant  Cas.  135, 
in  which  it  was  held  that  acts  of  the 
cashier  of  a  bank  in  pursuance  of  au- 
tliority  from  the  board  of  directors,  al- 
though in  violation  of  the  law  of  its 
existence,   bind   the   bank. 

9.  Same — Third  persons  bound  with 
notice  of  charter  restrictions. — North- 
ern Bank  v.  Johnson,  45  Tenn.  (5 
Coldw  )  88;  Neiffer  r.  Bank,  38  Tenn. 
(1    Head)    162. 

10.  Notice  of  third  persons  as  to 
apportionment  of  duties  among  offi- 
cers.— City  Xat.  Bank  :•.  ^lartin,  TO 
Tex.  643, '8  S.  W.  507,  8  Am.  St.  Rep. 
(-.32. 

11.  Presumotion  as  to  knowledge  of 
extent  of  duties  of  cashier. — Farmers', 
etc..  Bank  r.  Troy  City  Bank  (Mich.). 
1    Doug.    457. 

12.  Operation  of  restrictions  upon 
agent's  aooarent  power? — ^lercbants' 
Nat.  r.-Mik  r.  State  Bank  (U.  S.).  10 
Wall.    004.    19  L.    Ed.  1008;    First    Nat. 


Bank  v.  First  Nat.  Bank,  116  Ala.  520, 
22  So.  976;  Citizens'  Bank  v.  Bank,  31 
Ky.  L.  Rep.  365,  103  S.  W.  249;  State 
z:  Commercial  Bank  (Miss.),  6  Smedes 
&  'M.  218.  45  Am.  Dec.  280;  Caldwell 
v.  Nat.  Mohawk  Valley  Bank  (N.  Y.), 
64  Barb.  333;  Tourtelot  v.  Whithed. 
9  N.  Dak  407,  84  N.  W.  8;  Citizens' 
Sav.  Bank  v.  Blakesley,  42  O.  St.  645; 
Hodge  V.  First  Nat.  Bank,  63  Va.  (22 
Gratt.)  51. 

A  cashier's  act  within  the  scope  of 
the  ordinary  course  of  business  is 
binding  upon  the  bank,  though  he  was 
acting  beyond  the  scope  of  the  express 
raithority  conferred  by  it.  First  Nat. 
Bank  z-  First  Nat.  Bank,  116  Ala.  520, 
22  So.  976. 

A  bank  may  restrict  the  authority  of 
its  cashier,  and,  when  this  is  done,  it 
is  bound  to  those  having  notice,  ac- 
tual or  constructive,  of  the  restriction, 
to  the  extent  of  the  cashier's  actual  au- 
thority. Citizens'  Bank  v.  Bank,  31 
Ky.    L.    Rep.    365,    103    S.    W.    249. 

The  acts  of  a  cashier  of  a  bank  are 
only  binding  upon  the  bank  when  he 
acts  within  the  sphere  of  his  agency. 
If  there  be  no  express  regulation  or 
restriction,  all  acts  which  appertain  to 
his  office  will  affect  the  bank:  if  he  be 
restricted  or  limited,  his  acts  in  viola- 
tion of  the  restriction,  or  beyond  the 
limit,  will  not  be  the  acts  of  the  bank. 
State  z:  Commercial  Bank  (Miss.),  6 
Smedes  &  M.  218.  45  Am.  Dec.  280. 

Tn   all   transactions   in   which   a   bank 


102  (1) 


REPRESENTATION   OF  BANK. 


697 


Presumption  as  to  Existence  of  Circumstances  Authorizing  Con- 
tract.— If  the  contract  is  within  the  authority  of  the  officers,  and  would 
be  vaHd  and  bind  the  bank  under  any  circumstances,  an  innocent  party  has 
a  right  to  presume  the  existence  of  such  circumstances,  and  the  bank  is 
estopped  to  deny  them.^^^  This  implies  that  those  dealing  with  a  bank  in 
good  faith  have  the  right  to  presume  not  only  the  existence  of  the  author- 
ity which  would  ordinarily  be  impHed  from  a  previous  course  of  dealing  and 
holding  out,  but  integrity  on  the  part  of  its  officers  when  acting  within  the 
apparent  sphere  of  their  duties,  and  the  bank  is  bound  accordingly,  there 
being  nothing  in  the  known  state  of  affairs  of  the  bank  or  his  relations  to  it 
to  excite  suspicion. ^^  Conversely,  the  cashier  or  other  agent  is  bound  on  his 
part  to  act  in  good  faith  in  the  transaction  of  the  business  of  the  bank,  and 
those  who  deal  with  him  are  affected  by  any  bad  faith  or  want  of  authority 
of  which  they  have  knowledge.^^  But  where  the  validity  of  the  transaction 
depends  upon  whether  the  person  dealing  with  the  bank  through  its  agents 
had  actual  knowledge  of  their  want  of  power  or  good  faith,  it  is  to  be 
judged  by  what  such  person  knew  at  the  time  of  the  original  transaction, 
and  not  by  knowledge  acquired  subsequently,  but  before  he  undertook  to 
renew  or  secure  the  evidence  of  the  obligation  arising  out  of  such  trans- 
action.'''' 

Province  of  Court  and  Jury  as  to  Existence  and  Scope  of  Powers. 
— The  extent  of  the  general  authority  of  the  cashier  of  a  bank  is  a  question  of 


may  lawfully  engage,  the  cashier  is  its 
managing  agent,  and  speaks  for  the 
corporation.  A  verbal  understanding 
between  him  and  the  directors  will 
not  avail  to  limit  his  authority,  when 
his  acts  are  performed  over  the  counter 
of  the  bank,  and  are  of  a  public  char- 
acter, and  numerous  and  long-con- 
tinued. In  such  a  case  it  is  reason- 
able to  presume  that  his  acts  are  in 
conformity  with  the  instructions  of  the 
directors;  and,  if  the  directors,  either 
through  inattention  or  otherwise,  suf- 
fer the  cashier  to  pursue  a  particular 
line  of  conduct  for  a  considerable 
period,  without  objtection,  the  bank 
will  be  bound  by  his  acts.  Caldwell 
V.  National  ^Mohawk  Valley  Bank  (N. 
Y.),   64    P.arl).   WX.',. 

13.  Presumption  as  to  existence  of 
circumstances  authorizing  contract. — 
Citizens'  Sav.  Bank  r-.  P.lakcsly,  42  O. 
St.    04"). 

14.  Same — As  to  integrity  of  officer 
or  agent. — Chemical  Xat.  Bank  v.  Arm- 
strong, TG  Fed.  3.39;  Armstrong  x>. 
Chemical  Nat.  Bank,  27  C.  C.  A.  001, 
83  Fed.  .5.56,  affirmed  in  Aldrich  v. 
Chemical  Nat.  Bank,  176  U.  S.  618,  44 
L.    Ed.   Oil.   20    S.    Ct.   498;    Merchants' 


Xat.   Bank  :■.  State  Nat.  Bank   (U.  S.), 
10   Wall.   604,    19    L.    Ed.    1008. 

15.  Third  persons  affected  by  bad 
faith  or  want  of  authority  of  which 
they  have  knowledge. — Lamb  v.  Cecil, 
28  W.  Va.  653. 

The  fact  that  a  lender  of  money  to 
a  bank,  through  its  cashier,  held  a  ma- 
jority of  the  bank's  stock  as  collateral 
security  for  a  loan  to  the  cashier,  did 
not  apprise  the  lender  that  there  were 
no  directors  or  that  the  stockholders 
were  taking  no  interest  in  the  man- 
agement of  the  bank,  and  the  bank 
was  liable  for  the  amount  of  the  loan. 
Citizens'  Bank  7'.  Bank,  31  Ky.  L.  Rep. 
305,    103    S.    W.    249. 

16.  Same— As  dependent  upon  time 
of  acquisition  of  knowledge. — Citizens' 
Bank  ;•.  Bank,  31  Ky.  L.  Rep.  365,  103 
S.   W.   249. 

The  validity  of  transactions  result- 
ing in  the  making  of  a  loan  to  a  bank 
and  receiving  its  notes  as  collateral 
security  must  be  judged  by  what  the 
lender  knew  when  it  lent  the  money 
in  the  first  instance,  and  not  by  what 
it  learned  afterwards  and  liefore  it 
took  a  renewal  note.  Citizens'  Bank 
7'.  P.aiik.  31  Kv.  E.  Rep.  305,  103  S.  \V. 
240. 


698 


BANKS  AND  BANKING. 


§  102  (1) 


law  ;^'  but  whether  the  cashier  was  authorized  to  exercise  a  particular  power 
not  coming  within  the  general  scope  of  his  duties,  or  whether,  as  to  third 
persons,  he  was  held  out  as  having  authority  to  exercise  certain  powers  in 
any  given  case,  is  a  question  for  the  jury.^^ 

Must  Have  Been  Representing  Bank — Officers  in  More  than  One 
Bank  or  Corporation. — In  order  that  the  bank  may  be  bound  by  the  acts, 
contracts,  or  knowledge  of  its  officers  and  agents,  they  must  have  been 
representing  the  bank  in  the  transaction  in  which  such  act  or  contract  was 
done  or  made,  or  in  which  such  knowledge  was  acquired.  In  other  words, 
a  bank  is  not  bound  by  any  act  nor  chargeable  with  the  knowledge  of  any 
of  its  officers  or  agents,  unless  such  act  be  done  or  such  knowledge  be  ac- 
quired by  such  officer  or  agent  while  acting  in  his  official  or  representative 
capacity. ^'^  Thus  a  person  can  not  deal  with  the  cashier  as  an  individual  in 
securing  a  draft  and  thereafter  claim  that  it  was  a  transaction  with  the 
bank  ;-o  and  a  payment  made  to  the  president  of  a  bank,  outside  the  usual 
course  of  business,  which  the  bank  does  not  receive,  and  from  which  it 
derives  no  benefit,  is  not  a  payment  that  binds  the  bank.-i  As  a  general 
rule,  acts  done  by  an  officer  of  a  bank  away  from  its  place  of  business,  and 
not  authorized  or  ratified,  are  not  binding  upon  it.^^  And  where  such  of- 
ficer or  agent  is  acting  adversely  to  the  bank,  either  in  the  furtherance  of 


17.  Province  of  court  and  jury  as  to 
existence  and  scope  of  powers. — Pen- 
insular Bank  v.  Hanmer,  14  ]Mic:i.  208; 
Farmers',  etc.,  Bank  v.  Troy  City 
Bank    (Mich.).   1    Doug.   457. 

18.  Same — As  to  existence  of  spe- 
cial authority. — Merchants  Nat.  Bank 
V.  State  Nat.  Bank  (U.  S.),  10  WaU. 
f)04,    19   L.    Ed.    1008. 

Upon  the  subject  of  the  authority  of 
the  cashier  of  a  bank  to  make  a  pur- 
chase of  gold,  if  the  certificates  and 
the  gold  actually  went  into  the  said 
bank,  as  was  admitted  by  its  cashier 
to  the  president  ot  the  plaintiff  bank, 
then  the  former  bank  was  liable  for 
money  had  and  received,  whatever 
may  have  been  the  defect  in  the  au- 
thority of  the  cashier  to  make  the 
purchase,  and  this  question  should 
have  been  submitted  to  the  jury.  Mer- 
chants' Nat.  Bank  7:  State  Nat.  Bank 
(U.  S.),  10  Wall.  604,  19  L.  Ed.  1008. 

It  should  have  been  left  to  the  jury 
to  determine  whether,  from  the  evi- 
dence as  to  the  powers  exercised  by 
the  cashier,  with  the  knowledge  and 
acquiescence  of  the  directors,  and  the 
usage  of  other  banks  in  the  same  city, 
it  might  not  be  fairly  inferred  that  the 
cashier  had  authority  to  bind  the  de- 
fendant by  the  contract  which  he  made 
with  the  plaintiff  bank.  Merchants' 
Nat.  Bank  v.  State  Nat.  Bank  (U.  S.), 
10  Wall.  604,  19   L.   Ed.   1008. 


"All  the  evidence  relevant  to  the  acts 
and  authority  of  the  cashier,  either  in- 
herent and  exercised  strictly  virtute 
officii,  or  as  an  agent,  general  or  spe- 
cial, of  the  bank,  under  either  the  au- 
thority of  its  charter  or  by  its  by-laws, 
and  proof,  if  any,  of  the  ratification  or 
rejection  by  the  bank  of  this  or  of 
similar  acts  of  the  cashier,  should 
have  been  fully  brought  out,  to  be 
passed  upon  by  the  jury  under  in- 
structions from  the  court,  or  in  the 
mode  of  a  certificate  of  division,  in 
the  event  of  a  disagreement  between 
the  judges."  United  States  v.  City 
Bank  (U.  S.),  19  How.  385,  15  L.  Ed. 
062. 

19.  Must  have  been  representing 
bank — Officers  in  more  than  one  bank 
or  corporation.— Franklin  Bank  v. 
Commercial   Bank,  5   O.   Dec.   :!?9. 

20.  Dealing  with  officer  in  individual 
capacity. — Campbell  z:  Manufacturers' 
Xat.  Bank,  67  N.  J.  L.  301,  51  Atl.  497, 
91    Am.    St.    Rep.    438. 

21.  Payment  to  president  outside 
usual  course  of  business. — Tulley  v. 
Citizens'  State  Bank,  18  Ind.  App.  240, 
47    N.    E.    850. 

22.  Acts  done  away  from  place  of 
business. — Jones  v.  First  Nat.  Bank,  3 
Neb.  (Unof.)  73,  90  N.  W.  912;  Mer- 
chants'   Bank   v.   Rudolph,   5    Neb.   527. 


^  102  (1 


KF.PRESEXTATION   OF   BAXK. 


699 


his  own  interests  or  as  the  representative  of  third  persons  with  respect  to 
the  immediate  business  in  hand,  the  bank  is  not  bound  either  by  his  knowl- 
edge or  his  acts.--^  This  doctrine  extends  to  negligence,  acts  of  omission, 
and  acts  of  positive  misfeasance,  as  well  as  to  matters  ex  contractu,  the 
bank  not  being  liable  for  the  negligence  or  misfeasance  of  an  officer  who 
■does  not  act  as  the  agent  of  the  bank  in  the  particular  transaction  com- 
plained of.-^  The  bank  is  not  chargeable  with  notice  of  the  fraudulent  act 
■of  its  employee,  outside  the  scope  of  his  authority,  and  in  furtherance  of  his 
personal  designs,  for  the  sole  reason  that  he  is  an  employee.--^  While  the 
knowledge  of  the  agent  is  ordinarily  imputed  to  the  principal,  it  is  well  es- 
tablished that  an  exception  exists  in  those  cases,  where  the  conduct  of  the 
agent  is  such  as  to  raise  a  clear  presumption  that  he  woukl  not  communi- 
■cate  the  fact  in  controversy,  as  where  the  communication  of  such  a  fact 
Avould  necessarily  prevent  the  consummation  of  a  fraudulent  scheme  which 
the  agent  is  engaged  in  perpetrating.-" 

Officers  of  National  Banks  Must  Act  in  Their  Capacity  as  Officers. 
— The  liabilities  for  which  a  national  bank  must  respond  are  such  only  as 
are  created  or  incurred  by  its  officers,  acting  in  the  capacity  of  officers  of 
the  bank  alone,  and  not  in  connection  with  other  trustees  or  officers  of  other 


23.  Officer  acting  collusively  or  ad- 
versely to  bank. — Burris  z\  Bank,  70 
Mo.  App.  6T5;  Jones  r.  First  Nat.  Bank, 
3   Neb.    (Unof.)    73.   90   N.  W.   912. 

Where  a  depositor  authorized  the 
cashier  to  draw  a  check  in  his  name 
for  a  certain  amount,  upon  the  de- 
livery to  him  of  certain  deeds  to  real 
estate,  and  the  check  was  drawn  and 
paid  by  the  cashier  before  the  condi- 
tion was  complied  with,  the  bank  is 
not  liable  to  the  depositor,  the  cashier 
being  the  agent  of  the  depositor  in 
drawing  the  check.  Burris  z\  Bank,  70 
Mo.   App.   675. 

A  cashier  of  a  banking  corporation 
who  takes  an  acknowledgment  of  a 
lease  on  property  on  which  the  bank 
has  a  lease  does  not  act  for  the  bank, 
but  only  in  his  official  capacity  as  no- 
tary. People's  Bank  z'.  Bennett,  159 
Mo.   App.   1,   139   S.   W.   219. 

24.  Doctrine  extends  to  negligent 
and  tortious  acts. —  [ones  z'.  First  Nat. 
Bank,  :]  Nel).  (Unof.)  73,  90  N.  W. 
912;  Thatcher  v.  Bank,  7  N.  Y.  Super. 
Ct.   121. 

25.  Bank  not  chargeable  with  no- 
tice of  fraudulent  acts  outside  scope 
•of  duty. — Louisville  Trust  Co.  v.  Louis- 
ville, etc.,  R.  Co.,  22  C.  C.  A.  378,  75 
Fed.  433:  School  Dist.  z>.  DeWeese, 
100  Fed.  705;  City  Elect.  St.  R.  Co.  7'. 
First  Nat.  Bank,  r)5  .\rk.  543.  47  S.  W. 
855;  First  Nat.  Bank  7'.  Bevin.  72 
Conn.  666,  45  Atl.  954;  Tnnerarity  7'. 
Merchants'   Nat.    Bank.    139   Mass.   332, 


1  N.  E.  282,  52  Am.  Rep.  710;  State 
Sav.  Bank  v.  Montgomery,  126  Mich. 
327.  85  N.  W.  879;  Graham  v.  Orange 
County  Nat.  Bank,  59  N.  J.  L.  225,  35 
Atl.,  1053. 

26.  Same. — Tnnerarity  7'.  Merchants' 
Nat.  Bank.  139  Mass.  332,  1  N.  E.  282, 
52  Am.  Rep.  710;  Jones  v.  First  Nat. 
Bank,  3  Neb.  (Unof.)  73,  90  N.  W. 
912. 

Thus,  an  assistant  cashier  knowing 
that  there  had  been  on  deposit  to 
plaintiff's  credit  for  some  time  a  con- 
siderable sum  of  money,  of  which  de- 
posit plaintiff  was  entirely  ignorant, 
entered  into  a  plot  with  a  third  person, 
whereby  it  was  represented  to  plain- 
tiff that  he  had  a  claim  against  the 
bank  of  some  nature,  and  negotiations 
were  entered  into  with  the  result  that 
plaintiff,  for  a  small  consideration,  was 
induced  to  sign  a  paper  whose  nature 
and  purport  he  did  not  understand.  l)Ut 
which  proved  to  be  a  check  for  the 
entire  amount,  which  check  the  as- 
sistant cashier  and  his  co-conspirator 
cashed  and  divided  the  proceeds  be- 
tween them.  It  was  lield  that  the  as- 
sistent  cashier  did  not  represent  the 
bank  in  such  transaction,  and  that  tlie 
bank  was  not  liable  even  thougli  lie 
had  taken  advantage  of  what  he  had 
learned  in  its  employment  for  the 
furtherance  of  liis  own  fraudulent  de- 
signs to  his  personal  gain.  Jones  z\ 
First  Nat.  Bank.  3  Nel).  (Unof.)  73. 
90    X.   W.   912. 


700  BANKS  AND  BANKING.  §    102    (3) 

companies.  Were  it  otherwise,  the  other  trustees  or  officers  might  outnum- 
ber the  officers  of  the  bank,  and  impose  burdens  on  the  bank  which  would 
ruin  it ;  and  thus  the  bank  would  be  controlled,  not  by  its  officers,  but  by 
outsiders.  The  officers  of  a  bank  can  not  delegate  their  powers  to  others. 
It  is  clear,  therefore,  that  a  national  bank  can  not  be  a  partner  in  a  copart- 
nership, and  can  not  incur  a  partnership  liability.-^ 

§  102  (2)  Power  of  Directors  to  Define  and  Fix  Duties. — When 
the  act  of  incorporation  contains  no  regulations  as  to  the  duties  of  the  cash- 
ier or  other  officers,  it  rests  with  the  directors  to  prescribe  their  duties.^s 

§  102  (3)  Manner  of  Prescribing  Powers  and  Duties. — The  pro- 
visions of  a  charter  and  the  by-laws  of  a  bank,  requiring  the  directors  to 
preseribe  the  duties  of  its  officers,  and  the  further  provision  of  the  charter 
that  the  directors  shall  keep  a  book,  "in  wdiich  shall  be  entered  and  faith- 
fully recorded  a  journal  of  all  their  proceedings,"  are  merely  directory;  and 
the  prescription  of  certain  duties  of  the  cashier  by  the  board  of  directors 
may  be  presumed  from  the  acts  of  the  board  and  of  the  cashier,  and  need 
not  be  established  by  order,  resolution,  or  vote,  recorded  in  the  journals.-'' 
There  is  nothing  in  the  word  "prescribe"  indicative  of  a  written  rather  than 
an  oral  prescription.  The  words  "mark  out,"  or  "assign,"  would  convey 
the  same  meaning;  and  one  of  the  words  no  more  imports  a  written  pre- 
scription than  the  other.  The  prescription  of  duty  need  not  necessarily  be 
in  writing,  in  the  form  of  an  order,  resolution  or  vote,  spread  on  the  journal, 
nor  in  any  other  particular  form.'^'^  A  cashier,  by  assuming  and  performing 
certain  duties  in  connection  with  his  office,  estops  himself  from  denying 
that  they  have  been  prescribed  by  the  board  of  directors.^!  As  to  third 
persons  the  authority  of  a  bank  officer  need  not  be  proven  by  showing  that 
it  was  expressly  conferred  by  the  board  of  directors,  but  may  be  proven  by 
showing  the  existence  of  such  facts  as  constitute  clearly  a  public  holding 
out  that  the  particular  act  done  or  contract  entered  into  was  within  the 
scope  of  his  legitimate  delegated  authority.-"-  The  inference  that  such  au- 
thority has  been  impliedly  conferred  may  be  legitimately  drawn  by  proving 
that  he  was  in  the  habit  of  doing  acts  or  working  contracts  of  the  same 
general  character  as  the  particular  act  or  contracts  which  he  has  done  or 

27.  Officers   of   national   banks   must       (Va.),  2  Pat.  &  H.  277. 

act  in  their  capacity  as  officers. — Mer-  A  verlial  direction  from  the  directors 

cliants'  Nat.  Bank  v.  Wehrniann,  G9  O.  of  a  bank  to  the   cashier,  without  any 

St.  ino,   68   N.   E.   1004.  recorded   vote   of  the  board,   is  a  sufifi- 

28.  Duties  fixed  by  directors. —  cient  authority  to  guide  him  in  the  ap- 
United  States  7'.  City  Bank  (U.  S.).  21  plication  of  moneys  officially  received 
How.  356,  16  L.  Ed.  130;  Fleckner  r.  by  him.  Stamford  Bank  z\  Benedict, 
Bank   (U.   S.),  8  Wheat.  338,  5   L.   Ed.  15   Conn.   437. 

631.         See,    also,    Baldwin   v.    Bank,    1  31.    Estoppel  of  officer  to  deny  that 

Wall.  234,   17   E.   Ed.  534.  duties   were     prescribed     by     board.— 

29.  Manner  of  prescribing  powers  Durkin  z:  Exchange  Bank  (Va.),  2 
and  duties. — Durkin  z\  Exchange  Bank  Pat.  &  H.  277. 

(Va.),  2   Pat.   &  H.  277.  32.    Proof  of  authority  of  officer  or 

30.  Same — Necessity  for  writing  or  agent. — First  Nat.  Bank  v.  Kimber- 
record. — Durkin      i-.      Exchange      Bank       lands,  16  W.  Va.  555. 


§    102    (4)  REPRESEXTATIOX    OF   BANK.  701 

made,  and  that  these  acts  or  contracts,  which  he  was  in  the  habit  of  doing, 
though  apphed  to  different  subjects,  involved  the  same  general  power,  ex- 
cept wdien  the  acts  and  contracts  which  he  was  in  the  habit  of  doing  or  mak- 
ing were  so  very  numerous  and  variant  in  their  character  as  clearly  to  justify 
the  inference  that  he  was  impliedly  authorized  to  do  all  acts  and  make  all 
contracts  which  the  directors  had  the  power  to  do  or  make,  and  to  confer 
upon  the  officer  or  agent  the  right  to  do  or  make.^-^ 

§  102  (4)  Manner  of  Contracting  or  Representing. — Custom  and 
Usage. — If  no  definite  rule  is  to  be  found,  either  in  the  charter  or  by-laws 
of  the  institution,  in  regard  to  the  manner  and  form  in  which  its  acts  and 
contracts  shall  be  evidenced,  then,  it  seems,  general  usage,  and  the  course 
of  business  of  similar  institutions  is  to  govern ;  the  officers  will  be  presumed 
to  have  been  invested  with  the  customary  authority,  and  their  acts  within 
the  scope  of  such  usage,  practice,  and  course  of  business,  will  be  binding 
on  the  institution,  in  favor  of  the  third  person  having  no  knowledge  to  the 
contrary.^^  But  the  customs,  by-laws  and  regulations  of  a  bank  are,  in 
many  respects,  but  intended  to  direct  the  action  and  conduct  of  its  officers, 
and  it  is  liable  for  the  just  responsibility  of  its  acts  in  the  same  degree  as 
an  individual,  notwithstanding  its  officers  and  agents  may  not  have  pro- 
ceeded in  strict  accord  with  the  by-laws,  customs  or  usages  of  the  bank.''"'^ 

Contracts  in  Writing  or  Parol^Express  or  Implied. — Whenever  a 
banking  corporation  aggregate  is  acting  within  the  scope  of  the  legitimate 
purposes  of  its  institution,  all  parol  contracts  made  by  its  authorized  agents, 
are  express  promises  of  the  corporation ;  and  all  duties  imposed  on  them 
by  law,  and  all  benefits  conferred  at  their  request,  raise  implied  promises, 
for  the  enforcement  of  which,  an  action  lies.^*' 

Necessity  for  Use  of  Seal. — Banks  and  other  commercial  corporations 
may  bind  themselves  by  the  acts  of  their  authorized  officers  and  agents, 
without  the  corporate  seal.-'^'     In  respect  to  banks,  from  the  very  nature  of 

33.  Same — Habit,  custom,  and  course  36.  Contracts  in  writing  or  parol — 
of  dealing. — First  Xat.  Bank  z.  Kim-  Express  or  implied. —  I^.ank  :■.  Paltor- 
berlands.  16  \V.  Va.  555.  See.  also.  son  ( U.  S.).  T  Cranch  :299.  3  L.  Ed. 
Hodge  V.   First   Xat.   Bank.   63   Va.    (22  351. 

Gratt.)    51.  In    Bank    7:    Hatch    (U.    S.).    6    Pet. 

34.  Manner  of  contracting  or  repre-  250.  8  L.  Ed.  387.  it  was  held  that  an 
senting — Custom  and  usage. — North-  agreement  made  by  the  agent  and  tlie 
ern  Bank  v.  Johnson,  45  Tenn.  (5  attorney  of  a  bank  to  continue  a 
Coldw.)  88;  Neififer  v.  Bank,  38  Tenn.  cause  for  a  term  without  the  judgment 
(1    Head)    162.  that    would    otherwise    have    been    en- 

35.  Same. — Jackson       Ins.       Co.       z'.  tcred,    was    hindine   on    the   bank. 
Cross,  56  Tenn    ('.)  Heisk.)  283.  37.    Necessity     for     use     of      seal.— 

Thus,  if  a  teller  receive  money  with-  I'leckncr    :■.    Bank    (U.    S.),    8    Wheat, 

out  a  "deposit  ticket,"  or  "pass  book,"  3hs,    5    L.    Ed.    631 ;    Chesapeake,    etc., 

required  by  custom  or  by  a  rule  of  the  Canal  Co.  7:  Knapp  (U.  S.\  n  Pet.  541, 

bank,    and,    by     mistake,      credit      the  9  L.  Ed.  222:  Commercial,  etc.  Ins.  Co. 

wrong  person,  the  ])ank  is  lial)lc.     The  :•.    Union    Mut.    Ins.    Co.    (U.    S.),    10 

nonobservance    of    its    rules    and    cus-  How.    318.    15    L.    Ed.     636;      Bank      z'. 

tomr    by  its    officers    will    not    absolve  Guttscl:lick    (U.    S.),    14    Pet.    10,    10   L. 

it   from   liability.     Jackson    Ins.   Co.  v.  Ed.  335. 
Cross,   56   Tenn.    (0    Hcisk.)    283. 


702  BANKS  AND  BANKING.  §    102    (5a) 

their  operations  in  discounting  notes,  in  receiving  deposits,  in  paying  checks,. 
and  other  ordinary  and  daily  contracts,  it  would  be  impracticable  to  affix 
the  corporate  seal  as  a  confirmation  of  each  individvial  act.-^^ 

§  102  (5)  Representative  Capacity  of  Particular  Officers  Con- 
sidered— §  102  (5a)  Directors. — The  power  to  direct  and  control  the 
affairs  of  a  banking  corporation  is  usually  vested  in  a  board  of  directors  ;^^ 
though  unless  required  by  charter  or  statute  it  is  not  absolutely  essential 
that  a  bank  should  have  a  board  of  directors,  but  may  conduct  its  business 
through  such  officers  and  agents  as  it  may  lawfully  appoint.^^  From  their 
number  the  directors  elect  the  president.  The  president  and  directors  thus 
elected  and  qualified  constitute  the  board  of  directors,  which  has  control 
and  management  of  the  affairs  of  the  bank.^^  So  organized,  the  board  of 
directors  is  a  body  recognized  by  law,  and,  to  all  purposes  of  dealing  with 
others,  constitutes  the  corporation ."* - 

Directors  to  Act  as  a  Board — Not  as  Individuals. — Regarded  as  in- 
dividuals, the  directors  are  not,  properly  speaking,  officers  of  the  bank,  nor 
have  they,  individually,  any  power  to  control  its  management.  They  act 
collectively  and  at  stated  times  as  a  board,  and  are  not  its  mandatories  or 
agents."*-^  Hence,  in  order  to  bind  the  bank,  their  action  must  be  taken  at 
a  lawful  meeting  at  which  a  legally  constituted  quorum  was  present."*^  But 
where  a  thing  is  ordered  to  b^  done  at  a  meeting  of  the  directors  of  a  bank, 
and  no  objection  is  subsequently  made  to  the  regularity  of  the  meeting  by 
any  person  who  is  interested  in  the  direction  of  the  bank,  such  meeting  can 
not  be  objected  to  in  a  suit  in  equity  to  test  the  legality  of  the  thing  done, 
on  the  ground  of  irregularity,  although  the  power  to  do  the  thing  is  in  such 
a  case  a  question  properly  before  the  court.'*"' 

Board  May  Confer  Special  Powers  upon  Individual  Directors. — 
While  directors,  as  individuals,  are  not  agents  of  the  bank,  and  have  no 
implied  power  from  the  mere  fact  of  being  directors,  to  represent  or  bind 
the  bank  in  their  individual  capacities,  there  is  nothing  to  prevent  the  board 

38.  Same. — Fleckner  7'.  Bank  (U.  44.  Same — Necessity  for  action  to 
S."),  8  Wheat.  338,  5  L.  Ed.  631.  be   taken    at   lawful   meeting.— Leary z'. 

39.  Representative  capacity  of  par-  Interstate  Xat.  Bank  (Tex.  Civ.  App.), 
ticular     officers — Directors. — Percy      v.  63   S.  W.  149. 

jNIillaudon,    3    La.    r)68.  Where  at  a  meeting  of  the  directors 

40.  Necessity  for  board  of  directors.  of  a  bank  to  consider  the  sale  of  cer- 
— Gillett  f.  Campbell  (N.  Y.),  1  Denio  tain  property,  five  of  the  six  directors 
520.  were   present,   two   of  whom  were   dis- 

41.  President  and  directors  consti-  qualified  from  acting  in  the  transac- 
tute  managing  board. — Brown  z>.  Farm-  tion,  it  was  held  that  since  only  three 
ers",  etc..  Rank,  88  Tex.  265,  31  S.  W.  of  the  six  directors  were  present  who 
285,  33  L.  R.  A.  359,  reversing  31  S.  could  act  for  the  bank,  a  quorum  was 
W.  216.  v,-anting   and   their   action   in   regard  to 

42.  Directors  constitute  corporation  the  sale  was  not  binding  on  the  bank. 
for  what  purpose. — Burrill  z\  Xahant  Leary  v.  Interstate  Nat.  Bank  (Tex. 
Bank    (Mass.),    2    Aletc.    163.     35      Am.  Civ.    App.),    63    S.    W.    149. 

Dec.    395.  45.    Same — Who  entitled  to  question 

43.  Directors  act  as  board,  not  as  in-  regularity      of      meeting. — Leavitt      r. 
dividuals.— Louisiana     State      Bank     v.  Yates  (N.  Y.),  4  Edw.  Ch.  134. 
Senecal,    13    La.    525. 


§  102  (5a) 


REPRESENTATION   OF   BANK. 


705 


from  conferring  special  powers  upon  one  of  their  number  and  thus  authoriz- 
ing him  to  represent  the  bank  as  a  special  agent  with  respect  to  that  par- 
ticular business  or  transaction.^'' 

General  Nature  and  Scope  of  Authority. — Directors  are  given  au- 
thority to  transact  the  usual  and  ordinary  business  of  the  bank,  and  obvi- 
ously this  power  may  be  exercised  in  all  usual  transactions  through  the 
executive  officers  of  the  bank  without  consultation  with  the  stockholders.'*''' 
But  however  broad  their  powers  of  direction  may  be  they  are  not  unlimited, 
but  must  receive  a  rational  exposition.-*  ^  They  can  not  bind  the  bank  by 
any  act  of  fraud,  departure  from  duty,  or  other  illegal  act.  done  by  them- 
selves, or  by  their  connivance  and  permission,  however  sanctioned  by  the 
uniform  usage  of  the  board.-*^  They  can  not  create  a  special  or  unusual 
corporate  liability  without  special  power  so  to  do ;  and  their  confessions, 
admissions  or  knowledge,  w^hile  not  engaged  in  the  precise  business  in- 
trusted to  them,  can  not  affect  the  corporation.-^*^ 

Delegation  of  Powers. — Directors  are  not  required  to  devote  them- 
selves to  the  details  of  the  business,  which  may  be  left  to  the  president  and 
cashier  and  their  assistants. ^^  It  is  their  duty  to  know  the  condition  of  the 
corporation  whose  affairs  they  voluntarily  assume  to  control,  and  they  are 
presumed  to  know  that  which  it  is  their  duty  to  know,  and  which  they  have 


46.  Board  may  confer  special  pow- 
ers upon  individual  directors. — Waxa- 
hachie  Xat.  Bank  t'.  Vickery  (Tex.  Civ. 
App.),   26    S.   W.    876. 

Thus,  where  a  director  is  especially 
delegated  by  a  bank  to  settle  a  claim 
against  it.  an  agreement  entered  into 
by  him.  under  the  direct  advice  of  the 
president,  is  binding  on  the  bank. 
Waxahachie  Xat.  Bank  z'.  Vickery 
(Tex.    Civ.    App.).    26    S.    W.    876. 

47.  General  nature  and  scope  of  di- 
rectors' power. — ConTmercial  Nat. 
Bank  v.  Weinhard.  192  U.  S.  243,  48  L. 
Ed.    425,    24    S.    Ct.    2.5.3. 

48.  Powers  to  be  given  rational  ex- 
position.— Elinor  z:  Mechanics'  Bank 
(U.   S.).    1   Pet.  46.  7  L.   Ed.  47. 

49.  No  power  to  bind  bank  by  il- 
legal and  fraudulent  acts. — United 
States  V.  Robertson  (U.  S.),  5  Pet.  641, 
8  L.  Ed.  257,  per  Baldwin,  J.,  dissent- 
ing. 

50.  Declarations,  confessions  and  ad- 
missions as  binding  bank. — Loomis, 
etc..  Co.  z:  Eagle  Bank,  1  Disn.  285,  12 
O.   Dec.  625. 

Regulation  concerning  transfer  of 
stock. — Where  the  articles  of  a  bank- 
ing association  confer  upon  the  di- 
rectors the  Dower  of  making  regula- 
tions for  the  government  of  their 
agents  and  the  management  of  the 
business,    this    power     is      not      l)roa(l 


enough  to  authorize  a  regulation  con- 
cerning the  transfer  of  stock.  Bp.nk  v. 
Alanufacturers,  etc.,  Bank,  20  X^.  Y. 
501. 

51.  Delegation  of  powers  by  direct- 
ors.— Briggs  f.  Spaulding,  141  U.  S. 
132,  35  L.  Ed.  662,  11  S.  Ct.  924;  Mason 
v.   Aloore,   73   O.   St.   275,   76   N.    E.   932, 

4  L.  R.  A.,  N.  S.,  597;  Wallace  z\  Lin- 
coln Sav.  Bank,  89  Tenn.  630,  15  S.  W. 
448,  24  Am.  St.   Rep.  625. 

In  the  general  power  given  to  the 
directors  to  appoint  officers  to  do  the 
ordinary  business  of  the  bank,  they 
have  an  authority  to  appoint  a  cashier, 
and  such  an  appointment  is  a  limita- 
tion of  that  officer's  executive  function 
in  doing  the  business  of  the  bank. 
United  States  v.  City  Bank  (U.  S.),  21 
How.   356.   16   L.    Ed.    130. 

In  Fleckner  z'.  Bank  of  United  States, 

5  Wheat.  338,  356,  357,  5  L.  Ed.  631, 
the  court  said  that  the  charter  au- 
thorized the  president  and  directors  to 
appoint  a  cashier  and  other  oflicers  of 
the  bank,  and  gave  the  president  and 
directors,  or  a  majority  of  them,  full 
power  and  authority  to  make  all  such 
rules  and  regulation?  for  the  govern- 
ment of  the  affairs  and  conducting  the 
business  of  said  bank,  as  should  not 
he  contrary  to  the  act  of  incorpora- 
tifHi.  United  States  ?'.  Citv  Bank  (U. 
S.).    21    ]l()\v.    356,    16    L.    Ed.    130. 


704  BANKS    AND    BANKING.  §    102    (5b) 

the  means  of  knowing.-"^-  As  directors,  it  is  their  duty  to  know  the  system 
of  management  of  the  bank  and  its  daily  workings,  and  the  bank  can  not 
escape  Hability  by  showing  that  they  were  ignorant  of  the  business  of  the 
corporation  with  respect  to  those  matters  which  it  was  their  duty  to  know. 
If  they  neghgently  entrust  such  matters  to  others,  and  loss  is  thereby  in- 
curred, it  should  fall  upon  them  and  the  bank,  and  not  upon  innocent  third 
persons. ^-^  Those  powers  which  are  of  a  personal  nature,  however,  or 
which,  under  the  charter,  the  directors  are  required  to  exercise  in  person, 
can  not  be  delegated. ^^  The  bank  transacts  its  business  only  through  its 
board  of  directors  and  its  regularly  constituted  officers,  and  hence  can  not 
appoint  a  general  agent  to  transact  its  business.-''^ 

§  102  (5b)  President — Vice-President. — The  president  of  a  bank 
is  generally,  if  not  always,  a  member  of  the  board  of  directors,  and  chosen 
by  the  board  from  their  own  number.  He  is  expected  to  preside  at  meet- 
ings of  the  board  of  directors,  and  ordinarily  the  position  is  one  of  dignity 
and  of  indefinite  general  responsibility,  rather  than  of  any  great  and  ac- 
curately known  power.  He  is  usually  expected  to  exercise  a  more  constant, 
immediate  and  personal  supervision  over  the  daily  afifairs  of  the  bank  than 
is  required  of  any  other  director;  but  the  authority  inherent  in  the  office  it- 
self is  very  small,  and  it  is  difficult  to  say  precisely  how  or  where  it  is  much 
in  excess  of  that  which  can  be  exercised  by  any  other  single  director.  In- 
deed, it  is  said  that  the  entire  collection  of  judicial  authorities  justifies  the 
enunciation  of  only  one  function  as  falling  within  the  properly  inherent 
power  of  the  president,  namely,  to  take  charge  of  the  litigation  of  the  bank. 
There  is  no  question  that  this  matter  belongs  to  him  by  virtue  of  his  office. 

52.  Duty  to  know  condition  of  bank  l)ank,  they  may  be  presumed  to  have 
— Presumption. — Seale  z'.  Baker,  70  Tex.  known  in  any  contest  between  the  cor- 
28?,.  7  S.  W.  742,  8  Am.  St.  Rep.  592.  poration  and  those  who  are  justified 
See,  also,  Giddings  z'.  Baker,  80  Tex.  by  the  circumstances  in  dealing  with 
.308,  16  S.  W.  33.  its    officers    upon    the     basis      of     that 

53.  Ignorance  of  directors  no  excuse  course  of  business.  Martin  v.  Webb, 
to  the  bank.— Martin  r.  Webb,  110  U.  110  U.  S.  7.  28  L.  Ed.  49,  3  S.  Ct.  428; 
S.  7.  28  L.  Ed.  49,  3  S.  Ct.  428;  Brioo's  Auten  z:  United  States  Nat.  Bank,  174 
V.  Spaulding,  141  U.  S.  132,  35  L.  Ed.  U.  S.  125,  43  L.  Ed.  920,  19  S.  Ct.  628; 
662,  11  S.  Ct.  924;  Auten  r.  United  Seale  v.  Baker,  70  Tex.  283,  7  S.  W. 
States  Nat.  Bank,  174  U.  S.  125,  43  L.  742,  8  Am.  St.  Rep.  592. 

Ed.    920,    19    S.    Ct.    628;    German    Sav.  54.        Nonassignable        duties.— First 

Bank    t'.    Wulfekuhler,     19      Kan.      60;  Nat.   Bank  z:   Kimberlands,  16  W.  Va. 

Meisse  z'.   Loren,   6   O.   Dec.   258,   4   N.  555;   Ex  parte   Rickey,  31   Nev.  82,  100 

P.  100;  Lane  &  Co.  v.  Bank,  56  Tenn.  Pac.  134. 

(9    Heisk.)    419;    Warren    z:    Robison.  55.    Power  to   appoint  general  agent 

19   Utah   289.   57    Pac.   287,   75    Am.    St.  or    manager. — Murphy    f.    Gumaer,    12 

Rep.    734;    Marshall    v.    Farmers',    etc.,  Colo.    App.    472.    55    Pac.    951. 

Sav.    Bank.   85   Va.   676,   8    S.    E.   586.   2  As  to  the  powers  of  directors  of  na- 

L.  R.  A.  534,  17  Am.  St.  Rep.  84;  Zinn  tional    banks    to     delesrate      their      au- 

V.    Mendel.    9    W.    Va.    580;    Wolfe    r.  thority  under  the   words   "or  duly  au- 

Second   Nat.   Bank,   54  W.  Va.   689,   47  thorized    officers    or   aeents    subject   to 

S.   E.  243;   Elliott  z'.  Farmers'  Bank,  61  law."     inserted    in    §    5136    of   the    Rev. 

W.  Va.   641,  57   S.   E.  242.  Stats  .    by    the    amendment    of    1873-74, 

That      which      directors      ought,      by  see  Brisrsrs  zr   Spauldinsr,  141  U.  S.  132, 

proper  diligence,  to  have  known   as   to  35   L.   Ed.   662,   11    S.   Ct.   924. 
the   general   course    of  business   in   the 


§  102   (5b) 


REPRESENTATION    OF    BANK. 


705 


He  may  institute  and  carry  on  legal  proceedings  and  collect  demands  or 
claims  of  the  bank ;  he  may  appear,  answer  and  defend  in  suits  against  the 
bank;  and  to  the  accomplishment  of  these  purposes  he  may  retain  and  em- 
ploy counsel  on  behalf  of  the  bank.^^  But  while  the  powers  inherent  in 
the  office  of  president  are  very  few,  he  may  be  authorized  by  the  directors 
to  do  anything  within  the  authority  of  the  bank's  charter  which  the  directors 
themselves  might  do,  except  such  positive  requirements  as  the  charter  may 
make  personal  to  the  directors  and  which  can  not  be  delegated. •'^'^  Such 
authority  need  not  be  proven  by  showing  that  it  was  expressly  conferred  by 
the  board  of  directors.  Usage  or  directorial  votes  may  confer  upon  him 
special  functions,  and  may  extend  his  authority  to  correspond  with  the  in- 
crease of  active  duties.  To  prove  the  existence  of  such  increased  or  special 
authority,  therefore,  it  is  sufficient  to  show  the  existence  of  such  facts  as 
constitute  clearly  a  public  holding  out  that  the  particular  act  done  or  con- 
tract entered  into  was  within  the  scope  of  his  legitimate  delegated  author- 
ity.-'^'^ It  will  be  readily  seen  from  the  foregoing  that  the  nature  and  extent 
of  the  duties  imposed  upon  the  president  may  vary  in  different  associations 


56.  Inherent  powers  and  representa- 
tive capacity  of  president. — ^Merchants' 
Nat.  Bank  z'.  Eustis,  b  Te.x.  Civ.  App. 
350,  28  S.  W.  227;  Farmers'  Nat.  Bank 
t'.  Templeton  (Tex.  Civ.  App.),  -10  S. 
W.  412;  Commercial  Nat.  Bank  f. 
First  Nat.  Bank,  97  Tex.  536,  80  S.  W. 
601,  104  Am.  St.  Rep.  879;  Hodge  v. 
First  Nat.  Bank,  63  Va.  (22  Gratt.) 
51;  First  Nat.  Bank  v.  Kimberlands, 
16  VV.  Va.  555;  Smith  v.  Lawson,  18  VV. 
Va.   212,   41    Am.    Rep.   688. 

The  president  of  a  bank,  and  in  his 
absence  the  vice  president  or  other 
person  acting  in  the  place  of  the 
president,  has,  within  the  scope  of  his 
general  authority,  the  right  to  employ 
counsel  to  represent  the  bank  in  pend- 
ing or  prospective  litigation.  Russell 
z'.  Washington  Savflpank.  23  App.  D. 
C.    ;3!)8.  ^ 

In  California,  however,  the  president 
of  a  bank  has  no  ex  officio  power  to 
bind  it  for  the  services  of  an  attorney, 
and  unless  he  has  beeti  empowered  to 
hire  an  attorney  under  its  by-laws,  as 
authorized  l)y  Civ.  Code,  §  303,  or  his 
contract  for  an  attorney's  services  was 
authorized  l)y  resolution  of  the  direct- 
ors, or  ratified  or  sanctioned  liy  their 
words  or  conduct,  the  l)ank  is  not  li- 
able therefor.  Pacific  Bank  v.  Stone, 
121    Cal.   202,    53    Pac.   634. 

57.  Powers  conferred  upon  presi- 
dent by  directors. — Wheat  f.  P>ank,  0 
Ky.  L.  Rep.  738,  5  S.  W.  305;  Ex  parte 
Rickey,  31  Nev.  82,  100  Pac.  134;  Mer- 
chants' Nat.  Bank  v.  Eustis,  8  Tex. 
Civ.   .^pp.   350,  28   S.   W.   227;   Farmers' 

1   B  &  B— 45 


Nat.  Bank  z'.  Templeton  (Tex.  Civ. 
App.),  40  S.  W.  412;  Commercial  Nat. 
Bank  z:  First  Nat.  Bank,  97  Tex.  536, 
80  S.  W.  601,  104  Am.  St.  Rep.  879; 
Hodge  z'.  First  Nat.  Bank,  63  Va.  (22 
Gratt.)  51;  First  Nat.  Bank  v.  Kim- 
berlands,  16   W.   Va.   555. 

58.  Proof  of  powers  conferred  by  di- 
rectors.— Merchants'  Nat.  Bank  z\ 
Eustis,  8  Tex.  Civ.  App.  350,  28  S.  W. 
227;  Hodge  v.  First  Nat.  Bank,  63  Va. 
(22  Gratt.)  51;  First  Nat.  Bank  z\  Kim- 
berlands, 16  W.  Va.  555;  Smith  v.  Law- 
son,  18  W.  Va.  212,  41  Am.  Rep.  688. 

The  inference,  that  such  authority 
has  been  impliedly  conferred,  may  be 
legitimately  drawn  by  proving  that  he 
was  in  the  habit  of  doing  acts  or  mak- 
ing contracts  of  the  same  general 
character  as  the  particular  act  or  con- 
tracts which  he  has  done  or  made,  and 
that  these  acts  or  contracts,  which  he 
was  in  the  habit  of  doing,  though  ap- 
plied to  different  subjects,  involved 
the  same  general  power,  except  when 
the  acts  and  contracts,  which  he  was 
in  the  habit  of  doing  or  making,  were 
so  very  numerous  and  so  variant  in 
their  character  as  clearly  to  justify 
the  inference,  that  he  was  authorized 
impliedly  to  do  all  acts  and  make  all 
contracts,  which  the  directors  had  the 
power  to  do  or  to  make,  and  to  con- 
fer on  the  president  the  right  to  do  or 
to  make.  First  Nat.  Bank  v.  Kimber- 
lands, 16  W.  Va.  555.  See,  also.  Smith 
z.'.  Lawson,  18  W.  Va.  212,  41  Am.  Rep. 
688. 


706  BANKS    AND    BANKING.  §    102    (5b) 

according  to  the  usages  and  by-laws  of  each,59  and  that  when  he  goes  be- 
yond the  scope  of  his  usual  authority,  it  must  be  shown  in  some  way  that 
his  act  was  authorized  by  the  directors,  or  that  he  was  held  out  as  having 
authority  to  do  those  things  which  he  has  assumed  to  do.''*^  In  order  that 
the  circumstances  of  a  particular  case  may  be  sufficient  to  raise  a  presump- 
tion of  authority  in  a  bank  president  to  bind  the  bank  in  matters  beyond 
the  scope  of  his  usual  authority,  the  bank  must  in  some  manner  be  a  party 
to  the  circumstances,  or  must  be  chargeable  with  knowledge  of  them.^^i 

Under  the  custom  and  usage  of  modern  banking  the  president  has 
been  so  generally  clothed  with  power  and  authority  beyond  that  ordinarily 
inherent  in  his  office,  as  outlined  above,  that  such  custom  and  usage  has 
been  judicially  recognized,  and  in  some  jurisdictions  he  is  no  longer  looked 
upon  as  a  sort  of  figure  head  having  only  the  powers  of  a  director,  but  as 
the  chief  executive  officer  of  the  bank,  having  great  influence  upon  the  pol- 
icy of  the  bank  and  the  conduct  of  the  various  employees  in  the  discharge 
of  their  duties,  and,  as  regards  third  persons,  authorized  to  represent  the 
bank  in  many  transactions  without  special  or  express  authority  from  the 
directors/'- 

Power  with  Respect  to  Particular  Matters. — The  president  has  no 
power  to  bind  the  bank  except  in  the  discharge  of  his  ordinary  duties,  and 
it  is  not  one  of  his  ordinary  duties,  nor  a  power  inherent  in  his  office,  to 
release  debtors  of  the  bank  from  the  payment  of  their  obligations  to  it 
without  consideration.  Authority  to  surrender  or  release  the  claims  of  the 
bank  against  any  one  can  only  be  derived  from  the  charter,  from  a  vote  of 
the  board  of  directors,  or  from  their  assent,  express  or  implied.  Certainly, 
neither  the  president  nor  the  cashier  nor  both  combined  can,  virtute  officii, 
give  up  a  debt  or  liability  to  the  bank  without  consideration,  nor  bind  the 
bank  by  any  agreement  that  the  maker  or  indorser  of  a  promissory  or  other 
instrument  shall  not  be  liable  according  to  the  tenor  of  the  instrument. *^^ 

59.  President's  powers  may  vary  in  that  his  power  is  limited  to  transactions 
different  banks. — ^Merchants'  Xat.  Bank  expressly  authorized  by  the  directors 
V.  Eustis,  8  Tex.  Civ.  App.  350,  28  S.  no  longer  obtains.  Bartlett  Estate 
W.  227.  Co.    r.    Eraser,    11    Cal.    App.    373.    105 

60.  Proof     of     special     or     unusual  Pac.  130. 

power. — Ex   parte    Rickey,    31    Nev.    82,  63.   Power  with  respect  to  particular 

100   Pac.   l.il.  matters — Releasing     bank's     debtors — 

61.  Circumstances  necessary  to  raise  Guaranty  and  accommodation  agree- 
presumption  of  authority. — Wheat  v.  ments. — Bank  z'.  Jones  (U.  S.),  8  Pet. 
Bank,  9  Ky.  L.  Rep.  738,  5  S.  W.  305.  12.    8    L.    Ed.    850;    Bank   v.    Dunn    (U. 

62.  Judicial  recognition  of  president's  S.),  6  Pet.  51,  8  L.  Ed.  316;  Swindell 
powers  under  modern  custom  and  &  Co.  v.  Bainbridge  State  Bank,  3 
usage.— Bartlett  Estate  Co.  v.  Eraser,  Ga.  App.  364,  60  S.  E.  13;  Olney 
11  Cal.  App.  373,  105  Pac.  130;  Morgan  v.  Chadsey,  7  R.  I.  224;  Hodge 
&  Co.  V.  Merchants'  Nat.  Bank,  81  v.  First  Nat.  Bank,  63  Va.  (22  Gratt.) 
Tenn.  (13  Lea)  234;  Brown  v.  Earm-  51;  Bank  z'.  Wetzel.  58  W.  Va.  1.  50  S. 
ers',  etc..  Bank,  88  Tex.  265,  31  S.  W.  E.  886.  See,  also.  United  States  v.  City 
285,  33  L.  R.  A.  359,  reversing  31  S.  W.  Bank  (U.  S.),  21  How.  356,  16  L.  Ed. 
216.  130:    and    Potts    z\    Wallace,    146   U.    S. 

The    president    of    a    bank    being    its       689.  36  L.   Ed.  1135,  13  S.  Ct.  196. 
executive    head    under    the    usages    and  In   Bank  z'.   Dunn   (U.  S.),  6  Pet.^51, 

customs    of   modern   banking,    the    rule      8    L.    Ed.    316,    it    was    held,    that     an 


§  102  (5b) 


REPRESENTATION    OF    BANK. 


707 


He  has  no  authority,  by  virtue  of  his  office,  to  release  a  debt  due  the  bank 
on  payment  of  part  only.*^"*  He  can  not  enter  into  an  accord  and  satisfac- 
tion of  a  debt  due  the  banlc  by  the  acceptance  of  any  order  on  a  third  party 
in  full  satisfaction  and  discharge  of  the  debt,  unless  he  is  authorized  so  to 
do  by  the  board  of  directors.'^-''  Nor  has  he  any  implied  authority  to  agree 
to  a  composition  between  a  firm  and  its  creditors,  the  bank  being  one  of 
the  creditors.^^  But  when  authorized  by  the  charter  or  by  the  board  of 
directors,  as  where  they  have  turned  the  entire  management  of  the  bank 
over  to  him  or  ratified  similar  acts  through  a  course  of  dealing  extending 
over  a  number  of  years,  he  may  bind  the  bank  by  a  partial  release  of  a  judg- 
ment lien  upon  lands,  the  judgment  note  having  been  taken  in  his  name;"" 
by  an  agreement  to  accept  an  assignment  of  a  judgment  in  settlement  of  a 
claim  of  the  bank,  provided  such  agreement  is  carried  into  efifect;^^  or  by 
an  agreement,  on  sufficient  consideration,  to  enter  a  remittitur  of  a  judg- 
ment in  favor  of  the  bank.'^'^  It  has  also  been  held,  under  a  general  au- 
thority of  this  kind,  that  he  might  accept  property,  other  than  cash,  in  set- 
tlement of  paper  due  the  bank;""  and  in  Texas  it  has  been  held  that  he  not 
only  has  power  to  accept  payment  in  property  other  than  cash,  but  that  he 
has  authority  by  virtue  of  his  office  to  compromise  or  release  debts  due  the 
bank.*^!     The  vice-president  of  a  bank,  who  is  in  charge  thereof,  has  au- 


agreement  by  the  president  and  cash- 
ier of  the  Bank  of  the  United  States, 
that  the  endorser  of  a  promissory  note 
shall  not  be  liable  on  his  indorsement, 
does  not  bind  the  bank.  It  is  not  the 
duty  of  the  cashier  and  president  to 
make  such  contracts;  nor  have  they 
the  power  to  bind  the  bank,  except  in 
the  discharge  of  their  ordinary  duties. 
All  discounts  are  made  under  the  au- 
thority of  the  'directors,  and  it  is  for 
them  to  fix  any  conditions  which  may 
be  proper  in  loaning  money."  Accord, 
Hodge  V.  First  Nat.  Bank,  63  Va.  (22 
Gratt.)   51. 

64.  Same — Same. — State  Sav.  Loan, 
etc.,  Co.  ■:•.  Stewart.  65  111.  App.  :'.'.)!. 

65.  Same — Accord  and  satisfaction. 
— First  Nat.  Bank  v.  Kimljerlands,  16 
W.  Va.  555. 

66.  Same — Composition  agreements. 
— Wheat  V.  Bank,  9  Ky.  L.  Rep.  738,  5 
S.    W.    .305. 

A  banking  corporation  was  a  cred- 
itor to  a  large  amount  of  a  firm,  and 
its  president,  without  express  author- 
ity, and  without  advising  the  directors, 
agreed  to  a  composition  between  the 
firm  and  its  creditors  The  directors 
held  meetings  between  the  time  of 
the  failure  of  the  firm  and  the  pro- 
posal of  a  composition,  and  also  be- 
tween the  time  of  the  proposal  and 
the  time  of  the  acceptance  of  the  com- 
position.    The  board  took  no  action  in 


the  matter,  but  at  its  meetmgs  each 
member  had  expressed  opposition  to  a 
compromise.  There  was  no  evidence 
of  any  custom  of  the  president  to  act 
in  such  matters.  Held,  that  the  action 
of  its  president  was  not  binding  on 
ihe  bank.  Wheat  v.  Bank.  0  Kv.  L. 
Rep.   7?,S.   5   S.   W.   305. 

67.  Same — Release  of  judgment  lien. 
— A\'intnn  v.   Little.  94   Pa.   64. 

68.  Same — Accepting  assignment  of 
judgment  in  payment  of  claim. — First 
Xat.  Bank  c'.  New,  146  Ind.  411,  45  N. 
E.    597. 

69.  Same — Remittitur  of  judgment. — 
Case  V.    Hawkins,   53    Miss.    702. 

70.  Same — Accepting  property  in  lieu 
of  cash. — Merchants'  Nat.  Bank  v. 
Camp,   110   Ga.   780,  36   S.   E.  201. 

71.  Same — Same — Compromise  or  re- 
lease of  debt,  Texas  decisions. — Farm- 
ers' Nat.  Bank  v.  Templcton  (Tex.  Civ. 
App.),  40  S.  W.  412.  citing  and  approv- 
ing Panhandle  Nat.  Bank  v.  Emery,  78 
Tex.  498,  15  S.  W.  23. 

Where  a  bank  holds  a  claim,  the 
president  may,  for  the  purpose  of  mak- 
ing the  delit,  take  from  the  debtor  cat- 
tle encumbered  by  other  debts;  such 
act  binds  the  bank,  and  upon  its  dis- 
posing of  the  property  it  is  liable  to 
the  prior  lienhohlors  for  such  cattle. 
Panhandle  Nat.  Bank  v.  Emery,  78 
Tex.  498,  15  S.  W.  23. 


708  BANKS    AND    BANKING.  §    102    (5b) 

thority  to  bind  the  bank  by  extending  the  time  of  the  payment  of  a  demand 
note  for  a  specified  time  and  for  a  specified  consideration,  and  suspending 
the  right  to  sell  collateral  until  the  expiration  of  the  extended  time.'''-  But 
where  the  directors  of  a  bank  have  not  authorized  its  president  to  make 
an  agreement  to  extend  time  to  a  debtor  or  to  refrain  from  selling  pledged 
stock  for  the  liquidation  of  the  debt,  and  the  circumstances  raise  no  im- 
plication of  authority,  and  such  agreement  by  the  person  who  was  president 
is  never  ratified,  the  bank  is  not  bound  thereby ."^^  Without  authority  from 
the  charter  or  from  the  board  of  directors  he  has  no  power  to  stay  the  col- 
lection of  an  execution  against  the  estate  of  a  debtor  of  the  bank;  and  if 
the  sheriff  omits  to  levy  an  execution,  in  consequence  of  such  an  order  from 
the  president,  it  will  not  become  dormant  so  as  to  lose  its  lien."^-*  In  the 
absence  of  authority  by  charter,  resolution,  or  by-law,  it  will  not  be  pre- 
sumed that  he  is  authorized  to  waive  conditions  of  a  contract  for  the  sale 
of  land."^^  The  president  of  a  banking  corporation  has  no  implied  power 
as  a  matter  of  law  to  either  lease  the  bank's  real  estate  or  cancel  its  out- 
standing leases  thereof  or  enter  into  new  ones  for  it  as  lessee."^^  He  has 
no  inherent  authority  to  endorse  or  transfer  negotiable  notes  belonging  to 
the  bank,  nor  has  any  other  officer  this  inherent  power  except  the  cashier.'^'^ 
But  the  inference  that  such  authority  has  been  conferred  upon  the  presi- 
dent may  be  legitimately  drawn  from  proof  that  he  was  in  the  habit  of  doing 
acts  of  the  same  general  character  though  applied  to  a  different  subject,  and 
especially  where  such  acts  were  the  exercise  of  still  greater  power,  as  the 
assignment  of  other  choses  in  action,  such  as  bonds  and  judgments.'^^  But 
such  power  could  not  be  legitimately  inferred  from  proof  that  he  was  in 
the  habit  of  receiving  deposits  or  payments  of  notes,  or  proof  that  he  was 

72.  Power    of   vice    president   to    ex-  with    the    privilege    of    renewal.      The 

tend     payment     of    note Wyckofif    z'.  bank  sublet  the  hotel  to  a  third  person 

Riverside   Bank,  i;>5  App.   Div.  400,  119  for  the  same  term,  with  privilege  of  re- 

N.  Y.   S.  9.'>7.  newal.      The    bank    renewed    its    lease, 

73.  Power  of  president  to  extend  time  and  the  third  person  remained  in  pos- 
er refrain  from  selling  collateral.  session  after  his  term  and  paid  to  the 
— Arboijast  i'.  American  Exoh.  Nat.  bank  the  prescribed  monthly  rental. 
Bank,   GO   C.   C.   A.   538,   125   Fed.   518.  Thereafter    the    president    executed     a 

74.  Power  to  stay  proceeding  on  exe-  new  lease  to  the  third  person  for  the 
cution. — vSpyker   z'.   Spence,    8   Ala.   333.  entire  premises,  and  arranged  for  free 

75.  Waiver  of  conditions  in  contract  rent  for  the  bank.  He  gained  a  profit 
for  sale  of  land. — Chadbourne  z'.  Stock-  resulting  from  an  increase  of  rent, 
ton  Sav.,  etc.,  Soc,  101  Cal.  xvii,  36  Held,  that  the  president's  new  lease 
Pac.   127.  was    not    valid    as    against    the    bank, 

76.  Power  to  lease,  or  cancel  lease. —  which  could  repudiate  it,  and  hold  the 
People's  Bank  z'.  Bennett,  159  Mo.  App.  third  person  as  its  tenant,  unless  the 
1,  139  S.  W.  219.  bank    consented   to   a   surrender   of  the 

The  lease  of  an  elevator,  included  in  premises    and   the    new    lease,    or   com- 

a    chattel    mortgage    to    a    bank,    to    be  mitted  acts  amounting  to  an   estoppel, 

binding  on   the   bank,  must  be  author-  People's  Bank  z'.  Bennett,  159  Mo.  App. 

ized  by  the  directors;  authorization  by  1,    139    S.    W.   219. 

the    president    alone    being   insufficient.  77.     Power     to     transfer     negotiable 

Tulley  v.  Citizens'  State  Bank,  18  Ind.  paper.— Smith    v.    Lawson,    18    W.    Va. 

App.    240,   47    N.    E.   850.  212,    41    Am.    Rep.   688. 

The  president  of  a  bank  leased  prem-  78.    Same— Special    authority — Proof, 

ises    consisting   of   banking   rooms    and  custom,    usage. — Smith    v.    Lawson,    18 

a  hotel  to  the  bank  for  a  specified  term,  W.   Va.  212,  41  Am.   Rep.   688. 


§  102  (5b) 


re;pri;sextatiox  of  bank. 


709 


aiithonzed  to  receive  generally  deposits  and  payments  made  to  the  bank  "^ 
He  has  no  power  to  bind  the  bank  by  representations  as  to  the  genuineness 
ot  the  signatures  to  a  note;«o  nor  has  he  any  power  inherent  in  his  office 
to  bind  the  bank  by  the  execution  of  a  note  in  its  name,  though  the  power 
to  do  so  may  be  conferred  upon  him  by  the  board  of  directors    either  ex- 
pressly, by  resolution  to  that  effect,  by  subsequent  ratification,  or  by  ac- 
quiescence in  transactions  of  a  similar  nature,  and  of  which  the  directors 
have  knowledge.si    There  is  no  inherent  power  in  his  office  authorizing  him 
to  borrow  money  on  the  bank's  credit.^^^     gut  a  bank  is  liable  for  interest 
on  a  deposit  secured  through  the  president's  promise  that  interest  would 
be  paid  thereon,  where  in  making  the  promise  he  acted  within  the  scope  of 
his  authority,  in  the  absence  of  proof  that  he  was  without  such  authority 
and  that  the  depositor  knew  it  when  he  deposited.^^^     And  where  the  presi- 
dent has  the  power  to  take  a  claim  against  the  bank  out  of  the  operation 
of  the  statute  of  limitations,  the  power  may  be  exercised  out  of  the  state 
wherein  the  bank  is  situated  as  well  as  in  it,  and  is  not  affected  by  the  fact 
that  he  IS,  in  his  individual  capacity,  a  guarantor  of  the  debt.s^     In  an  action 
against  a  bank  for  repairs  to  an  automobile  used  by  its  vice  president  in 
attending  to  the  bank's  business,  even  if  the  president  of  the  bank  could 
not  authorize  such  expenditures,  the  bank  is  liable   for  services  rendered 
upon  the  automobile  at  the  instance  of  the  vice  president  after  the  adoption 
of  a  resolution  by  the  board  of  directors  authorizing  him  to  emplov  all  per- 


79.  Same.— Smith  z:  Lawson,  18  W 
\  a.    212.    41    Am.    Rep.    688. 

80.  Representations  as  to  genuineness 
of    signature.— Commercial    Nat.    Bank 
f.   First   Xat.    Bank,   97   Tex.   o.36,   80   S 
W.    601.    104   Am.    St.    Rep.   879. 

81.  Execution  of  note  in  name  of 
bank.— Xational  Bank  v.  Atkinson,  55 
Fed.    465. 

82.  Borrowing  money  on  bank's 
credit.— Western  Nat.  Bank  v.  Arm- 
strong,  152  U.  S.  346,  38  L.  Ed.  470.  14 
S.  Ct.  572;  Ridgway  v.  Farmers'  Bank 
(Pa.),  12  Serg.  &  R.  256,  14  Am.  Dec. 
681. 

The  vice-president  and  Ljsneral  exec- 
utive officer  of  a  national  bank  has  no 
power  to  borrow  so  large  a  sum  as 
$200,000  at  four  months'  time  for  the 
bank  in  the  absence  of  special  author- 
ity from  the  board  of  directors,  and 
persons  dealing  with  him  are  presumed 
to  know  the  extent  of  his  powers  in 
this  regard.  Western  Nat.  Bank  r. 
Armstrong,  152  U.  S.  346,  38  L.  Ed 
470.  14  S.  Ct.  572. 

The  president  of  a  bank  incorpo- 
rated by  the  Pennsylvania  general  stat- 
ute of  1814  is  not  thereby  empowered 
to  raise  money  by  drafts  on  the  bank. 
Ridgway  V.  Farmers'  Bank  (Pa),  12 
Serg.  &  R.  256,   14  Am.  Dec.  681. 


83.  Promise  to  pay  interest  on  de- 
posit.—Boyd  V.  First  Xat.  Bank,  32  Ky 
L.    Rep.   l.'!23.   ins   S.    \\'.   .^60. 

84.  Power  to  take  claim  against  bank 
out  of  statute  of  limitations.— Morgan 
&  Co.  v.  Merchants'  Xat.  Bank,  81 
lenn.    (13    Lea)    234. 

The  president  and  manager  of  a  bank 
executed    an    agreement    in    its    behalf 
that,    if   plaintiff  would    refrain    for    six 
months  from  bringing  an  action  against 
It    to    enforce   a    stockholder's    liability 
It  would  not  plead  the  statute  of  limita- 
tions     thereto.      The      directors      never 
ratified   the   agreement,   and    it   did   not 
appear    that    they    knew    of    its    exist- 
ence.    The  president  had  for  years  had 
entire    management    of    the    bank;    not 
reporting   his   actions    to   the   directors, 
nor  asking  ratification   thereof,  nor  ob- 
taining    authority     before     performing 
particular  acts.     A  by-law  of  the  bank 
provided  that  the  manager  should  per- 
form   all    duties    which    the    i)aiik's    in- 
terest    required,    limited    only    by    the 
by-laws   and    instructions   of   the   board 
of  directors.     Held,  that  the  court  was 
justified    in    finding    the    agreement    to 
have  been  executed  by  the  bank.  Wells, 
Fargo   &  Co.   v.    Enright.   127   Cal.   669, 
49  L.  R.  A.  647,  60  Pac.  439. 


710  BANKS    AND    BANKING.  §    102    (5ca) 

sons  necessary  to  resume  and  conduct  the  business,  which  has  been  tem- 
porarily suspended.^^ 

§  102  (5c)  Cashier— §  102  (5ca)  General  Nature  and  Extent 
of  Cashier's  Powers  and  Duties.— The  powers  of  the  cashier  of  a  bank 
are  such  as  are  incident  to,  and  impHed  in,  his  official  character,  as  gener- 
ally understood,  as  cash  keeper,  cash  receiver,  or  payer,  as  negotiator  and 
correspondent  for  the  corporation,  or  as  agent  for  various  acts  that  are 
necessary  and  appropriate  to  the  functions  of  such  an  officer,  and  insep- 
arable from  the  operations  of  the  bank ;  or  those  powers  and  duties  may  be 
created  by  a  general  or  special  authority  declared  in  the  charter  or  in  the 
by-laws  of  the  corporation-^^  He  is  the  executive  officer  of  the  bank  by 
whom  its  debts  are  received  and  paid  and  its  securities  taken  and  trans- 
ferred, and  through  whom  the  whole  financial  operations  of  the  bank  are 
conducted.  His  ordinary  duties  are  to  superintend  the  books  and  trans- 
actions of  the  bank,  under  the  orders  of  the  directors;  to  keep  all  the 
funds  of  the  bank,  its  notes,  bills  and  other  choses  in  action,  to  be  used 
from  time  to  time  for  the  ordinary  and  extraordinary  exigencies  of  the 
bank.  He  usually  receives  directly,  or  thror.gh  the  subordinate  officers  of 
the  bank,  all  moneys  and  notes  of  the  bank,  delivers  up  all  discounted  notes, 
collateral  pledges  and  other  securities  when  they  have  been  paid,  draws 
checks  to  withdraw  the  funds  of  the  bank  where  they  have  been  deposited, 
and,  as  the  executive  officer  of  the  bank,  transacts  most  of  its  business.^^ 
Tellers  and  other  subordinate  officers  may  be  appointed,  but  they  are  under 
his  direction,  and  are,  as  it  were,  the  arms  by  which  designated  portions  of 
his  various  functions  are  discharged.^^ 

85.  Repairs  to  automobile  used  in  662;  Merchants'  Bank  v.  Rawls,  7  Ga. 
bank's  business.— Seadale  v.  Mont-  196;  Mott  v.  Semmes,  24  Ga.  540;  Mor- 
gomery.   113  N.   Y.   S.  600.  ris  v.   Georgia  Loan,  etc.,  Co.,  109   Ga. 

86.  Nature  and  extent  of  cashier's  12.  34  S.  E.  378,  46  L.  R.  A.  506; 
powers.— United  States  v.  City  Bank  Squires  v.  First  Nat.  Bank,  59  111.  App. 
(U  S)  19  How.  385,  15  L.  Ed.  662;  134;  Wakefield  Bank  v.  Truesdell  (N. 
Fleckner  v.  Bank  (U.  S.),  8  Wheat.  338,  Y.),  55  Barb.  602;  Bissell  v.  First  Nat. 
5  L  Ed  631;  West  St.  Louis  Sav.  Bank  Bank,  69  Pa.  415;  Morgan  &  Co.  Z'. 
V.  Shawnee  County  Bank,  95  U.  S.  557,  Merchants'  Nat.  Bank,  81  Tenn.  (13 
24   L    Ed    490.  Lea)    234;    Northern    Bank  v.   Johnson, 

87."  Same.— Bank  v.   Dunn   (U.   S.),  6  45   Tenn.    (5   Coldw.)    88;   Rosenberg  v. 

Pet    51,  8  L.  Ed.  316;  United  States  v.  First    Nat.    Bank    (Tex.   Civ.   App.).   27 

City  Bank   (U.  S.),  21  How.  356,  16  L.  S.  W.  897;   First  Nat.  Bank  v.  Ledbet- 

Ed.   130;    Fleckner  v.   Bank    (U.    S.),   8  ter    (Tex.    Civ.    App.),   34    S.    W    1042; 

Wheat      338.     5      L.      Ed.     631;     First  Durkin    v.     Exchange    Bank     (Va.),    2 

National    Bank   7'.    Stewart,    114    U.    S.  Pat.  &  H.  277;  Bank  v.  Wetzel,  58  W. 

224.   29    L.    Ed.    101,   5    S.    Ct.   845;    Case  Va.    1,    .50    S.    E.   886. 

V    Citizens'   Bank,  100  U.   S.  446,  25  L.  88.  Same— Subordinate  officers  under 

Ed.  695;  Merchants'  Nat.  Bank  v.  State  his    direction — Merchants'    Nat.    Bank 

Nat    Bank  (U.  S.),  10  Wall.  604,  19  L.  v.    State   Nat.    Bank    (U.    S.),   10   Wall. 

Ed    1008;  West  St.  Louis  Sav.  Bank  v.  604,    19    L.    Ed.    1008;    West    St.    Louis 

Shawnee  County  Bank,  95  U.  S.  557,  24  Sav.    Bank    v.    Shawnee    County    Bank, 

L.  Ed.  490;  United  States  v.  City  Bank  95    U.    S.    557,    24    L.    Ed.    490;    United 

(U    S)     21    How.   356,    16    L.    Ed.   130;  States  v.   City   Bank    (U.   S.),  21   How. 

Martin  V.  Webb,  110  U.  S.  7,  28  L.  Ed.  356,   16   L.   Ed.   130;    Fleckner  v.   Bank 

49,  3  S.  Ct.  428;  United  States  v.  City  (U.   S.),   8   Wheat.   338,   5   L.    Ed    631; 

Bank   (U.  S.),  19   How.  385,  15  L.  Ed.  Martin  v.  Wiebb,  110  U.  S.  7,  28  L.  Ed. 


§  102  (5ca) 


REPRESENTATION    OF    BANK. 


711 


Inherent  Powers  Greater  than  Those  of  the  President. — The  pow- 
ers and  duties  of  a  cashier,  in  virtue  of  his  office,  are  much  greater  than 
the  president's  though  his  office  is  strictly  executive.^^ 

Exercises  the  Functions  of  a  Treasurer. — He  exercises  the  functions 
of  a  treasurer,  and  is  to  all  intents  and  purposes  one,  though  called  by  a 
different  name.^*^ 

Power  to  Bind  the  Bank — Restrictions  Requiring  Signature  of 
President  and  Cashier. — By  virtue  of  his  office,  he  is  generally  intrusted 
with  the  notes,  securities,  and  other  funds  of  the  bank,  and  is  held  out  to  the 
world  as  its  general  agent  in  the  negotiation,  management  and  disposal  of 
them,  with  authority  to  receive  offers  for  their  purchase  and  give  informa- 
tion relative  thereto. ^^  As  the  executive  officer  of  the  bank,  through  whom 
all  its  moneyed  operations  are  transacted,  he  has  full  power  within  the  just 
scope  of  his  authority,  according  to  the  general  usage,  practice  and  course 
of  business  in  such  case,^^  ^nd  may  bind  the  funds  of  the  bank  in  matters 
of  contract  springing  out  of  his  legitimate  and  ordinary  duties  as  cashier; 
and  restrictions  in  the  charter,  requiring  the  signature  of  the  president  and 
cashier,  do  not  apply  to  such  contracts  as  the  drawing  and  indorsing  of  bills 
of  exchange,  drafts  and  checks,  which  are  implied  by  law  as  a  part  of  the 
ordinary  duties  of  the  cashier ;  and  for  such  acts  he  can  not  be  held  individ- 
ually responsible  for  the  payment  of  the  checks  or  drafts. ''^ 


49,  3  S.  Ct.  428;  Rosenberg  t-.  First 
Xat.  Bank  (Tex.  Civ.  App.),  27  S.  W. 
897. 

89.  Inherent  powers  greater  than 
president's. — Hodge  z\  First  Xat.  Bank 
63  Va.  (22  GrattO  51;  Smith  v.  ]!,aw- 
son,  18  W.  Va.  212,  41   Am.   Rep.   688. 

90.  Exercises  functions  of  a  treas- 
urer.— Rosenberg  z\  First  Nat.  Bank 
(Tex.    Civ.    App.).   27    S.    W.    897. 

91.  Care  and  custody  of  securities — 
Power  to  negotiate,  dispose,  or  give 
information  concerning  same. — First 
Nat.  Bank  v.  Stewart.  114  U.  S.  224, 
29  L.  Ed.  101,  5  S.  Ct.  845; 
Northern  Bank  v.  Johnson,  45  Tenn. 
(5    Coldw.)    88. 

His  statement  to  a  person  who  was 
in  treaty  to  purchase,  that  the  bank 
was  not  the  owner  of  a  certain  security 
in  his  manual  possession  as  cashier, 
is  clearly  within  the  line  of  his  duty, 
and  therefore,  binding  on  the  bank. 
First  Nat.  Bank  r.  Stewart,  114  U.  S. 
224,  29  L.  Ed.  101.  5  S.  Ct.  845. 

92.  Same.— Bank  r.  Wetzel.  58  W. 
Va.  1.  5,  50  S.  E.  886;  Wakefield  Bank 
V.   Truesdell    (N.   Y.),   5.j    Barl).    (502. 

93.  Restrictions  requiring  signature 
of  president  and  cashier. — Mechanics' 
Bank  7'.  Bank  (U.  S.),  5  Wheat.  326, 
5  L.  Ed.  100;  Carey  v.  Giles,  10  Ga. 
26;  Wakefield  Tiank  z:  Truesdell  (N. 
Y.),  55  Barb.  602;   Maxwell  z'.  Planters' 


Bank,  29  Tenn.  (10  Humph.)  507; 
Northern  Bank  v.  Johnson,  45  Tenn. 
(5   Coldw.)   88. 

A  president  and  directors  are  not 
necessary  to  the  validity  of  any  act 
of  the  cashier  which  he,  virtute  officii, 
may  do.  And  the  payment  of  a  debt 
due  by  the  bank,  or  securing  the  same 
by  a  transfer  of  the  securities  of  the 
bank,  is  an  act  which  belongs  to  his 
ofhce,  and  which  he  may  rightfully  do. 
Carey  t'.  Giles.  10  Ga.  9. 

A  bank  is  liable  on  a  check  drawn  by 
its  cashier  alone  in  due  course  of  busi- 
ness, notwithstanding  a  clause  in  the 
charter  of  the  bank,  providing  that  "all 
bills,  bonds,  notes,  and  every  contract 
on  behalf  of  the  company  shall  be 
signed  by  the  president,  and  counter- 
signed and  attested  by  the  cashier;  and 
the  funds  of  the  company  shall  in  no 
wise  be  held  responsible  for  any  con- 
tract, unless  the  same  be  executed  as 
aforesaid."  Northern  Bank  r.  John- 
son.   45    Tenn.    (5    Coldw.)    88. 

Charter  of  the  Mechanics'  Bank  of 
Alexandria.  §  17,  which  provides  that 
"all  bills,  bonds,  notes  and  every  other 
contract  or  agreement  on  behalf  of  the 
corporation,  shall  be  signed  by  the 
president,  and  countersigned  by  the 
cashier;  and  the  funds  of  the  corpora- 
tion shall  in  no  case  be  liable  for 
any      contract,      or     engagement,     un- 


712 


BANKS    AND    BANKING.  §    102    (5cb) 


Representative  of  the  Bank,  Not  of  the  Directors.— While  the  cash- 
ier is  elected  by  the  directors,  his  office  is  one  created  by  the  charter,  and 
not  by  any  ordinance  or  by-law  of  the  directors.  Within  the  scope  of  his 
powers,  therefore,  he  is  the  agent,  not  of  the  directors,  but  of  the  bank. 
The  charter  and  the  corporation  hold  him  out  to  the  public  as  such.  His 
duties  do  not  spring  out  of  his  election  by  the  board  of  directors,  but  out  of 
the  nature  and  functions  of  his  office  as  defined  by  the  general  law.  That 
law  defines  his  duties,  unless  they  are  made  different  by  the  charter  and 
by-laws  of  the  bank.  Certain  things  he  can  not  do  without  the  order  of  the 
board  of  directors,  but  such  acts  as  appertain  generally  to  his  office,  he  may 
do  independently  and  irrespective  of  the  board,  and  with  respect  to  such 
matters,  his  agreements  in  behalf  of  his  principal  are  binding  upon  it  to  the 
same  extent  as  if  made  by  a  resolution  of  the  board  of  directors.^^  A  for- 
tiori, the  acts  of  the  cashier  carrying  into  execution  a  lawful  contract  en- 
tered into  by  the  bank  through  its  board  of  directors  are  the  acts  of  the 
bank  itself,  for  which  it  is  responsible  to  all  parties  aggrieved  by  them.s-^ 

Powers  of  Cashier  Previous  to  Bank's  Going  into  Operation.— The 
cashier  has  no  ex  officio  power  until  the  bank,  of  which  he  is  the  cashier, 
goes  into  operation.  Until  then  he  is  the  limited  agent  of  the  corporation, 
governed  strictly  by  its  legally  expressed  orders  and  authority.  He  is 
clothed  with  ex  officio  powers  when  the  bank  begins  business  from  the  neces- 
sity of  the  case.    There  is  no  such  necessity  before.^^ 

Ex  Officio  Powers  Not  Unlimited.— Finally,  it  should  be  observed  that 
the  ex  officio  powers  of  the  cashier  are  by  no  means  general  or  unlimited. 
They  are  limited  to  such  matters  and  things  as  are  embraced  within  the 
duties  of  his  office,  and  in  relation  to  which  he  must  be  presumed  to  have 
authority  to  act.'^'  His  power  does  not  extend,  for  example,  to  giving  out 
the  capital  stock,  the  money  or  effects  of  the  bank  held  as  capital  stock  prior 
to  the  bank's  going  into  operation  ;  for  although  elected  cashier,  he  is  not 
held  out  to  the  community  as  having  authority  of  any  sort  before  the  bank 
commences  business. ^•- 

§  102  (5cb)  Applicability  of  the  Rules  of  Agency.— General 
Rules  of  Agency  Apply.— The  cashier  of  a  bank  is  its  agent,  and  the  same 

less    the    same    shall     be     signed     and  55   Barb.  602;   Bank  z:   Scbuylkill  Bonk 

countersigned    as    aforesaid"— does    not  (Pa.),  1   Pars.    Eq.  Cas.   180:    Bissell  y. 

extend  to   checks   drawn   upon   another  First    Nat.    Bank,    69    Pa.    415;    Uurkin 

bank,   in   which    case   the   cashier's  .sig-  v.    Exchange   Bank    (Va.)    2   Pat.   &   H. 

nature    is    sufficient.      Mechanics'    Bank  277. 

V   Bank  (U.  S.),  5  Wheat.  326,  5  L.  Ed.  95.   Acts   of  cashier,  the  acts  ot  the 

100.  bank.— Bank   7\    SchuykiU    Bank    (Pa.), 

94.   Representative  of  the  bank — Not  1   Pars.   Eq.   Cas.   180. 

of  the  directors.— Baldwin  v.  Bank  (U.  96.  Powers  previous  to  banks  going 

S.).    1   Wall.   234,   17   L.    Ed.   534;   Mer-  into    operation.— Mott    v.    bemmes.    ..4 

chants'   Nat.   Bank  v.   State   Nat.    Bank  Ga.   540. 

(U    S)    10  Wall.  604,  10  E.   Ed.  1008;  97.   Ex   officio  powers  not  unlimitea. 

Carey    ^.    Giles,    10    Ga.    9;    Squires    v.  — Motl  7:  Semmes,  24  Ga.  540. 

First     Nat.    Bank,     59     111.     App.     134;  98.    Same.— Mott   v.   Semmes,   24    Ua. 

Wakefield   Bank  v.   Truesdell    (N.    Y.),  540. 


§    102    (5cb)  REPRESENTATION    OF    BANK.  713^ 

rules  of  agency  must  be  applied  to  him  as  to  other  persons  occupying  fidu- 
ciary relations. ^^  As  the  agent  of  the  bank,  his  acts  bind  the  bank  when 
performed  within  the  scope  of  his  agency;  but  it  is  certainly  true  that  the 
authority  of  the  cashier  and  other  officers  of  the  bank  is  restricted  to  such 
modes  of  binding  the  association  as  fall  within  the  scope  of  his  agencw^ 

Presumed  to  Have  Authority  Incident  to  Office— Third  Persons 
without  Knowledge  Not  Bound  by  Limitations  upon  Powers. — He  is 
held  out  to  the  public  as  having  authority  to  act  according  to  the  general 
usage,  practice  and  course  of  business  conducted  by  such  institutions ;  and 
his  acts,  within  the  scope  of  such  usage,  practice,  and  course  of  business, 
will  in  general  bind  the  bank  in  favor  of  third  persons  possessing  no  other 
knowledge.  Third  persons  and  the  public  at  large  usually  have  no  other 
knowledge  of  the  powers  of  a  cashier  than  what  is  derived  from  such 
usage,  practice  and  course  of  business,  and  are  warranted  in  believing  that 
the  cashier  is  duly  authorized  to  perform  any  customary  duty  falling  within 
the  scope  of  that  category,  and  may  to  that  extent  hold  the  bank  responsil:)le, 
as  if  he  were  so  authorized,  however  the  fact  may  be,  save  only  in  cases 
where  his  want  of  authority  is  affirmatively  proved  and  actual  knowledge  of 
that  fact  brought  home  to  third  persons.  The  law  admits  of  no  such  in- 
justice as  the  bank's  setting  up  secret  instructions  and  restrictions  limiting 
his  authority,  either  in  a  particular  case  or  in  respect  to  the  general  author- 
ity inherent  in  his  position  as  cashier,  for  the  purpose  of  defeating  its  lia- 
bility for  his  acts  and  contracts  as  its  agent,  when  the  party  dealing  with 
him  had  no  knowledge  of  such  restrictions  u])on  his  authority.- 

Bank  Bound  upon  Such  Additional  Authority  as  He  Is  Held  Out  to 
Possess. — In  addition  to  the  authority  ordinarily  inherent  in  his  position, 
the  cashier  must  be  deemed  to  possess,  as  regards  third  persons,  such  other 
authority,  if  any,  as  he  has  been  held  out  to  possess.  Thus  if  a  cashier  is 
allowed  to  exercise  general  authority  in  respect  to  the  business  of  the  bank 

99.    Cashier    as    agent — Applicability  172,    5S    Am.    Dec.    581;    Rosenbero;   v. 

of  rules  of  agency. — Campbell  v.   Man-  First    Nat.    Bank    (Tex.   Civ.    App.).   27 

ufacturers'  Nat.   Bank,  67   X.   I.  L.  301,  S.  W.  897;   First  Nat.  Bank  v.  Ledbet- 

91   Am.   St.    Rep.   438,   51   Atl.  ^497.  ter   (Tex.   Civ.   App.),  34   S.   W.   1042. 

1.  Same — Limited  to  scope  of  his  Where  the  whole  business  of  the 
agency. — Maxwell  v.  Planters'  Bank,  I)ank  is  confined  entirely  to  the  dircct- 
29   Tenn.    (10   Humph.)    507.  ors,  of  course  with  them   it  would  rest 

2.  Presumption     as     to     extent     of  to  fix  the  duties  of  the  cashier  or  otlier 

powers — Secret     limitations Case     v.  officers.     If  whether  they  have   in   fact 

Citizens'  Bank,  100  U.  S.  44(5,  25  L.  Ed.  made   any   rcRulations   on    this    subject, 

695;  Minor  v.  Mechanics'  Bank  (U.  S.),  does  not  appear,  the  acts  of  the  cashier, 

1  Pet.  46,  7  L.  Ed.  47;  Merchants'  Nat.  done  in  the  ordinary  course  of  the  busi- 

Bank   v.    State    Nat.    Bank    (U.    S.),   10  ness  actually  confided  to   such   an  offi- 

Wall.  604,  19  L.   Ed.  1008,  per  Clifford,  cer,    may   well    lie    deemed    prima    facie 

T.,     dissenting:     Mott     7-.     vSemmes,     24  evidence  that  they  fell  within  the  scope 

Ga.   540;   Burnham  v.  Webster,  19   Me.  of  his  duty.     Fleckner  v.  Bank  (IT.  S.), 

233;     Badg-er    v.     Bank,     26     Me.      428;  8    Wheat.    3;i8,    5    L.    Ed.    631:    United 

Cooper   V.    Townsend,   59    Hun    624,    13  States   v.   City   Bank    (U.   S.),   21    How. 

N.   Y.   S.   760,   37   N.   Y.    St;   Rep.   122;  356,  16  L.  Ed.  i:'.o. 

Lloyd    V.    West    Branch    Bank,    15    Pa. 


714 


BANKS    AND    BANKING. 


102   (5cb) 


for  a  considerable  time— in  other  words,  if  he  is  held  out  to  the  public  as 
having  authority  in  the  premises — the  bank  is  bound  by  his  acts,  not  ultra 
vires,  as  in  case  of  an  agent  of  any  other  corporation,  by  whatever  name  he 
may  be  designated,  in  the  same  manner  as  if  authority  were  expressly 
granted.3  It  is  not  necessary,  of  course,  that  such  authority,  extending  to 
transactions  beyond  his  ordinary  duties,  should  be  in  writing,  or  that  it 
should  appear  upon  the  record  of  the  proceedings  of  the  board  of  directors. 
It  may  be  by  parol  and  collected  from  circumstances,  or  it  may  result  merely 
from  usage  and  tacit  approval.  It  may  be  inferred  from  the  general  man- 
ner in  which,  for  a  period  sufficiently  long  to  establish  a  settled  course  of 
business,  he  has  been  allowed,  without  interference,  to  conduct  the  affairs 
of  the  bank.  It  may  be  implied  from  the  conduct  or  acquiescence  of  the 
corporation  as  represented  by  the  board  of  directors.^  Where  the  author- 
ity is  left  to  be  inferred  from  powers  usually  exercised  by  the  agent, 
it  is  enough  if  the  transaction  in  question  involves  precisely  the  same  gen- 
eral powers,  though  applied  to  a  new  subject  matter.^ 

When  Previous  Sanction  or  Subsequent  Ratification  Required  to 
Be  Shown. — As  for  those  acts  and  contracts  not  within  the  scope  of  the 
power  and  authority  ordinarily  inherent  in  his  office  as  cashier,  and  which 
the  bank  has  not  held  him  out  to  the  public  as  possessing,  the  bank  is  not 


3.  Cashier  held  out  as  possessed  of 
additional  authority. — Martin  v.  Webb, 
110  U.  S.  7,  28  L.  Ed.  49,  3  S.  Ct.  428, 
Merchants'  Nat.  Bank  v.  State  Nat. 
Bank  (U.  S.),  10  Wall.  604,  19  L.  Ed. 
1008;  Morris  v.  Georgia  Loan,  etc.,  Co., 
109  Ga.  12,  34  S.  E.  378,  46  L.  R.  A. 
506;  Sherwood  v.  Home  Sav.  Bank,  131 
Iowa  528,  109  N.  W.  9;  Wing  v.  Com- 
mercial, etc.,  Bank,  103  Mich.  565,  61 
N.  W.  1009;  Pattison  v.  Syracuse  Nat. 
Bank,  80  N.  Y.  82,  36  Am.  Rep.  582. 

Where  the  entire  control  of  the  af- 
fairs of  a  bank  is  left  with  the  cashier, 
his  acts,  and  the  acts  done  with  his 
authority  by  his  subordinates,  are  bind- 
ing on  the  corporation.  Pattison  v. 
Syracuse  Nat.  Bank,  80  N.  Y.  82,  36 
Am.  Rep.  582. 

4.  Same — Proof  of  additional  or  un- 
usual authority. — Martin  v.  Webb,  110 
U.  S.  7,  28  L.  Ed.  49,  3  S.  Ct.  428; 
Merchants'  Nat.  Bank  v.  State  Nat. 
Bank  (U.  S.),  10  Wall.  604,  19  L.  Ed. 
1008;  Morris  v.  Georgia  Loan,  etc.,  Co., 
109  Ga.  12,  34  S.  E.  378,  46  L.  R.  A. 
506. 

Evidence  of  powers  habitually  exer- 
cised by  a  cashier  of  a  bank  with  its 
knowledge  and  acquiescence,  defines 
and  establishes,  as  to  the  public,  those 
powers,  provided  that  they  be  such  as 
the  directors  of  the  bank  may,  without 


violation  of  its  charter,  confer  on  such 
cashier.  Merchants'  Nat.  Bank  v.  State 
Nat.  Bank  (U.  S.),  10  Wall.  604,  19  L. 
Ed.  1008. 

When,  during  a  series  of  years  or  in 
numerous  business  transactions,  he  has 
been  permitted,  without  objection  and 
in  his  official  capacity,  to  pursue  a 
particular  course  of  conduct,  it  may  be 
presumed,  as  between  the  bank  and 
those  who  in  good  faith  deal  with  it 
upon  the  basis  of  his  authority  to  rep- 
resent the  corporation,  that  he  has 
acted  in  conformity  with  instructions 
leceived  from  those  who  have  the  right 
to  control  its  operations.  Martin  v. 
W^bb,  110  U.  S.  7,  28  L.  Ed.  49,  3  S. 
Ct.    428. 

5.  Same — Application  of  powers  to 
new  subject  matter. — Merchants'  Nat. 
Bank  v.  State  Nat.  Bank  (U.  S.),  10 
Wall.   604,  19   L.   Ed.   1008. 

Thus,  if  in  the  case  of  a  bank  having 
power  by  its  charter  to  buy  and  sell 
exchange,  coin  and  bullion,  its  cashier 
has  habitually,  with  the  knowledge  of 
the  bank,  dealt  with  the  public  as  au- 
thorized to  buy  and  sell  eixchange,  then 
the  power  to  buy  and  sell  coin  also 
(the  right  to  do  both  being  conferrea 
by  the  same  clause  of  the  charter), 
may  be  inferred  by  a  jury.  Merchants' 
Nat.  Bank  v.  State  Nat.  Bank  (U.  S.), 
10   Wall.   604.   19   L.    Ed.   1008. 


§    103  REPRESENTATION    OF    BANK.  715 

bound  unless  it  is  made  to  appear  that  it  either  previously  sanctioned  or 
subsequently  ratified  them.^ 

§  102  (5d)  Teller. — The  president  and  receiving  teller  of  an  incor- 
porated bank  acting  within  the  scope  of  their  authority  are  agents  of  the 
corporation,  and  not  of  each  other,  and  though  the  president  has  larger 
powers  than  the  teller,  and  may  direct  his  acts,  the  president  is  in  no  sense 
the  principal,  but  his  acts,  within  the  scope  of  his  powers,  are  the  acts  of 
the  corporation."  There  is  nothing  in  the  nature  of  the  duties  of  a  teller 
incompatible  with  those  of  a  cashier,  and  it  is  entirely  competent  for  the 
directors  to  require  the  same  person  to  discharge  the  duties  of  both  of- 
ficers.^ The  bank  selects  its  teller  and  places  him  in  a  position  of  great 
responsibility.  Persons  having  no  voice  in  his  selection  are  obliged  to  deal 
with  the  bank  through  him.  If,  therefore,  while  acting  in  the  business  of 
the  bank  and  within  the  scope  of  his  employment,  so  far  as  is  known  or 
can  be  seen  by  the  party  dealing  with  him,  he  is  guilty  of  misrepresentation, 
the  bank  ought  to  be  responsible.*^ 

§  103.  Statutory  Provisions. — Mandatory  or  Directory. — Some  of 
the  provisions  of  the  charter  and  by-laws  may  well  be  deemed  directory  to 
the  officers,  and  not  conditions  without  which  their  acts  would  be  utterly 
void.  What  are  to  be  deemed  such  provisions,  must  depend  upon  the  sound 
construction  of  each  regulation  with  reference  to  its  nature  and  object, 
public  convenience  and  apparent  legislative  intention.  If  a  regulation  be 
merely  directory,  then  any  deviation  from  it,  though  it  may  subject  the 
officers  to  responsibility  both  to  the  government  and  the  stockholders,  can 
not  be  taken  advantage  of  by  third  persons.  In  other  words,  directory  pro- 
visions addressed  to  the  officers  of  the  bank  are  not  conditions  precedent 
to  the  validit}'  and  binding  force  of  their  acts.^*^' 

6.  Same — Previous  sanction  or  subse-  Xat.   Bank  (U.  S.).  10  Wall.  604,  19  L. 

quent  ratification. — Bank  v.   Hooke.   41  Ed.    1008. 

Tenn.      (1      Coldw.)      156;      Dycus     v.  10.     Statutory    provisions — Directory 

Traders    Bank,   etc.,    Co.,   52   Tex.    Civ.  and      mandatory      provisions. — Ihiited 

App.    175,    113    S.    W.     329;     Bank     v.  States  v.  Kirkpatrick   (U.  S.),  9  Wheat. 

Wetzel,  58  W.  Va.   1,   50   S.   E.  886.  720,  6  L.  Ed    199;  Uniccd  States  v.  Van 

The  act  of  a  bank  cashier  in  ret^ard  Zandt  (U.  S.),  11  Wheat.  184,  6  L.  Ed. 
to  a  matter  which  by  the  bank's  char-  448;  Bank  v.  Dandndge  (U.  S.),  12 
ter  and  by-laws  is  left  to  the  control  of  Wheat.  64,  6  L.  Ed.  552.  See  Jackson- 
the  directors,  is  not  binding  upon  the  vdle,  etc..  Nav.  Co.  v.  Hooper,  160  U. 
bank,  where  the  board  of  directors  S.  514,  40  L.  Ed.  515,  16  S.  Ct.  379 
have  never  authorized  such  action  on  The  charter  and  the  bj'-lavys  of  a 
his  part.  Dycus  r.  Traders'  Bank,  etc.,  bank  required  that  the  board  of  direct- 
Co.,  52  Tex.  Civ.  .App.  175,  113  S.  W.  o^s  should  prescribe  the  duties  of  its 
329.  officers,   and   the   charter  also   required 

_    T,  11     ,             ^            J     J   ^-          t:-  the  directors  to  keep  a  book,  "in  which 

.J;     P f    ^■T'T     «"    inn T'-~;?r       shall  be  entered  and  faithfully  recorded 
parte  Rickey,  .51  .\ev.  82,  100  Pac.  134.       ^    _,^^^^^,    ^^     ^,j     ^^^-^     proceedings." 

8.  Same— Person  acting  as  cashier  Held,  these  provisions  were  merely  di- 
and  teller.— Minor  7'.  Mechanics'  Bank  rectory,  and  the  prescriptions  of  cer- 
(U.   S.),  1    Pot.  46,  7   P.    I'.d.  47.  tain  duties  of  the  cashier  by  the  board 

9.  Liability  for  misrepresentation  by  might  l)e  inferred  and  presumed  from 
teller. — Merchants'    Nal.    Bank  r.    State       evidence   of  acts   of   the    I)oard   and   of 


716 


BANKS    AND    BANKING.  §    104    (1) 


Retrospective  Operation  and  Validity.— A  law  regulating  the  powers 
of  bank  officials  with  respect  to  the  sale,  incumbrance,  or  other  disposition 
of  the  notes  and  securities  of  the  bank  applies  to  notes  and  securities  on 
hand  at  the  time  of  its  taking  effect,  and  is  not  for  that  reason  retrospective 
in  its  operation.^ ^ 

§   104.  Disposition  or  Encumbrance  of  Property— Acquisition  of 
Property— §   104    (1)    Power  of  Directors,   Generally.— The  control 
of  all  the  property    of    a    bank    is    generally  vested  in  the  directors  of  the 
bank.i-  a^d  they  have  authority  to  bind  the  bank,  while  acting  within  the 
scope  of  the  general  usage,  practice  and  course  of  business  of  such  insti- 
tution,  so   far  as   concerns  third  persons  wdio  have  no  knowledge  to  the 
contrary.! 3     ^q  single  director  has  any  implied  or  inherent  power  by  virtue 
of  his  position  to  transfer  or  pledge  the  assets  of  the  bank,  and  least  of  all 
for  the  purpose  of  paying  or  securing  his  individual  obligations.     Persons 
receiving  the  property  of  the  bank  under  such  circumstances  with  knowl- 
edge of  the  facts  acquire  no  valid  title  thereto. ^^     A  statute  which  declares 
that  any  sale  or  transfer  of  the  assets  of  the  corporation,  above  a  certain 
value,  without  the  previous  authority  of  a  resolution  of  the  board  of  di- 
rectors, shall  not  be  valid  except  as  to  bona  fide  purchasers  for  value  and 
without  notice,   is  a   valid  legislative  enactment  and  must  be  observed  in 
order  to  confer  a  valid  title.^^^     lender  such  a  statute,  a  purchaser  accepting 
property  transferred  without  complying  with  its  provisions  is  not  a  pur- 
chaser without  notice.!'''     Such  a  statute  is  not  applicable  to  transfers  made 
by  corporations  which  are  not  required  by  law  to  have  a  board  of  directors, 
nor   any  governing  body   analogous   thereto. i"      As   to   what   constitutes  a 

the  cashier,  and  a  written  entry  on  the  Co.  r.  Kansas  City  Xat.  Bank.  121  Mo. 
journal  of  a  vote,  order,  or  resolution  App.  479,  97  S.  W.  195 
of  the  board,  was  not  necessary  to  A  bank,  holding  a  hfe  policy  as  se- 
establish  such  prescription;  that  the  curity  for  a  note,  went  out  of  existence 
cashier  by  the  performance  of  certain  The  policy  passed  to  a  director  ana 
duties  'in  his  ofifice  of  cashier,  was  es-  trustee,  who  assigned  it  to  a  third  per- 
topped  to  deny  that  they  had  been  pre-  son,  in  consideration  of  an  indebted- 
scribed  by  the  board.  Durkin  f.  Ex-  ness  of  the  director  and  trustee  to  the 
change  Bank  (Pa.).  2  Pat.  &  H.  277.  third    person.      Held,    that    the    assign- 

11 '  Retrospective    operation   and   va-  ment  was  invalid,   for  want  ot  autnor- 

lidity.— Van    Sandt    z:    Hobbs.    84    Mo.  ity  of  the  director  and  trustee  to  pledge 

\^J  628  the    assets    of    the    bank,      ^ew    York 

Laws  1895.  p.  120.  declaring  that  the  Life  Ins.  Co.  r.  Kansas  City  Nat.  Bank, 

cashier  of  a  bank  has  no  power  to  sell  121   Mo^  App.  479.  97  S.  ^V.  l^'^^       . 

the    bank's    notes    until    authorized    by  15.      Same— Necessity     for     Previous 

the  directors,  applies  to  notes  obtained  resolution.— Gillet  f^  Phillips,  13  W.    5(_ 

^nd^i^r\j;fcsi!:n-?r  ;r  r^  i^:  ^^r^.  '^.^^^}.  W 

spective.     Vai;  Sandt  ..  Hobbs.  84  Mo.       fi-in.^-^Hun   ie7,^Ginett  .^^Carnp- 

12      Acquisition    and     disposition     of  Leavitt    (N.   Y.)    17   Barb.  309;   Eno  v. 

property— Power     of      directors.— Mer-  Crooke.  10  N^  \ .  60.                        ,:.>,„„«. 

chants-  Bank  v.  Rawls.  7  Ga.  196.  16.    Same-Same-Purchaser   without 

13.       Same— Same McDougald       v.  notice.— Gillett    ::    Phillips,    l.>    -\-     ^• 

^'u:""same-No''inherent     power     in  ''It.  Same-Same-Where  corporation 

single   director.-New   York    Life    Ins.  not   required   to  have   board   of   direct 


§  104  (2) 


re;pre;sentatiox  of  bank. 


717 


transfer  or  assignment  in  violation  of  such  statute  with  respect  to  the  kind 
and  amount  of  property  involved,  see  the  footnote. ^^ 

§  104  (2)  Power  of  President. — As  to  Personalty  and  Securi- 
ties, Generally. — A  bank  president  has  no  authority  as  such  to  sell  the 
corporation's  property,  and  is  liable  in  damages  for  loss  resulting  from  un- 
authorized sales. ^^  The  president  is  not  the  receiving  officer  of  the  bank; 
consequently,  in  the  absence  of  authority  in  the  charter  or  by-laws  of 
the  institution,  he  has  no  power  to  execute  a  sale  of  a  judgment  in  favor 
of  the  bank  and  receive  the  money  therefor,  unless  authorized  by  the  board 
of  directors. 2"     Power  to  dispose  of  the  personal  property  and  securities 


ors. — Curtis  z:  Leavitt  (N.  Y.),  IV 
Barb.   309. 

As  no  "board  of  directors,"  nor  any 
board  analogous  to  a  board  of  direct- 
ors, was  required  "by  law"  for  the  free 
banks,  the  provision  of  the  Revised 
Statutes  forbidding  the  making  of  cer- 
tain transfers  by  any  moneyed  cor- 
poration without  the  sanction  of  a 
previous  resolution  of  its  board  of 
directors  or  manager  is,  for  that  rea- 
son, inapplicable;  even  admitting  the 
association  to  be,  in  other  respects,  a 
corporation,  within  the  meaning  of  the 
statute.  Curtis  z'.  Leavitt  (N.  Y.),  17 
Barb.  309. 

18.  Same — Same — What  constitutes 
a  transfer  within  meaning  of  statute. — 
An  assignment  by  a  banking  associa- 
tion of  a  security  held  by  it  of  the  value 
of  over  $1,000,  is  not  within  the  pro- 
visions of  1  Rev.  St.,  p.  591,  §  8,  for- 
bidding such  assignment  by  a  moneyed 
corporation  without  a  resolution  of  its 
board  of  directors.  Gillett  v.  Camp- 
bell  (N.  Y.),  1  Denio  520. 

A  satisfied  judgment  constitutes  no 
part  of  the  effects  of  a  bank  the  trans- 
fer of  which  is,  by  1  Rev.  St..  p.  1115, 
§  8,  prohibited  without  authority  by  a 
previous  resolution  of  the  board  of  di- 
rectors.    Eno  V.  Crooke,  10   N.   Y.  60. 

Laws  1882,  §  186,  provides  that  no 
conveyance,  assignment,  or  transfer 
not  authorized  by  a  previous  resolution 
of  its  board  of  directors  shall  be  made 
by  any  banking  corporation  of  any  of 
its  real  estate  or  effects,  "exceeding 
the  value  of  $1,000,"  but  that  this  sec- 
tion shall  not  apply  to  the  issuing  of 
notes,  money,  bank  bills,  etc.,  in  the 
ordinary  course  of  business;  nor  shall 
it  be  construed  to  render  void  any  con- 
veyance, assignment,  etc.,  in  the  hands 
of  a  bona  fide  purchaser  without  notice. 
A  bank  being  insolvent,  to  the  knowl- 
edge of  its  officers,  received  deposits 
from  defendant  to  the  amount  of 
$3,004.22.      The    next    morning,    before 


banking  hours,  without  the  consent  of 
the  directors,  the  cashier  transferred 
to  defendant  six  drafts,  aggregating 
$3,180.32,  the  largest  one  being  for 
$986.63,  and  defendant  gave  its  check 
on  the  bank  for  this  amount.  Held, 
that  as  the  aggregate  amount  of  the 
drafts  exceeded  $1,000,  the  transfer 
was  prohibited  by  section  186,  though 
no  one  of  them  was  of  that  value.  At- 
kinson V.  Rochester  Printing  Co.,  114 
N.  Y.  168,  21  N.  E.  178,  affirming  43 
Hun   167. 

19.  Powers  of  president — As  to  per- 
sonalty and  securities. — First  Nat. 
Bank  z\  Lucas.  21  Neb.  280,  31  N.  W. 
805;  Greenawalt  f.  Wilson,  52  Kan. 
109,  34  Pac.   403. 

The  president  of  a  bank  has  no 
power  virtute  officii  to  sell  the  safe  of 
the  bank  for  a  debt  of  the  bank.  Asher 
r.    Sutton,   31   Kan.   286.    1    Pac.   535. 

20.  President  not  the  receiving  offi- 
cer of  the  bank. — Merchants'  Bank  v. 
Rawls,   7   Ga.   196. 

Where,  in  an  action  against  a  bank 
for  conversion  of  certain  property 
pledged,  plaintiff  claimed  that  the 
president  of  the  bank  had  agreed  to 
sell  the  property  to  plaintiff  for  the 
price  bid  therefor  at  a  sale,  which  the 
bank  subsequently  refused  to  do,  and 
there  was  evidence  that  in  making  the 
agreement  with  plaintiff  the  president 
purported  to  act  as  president  of  the 
bank,  and  that  he  owned  a  controlling 
interest  therein,  and  that  the  propert}', 
which  was  worth  $50,000,  was  pur- 
chased by  the  bank  for  $31,700,  it  was 
proper  for  the  court  to  modify  a  re- 
quested instruction  that,  in  tlie  absence 
of  authority,  the  president  of  the  bank 
was  not  authorized  to  dispose  of  the 
bank's  propert3^  or  release  claims  <if 
bank,  so  as  to  charge  that  it  was  with- 
out the  general  scope  of  a  l)ank  ijresi- 
dent's  authority  to  make  such  an  agree- 
ment as  plaintiff  contended.  ;in(i  unless 
plaintiff  showed   authority   by   the   li.ink 


718 


BANKS    AND    BANKING. 


§  104  (2) 


of  the  bank  may  be  conferred  upon  the  president,  however,  either  by  the 
charter  and  general  banking  laws,  or  by  the  board  of  directors,  and  the 
general  usage  and  course  of  business  may  be  such  as  to  raise  a  presump- 
tion in  favor  of  such  authority. ^i 

President's  Powers  with  Respect  to  Negotiable  Securities.— The 
president  of  a  bank  has  no  inherent  authority  to  endorse  or  transfer  nego- 
tiable notes  belonging  to  the  bank,  nor  has  any  other  officer  this  inherent 
power  except  the  cashier.^^  This  great  power  and  authority  of  transferrnig 
negotiable  paper  belonging  to  the  bank  is  possessed  by  no  other  officer  by 
virtue  of  his  office,  but  the  cashier.  It  is  not  even  possessed  by  a  clerk,  who 
is  acting  as  cashier  in  the  temporary  absence  of  the  cashier,  though  such 
acting  cashier  would  have  power  to  do  all  such  acts,  as  were  necessary  to 
carry  on  the  usual  business  of  the  bank,  such  as  to  pay  checks  and  receive 
payment  of  notes  and  deliver  them  to  the  persons  entitled  to  them.^s  But 
the  president  may  be  authorized  by  the  board  of  directors  to  transfer  or 
assign  negotiable  bills  and  notes  belonging  to  the  bank  ;--i  and  where  the 
president  has  authority  to  indorse  a  note,  he  has  power  to  deliver  it.^^  Such 
authority  need  not  be  proven  by  showing  that  it  was  expressly  conferred 
by  the  board  of  directors,  but  may  be  proven  by  showing  the  existence  of 

dent  of  another  judt^ment,  which  the 
latter  had  obligated  himself  individually 
to  pay,  but  in  the  interest  of  the  bank. 
The  vice-president  had  no  express  au- 
thority from  the  directors  to  make  the 
assignment,  but  he  v/as  the  largest 
stockholder,  a  director,  _  and  had  long 
been  the  principal  acting  officer,  of 
the  bank,  and  general  manager  of  its 
business,  exercising  the  power  of  trans- 
ferring its  property  and  indorsing  its 
notes,  with  the  knowledge  and  ac- 
quiescence of  the  directors,  and  he 
was  generally  reputed  in  the  commu- 
nity to  be  its  owner.  Held,  in  an  ac- 
tion l3y  the  receiver  of  the  bank,  that 
the  jury  were  justified  in  finding  that 
the  vice-president  had  authority  to 
make  the  assignment,  and  that  the 
bank  received  a  consideration  therefor. 
Cox  V.  Robinson,  27  C.  C.  A.  120,  82 
Fed.   277. 

22.  Power  of  president  with  respect 
to  negotiable  securities — S  m  i  t  h  v. 
Lawson,   18   W.   Va.   212,  41    Am.   Rep. 


to  the  president  to  make  the  same,  or 
the  bank  accepted  the  benefit  of  the 
agreement,  the  contract  would  not  be 
binding  on  the  bank.  Memphis  City 
Bank  v.  Smith,  110  Tenn.  337,  7,-)  S.  W. 
1065. 

21.  Power  may  be  conferred  upon 
president  to  dispose  of  property  of 
bank. — Cox  v.  Robinson,  27  C.  C.  A. 
120,  82  Fed.  277;  Guernsey  v.  Black 
Diamond  Coal,  etc.,  Co.,  99  Iowa  471, 
68  N.  W.  777;  Valk  v.  Crandall  (N.  Y.), 
1  Sandf.  Ch.  179;  Belden  v.  Meeker 
(N.  Y.),  2  Lans.  470. 

The  president  of  a  banking  associa- 
tion is  the  proper  officer  to  assign 
mortgages  made  to  such  corporation. 
Valk  z.'.  Crandall  (N.  Y.),  1  Sandf.  Ch. 
179.    . 

In  an  action  by  an  assignee  of  a 
mortgage  to  foreclose  it,  it  will  be  pre- 
sumed that  the  president  of  the  bank 
who  made  the  transfer  was  duly  au- 
thorized. Belden  r.  Meeker  (N.  Y.),  3 
Lans.  470. 

The  president  of  a  bank  has  authority 
by  virtue  of  his  office  to  make  a  valid 
assignment  of  a  judgment  in  favor  of 
the  bank.  Guernsey  v.  Black  Diamond 
Coal,  etc.,  Co.,  99  Iowa  471,  68  N.  W. 
777. 

A  national  bank  owner  of  a  judg- 
ment for  the  payment  of  which  defend- 
ant was  bound,  through  its  vice-presi- 
dent assigned  such  judgment  _  to  de- 
fendant; the  consideration  being  the 
transfer  by  defendant  to  the  vice-presi- 


23.  Same. — Smith  v.  Lawson,  18  W. 
Va.   212,   41   Am.    Rep.    688. 

24.  President  may  be  authorized  to 
sell  or  transfer  securities.— Rezner  v. 
Hatch,  2  Handy.  42,  12  O.  Dec  320, 
affirmed  in  7  O.  St.  249;  Smith  v.  Law- 
son,   18   W.   Va.   212,   41   Am.   Rep.   688. 

25.  Power  to  indorse  includes  power 
to  deliver.— Merrick  v.  Bank  (Md.),  8 
Gill     59. 


§    104    (3)  REPRESENTATION    OF    BANK.  719 

such  facts  as  constitute  clearly  a  public  holding  out  that  he  was  authorized 
to  transfer  or  assign  the  notes  belonging  to  the  bank.-''  The  inference  that 
authority  has  been  conferred  on  the  president  to  transfer  a  negotiable  note 
of  the  bank  may  be  legitimately  drawn  from  proof  that  he  was  in  the  habit 
of  doing  acts  of  the  same  general  character  though  applied  to  a  different 
subject,  and  especially  where  such  acts  were  the  exercise  of  still  greater 
power,  as  the  assignment  of  other  choses  in  action  such  as  bonds  or  judg- 
ments ;  but  such  power  could  not  be  legitimately  inferred  from  proofs  that 
he  was  in  the  habit  of  receiving  deposits  or  payments  of  notes,  or  that  he 
was  authorized  to  receive  generally  deposits  and  payments  made  to  the 
bank. 27 

Ratification  by  Board. — The  board  of  directors  of  a  bank  may  ratify 
or  approve  a  transfer  of  a  negotiable  note  of  a  bank  which  has  been  made 
by  the  president  without  authority  ;-s  and  the  acceptance  and  appropriation 
of  the  consideration  which  was  received,  when  the  president  without  au- 
thority transferred  a  negotiable  note  belonging  to  the  bank,  is  an  implied 
ratification  of  his  act,  when  such  acceptance  and  appropriation  is  made  by 
the  directors  of  the  bank  after  they  have  been  informed  of  the  unauthor- 
ized act  of  the  president ;  and  if  the  acceptance  of  such  consideration  and 
its  appropriation  have  been  made  by  the  officers  of  the  bank  without  the 
knowledge  of  the  directors,  unless  the  directors  return  the  consideration, 
wdien  the  receipt  becomes  known  to  them,  the  failure  and  the  retention  of 
the  consideration  by  them  will  be  a  confirmation  of  the  act  of  the  presi- 
dent.29 

§  104  (3)  Powers  of  Cashier.— With  Respect  to  Personalty  and 
Securities  Generally. — Prima  facie  the  cashier  of  a  bank  has  no  author- 
ity to  transfer  judgments  in  its  favor,  or  to  dispose  of  its  property.  His 
authority  extends  only  to  negotiable  instruments  and  to  such  securities  as 
he  is  authorized  by  virtue  of  his  office  to  receive  and  transfer  in  accord- 
ance with  the  regular  usage  and  custom  of  banks.  The  transfer  of  other 
property  and  securities  can  be  legally  made  only  by  the  president  and  di- 
rectors, or  pursuant  to  authority  derived  from  them ;  and  if  the  cashier  acts 
as  their  agent  in  such  matter,  that  fact  should  be  shown  in  evidence-'^" 

26.  Proof  of  president's  power. —  286,  1  Pac.  S.TS;  Holt  v.  Bacon,  2.5  Miss. 
Smith  V.  Lawson,  18  W.  Va.  212,  41  507;  Rank  v.  Hindman  (Miss.),  ,'50  So. 
Am.   Rep.   688.  65;  Smith  v.  Lawson,  18  W.  Va.  212,  41 

27.  Same. — Smith   v.   Lawson,   18   W.      Am.  Rep.  688. 

Va.   212,  41   Am.   Rep.   688.  The  cashier  has  no  power  to  sell  the 

28.  Ratification  by  board. — Smith  v.  bank  safe  to  pay  a  debt  of  the  bank. 
Lawson,  18  W.  Va.  212,  41  Am.  Rep.  .Asher  v.  Sutton,  31  Kan.  286,  1  Pac. 
688.  535. 

29.  Same — By  acceptance  and  appro-  It  is  not  within  a  bank's  usual  course 
priation  of  benefits. — Smith  v.  Lawson,  of  business,  or  scope  of  tlic  cashier's 
18  W.  Va.  212,  41   Am.  Rep.  688.  authority,    to    pfive     mortpaR-cs     on     its 

30.  Power  of  cashier  to  dispose  of  property  and  transfer  its  assets;  and 
bank's  property. — ITnited  States  v.  City  such  unauthorized  acts  may  be  set 
Bank  (U.  S.),  21  How.  356,  16  L.  Ed.  aside  in  equity  at  instance  of  its  re- 
130;  Greenawalt  v.  Wilson,  52  Kan.  109,  ceiver.  Bank  v.  Hindman  (Miss.),  50 
34  Pac.  403;   Asher  v.   Sutton,  31   Kan.  So.  65. 


720  BANKS    AND    BANKING.  §    104    (3) 

Cashier's  Powers  with  Respect  to  Negotiable  Securities.— Prima 

facie,  from  the  very  nature  of  his  office,  and  the  objects  and  purposes  of 
the  bank,  the  cashier  must  be  deemed  to  have  authority  to  indorse  and 
transfer  negotiable  securities  held  by  the  bank  for  its  use  and  in  its  behalf; 
and  no  special  authority  for  this  purpose  is  necessary  to  be  proved.  This 
is  one  of  the  general  and  necessary  duties  of  the  cashier  as  the  executive 
officer  of  the  association,  and  independent  of  any  special  authority  from 
the  directors.  If  any  bank  chooses  to  depart  from  this  general  course  of 
business,  it  is  at  liberty  to  do  so ;  but  in  such  case  it  is  incumbent  upon  the 
bank  to  show,  not  only  that  it  has  imposed  a  restriction  upon  the  powers 
of  the  cashier,  but  that  such  restriction  has  been  brought  to  the  knowledge 
of  persons  transacting  business  with  the  bank.^i  Clearly  no  such  restric- 
tion is  imposed  with  respect  to  the  transfer  negotiable  securities  in  the  ordi- 
nary course  of  business  by  a  charter  provision  requiring  that  all  bills,  bonds, 
notes  and  contracts  "on  behalf  of  the  company"  shall  be  signed  by  the 
president  and  countersigned  or  attested  by  the  cashier,  and  that  the  funds 
of  the  company  shall  be  held  responsible  for  no  contracts  or  engagements, 
unless  executed  in  the  manner  prescribed.-'-  Since  the  cashier  of  a  bank 
may  do,  independently  of  a  board  of  directors,  whatever  properly  apper- 
tains to  his  office,  one  of  which  functions  is  to  pay  the  debts  of  the  bank 
by  a  transfer  of  negotiable  securities,  it  is  not  competent  to  show  that  such 
transfer  is  void  by  proof  that  it  was  made  after  the  board  of  directors  had 
resigned  and  when  the  presidency  of  the  bank  had  been  assumed  by  a  per- 
son neither  an  officer  nor  director.  A  transfer  made  under  such  circum- 
stances is  valid  in  law,  but  evidence  is  admissible  under  the  allegations  of 
fraud  in  the  bill  to  prove  the  resignation  of  the  directors  and  the  usurping 
of  the  presidency  by  such  person  upon  the  issue  of  fraud  in  fact.^-^ 

Same — Applies  to  Cashiers  of  Private  Banks. — The  doctrine  with 
respect  to  the  general  authority  of  the  cashier  to  transfer  by  indorsement 
negotiable  paper  held  by  the  bank  applies  as  w^ell  to  private  banks  con- 
ducted by  an  individual  as  to  those  existing  under  charters  from  the  gov- 
ernment.-'^* 

31.  Cashier's  powers  with  respect  to  Stewart,  33  Conn.  516;  Merchants' 
negotiable  securities. — Mechanics'  Bank  Bank  t-.  Central  Bank.  1  Ga.  418,  44 
V.  Bank  (U.  S.),  5  Wheat.  326.  5  L.  Ed.  Am.  Dec.  665;  Carey  v.  Giles.  10  Ga. 
100;  Carey  v.  Giles,  10  Ga.  9;  Wake-  9;  Jones  v.  Hawkins,  17  Ind.  550;  Alli- 
field  Bank  v.  Truesdell  (N.  Y.),  55  son  v.  Hubbell,  17  Ind.  559;  Wakefield 
Barb.  602;  Northern  Bank  v.  Johnson,  Bank  v.  Truesdell  (N.  Y.),  55  Barb. 
45  Tenn.  (5  Coldw.)  88;  Maxwell  v.  602;  Maxwell  v.  Planters'  Bank,  29 
Planters'  Bank.  29  Tenn.  (10  Humph.)  Tenn.  (10  Humph.)  507;  Northern 
507;  Arnold  v.  Swenson  (Tex.  CiV.  Bank  v.  Johnson.  45  Tenn.  (5 
App.),    44    S.    W.    870,    affirmed    in    93  Coldw.)    88. 

Tex.  678,  no  op.;  Lamb  v.  Cecil.  28  W.  33.   Transfer   after  resignation  of   di- 

Va.   653;   Lamb  v.   Pannell,   28   W.   Va.  rectors— Proof    of    fraud.— C  a  r  e  y      v. 

663;   Smith  v.   Lawson,   18  W.  Va.  212.  Giles.  10  Ga.  9. 

41   Am.   Rep.   688.  34.  Power  of  cashier  of  private  bank 

32.  Same — Charter    restriction    as    to  to    transfer    negotiable    paper. — Arnold 
countersigning    of    bills,    notes,    etc. —  v.  Swenson   (Tex.  Civ.  .\pp.),  44  S.  W. 
Mechanics'    Bank   v.    Bank    (U.    S.),     5  870,  affirmed  in  93  Tex.  678,  no  op. 
Wheat.    326,    5    L.    Ed.    100;    Paine    v. 


§  104  (3) 


REPRESENTATION    OF    BANK. 


721 


Same — Must  Be  in  Usual  Course  of  Business  and  in  Good  Faith. 

— The  cashier's  prima  facie  authority  to  transfer  the  negotiable  notes  and 
securities  of  a  bank  will  not  make  such  transfer  valid  if  it  be  proven  that 
the  transferee  knew  that  the  transfer  was  made  by  the  cashier  not  in  the 
usual  course  of  business  and  for  an  improper  purpose. ^-^  No  attempted 
transfer  by  the  cashier  of  the  bills,  notes  or  other  securities  of  the  bank 
will  be  valid  when  it  appears,  either  from  the  nature  of  the  transaction  or 
the  facts  and  circumstances  existing  at  the  time  and  known  to  the  trans- 
feree, that  the  transfer  was  made  in  prejudice  of  the  rights  and  interests 
of  the  bank.-6  Thus  a  transfer  of  the  notes  and  securities  of  the  bank  for 
the  purpose  of  paying  his  private  debts  and  obligations  is  fraudulent  and 
invalid  as  to  all  persons  participating  therein  or  having  notice  thereof.^' 
Nor  has  the  cashier  any  authority  to  assign  collaterals  belonging  to  him- 
self, but  which  were  given  to  secure  a  loan  made  by  the  bank  to  another 
person  for  the  cashier's  benefit.^s  The  power  to  sell  and  transfer  the  dis- 
counted bills  and  notes  of  the  bank  does  not  belong  to  the  ordinary  powers 
of  the  cashier,  but  inasmuch  as  he  may  do  so  under  some  circumstances, 
a  transfer  made  by  him  in  the  usual  course  of  the  business  of  the  bank  to 
a  person  who  has  no  cause  to  question  the  propriety  or  good  faith  of  the 
transaction    will  be  prima  facie  valid.^s    A  transfer  by  the  cashier  of  notes 


35.  Transfers  not  in  usual  course  of 
business. — Smith  v.  Lawson,  18  W.  Va. 
212.   41    Am.   Rep.  688. 

If  the  transfer  by  the  cashier  of  a 
bank  of  one-third  of  its  negotiable 
notes  was  proven  to  have  been  made 
to  a  third  person  in  a  transaction, 
which  was  plainly  out  of  the  usual 
course  of  business,  and  the  transaction 
on  its  face  showed  that  the  transferee 
must  have  known  that  the  cashier  was 
assuming  a  power  and  transacting  busi- 
ness outside  of  his  duties  as  cashier, 
and  was  transferring  a  negotiable  note 
of  the  bank  for  a  purpose  for  which  he 
as  such  cashier  had  no  right  to  trans- 
fer a  negotiable  note  belonging  to  the 
bank,  such  transfer  would  be  regarded 
as  unauthorized,  and  the  transferee 
could  not  be  held  to  be  a  bona  fide 
holder,  even  though  he  did  give  a  valu- 
able consideration  for  the  note.  Smith 
V.  Lawson,  18  W.  Va.  212,  41  Am.  Rep. 
688. 

36.  Same — Nature    of    transaction    as 

notice     to     third      person Smith      v. 

Lawson,  18  W.  Va.  212.  41  Am.  Rep. 
688;  Lamb  v.  Cecil.  28  W.  Va.  fi,->:!: 
Lamb   V.    Pannell,   28   \V.   \'a.   (Ui:;. 

37.  Same-— Transfer  in  settlement  of 
private  obligations. — Anderson  v.  Kis- 
sam,  ?>'i  I'"c(l.  fV,)'.),  reversed  on  other 
points,  Kissam  v.  Anderson,  145  U.  S. 
4.'{5,  36  L.   Ed.  765,  ]2  S.  Ct.  960;  Lamb 

1    B   &  P.— 46  , 


V.  Cecil,  28  W.  Va.  65.3;  Lamb  v.  Pan- 
nell.  28   W.   Va.   663. 

The  cashier  of  a  bank  kept  an  ac- 
count with  defendants,  who  were 
brokers  and  bought  and  sold  stocks 
for  him,  and  from  time  to  time  defend- 
ants received  checks  of  his  bank  on 
another  bank,  its  correspondent,  drawn 
by  him  in  his  official  capacity,  and 
collected  them  and  applied  them  to  the 
cashier's  individual  account.  In  an 
action  by  a  receiver  of  the  bank  of 
the  cashier  to  recover  of  defendants 
the  amount  of  the  checks  received  by 
them,  held  that,  the  checks  being  made 
payable  to  the  order  of  defendants 
for  the  cashier's  individual  use,  de- 
fendants took  them  under  an  obliga- 
tion to  ascertain  that  the  cashier  had 
authority  outside  his  ordinary  official 
authority  to  make  the  checks,  and 
could  not  assume  that  he  was  acting 
in  the  scope  of  his  official  duties.  .■Xn- 
derson  v.  Kissam,  35  Fed.  699,  judg- 
ment reversed  on  other  points,  Kissam 
V.  .Anderson.  145  U.  S.  435,  36  L.  F.d. 
765,    12   S.   Ct.   960. 

38.  Transfer  of  collateral  given  to 
secure  cashier's  debt  to  bank. —  Mer- 
chants' Xat.  Bank  v.  Deniere,  02  Ga. 
735,    19    S.    E.    38. 

39.  Power  to  transfer  discounted 
bills     and     notes     of    bank. — L.iinh     v. 


722 


BANKS    AND    BANKING. 


104    (3) 


of  greater  amount  than  $1,000,  without  a  previous  vote  of  the  directors  as 
required  by  statute,  is  illegal,  and  the  agreement  is  void,  except  as  to  a  pur- 
chaser without  notice.-*" 

Presumption  That  Indorsement  Was  in  Usual  Course  of  Business. 
— Where  the  cashier  of  a  bank,  by  virtue  of  the  custom  and  course  of  deal- 
ing of  the  bank,  has  the  power  to  transfer  its  paper  by  endorsement,  it  will 
be  presumed,  where  a  note  w^as  transferred  by  it  endorsed  by  such  cashier 
as  cashier  of  the  bank,  that  such  endorsement  was  in  the  usual  course  of 
business,  and  transferred  to  the  holder  the  legal  title  to  the  note.-*i  And 
where  a  draft  is  made  payable  to  "J-  P-  Cash,"  and  is  transferred  by  an 
indorsement  of  "J.  P.  Cash,"  it  will  be  presumed,  prima  facie,  that  J.  P. 
indorsed  the  same,  not  as  an  individual,  but  in  his  official  position  as  cashier, 
and  that  the  indorsement  is  that  of  the  bank.-*^  \\'here  checks  are  drawn 
by  the  cashier  payable  to  fictitious  persons,  and  then  transferred  by  his  in- 
dorsing their  names  thereon,  they  are,  in  effect,  payable  to  bearer,  and  pay- 
ment of  such  checks  by  the  drawee  is  binding  on  the  bank,  since  in  trans- 
mitting them  made  and  indorsed,  the  bank  is  so  far  concluded  by  his  acts  as 
to  be  estopped  from  denying  their  validity.-*'^  The  fact  that  the  names  of 
payees  inserted  in  the  checks,  and  indorsed  thereon  by  the  cashier,  were 
those  of  customers  of  the  bank,  does  not  vary  the  rule  applicable  to  paper 
drawn  in  the  name  of  fictitious  payees,  where  the  cashier  had  no  idea  of 


Cecil,    28    W,    Va.    653;    Lamb   v.    Pan- 
nell,   28   W.   Va.    663. 

Power  to  pay  deposit  with  dis- 
counted bills. — Where  the  manage- 
ment of  the  affairs  of  a  banking  cor- 
poration is  entrusted  by  its  charter  to 
a  board  of  directors,  unless  specially 
authorized  by  the  charter,  the  cashier 
of  such  banking  corporation  has  no 
power  to  assign  the  discounted  bills 
and  notes  to  a  depositor  in  payment 
of  his  deposits  without  authority  from 
the  board  of  directors.  Lamb  v.  Ce- 
cil, 25  W.  Va.  288;  Lamb  v.  Pannell, 
25    W.   Va.    298. 

40.  Statutory  limitations  as  to 
amount.— Gillet  v.  Phillips,  i:i  N.  Y. 
114. 

41.  Presumption  as  to  regularity  of 
indorsement. — Arnold  v.  Sjwelnson 
(Tex.  Civ.  App.),  44  S.  W.  870,  af- 
firmed in   93   Tex.   678.   no   op. 

42.  Same — As  to  whether  indorse- 
ment made  in  private  or  official  capac- 
ity.— Colliiis  :'.  Tohnson.  16  Ga.  458; 
Hobbs  V.  Chemical  Nat.  Bank,  97  Ga. 
524,    25    S.    E.    348. 

An  indorsement,  "A.  B.,  Cashier," 
binds  the  bank.  Folger  r.  Chase 
(Mass.),  18  Pick.  63.  And  see  Spear 
V.  Ladd,  11  Mass.  94:  Northampton 
Bank  v.  Pepoon.  11  Mass.  288;  Hart- 
ford Bank  v.  Barry,  17  Mass.  94; 
Barney  v.  Newcomb  (Mass.),  9  Cush.  46. 


The  words  "G.  B.,  Cas.,"  indorsed 
upon  a  note,  are  sufficient  in  form  to 
bind  the  bank  of  which  G.  B.  is  cash- 
ier. Such  indorsement,  although  made 
upon  a  note  not  belonging  to  the 
bank,  and  merely  for  the  accommo- 
dation of  the  payee  or  prior  indorser, 
v.'ill  bind  the  bank  as  against  a  pur- 
chaser in  good  faith,  for  value,  be- 
fore maturity.  Houghton  v.  First 
Nat.  Bank.  26  Wis.  663,  7  Am.  Rep. 
107. 

The  firm  of  C.  &  C.  was  proprietoi 
of  the  Milam  County  Bank,  and  car- 
ried on  the  banking  business  in  the 
name  of  the  firm  and  as  the  Milam 
County  Bank.  F.,  one  of  the  partners, 
acted  as  cashier,  and  had  the  power, 
as  such,  by  virtue  of  the  custom  of 
lhe  bank,  to  transfer  its  paper  by  in- 
dorsement. Held,  that  where  a  note 
to  the  Milam  County  Bank,  on  being 
transferred  to  a  third  person,  was  in- 
dorsed, "F.,  Cashier,"  such  indorse- 
ment was  in  the  usual  "course  of  busi- 
ness, and  transferred  to  the  holder  the 
legal  title  to  the  note.  Arnold  v. 
Swenson  (Tex.  Civ.  App.),  44  S.  W. 
870. 

43.  Indorsement  of  check  payable 
to  fictitious  person. — Phillips  v.  Mer- 
cantile Nat.  Bank,  140  N.  Y.  556,  35  N. 
E.  982,  23  L.  R.  A.  584.  37  Am.  St. 
Rep.    596.  , 


§    104    (3)  REPRESKNTATION    OF    BANK.  723 

delivering  the  paper  to  the  customers,  but  simply  used  their  names  to  ward 
off  the  suspicion  which  might  otherwise  arise  from  drawing  checks  to  the 
order  of  persons  not  known  to  the  other  bank  officials.-*^ 

Powers  of  Cashier  with  Respect  to  Transfer  of  Stock. — The  cash- 
ier is  the  proper  officer  to  make  a  transfer  of  stock  on  the  books  of  the 
bank,^^  and  it  is  within  his  authority  to  sign  a  blank  transfer  on  a  certifi- 
cate of  stock  held  as  collateral  and  deliver  the  certificate  to  the  pledgor  on 
payment  of  the  loan.-*'^  He  can  not,  of  course,  bind  the  bank  by  his  repre- 
sentations or  acts  in  relation  to  the  transfer  of  stock  in  a  transaction  in 
which  he  is  acting  in  his  own  behalf,  to  the  knowledge  of  the  other  party, 
without  ratification  by  the  bank.-*^  One  who  has  distinct  notice  that  the 
surrender  and  transfer  of  a  former  certificate  are  prerequisites  to  the  law- 
ful issue  of  a  new  one,  and  who  accepts  a  certificate  from  the  cashier  with- 
out taking  any  steps  to  assure  himself  that  the  legal  prerequisites  to  the 
validity  of  such  certificate,  which  were  to  be  fulfilled  by  the  former  owner 
and  not  by  the  bank,  have  been  complied  with,  does  not,  as  against  the  bank, 
stand  in  the  position  of  one  who  receives  a  certificate  of  stock  from  the 
proper  officers  without  notice  of  any  facts  impairing  its  validity.-*s  Thus 
one  who  has  dealt  with  the  cashier  individually  and  lent  money  to  him  for 
his  private  use,  and  received  from  him  a  certificate  which  states  that  the 
shares  are  transferable  only  on  the  books  of  the  bank  and  on  surrender  of 
former  certificates,  can  not  recover  from  the  bank  the  value  of  the  certifi- 
cate delivered  to  him,  he  not  having  surrendered  any  former  certificate  and 
there  being  no  evidence  of  the  bank  having  ratified  or  received  any  benefit 
from  the  transaction.^^  Evidence  that  in  one  or  two  other  instances  stock 
was  issued  by  the  cashier  without  the  surrender  of  old  certificates,  and  that 
the  directors  of  the  bank  approved  certain  transfers  to  its  president  of 
shares  once  belonging  to  the  cashier,  is  insufficient  to  prove  that  the  bank 
ratified  or  received  any  benefit  from  the  issue  of  the  certificate  to  the  plain- 
tiff, or  was  guilty  of  any  fraud  towards  him  where  the  action  of  the  di- 
rectors was  adapted  to  the  single  purpose  of  securing  payment  of  a  debt 
due  from  the  cashier  to  the  bank.'^"  A  bank  is  bound,  however,  by  the  act 
of  its  cashier  in  transferring  stock  on  the  books,  and  thereby  waiving  the 

44.  Same — Where  fictitious  names  is  acting  in  his  own  behalf. — Moores 
were  those  of  customers  of  bank. —  v.  Citizens'  Nat.  Rank,  111  U.  S.  156, 
Phillips    V.    Mercantile    Nat.    Bank,    67       2S   L.   Ed.   -.i^'y,  4  S.   Ct.   :!4.-.. 

Hun  378,  22  N.  Y.  S.  254,  51  N.  Y.  St.  48.    Duty    of    transferee    to    see    that 

Rep.  918,  affirmed  in   140  N.  Y.  556,  35  legal  prerequisites  have  been  complied 

N.    E.    982,    23    L.    R.    A.    584,    37    Am.  with.— Moores    7'.    Citizens'    Nat.    I'.ank, 

St.   Rep.  5!h;.  Ill    U.    S.    156,   28    L.    Ed.    385,   4   S-    Ct. 

45.  Powers    of    cashier    with    respect  345. 

to    transfer    of    stock. — National    Bank  49.    Same — Where    cashier  is   dealing 

V.  Watsontown   Bank,  105  U.  S.  217,  26  in    his    individual    capacity Moores    7\ 

L.    Ed.    lO:!!).  Citizens'    Nat.    I'.ank,    111     C.    S.    i:><>.   28 

46.  Tansfer   and   redelivery   of   stock  E.    Ivl.   .385,  4  S.   Ct.   .'.15. 

held  as  collateral. —  .Matthews  ?'.  Massa-  50.    Same — Same — Ratification   or   re- 

chusetts     Nat.     Bank,     Fed.     Cas.      No.  ceipt   of   benefits   by   bank. — Moores   v. 

9,286,    Hohnes   396,    6    Leg.    Gaz.    308.  Citizens'    Nat.    Banlc,    I  II    U.    S.    156,   28 

47.  Where  cashier  transferring  stock  L.   Ed.  385,  4   S.  Ct.  345. 


724  BANKS    AND    BANKING.  §    104    (4) 

bank's  lien  for  debts  dne  it  by  the  stockholder,  though  the  cashier  was  a 
member  of  the  firm  holding  the  stock,  which  fact  was  well  known  to  the 
directors,  who  had  acquiesced  in  the  cashier's  performing  such  function, 
and  it  not  appearing  that  the  transferee  knew  such  fact,  or  that  the  firm 
was  indebted  to  the  bank.-'^i 

Refusal  to  Make  Transfer.— The  cashier's  refusal  to  make  or  permit 
a  transfer  of  stock  is  the  refusal  of  the  bank,  rendering  the  bank  responsi- 
ble for  whatever  liability  may  attach  to  such  refusal.^- 

Power  to  Purchase  Property. — The  power  of  a  bank  cashier  to  pur- 
chase for  the  bank  is  not  implied  from  his  office  as  cashier.-"*'^ 

§  104    (4)    Consideration  for  Transfer  of  Bank's  Property.— An 

officer  of  a  bank,  either  vice-president  or  other  officer,  or  person  who  is 
acting  as  general  manager  therefor,  has  no  authority  to  assign  or  transfer 
claims  for  money  due  in  any  event,  unless  expressly  authorized  to  do  so, 
except  upon  payment  of  the  amount  due  on  such  claim. -^^  Thus  where  a 
judgment  belonging  to  the  bank  is  transferred  without  collecting  the  amount 
of  it  in  cash,  the  presumption  is  that  the  transfer  is  unauthorized. ^-^  But 
where  an  authorized  assignment  of  a  judgment  belonging  to  a  bank  is  made 
by  one  of  its  officers,  in  its  name,  to  an  individual,  who,  in  consideration 
thereof,  transfers  property  to  the  bank  officers,- such  transfer  constitutes 
a  valid  consideration  moving  to  the  bank,  since  a  trust  results  in  its  favor 
as  to  the  property  transferred  to  its  officer.^^  According  to  the  doctrine 
which  prevails  in  New  York  and  a  few  other  states,  the  transfer  or  pledge 
of  negotiable  securities  in  payment  or  security  of  antecedent  debts  is  not 
sufficient  to  constitute    the    transferee    a    holder    for    value.-"^^     The  great 

51.  Same— Same— Transfer  waiving  Coddington  r.  Bay  (N.  Y.),  20  Johns, 
bank's  lien  for  debts  owing  by  stock-  637,  11  Am.  Dec.  342;  Moore  v.  Ryder, 
holder  to  bank.— National  Bank  v.  65  N.  Y.  428;  Atlantic  Nat.  Bank  v. 
Watsontown  Bank,  105  U.  S.  217.  26  Franklin,  55  N.  Y.  235;  Wardell  v. 
L.   Ed.   1039.  Howell     (N.    Y.),    9    Wend.    170;    Mc- 

52.  Refusal  of  cashier  to  make  trans-  Bride  v.  Farmers'  Bank,  26  N.  Y. 
fer;  liability  of  bank.— Case  v.  Citi-  450;  Rosa  v.  Brotherson  (N.  Y.),  10 
zens'  Bank,  100  U.  S.  446,  25  L.  Ed.  Wend.  85;  Stalker  v.  McDonald  (N. 
(595  Y.).  6  Hill  93;  Youngs  v.  Lee   (N.  Y.). 

53.  Power  of  cashier  to  purchase  2  Kern.  551;  Commercial  Bank  v. 
property.— Lionberger  v.  Mayer,  12  Marine  Bank,  42  N.  Y.  (3  Keys)  337, 
Mo  App.  575,  memorandum.  United  1  Abb.  Dec.  405,  6  Abb.  Prac,  N.  S., 
States  V.  City  Bank  (U.  S.),  21  How.  33,  37  How.  Prac.  432;  Lindoner  v. 
356,   16  L.   Ed.   130.  Fourth  Nat.  Bank  (N.  Y.),  55  Barb.  75; 

54.  Consideration  for  transfer  of  West  v.  American  Exch.  Bank  (N. 
bank's  property.— Cox  v.  Robinson.  70  Y.).  44  Barb.  175;  Starke  v.  United 
Fed    760.  States  Nat.  Bank  (N.  Y.),  41  Hun  506, 

55.  Transfer  of  judgment  without  4  N.  Y.  St.  Rep.  56;  Royer  v.  Key- 
collecting  cash.— Cox  T.  Roliinson,  70  stone  Nat.  Bank,  83  Pa.  348;  Cum- 
Fed    760  mings    v.    Boyd,    83    Pa.    372;    Knox   v. 

56.  Assignment  of  judgment  in  con-  Clifford,  38  Wis.  651,  20  Am.  Rep.  28; 
sideration  of  property  transferred  to  Bowman  z:  Van  Kuren,  29  W(is.  209, 
bank  officer.— Cox  v.  Robinson,  70  9  Am.  Rep.  554;  Heath  v.  Silverthorn 
Fed    760.  Lead    Min.,    etc.,    Co.,    39    Wis.    147. 

57.  Transfer  of  securities  in  pay-  Although  a  cashier  and  president  of 
ment  of  antecedent  debts.— Tennessee  a  bank  may,  in  the  ordinary  course  ot 
V    Davis    (N.   Y.)    50   How.    Prac.    447.       business,    without    the    consent    of    the 


§  104  (5) 


REPRESENTATION    OF    BANK. 


725 


weight  of  authority,  however,  including  that  of  the  su])reme  court  of  the 
United  States,  is  to  the  contrary. s'^  With  regard  to  tangible  personalty  and 
nonnegotiable  securities,  the  equities  of  a  bona  fide  holder  for  value  and 
without  notice,  great  as  they  are,  can  not.  in  the  absence  of  some  element 
of  fraud  or  estoppel  on  the  part  of  the  true  owner,  prevail  against  the  legal 
title.59 

§  104  (5)  Disposition,  Encumbrance,  or  Lease  of  Real  Estate. 
— Powers  of  Directors. — It  is  not  proposed  in  this  place  to  discuss  the 
general  powers  of  banks  to  acquire,  hold  and  dispose  of  real  property. 
Suffice  it  to  say  that  where  the  bank  owns  real  property  it  is  within  the 
power  of  the  directors,  or  of  a  committee  authorized  by  them,  to  sell,  lease, 
and,  in  general,  to  so  manage  the  same  as  will  most  effectively  protect  and 
promote  the  interests  of  the  bank,  subject,  of  course,  to  the  limitation  that 
they  can  not  enter  upon  speculative  enterprises,  such  as  vast  schemes  of 
improvement,  forbidden  by  charter  or  statute."" 

Powers  of  Cashier  and  President  with  Respect  to  Real  Estate. — 
Unless  the  power  is  expressly  given,  or  is  to  be  implied  from  a  course  of 
dealing,  etc.,  a  bank  is  not  bound  by  its  cashier's  contract  in  relation  to 
bargaining  and  selling  real  estate. '^^  Neither  have  the  president  and  cashier 
of  a  bank  any  power,  as  such,  to  execute  a  mortgage  on  the  real  estate  of 


board  of  directors,  dispose  of  the 
bank's  negotiable  securities,  they  are 
not  empowered  to  pledge  its  assets 
for  the  payment  of  antecedent  debts. 
State  V.  Davis  (N.  Y.),  50  How.  Prac. 
447. 

68.  Same — Weight  of  authority. — 
Oates  V.  First  Nat.  Bank.  100  U.  S.  239, 
25  L.  Ed.  580;  Swift  v.  Tyson  (U.  S.), 
16  Pet.  1,  10  L.  Ed.  865;  Goodman  v. 
Simonds  (U.  S.),  20  How.  343,  15  L. 
Ed.  934;  McCarty  v.  Roots,  21  How. 
432,  16  L.  Ed.  162;  Railroad  Co.  v.  Na- 
tional Bank,  102  U.  S.  14,  26  L.  Ed.  61; 
RolMnson  v.  Smith,  14  Cal.  94;  Roberts 
V.  Hall,  37  Conn.  205,  9  Am.  Rep.  308; 
Gibson  V.  Connor,  3  Ga.  47;  Kaiser  v. 
United    States    Nat.    Bank,    99    Ga.   258, 

25  S.  E.  620;  Manning  v.  McClure,  36 
111.  490;  Mix  V.  National  Rank,  91  111. 
20,  33  Am.  Rep.  44;  Straughan  v.  I-'air- 
child,  80  Tnd.  598;  Dcs  Moines  Nat. 
Bank  v.  Chisholm,  71  Iowa  67  5,  33  N. 
W.  234;  Giavarovich  v.   Citizens'   Bank, 

26  La.  Ann.  15;  Maitland  v.  Citizens' 
Nat.  Bank,  40  Md.  '540,  17  Am.  Rep. 
620;  Fisher  v.  Fisher,  98  Mass.  303; 
Blanchard  v.  vStevens  (Mass.),  3  Cush. 
162,  50  Am.  Dec.  723;  Boatman's  Sav. 
Inst.  V.  Holland,  38  Mo.  49;  Railroad 
Co.  V.  Nat.  Bank,  40  Mo.  540;  Ringling 
IK  Kohn,  4  Mo.  App.  59;  Armour  z'. 
Michael,  36  X.  J.  L.  92;  Allaire  v.  Hart- 
shorn, 21  N.  J.  L.  665,  47  Am.  Dec.  175; 


Bank  v.  Carrington,  5  R.  I.  515,  73  Am. 
Dec.  83;  Bank  v.  Chambers  (S.  C),  11 
Rich.  657;  Grenear.x  v.  Wheeler,  6 
Tex.  515;  Atkinson  v.  Brooks,  26  Vt. 
569,   62   Am.   Dec.  592. 

59.  Equities  of  bona  fide  purchaser 
as  against  holder  of  legal  title. — May 
V.  LeClaire  (U.  S.),  11  Wall.  217,  20  t. 
Ed.  50;  Brooke  v.  King,  104  Iowa  713, 
74  N.  W.  683;  Lime  Rock  Bank  v. 
Plimpton  (Mass.),  17  Pick.  159,  28 
Am.  Dec.  286;  In  re  Assignment,  32 
Ore.  84,  51   Pac.  S7. 

60.  Disposition,  encumbrance,  or 
lease  of  real  estate — Power  of  direct- 
ors.— Cockrill  x'.  AI)C'les,  86  Fed.  505, 
30  C.  C.  A.  223;  Metropolitan  Bank  r-. 
Godfrey,  23  111.  579;  First  Nat.  Bank 
V.  Reno,  73  Iowa  145,  34  N.  W.  796; 
Thomaston  Bank  v.  Stimpson,  21  M;";. 
195;  Burrill  v.  Nahant  Bank  (Mass.), 
2  Mete.  163,  35  Am.  Dec.  395;  Ingra- 
ham  V.  Speed,  30  Miss.  410;  First  Pres- 
byterian Church  V.  National  State 
Bank,  57  N.  J.  L.  27,  29  Atl.  320;  Jack- 
son V.  Brown  (N.  Y.),  5  Wend.  590; 
Banks  v.  Poitiaux,  24  Va.  (3  Rand.) 
136;  RoI)erts  v.  Washington  Nat.  Bank, 
1  1    Wash.  550,  40  Pac.  225. 

61.  Powers  of  cashier  and  president 
with  respect  to  real  estate. — Wiiisor 
<'.  Lafayette  County  Bank,  IS  Mt).  .\pp. 
665. 


726  BANKS    AND    BANKING.  §    104    (5) 

the  corporation/^ 2  b^h  ^here  the  cashier  of  a  bank,  for  a  number  of  years, 
with  the  knowledge  of  the  directors,  has  been  accustomed  to  act  for  the 
bank  in  sales  of  property  on  which  it  held  mortgages,  under  contracts  ap- 
proved by  him,  he  may  bind  the  bank  in  a  similar  transaction  without  formal 
authority  from  the  directors.^^  And  where  the  management  of  a  bank's 
affairs  is  intrusted  to  the  president  and  cashier,  and  they,  with  knowledge 
of  the  directors,  have  conveyed  land  at  various  times,  a  conveyance  by 
them  is  not  invalid  because  not  authorized  by  the  directors.^'*  Where  a 
bank  obtains  a  judgment  against  its  debtor  and  purchases  his  property  at 
execution  sale,  and  the  cashier  assigns  the  certificate  to  the  holder  of  a 
junior  judgment,  who  afterwards  obtains  a  sheriff's  deed,  it  will  be  pre- 
sumed, when  the  title  under  said  deed  is  questioned  by  another  judgment 
creditor  upon  the  ground  that  said  certificate  was  assigned  without  author- 
ity, that  the  cashier  had  authority  to  make  the  assignment,  even  though  it 
be  shown  that  the  directors  passed  no  resolution  granting  it.*^-^  And  the 
cashier  of  a  bank  may,  for  the  purpose  of  collecting  a  debt  due  to  the  bank, 
enter  into  a  contract  on  behalf  of  the  bank  to  pay  one  a  commission  for 
procuring  a  purchaser  of  real  estate  held  by  the  bank  under  a  mortgage 
as  security  for  the  debt.''''' 

Power  of  Bank's  Attorney. — A  sale  of  land  belonging  to  a  bank  by 
its  general  attorney  is  not  binding  on  the  bank  where  such  attorney  has  no 
authority  to  make  the  sale.*"''  Nor  has  the  cashier  of  the  bank  authority  to 
ratify  such  unauthorized  sale  by  the  bank's  general  attorney.^^ 

Deed. — An  authority  from  the  directors  of  a  bank  to  a  committee  to 
convey  land  will  authorize  the  agent  to  execute  a  deed  and  affix  the  cor- 
porate seal  thereto.*'^  Under  a  charter  provision  that  "the  bills  obligatory 
and  credit  notes,  and  all  other  contracts  whatever,  on  behalf  of  said  cor- 
poration, shall  be  binding  upon  the  company,  provided  the  same  be  signed 
by  the  president  and  countersigned  or  attested  by  the  cashier  of  the  said 
corporation,"  a  deed  made  by  the  president  and  countersigned  by  the  cash- 
ier is  sufficient  in  point  of  form  and  is  prima  facie  a  good  deed."*^  And  it 
has  been  held  that  a    deed    signed    by    the    vice-president  of  the  bank  and 

62.  Same — Power  of  president  and  66.  Contract  to  pay  commission  for 
cashier  to  execute  mortgage. — Lecqett  securing  purchaser. — First  Nat.  Bank 
V.  New  Jersey  Mfg.,  etc.,  Co..  1  N.  J.  v.  Ratliff,  33  Tex.  Civ.  App.  279,  76  S. 
Eq.    541,    23    Am.    Dec.     728;    Hall    v.  W.  591. 

Farmers',    etc.,    Bank,   145    Mo.   418,    40  67.      Power     of     bank's     attorney. — 

S.  W.  inoo.  Spinks   V.    Athens    Sav.    Bank,    108    Ga. 

63.  Same— Sale    of    property    under       37Q    33  g.  E.  1003. 

mortgage     held     by     bank.-Carpy     v.  gg      p^^^^  ^f  cashier  to  ratify  sale 

'^';!^'''  V,7u^'  ^"^     ^'~~-  ^~  f'-c't'-  1  by    attorney.— Spinks    v.    Athens    Sav. 

64.  Where  management  of  bank  en-       p^^^^.   ^^^  ^.^   3.^   33  g   ^   ^^^^ 

trusted     to    president     and     cashier. —  „„     .,^      •,      a     1      •     ,•          t-i         i.'..« 

Steinke  v.  Yetzer,  108  Iowa  512,  79  N.  69.    Deed-Authonzation-Execution 

■^Y    086  — Burnll    v.    Nahant    BanK    (-Mass.),    2 

65"'  Assignment  of  bank's  rights  un-  ^I^tc.  163,  35  Am.  Deo.  39.i. 

der   purchase   at   execution   sale — Who  70.       Same — Signature,      attestation, 

may    question — Presumption. — Bank    v.  etc. — Veasey  z.   Graham.   17   Ga.  9!i,  63 

Warren   (N.   Y.),  7   Hill  91.  Am.  Dec.  228. 


§    104    (7)  REPRESENTATION    OF    BANK.  727 

sealed  with  its  corporate  seal  is  prima  facie  valid.' ^  P.ut  when  it  is  shown 
that  its  execution  was  without  authority  from  the  board  of  directors,  and 
not  in  accordance  with  the  statute,  such  prima  facie  presumption  is  over- 
come, and  the  deed  shown  to  be  invalid  and  insufficient  to  pass  title."-  An 
instrument  under  seal,  executed  by  the  president  and  cashier,  purporting 
to  convev  or  agreeing  to  convey,  real  estate  owned  by  the  bank,  is  not  the 
deed  of  the  corporation  where  the  seal  used  is  the  seal  of  the  president  and 
cashier,  and  not  the  seal  of  the  corporation."-  The  deed  of  a  banking  cor- 
poration may  be  acknowledged  by  its  cashier."-* 

Leasing  Tenements — Acts  of  Secretary  of  Bank. — \\'here  the  sec- 
retary of  a  bank  leasing  tenements  attends  generally  to  the  leasing  of  the 
premises,  the  bank  is  bound  by  his  act  in  turning  off  the  city  water,  and 
refusing  its  use  to  a  tenant,  when  done  with  the  knowledge  and  consent 
of  the  bank  president."-^ 

§  104  (6)  Assignments  for  Benefit  of  Creditors. — See  ante,  "As- 
signments for  Benefit  of  Creditors,"  §  78. 

§  104    (7)   Acquisition  of  Property  by  Officers  for  Bank. — As  to 

the  general  powers  of  banks  to  purchase  and  hold  real  property,  see  ante, 
"Real  Property,"  §  95. 

Powers  of  Cashier. — It  is  no  part  of  the  ordinary  or  implied  powers 
of  a  cashier  to  purchase  property  for  the  bank."*^  While  it  is  necessary  to 
the  validity  of  a  deed  that  it  should  be  delivered  to  and  accepted  by  the 
grantee,  it  is  not  necessary,  in  the  case  of  a  conveyance  to  a  bank,  that  its 
board  of  directors  should  be  called  together  and  the  deed  accepted  by  a 
formal  resolution.  It  is  sufficient  that  the  cashier,  entrusted  with  the  gen- 
eral routine  business  of  the  bank,  accepts  the  deed  as  and  for  the  bank  and 
has  the  same  placed  upon  record." '^  Any  question  as  to  the  validity  of  such 
an  acceptance,  however,  is  absolutely  set  at  rest  by  the  subsequent  action 
of  the  bank  in  undertaking  to  convey  the  property  received  under  the  deed.'^^ 

71.  Deed  signed  by  vice-president  tary  of  bank. — West  Side  Sav.  Bank  z'. 
and   sealed   with    corporate   seal. — Hall       Xcwton  (X.  Y.),  8  Daly  332. 

V.  Farmers',  etc..  Bank.  145  Mo.  41 S,  46  As  to  the  power  of  the  president  or 

S.  W.  1000,  ciiing  Leggelt  v.  New  Jer-  cashier    with    respect     to    leasing    the 

sey  Mfg.,  etc.,  Co.,  1   N.  Y.  Eq.  541.  23  l)ank's    property    or    leasing    property 

Am.  Dec.  72S;  St.  Louis  Public  Schools  for  the  use  of  the  bank,  see  ante,  "Pres- 

t.  Risley,  28  Mo.   li.-..  ident— Vice-President,"     §     102      (5b); 

72.  Same— Evidence    changing    pre-  '•Cashier,"  §   102    (5c);  post,  "Cashier," 
sumption    of    validity. — hall    i:    Faini-  ^  ^'^•^  ^Ij-              ^         ,  .                       , 
crs\  etc..   Bank.   14:,    Mo.  418,  46  S.  W.  76.      Power    of    cashier    to    purchase 

Bank   (U.   S.),  21   How.  356,  16  L.   Ed. 


73.     Deed   by   president   and   cashier 


130. 


under    their   individual   seals.-Bank   t-.  '  „„       Acceptance    of    deed    conveying 

Guttschhck    (L.   S.).    14  Pet.    19,10    L.  property    to    bank.-IIall    r.    Farmers'. 

^-*^-   ■^■^■'-  etc..    Bank,    M.".    .Mo.   4 1  s,   4t:   S.   W.    I<H)1). 

74.  Deed  of  bank  may  be  acknowl-  73.  Same — Doubt  as  to  acceptance 
edged  by  cashier. — Shoelian  t.  Davis,  removed  by  subsequent  conveyance  of 
17  O.  St.  571.  property. —  II all  .-•.   {•■arnuTs.'  etc..  I'aiik, 

75.  Leasing  tenements — Acts  of  secre-  m.^.  .Mf>.  418,  46  S.  W.  looo. 


728 


BANKS    AND    BANKING. 


§  105   {%) 


§  105.  Contracts — §105  (|)  General  Principles. — A  bank  is  bound 
by  the  contracts  of  its  authorized  agents,  whether  they  be  directors  or  other 
officers,  dealing  within  the  usual  and  ostensible  scope  of  their  authority; 
and  it  is  no  defense  to  the  bank  that,  in  making  the  contract,  its  agent  ex- 
ceeded his  real  authority,  or  that  he  was  really  seeking  to  subserve  his  in- 
dividual interests,  or  that  he  entertained  and  subsequently  carried  out  the 
design  of  appropriating  the  proceeds  to  his  own  use,  unless  it  can  be  shown 
that  the  other  party  was  also  a  party  to  the  fraud,  or  that  he  had  knowledge 
either  of  the  want  of  authority  or  wrongful  intent.'^  The  bank  is  not  bound, 
of  course,  upon  the  contracts  of  its  agents  made  entirely  without  the  scope 
of  their  authority,  unless  there  has  been  a  previous  authorization  or  sub- 
sequent ratification  ;■''••  and  where  a  third  person  attempts  to  set  up  a  con- 
tract which  was  clearly  beyond  the  ordinary  powers  and  duties  of  the  offi- 
cer or  agent  who  is  alleged  to  have  executed  the  same  on  behalf  of  the 
bank,  the  burden  is  upon  such  third  person  to  show  the  authority  of  the 
agent  to  bind  the  bank;  either  that  he  was  expressly  authorized  to  enter 
into  such  an  agreement  in  behalf  of  the  bank,  that  by  a  previous  course  of 
dealing  he  was  held  out  as  having  authority  to  bind  the  bank  in  such  mat- 
ters, or  that  there  has  been  a  subsequent  ratification.* ^  And  where  one  has 
dealt  with  the  officer  of  a  bank,  who  is  vested  with  apparent  authority  to 
make  certain  contracts  on  its  behalf,  and   subsequently   circumstances  are 


79.  Contracts — General  principles. — 
Chemical  Nat.  Bank  v.  Armstrong,  8 
C.  C.  A.  155,  59  Fed.  372,  28  L.  R.  A. 
231;  Bank  v.  Patchin  Bank,  19  N.  Y. 
312. 

A  party,  receiving  and  discounting 
bona  fide  a  bill  of  exchange  dated  ten 
days  previous,  payable  to  the  order  of 
"A.  B.  cas,"  indorsed  "A.  B.  cas,"  in- 
closed in  a  letter  dated  at  the  banking 
house  of  which  A.  B.  is  cashier,  and 
signed  "A.  B.  cas,"  has  a  right  to  re- 
cover on  such  bill  as  against  the  bank- 
ing house,  although  the  bill  was  in- 
dorsed for  the  accommodation  of  a 
third  party,  and  not  for  the  benefit  of 
the  banking  house.  Bank  v.  Patchin 
Bank,  19  N.  Y.  312. 

A  bank  is  liable  for  a  loan  ol)tained 
from  another  bank,  dealing  in  good 
faith  with  its  authorized  officer,  al- 
though such  officer  acts  without  knowl- 
edge of  the  other  bank  officials,  and 
appropriates  the  money  to  his  own  use. 
Chemical  Xat.  Bank  v.  Armstrong,  8 
C.  C.  A.  155,  59  Fed.  372,  28  L.  R.  A. 
231. 

The  C.  Bank  in  good  faith  advanced 
money  on  collateral  forwarded  to  it 
by  the  vice  president  of  the  F.  Bank, 
and  charged  the  loan  to  the  F.  Bank. 
The  vice  president  of  the  F.  Bank  di- 
rected that  the  loan  be  transferred  to 
his   individual  credit,  which   was   done, 


whereupon  he  fraudulently  checked  out 
the  same  for  private  purposes.  Held, 
that  the  vice  president  had  authority 
to  negotiate  the  loan,  and  that  the  va- 
lidity thereof  was  not  affected  by  his 
traud.  Chemical  Nat.  Bank  v.  Arm- 
strong, 50  Fed.  798. 

When  the  cashier  of  a  bank  has  full 
charge  of  its  Imsiness,  and  secures 
loans  on  notes  of  the  bank  signed  by 
him,  apparently  in  the  usual  course  of 
business,  under  documents  giving  him 
authority  from  the  directors  to  bor- 
row, the  bank  is  liable  on  the  notes, 
though  such  documents  afterwards  ap- 
pear' to  be  forgeries,  and  the  proceeds 
of  the  loans  are  used  by  the  cashier 
for  his  own  l^enent.  City  Nat.  Bank  v. 
Chemical  Nat.  Bank,  26  C.  C.  A.  195, 
SO  Fed.  859. 

80.  Contracts  entirely  without  scope 
of  agent's  authority. — New  Hampshire 
Sav.   Bank  r.  Downing,  16  N.  H.  187. 

A  bank  is  not  bound  by  an  agree- 
ment, made  by  one  of  its  officers,  not 
thereto  authorized,  to  notify  a  surety 
of  the  default  of  the  makers  of  a  note 
left  as  collateral.  New  Hampshire 
Sav.  Bank  v.  Downing,  16  N.  H.  187. 

81.  Burden  of  proof  where  contract 
beyond  ordinary  powers  of  officer. — 
Citizens'  Nat.  Bank  v.  Marks.  34  Pa. 
Super.  Ct.  310. 


§  105  (KO 


REPRESENTATION    OF    BANK. 


729 


brought  to  his  notice  which  are  sutificient  to  put  him  on  incjuiry  as  to  whether 
the  authority  exists,  in  order  to  recover  on  any  such  contracts  made  after 
that  time,  he  must  prove  actual  authorization  by  the  l)ank.^- 

Fraudulent  and  Illegal  Contracts — Contracts  Opposed  to  Public 
Policy,  etc. — Fraudulent  and  collusive  contracts  entered  into  in  violation 
of  the  charter  of  the  bank  or  contrary  to  its  interests  and  as  a  fraud  upon 
its  rights,  or  contracts  opposed  to  public  policy,  either  upon  principles  of 
general  law  or  because  designed  to  evade  wholesome  restrictions  enacted  in 
the  interests  of  good  banking,  can  not  be  set  up  against  the  just  rights  of 
the  bank,  either  as  the  basis  of  a  cause  of  action  or  as  a  ground  of  defense. ^^ 
Typical  among  contracts  of  this  character  are  those  in  wdiich  the  officers 
and  agents  of  the  bank  enter  into  secret  agreements  with  parties  to  obliga- 
tions taken  in  behalf  of  the  bank  that  they  shall  not  actually  be  called  upon 
to  pay  the  same  according  to  the  tenor  of  the  instrument,  but  that  it  shall 
be  met  or  discharged  in  some  other  way.  Not  only  have  its  officers  no  power 
to  bind  the  bank  to  any  such  agreement,  but  any  attempt  to  do  so  is  a  fraud 
upon  the  bank,  and  can  not  be  set  up  in  defense  to  an  action  by  the  bank 
to  enforce  the  instrument  according  to  its  face.^^     In  fact,  an  officer  of  the 


82.  Necessity  for  proving  actual  au- 
thority where  third  person  has  notice 
putting  him  on  inquiry. — Stailcup  r. 
^lational  Bank,  47  Hun  6:59.  15  N.  Y. 
St.  Rep.  H9. 

83.  Fraudulent  and  illegal  contracts 
— Contracts  opposed  to  public  policy, 
etc. — Savannah  Bank,  etc..  Co.  f.  Hart- 
ridge,  73  Ga.  223;  McNulta  v.  Corn 
Belt  Bank,  164  111.  427,  45  N.  E.  954,  56 
Am.  St.  Rep.  203;  Kennedy  r.  Otoe 
County  Xat.   Bank,  7  Neb.  59. 

A  resolution  of  the  board  of  direct- 
ors of  a  state  bank  voting  a  bonus  to 
their  president  in  consideration  for  the 
temporary  supply  of  funds  for  the  pur- 
pose of  deceiving  the  auditor,  and 
fraudulently  accomplishing  an  organi- 
zation of  the  bank  with  authority  to 
proceed  to  business,  and  to  dispose  of 
stock  apparently  paid  up  in  full,  is  an 
agreement  to  do  an  act  forbidden  by 
the  statute,  and  is  void.  McNulta  v. 
Corn  Belt  Bank,  164  Til.  427,  45  N.  E. 
954.  56  .\m.   St.   Rep.  203. 

Where  a  rule  of  a  bank  provides 
that  no  officer  therein  can  become  its 
debtor,  it  is  not  Ijound  by  the  follow- 
ing agreement  between  its  cashier  and 
a  third  party:  The  cashier  desiring  to 
procure  money  from  the  liank  to  pur- 
chase stock  made  an  agreement  with 
the  third  party  who  acted  with  notice 
of  the  rule,  by  which  the  latter  should 
purchase  certain  stock  and  the  cashier 
as  such  should  advance  to  him  money 
of  the  bank  to  pay  for  it,  such  third 
person  to  give  his  note  to  the  bank  for 


the  money  and  deposit  the  stock  as 
collateral.  This  was  done  and  the 
cashier  assimied  the  payment  of  the 
note,  the  stock  being  his.  and  the  bank 
having  no  other  notice  of  the  arrange- 
ment except  the  knowledge  of  the 
cashier.  Savannah  Bank,  etc.,  Co.  v. 
Hartridge,  73  Ga.  223. 

84.  Same — Secret  understanding  or 
agreem.ent  varying  liability  under  con- 
tract.—Breyf  ogle  ::  Walsh,  71  Fed. 
898;  Metropolis  r.  Williams,  46  Mo.  17; 
Kennedy  z\  Otoe  County  Nat.  Bank, 
7  Neb.  59;  Martin  r.  First  Nat.  Bank, 
11  O.  C.  C,  N.  S.,  93,  20-30  O.  C.  D.  398; 
Mead  v.  Pettigrev/,  11  S.  Dak.  529,  78 
N.  W.  945;   Loomis  v.  Fay,  24  Vt.  240. 

A  bill  which  seeks  to  restrain  the 
sale  by  a  bank  of  property  pledged  as 
collateral  security  to  a  note  discounted 
by  it,  on  tiie  ground  that  the  president 
of  the  bank  secretly  agreed  that  he 
would  see  to  the  payment  of  the  note 
without  sale  of  the  collateral,  does  not 
state  a  case  for  equitable  relief,  since 
such  agreement,  l)eing  against  the  in- 
terest of  the  hank,  should  not  be  en- 
forced for  the  benefit  of  a  party  to  it. 
Breyfogle  v.  Walsh,   71    Fed.   898. 

An  accommodation  indorsement  of  a 
note  to  a  bank,  under  an  express  agree- 
ment with  the  president  tliat  the  in- 
dorser  should  not  1)0  held  liahlo.  would 
be  void  as  a  fraud  upon  the  hank. 
Loomis  7'.  Fay.  24  Vt.  240. 

Whore  a  hill  of  exchange  is  made 
payal)le  to  a  hank  through  its  cashier, 
and  is  received  by  tlic  hank  in  the     usual 


730 


BANKS    AND    BANKING. 


§  105  (K2) 


bank  who  colludes  with  a  third  person  for  the  purpose  of  defrauding  the 
bank  or  evading  charter  and  statutory  restrictions  can  not,  as  to  that  trans- 
action, be  considered  the  representative  of  the  bank,  and  his  knowledge  of 
the  actual  nature  of  the  transaction  can  not,  of  course,  be  imputed  to  the 
bank.''^  Of  course,  if  it  can  be  shown  upon  the  facts  that  the  contract  was 
really  entered  into  in  behalf  of  the  bank,  and  that  the  bank  received  and 
used  the  proceeds,  it  may  be  made  to  account  therefor. •"•'■'  \\'here  the  offi- 
cers of  the  bank  are  authorized  to  borrow  money  for  the  bank,  but  forbid- 
den to  execute  certain  evidences  of  indebtedness  or  pledge  the  bank's  se- 
curities as  collateral  therefor  without  the  consent  of  the  directors,  money 
borrowed  by  them  may  be  recovered  of  the  bank  upon  an  implied  obligation 
to  repay,  notwithstanding  the  notes  or  bonds  evidencing  the  indebtedness 
and  the  collateral  deposited  to  secure  it  may  be  unenforceable  for  want  of 
the  previous  consent  of  the  directors  as  recjuired  by  law.'*'     Other  contracts, 


course  of  business,  it  is  not  bound 
'by  a  secret  agreement  of  the  cashier 
with  the  drawer  that  the  latter  is  not 
to  be  liable  on  the  bill.  National  Bank 
V.  Williams,  46  :\Io.  17. 

A  bank  cashier  agreed  that  he  would 
secure  certain  bonds  as  collateral  for 
the  payment  of  a  note,  made  payable 
to  and  delivered  to  the  bank,  and  that 
the  liabilities  of  the  sureties  should  be 
subordinate  to  such  collateral.  Held, 
ihat  in  the  ordinary  performance  of 
his  duties,  he  had  no  authority  to  make 
such  an  agreement,  and  therefore  the 
bank  was  not  bound.  Martin  v.  First 
Nat.  Bank,  11  O.  C.  C,  N.  S.,  93,  20-30 
O.  C.  D.  398. 

An  agreement  l)y  the  president  of  a 
liank  with  one  who  gives  a  note  in  re- 
turn for  stock  in  the  bank,  that  he  wiU 
not  be  required  to  pay  anything  on 
the  note,  is  not  binding  on  the  bank, 
and  does  not  release  the  maker.  !Mead 
c'.  Pettigrew,  11  S.  Dak.  529,  78  N.  W. 
'.)45. 

The  president  of  plaintiff  bank  in- 
duced defendant  to  give  his  note  in  pay- 
ment for  certain  shares  of  the  bank's 
stock,  in  order  that  he  might  continue 
in  control  of  the  bank,  representing 
that  the  dividends  would  be  sufficient 
to  pay  the  interest  thereon,  and  that 
the  stock  would  pay  the  note  if  it  ever 
l)ecame  necessary  to  pay  it.  The  note 
was  discounted  by  the  bank,  and  the 
amount  placed  to  the  credit  of  the 
president,  which  he  drew  out  by  check. 
None  of  the  officers  of  the  bank  ex- 
cept the  president  knew  of  the  char- 
acter of  the  contract,  or  that  it  was 
given  for  stock.  Held,  that  the  bank 
was  not  bound  by  the  representations 
of  its  president  with  reference  to  mat- 
ters   in    which  it    had    no  interest,    and 


hence  was  entitled  to  recover  the 
amount  of  the  note.  Kennedy  7'.  Otoe 
County  Nat.  Bank,  7  Neb.  59. 

85.  Official  entering  into  collusive 
agreement  not  considered  the  repre- 
sentative of  the  bank. — Savannah  Bank, 
etc.,  Co.  z:  Hartridge,  73  Ga.  223;  Ken- 
nedy T-.  Otoe  County  Nat.  Bank,  7 
Nel).  59. 

86.  Sam  e — Evidence — Acceptance 
and  use  of  benefits  by  bank. — Eastern 
Townships  Bank  z\  Vermont  Nat. 
Bank,  22  Fed.  186,  22  Blatchf.  498. 

A.,  the  president  of  defendant,  a  na- 
tional bank  in  Vermont,  applied  to  the 
plaintiff,  a  banking  corporation  in  Can- 
ada, for  a  loan.  Plaintiff's  manager 
told  him  the  money  could  not  be 
loaned  as  an  individual  loan,  as  its  in- 
dividual loans  were  loo  near  the  limit 
allowed  by  law,  but  that  it  would  de- 
posit that  amount  with  defendant,  if 
desired.  A.  assented,  and  agreed  that 
bonds  should  be  deposited  as  security. 
Plaintiff  drew  two  drafts  for  the 
amount,  delivered  them  to  defendant 
and  received  the  collaterals,  and  en- 
tered the  transaction  on  its  books  as 
a  loan  to  defendant.  Defendant  in- 
dorsed the  drafts,  forwarded  them  to 
the  drawee,  from  which  it  received 
credit  for  them,  and  retained  the  pro- 
ceeds. Held,  that  the  transaction  was 
not  a  loan  to  A.  individually,  but  to  de- 
fendant. Eastern  Townships  Bank  v. 
Vermont  Nat.  Bank,  22  Fed.  186,  22 
Blatchf.  498. 

87.  Recovery  upon  implied  obliga- 
tion where  officers  exceed  authority 
as  to  character  of  obligation,  securi- 
ties pledged,  etc. — Union  Nat.  Bank  v. 
Lyons,  220  Mo.  538,  119  S.  W.  540.  See 
also,  as  illustrating  the  same  principle, 
Hitchcock  V.   Galveston,   96   U.   S.   341, 


§    105    (/a) 


REPRESENTATION    OF    BANK. 


731 


such  as  the  purchase  of  real  estate  for  the  hank  in  violation  of  charter  or 
statutory  provisions,  rest  upon  the  principle  that,  after  the  contract  has  been 
executed  and  title  to  the  property  vested  in  the  bank,  objection  to  the  va- 
lidity of  the  transaction  can  only  be  made  by  the  state,  and  that  the  bank 
can  sell  and  transfer  the  property  and  convey  a  valid  title  upon  its  vendee. ^^ 
But  as  charter  and  statutory  restrictions  forbidding  the  purchase  of  real 
estate  by  banking  associations  are  notice  to  all  the  world  of  the  bank's  re- 
stricted powers  in  that  respect,  it  can  not  be  bound  by  the  contracts  of  its 
officers  purchasing  real  estate  in  its  behalf,  unless  it  has  so  far  recognized 
such  contract  as  to  estop  itself  from  repudiating  it.'^^ 

Bank  Not  Shift  Responsibility  to  Officers  and  Agents,  When. — 
Where  the  contract  is  one  which  it  was  clearly  within  the  power  of  the 
bank's  officers  and  agents  to  make,  and  appears  to  have  been  entered  into 
by  the  other  party  upon  the  faith  and  credit  of  the  bank's  responsibility,  and 
not  that  of  its  officers  and  agents,  and  the  intention  seems  to  have  been  to 
bind  the  bank  as  the  principal,  and  not  its  officers  and  agents  as  individuals, 
the  presumption  is  that  it  is  the  contract  of  the  bank,  and  it  will  not  be  per- 
mitted, upon  slight  evidence,  to  escape  its  just  responsibility  by  showing  that 
it  was  never  bound  and  that  it  was  the  contract  of  its  officers  and  agents  as  in- 
dividuals.^*^   This  principle  also  applies  in  favor  of  the  bank  as  against  third 


24  L.  Ed.  659;  Louisiana  v.  Wood,  102 
U.  S.  294,  26  L.  Ed.  153;  Argenti  r. 
San  Francisco.  16  Cal.  255;  Malier  v. 
Chicago,  38  111.  266;  Sparks  r.  Jasper 
County,  213  Mo.  218,  112  S.  W.  265; 
Oneida  Bank  r.  Ontario  Bank,  21  N. 
Y.  490;  Silver  Lake  Bank  i\  North  (N. 
v.),  4  Johns.  Ch.  370;  Vanatta  f.  State 
Bank,  9  O.  St.  27;  Allegheny  City  v. 
McClurkan  &  Co..  14  Pa.  8]. 

Rev.  St.  1899.  §  1281  (Ann.  St.  1906, 
p.  1048),  providing  that  no  bills  payable 
shall  be  made  and  no  bills  shall  be  re- 
discounted  b)^  the  officers  of  a  bank 
without  the  consent  of  its  directors,  did 
not  prevent  a  bank's  officers  from  bor- 
rowing money  on  the  bank's  credit 
without  the  consent  oi"  the  directors, 
but  only  invalidated  the  note  given 
therefor.  Union  Xat.  Bank  v.  Lyons, 
220   Mo.   5P,S,   119    S.   \y.   540 

88.  Transactions  to  which  state  only 
may  object — Purchase  of  real  P!?tate. — 
White  7'.  Lester,  40  X.  Y.  (l  Keyes) 
316,  4  Abb.  Dec.  585,  34  How.  Prac. 
136;  First  Nat.  Bank  v.  Reno,  73  Iowa 
145,  34  N.  W.  796;  National  Bank  7'. 
Matthews,  98  U.  S.  621,  25  L.  Ed.  188; 
Savings  Bank  7'.  Burns,  104  Cal.  473,  38 
Pac.  102;  Bank  v.  Flathers,  45  La.  Ann. 
75,  12  So.  243;  Ilenncssv  V.  St.  Paul, 
54  Minn.  219,  55  N.  W.  1123;  Hall  V. 
Farmers',  etc.  Bank,  145  Mo.  418,  46 
S.  W.  1000;  Smith  7'.  First  Nat.  Bank, 
45   Neb.   444.   63   N.   W.   796;   Lcazure  v. 


Hillegas   (Pa.),  7   Serg.  &  R.  313. 

A  purchase  of  lands  at  mortgage 
sale  by  a  bank  cashier  in  his  own  name 
for  the  benefit  of  his  bank  is  not  in- 
valid because  the  bank,  by  its  charter, 
is  disabled  from  purchasing  lands;  and 
a  purchaser  from  such  cashier  will 
therefore  obtain  a  valid  title  as  against 
the  original  owner.  White  v.  Lester, 
40  N.  Y.  (1  Keyes)  316.  4  Abb.  Dec. 
585,  34  How.   Prac.   136. 

89.  Third  persons  bound  to  a  knowl- 
edge of  charter  and  statutory  restric- 
tions with  respect  to  purchase  of  real 
estate. — Winsor  7'.  Lafayette  County 
Bank,  18  Mo.  App.  665;  INIetropolitan 
Bank   7'.    C7odfrcy.   23    111.    579. 

90.  Bank  not  permitted  to  shift  re- 
sponsibility upon  officers  and  agents, 
when. — Robb  7'.  Savings  Bank.  (>  Ky. 
L.  Rep.  215;  Merchants'  Nat.  Bank  v. 
Phillip,  etc..  Machinery  Co.,  15  Tex. 
Civ.  .\pp.  159,  39  S.  W.  217. 

Where  a  bank  has  received  a  money 
deposit,  it  can  not  escape  respon- 
sibility to  the  depositor  by  showing  a 
verbal  request  by  the  depositor  for  the 
cashier  to  make  investments  for  him. 
If  the  books  of  the  bank  show  the  de- 
posit and  the  investment,  the  court 
will  assume  that  the  transaction  was 
with  the  bank,  and  not  with  the  cash- 
ier as  the  special  agent  of  the  de- 
positor, and  will  require  the  1>ank  to 
account    cither    for    tlie    deposit    or    the 


732 


BANKS    AND    BANKING. 


105  (!/') 


persons  where,  in  order  to  defeat  the  rights  of  the  bank,  an  attempt  is  made 
to  show  that  a  contract,  apparently  the  contract  of  the  bank,  is  in  reality 
only  the  contract  of  its  officers  as  individuals.^*^ 

Form  and  Manner  of  Executing  Contract. — A  charter  or  statutory 
provision  requiring  all  contracts  whatsoever  to  be  signed  by  the  president 
and  countersigned  by  the  cashier,  in  order  to  bind  the  bank,  does  not  apply 
to  such  dealings  and  transactions  as  are  usually  and  necessarily  performed 
by  the  cashier  or  some  other  duly  authorized  agent  of  the  institution.^-    Xor 


investment.      Robb   z:    Savings   Bank,   (3 
Ky.   L.   Rep.  215. 

A  check  was  sent  to  defendant  bank 
to  indemnify  it  for  furnishing  a  bond 
for  plaintiff.  The  president  and  the 
cashier  became  sureties,  and  the  check 
was  deposited  to  their  credit,  and 
afterwards  paid.  Held,  that  the  execu- 
tion of  a  receipt  by  those  officers  in- 
dividually did  not  constitute  a  contract 
between  them,  as  individuals,  and  plain- 
tiff, which  extinguished  the  bank's  lia- 
bility to  account  for  the  check.  Mer- 
chants' Nat.  Bank  z:  Phillip,  etc.,  Ala- 
chinery  Co.,  15  Tex.  Civ.  App.  159,  39 
S.  W.  217. 

91.  Same — Principle  also  applies  in 
favor  of  bank. — Gilmore  z\  Kilpatrick- 
Koch  Dry-Goods  Co.,  101  Iowa  164, 
70   N.   W.   175. 

The  interest  of  B.  as  chattel  mort- 
gagee being  as  cashier  of  a  bank,  the 
word  "us,"  in  an  agreement  signed  in 
his  name  and  given  the  mortgagor,  re- 
citing, "It  is  hereby  agreed  that  B., 
cashier,  shall  not  take  possession  *  *  * 
until  default  therein,  unless  such  ac- 
tion shall  be  necessary  to  protect  us 
against  other  creditors,"  does  not  re- 
fer to  the  mortgagor  and  B.,  but  to  the 
bank.  Gilmore  v.  Kilpatrick-Koch 
Dry-Goods  Co.,  101  Iowa  164,  70  N. 
W.   175. 

92.  Form  and  manner  of  executing 
contract. — Mechanics'  Bank  z'.  Bank 
(U.  S.).  5  Wheat.  326.  5  L.  Ed.  100; 
Carey  r.  McDougald,  7  Ga.  84;  Mer- 
chants' Bank  z'.  Central  Bank,  1  Ga. 
418,  44  Am.  Dec.  665;  Carey  Z'.  Giles. 
10  Ga.  9;  Wakefield  Bank  7'.  Truesdell 
(N.  Y.),  55  Barb.  602;  Leavitt  v. 
Blatchford  (N.  Y.),  5  Barb.  9;  Alaxwell 
z:  Planters'  Bank,  29  Tenn.  (10 
Humph.)  507;  Northern  Bank  t'.  John- 
son, 45  Tenn.   (5   Coldw.)   88. 

A  banking  association,  under  the 
general  banking  law.  is  liable  to  re- 
pay money  borrowed  for  its  use  on  a 
letter  of  credit  signed  by  the  presi- 
dent under  the  proper  authority, 
though  there  is  no  written  promise  to 
repay  the  same,  signed  by  the  presi- 
dent,     vice      president,      and      cashier. 


Leavitt  z:  Blatchford  (N.  Y.).  5 
Barb.   9. 

The  17th  section  of  the  act,  incor- 
porating the  Mechanics'  Bank  of  Alex- 
andria, providing  "that  all  bills,  bonds, 
notes  and  every  other  contract  or  en- 
gagement on  behalf  of  the  corporation, 
shall  be  signed  by  the  president,  and 
countersigned  by  the  cashier;  and  the 
funds  of  the  corporation  shall,  in  no 
case,  be  liable  for  any  contract  or  en- 
gagement, unless  the  same  shall  be 
signed  and  countersigned  as  afore- 
said." does  not  extend  to  contracts 
and  undertakings  implied  in  law.  Me- 
chanics' Bank  z'.  Bank  (U.  S.),  5  Wheat. 
326.  5  L.  Ed.  100;  Accord  Northern 
Bank  v.  Johnson.  45  Tenn.  (5  Coldw.) 
88;  Maxwell  z'.  Planters'  Bank,  29 
Tenn.    (10   Humph.)    307. 

Where  a  general  banking  law  con- 
tained a  provision  in  the  following 
words:  "Contracts  made  by  any  bank 
or  banking  association  established  un- 
der the  provisions  of  this  act,  and  all 
notes  and  bills  issued  and  put  in  cir- 
culation as  money,  shall  be  signed  by 
the  president  and  cashier  thereof;" 
and  a  bank  sold  a  draft  which  was 
signed  by  the  president  only,  and  was 
dishonored — it  was  held  that  the  con- 
tracts referred  to  in  the  act  were  con- 
tracts intended  to  circulate  as  money 
only,  and  that  the  bank  was  liable  on 
the  draft.  Paine  v.  Stewart,  33  Conn. 
516. 

Act  1855,  p.  39,  §  23,  declaring  that 
contracts  made  by  banks,  and  all  bills 
and  notes  by  them  issued  and  put  in 
circulation  as  money,  shall  be  signed 
by  the  president  or  vice  president  and 
cashier,  does  not  include  the  indorse- 
ment of  a  note,  for  which  the  signa- 
ture of  the  cashier  alone  is  sufficient. 
Jones   z'.    Hawkins.   17   Ind.    550. 

Act  1855,  p.  39,  §  23,  providing  that 
contracts  made  by  banks,  and  all  bills 
and  notes  by  them  issued  and  put  in 
circulation  as  money,  shall  be  signed 
by  the  president  or  vice  president  and 
cashier,  does  not  require  the  signatures 
of  both  president  and  cashier  to  a  bill 
of  exchange,  for  which  the  signature  of 


§    105     (1)  REPRESEXTATIOX    OF    BAXK.  733 

does  a  statutory  provision  that  "contracts  made  by  banks  shall  be  signed  by 
the  president  and  cashier  thereof"  prevent  a  bank  from  contracting  through 
other  agents. '^-"^ 

§  105  (1)  Directors. — The  directors  of  a  bank  are  but  its  authorized 
agents,  and  can  incur  no  obligation  binding  on  the  corporation,  except  while 
acting  in  the  mode  prescribed  by,  and  within  the  limits  of,  the  charter.^'* 
They  represent  the  bank  only  when  acting  in  their  official  capacity  as  a 
board.  A  single  director  can  not  bind  the  bank  by  contract  without  express 
authority  from  the  board. ^^  And  w4ien  a  debtor  of  the  bank  sets  up  a  com- 
promise or  an  accord  and  satisfaction  as  a  defense  to  an  action  by  the  bank 
to  recover  against  him,  and  alleges  that  such  compromise  op  other  agree- 
ment was  made  by  a  director  of  the  bank,  he  is  bound  to  show  the  authority 
of  the  agent  to  bind  the  bank,  because  the  mere  fact  that  the  alleged  agent 
is  one  of  the  directors  is  no  proof  of  his  authority  to  bind  the  bank  by  such 
an  agreement. ^^ 

Power  to  Borrow  Money. — The  power  of  a  bank  to  borrow  money 
should  be  exercised  by  the  directors,^"  and  they  may  pledge  the  faith  of  the 
bank  in  execution  of  their  trust.^^  The  directors  have  no  authority,  how- 
ever, to  pledge  the  future  earnings  in  the  absence  of  express  authority  from 
the  stockholders.-'^ 

Liquidation  Contract. — A  statute  which  vests  authority  in  others  than 
the  directors  of  the  bank  to  determine  whether  it  shall  be  liquidated  ex- 
cludes such  authority  in  the  directors,  and  makes  ultra  vires  a  liquidation 
agreement  executed  by  them.^ 

Donation  or  Appropriation  of  Bank's  Funds. — The  directors  of  a 
corporation  have  no  power  to  make  a  donation  from  the  funds  of  the  bank 
or  to  misappropriate  them  in  violation  of  the  laws  and  rules  regulating  its 
mode  of  action. - 

Compromise,  Release  or  Extension  of  Claims. — The  directors  have 
power  to  compromise  debts  owing  to  the  bank,-"-  and  the  bank  can  not  rei)udi- 

the   president    alone   is   sufficient.     Alii-  98.     Same — Pledging  faith  of  bank. — 

son  z\  Hul)l)ell,  17  Tnd.  .5.59.  State   f.    I'.ank,   r,    Mart.,    X.    S.,   :::2r. 

93.  Same— Contracting  through  other  99,  Same— Pledging  future  earnings, 
than  prescribed  agent.— Dana  2:  Dank,  _Brown  r.  Bradford.  103  Iowa  378,  72 
4    Minn.   385    (Gil.  2!)1  ).  X.  W.  (548. 

94.  Contracts — Power    of    directors.  ,      t  •   ,  •  j.,.-   „          4.       ..      a       .^     n 

T,      ,          e  1       n  -11     t:>      1       ^  o    ^       1  1-    l-iquidation  contract. — 'Assets   Rc- 

— Hank   z\    Schuylkill     l.ank      (Pa.),      1  \-     ,-        n             n            i     ior.   -nt    \'-    o 

•o          T-      r'        ion  alization   Co.   r.    llowanl,   127   N.    1.   b. 

Pars.   hq.  Ca.s.  180.  ,,,„      „,,      ,,.           ,^            ,.., 

nc     T>               ^   u     1         1         u            i  '!'^.    ""     Misc.     Rep.     bal,     construing- 

95.  Represent   bank   only   when   act-  ^t          \r     ,       r>      1  •          t            /n         1 

•    „     „        u      ,  J       1 1                        r'   11  Aew     York      Banking     Law      (Lonsol. 

mg   as  a    board. —  Harper     t'.     Lalhoun  j        ~   ^    n\    es    10    m7  o-    ra    nn    r^A^ 

CMiss.),  7   How.  203;   National   Bank  z:  f^aw»  c.   2),  §§18    19,  3o,   66.   99.   Code 

Shumway,    49    Kan.    224,    .30    Pac.    411;  ^iv.    Proc,    §    2419.    and     Gen.      Corp. 

TT      1              r>      1     /T'     >     -   T  ■».     (-  Law     (Consol.    Laws    c.    23),    5;     l.O. 

Huylies  z'.  Bank   (Kv.),  •)   Litt.  4.).  .    '. 

96.  Proof  of  special  authority  of  2.  Donation  or  appropriation  of 
single  director.— Citizens'  Xat.  P.ank  z:  bank's  funds.— Union  liaiik  z:  Jones, 
Marks,  34  Pa.  Super.  Ct.  310;  Olney  4  La.  Ann.  23C.:  !■  ranktort  Bank  :•.  Jolin- 
V.  Chadsey,  7   R.   I.  224.  S'^>"-   24    Me.    490. 

97.  Power  to  borrow  money. —  3.  Compromise,  release,  or  extension 
Leavitt  z\  Yates  (X.  Y.).  4  Edw.  Ch.  of  claims. — WOlf  z\  iUireau,  1  Mart., 
134.  X.   S.,   162. 


734  BANKS    AND    BANKING.  §    105     (1) 

ate  the  contract  of  its  directors  to  accept  land  for  a  debt  where  no  fraud 
on  the  part  of  the  debtor  is  shown,  or  any  conspiracy  between  the  directors 
and  the  debtor  to  make  a  contract  known  to  be  disadvantageous  to  the 
bank.-*  Neither  can  the  bank  evade  a  contract  to  accept  certain  property 
of  a  debtor  in  discharge  of  his  debts  to  the  bank  by  the  fact  that  one  of  the 
directors,  who  authorized  such  contract,  was  jointly  liable  with  such  debtor 
for  the  debt,  where  it  is  not  shown  that  such  director  procured  the  contract 
by  collusion  with  the  other  directors.-^  The  directors  of  a  bank  can  not  re- 
lease, without  consideration,  a  debt  due  the  bank ;  and  a  fortiori  they  can 
not  empower  the  president  to  do  so.*^  The  directors  of  a  branch  bank,  who 
are  limited  agents  and  unauthorized  to  make  a  donation  of  the  property  of 
the  stockholders,  have  no  power  to  authorize  the  cashier  to  vote  for  the  dis- 
charge of  an  insolvent  debtor,  thereby  releasing  his  future  property  and  a 
surety,  where  the  bank  has  acquired  a  right  to  a  dividend  whether  a  dis- 
charge be  voted  or  not.  Such  a  vote  is  a  mere  donation  and  not  binding 
on  the  bank.'^  But  they  have  power,  in  behalf  of  the  corporation,  to  release 
a  person  whom  they  propose  to  call  as  a  witness.'^  In  order  that  any  com- 
promise or  release  entered  into  by  the  directors  may  be  binding  on  the  bank 
they  must  have  acted  in  their  official  capacity  as  a  board,  and  not  as  in- 
dividuals.^ Authority  in  a  single  director  or  other  officer  to  release  the 
claims  of  the  bank  must  be  derived  from  the  directors  by  their  vote,  or 
from  their  assent,  express  or  implied  ;^"  and  when  a  debtor  sets  up  a  com- 
promise agreement  that  he  has  entered  into  with  a  single  director,  it  is  in- 
cumbent upon  him  to  show  that  such  director  has  been  made  an  agent  of 
the  bank  with  power  to  represent  it  in  respect  to  the  compromise  or  settle- 
ment of  such  claim. ^^ 

Compromise   or   Settlement   with   Officers   of  the   Bank. — The  di- 

4.  Accepting  land  in  payment. —  their  private  capacity,  not  to  demand 
Baird  v.  Bank  (Pa.),  11  Serg.  &  R.  411.       payment  until  the  occurrence  of  a  cer- 

5.  Accepting  other  than  cash  on  con-  lain  contingency,  does  not  bind  the 
tract  on  which  director  jointly  liable.  corporation.  Hughes  r.  Bank  (Ky.), 
—Baird   v.    Bank    (Pa.),    11    Serg.    &    R.       ■'  Litt.  45. 

^^^  10.     Single     director     must     be     spe- 

6.  Releasing  debt  without  considera-  cially  authorized.— Olney  v.  Chadsey,  7 
tion.— Hodge    v.    First    Nat.     Bank.     03       R-  ^-  ~z^- 


Va.    (22   Gratt.)    51.   See,   also,    Bank 


11.     Same — Proof     of      special      au- 


Jones   (U.  S.),  8  Pet.  12,  8  L.  Ed.  850,  thority.— Citizens    Xat.  Bank  v.  Marks, 

affirming  Bank  v.  Dunn   (U.  S.),  6  Pet.  ^^  P^-   S'^'Per-   Ct.  310. 

51    8   L    Ed    31fi  When  a  debtor  of  a  bank  sets  up  an 

.\.     '.'.     "           ,.        ^           ^      r  agreement   that   would   extinguish    one- 

7.  Authorizmg  cashier  to  vote  for  ,;^if  ^f  ^j^^  j^,^^  i„  consideration  of  a 
discharge  of  insolvent  debtor.-Umon  ^^^^^^^^  promise  to  pay  the  other  half, 
Bank  V.  Jones,  4  La.  Ann.  23b.  .^,^^j    ^,j^„^g    ^1^^^   g^,^j^     ^„     agreement 

8.  Power  to  release  debtor  who  is  ^vas  made  bv  a  director  of  the  bank, 
to  be  called  as  a  witness. — Lewis  v.  the  debtor  is  bound  fo  show  the  au- 
Eastern  Bank,  32  Me.  90.  thority   of   the   agent   in   order   to  bind 

9.  Must  act  in  official  capacity  as  a  the  bank.  The  mere  fact  that  the 
board. — Hughes  z'.  Bank  (Ky.),  5  agent  was  one  of  the  directors  does 
Litt.   45.  not    in    itself    amount    to   proof    of   his 

Where    a    note    given    to    a    bank    is  authority  to  bind  the  bank  by  such  an 

made  payable  on  a  certain  date,  a  parol  agreement.      Citizens'     Nat.      Bank     v. 

agreement,    made    by    the    directors    in  Marks,  34  Pa.  Super.  Ct.  310. 


§  105   (1) 


REPRESEXTATIOX    OF    BANK, 


735 


rectors  of  a  bank  have  authority  to  make  a  settlement  with  a  cashier  whose 
accounts  exhibit  a  deficit  in  the  funds. ^- 

Same — Effect  of  Fraud  on  the  Part  of  the  Directors.— Fraudulent 
conduct  on  the  part  of  directors  in  making  a  settlement  with  the  cashier 
would  not  annul  or  make  the  settlement  void,  unless  the  cashier  was  also 
guilty  of  fraud. ^'^ 

Delegation  of  Power  by  Directors. — The  directors  are  not  required 
to  devote  themselves  to  the  details  of  the  business,  but  may  leave  these  to 
the  president  and  cashier  and  their  assistants,  or  to  committees  chosen  from 
their  own  number.^^  They  can  not,  of  course,  delegate  those  powers  which 
are  of  a  personal  nature,  or  which,  under  the  charter,  are  required  to  be 
exercised  by  the  directors  in  person. ^^  They  have  power  to  authorize  the 
president  and  cashier  to  borrow  money  or  obtain  discounts  for  the  use  of 
the  bank;i<5  and  the  settlement  of  a  claim  against  a  bank  made  by  a  director 
who  has  been  specially  delegated  by  the  bank  to  take  charge  of  the  matter, 
and  who  acts  under  the  direct  advice  of  the  president,  is  binding  on  the 
bank.i"  In  the  exercise  of  delegated  powers,  the  officer,  agent,  or  commit- 
tee is  restricted  to  the  performance  of  those  acts  reasonably  necessary  to 
the  accomplishment  of  that  for  which  the  power  was  given.  Anything  be- 
yond this  is  not  within  his  authority  and  will  not  be  binding  upon  the  bank.^^ 


12.  Compromise  or  settlement  with 
officers  of  bank. — Frankfort  Bank  v. 
Johnson.  24   Me.   490. 

13.  Same — Effect  of  fraud  on  the 
part  of  the  directors. — Frankfort  Bank 
c'.    Johnson.    24    Me.    490. 

14.  Delegation  of  power  by  directors. 
— Briggs  V.  Spaulding,  141  U.  S.  132, 
35  L.  Ed.  662,  11  S.  Ct.  924;  Mason  v. 
Moore,  73  O.  St.  275,  76  N.  E.  932.  4 
L.  R.  A.,  N.  S.,  597;  Wallace  v.  Lin- 
coln Sav.  Bank,  89  Tenn.  630,  15  S.  W. 
448,    24    Am.    St.    Rep.    625. 

15.  Same — Nonassignable  powers. — 
First  Nat.  Bank  v.  Kimberlands,  16 
W.  Va.  555:  Ex  parte  Rickey,  31  Nev. 
82,  100  Pac.  134;  Murphy  Z'.  Gumaer, 
12   Colo.   App.  472,   55   Pac.  951. 

16.  May  authorize  president  and 
cashier  to  borrow  money,  obtain  dis- 
counts, etc. —  Ridgwav  v.  Farmers' 
Bank  (Pa.),  12  Serg.  &  R.  256,  14  Am. 
Dec.   681. 

17.  Director  specially  authorized  to 
settle  claim. — Waxahachic  Xat.  P.ank 
V.  Vickerv  (Tex.  Civ.  .\pp.),  2r.  S.  W. 
876. 

18.  Incidental  or  implied  powers  of 
officer  acting  under  special  authority. 
— Leggett  7'.  Xew  Jersey  -Mfg.,  etc.,  Co., 
1  N.  J.  Eq.  54],  23  Am.  Dec.  728;  Na- 
tional Bank  v.  Levanseler,  115  Mich. 
372,  73  N.  W.  399;  Bryant  f.  Bank,  95 
Wis.    476,    70    N.   W.    480. 

The    appointment,    l)y    the    directors 


of  sucli  corporation,  of  a  "finance  com- 
mittee," with  "authority  in  collecting 
and  providing  ways  and  means  and 
negotiating  financial  operations,  and 
the  power  of  discounting,"  does  not 
give  them  power  to  direct  the  execu- 
tion of  a  mortgage  of  real  estate  of 
the  corporation.  Leggett  z:  New  Jer- 
sey Mfg.,  etc.,  Co.,  l' N.  J.  Eq.  541,  23 
Am.   Dec.   728. 

Where  the  directors  of  a  bank  au- 
thorized the  president,  cashier,  and 
two  of  the  directors  as  a  committee  to 
purchase  certain  land  at  a  fixed  price, 
the  president  and  cashier  had  no  au- 
thority to  authorize  a  third  person  to 
buy  the  land  at  an  increased  price,  so 
as  to  liind  the  bank  to  pay  such  per- 
son a  commission  therefor.  Bryant 
f.    Bank,   95   Wis.   476,   70   N.   W.   480. 

The  directors  of  a  bank,  in  the  pres- 
ence of  one  who  had  agreed  to  pur- 
chase property  owned  by  the  bank,  au- 
thorized the  president  to  execute  to 
such  purchaser  a  bond  of  indemnity 
a.gainst  any  Ic.gal  claim  or  lien  whicli 
a  specified  company  nii.ght  have  tipon 
the  properly.  The  bond  given  by  the 
president  was  conditioned  upon  the 
l)ank  ol)taining  from  tlie  company  a 
good  and  sufficient  written  lease.  The 
lease  procured  was  not  satisfactory  to 
the  purchaser,  and  he  declined  to  ac- 
cept it,  and  refused  to  pay  the  amount 
due    on    a     purchase-money      mortgage 


736 


BANKS    AND    BANKING. 


§  105  (2) 


Ratification  of  Unauthorized  Contracts. — See  post,  "Ratification," 
§  114. 

§  105  (2)  President. — Except  to  a  very  limited  extent,  the  president 
of  a  bank  has  no  inherent  authority  by  virtue  of  his  office  to  enter  into  con- 
tracts or  agreements  which  will  bind  the  corporation. ^^  But  on  the  other 
hand,  it  is  clear  that  he  may  be  authorized  to  do  so,  and  it  is  equally  clear 
that  it  is  not  necessary,  in  order  to  prove  such  authority,  to  produce  a  reso- 
lution of  the  board  of  directors  conferring  it,  or  to  prove  any  action  or  con- 
sultation of  the  board  on  the  subject,  but  such  authority  may  be  inferred 
by  proving  the  existence  of  such  facts  as  constitute  clearly  a  public  holding 
out  that  such  an  agreement  or  contract  as  he  has  entered  into  was  within 
the  scope  of  his  legitimate  delegated  authority  and  that  the  public  was  war- 
ranted in  so  believing.-" 

Where  President  Personally  Interested  and  Acts  Adversely  to 
Bank. — Where  the  president  is  acting  adversely  to  the  bank  and  is  per- 
sonally interested  in  a  given  transaction,  he  can  not  be  regarded  as  repre- 
senting the  bank  with  respect  thereto,  and  the  bank  is  not  bound,  either  by 
his  knowledge  or  upon  his  agreement. ^i 


until  the  condition  of  the  bond  should 
be  satisfied.  Held,  on  foreclosure  of 
the  mortgage,  that  the  giving  of  the 
bond  conditioned  for  the  procuring  of 
a  lease  was  unauthorized,  and  did  not 
bind  the  bank.  National  Bank  r. 
Levanseler,  115  Mich.  372,  73  N.  W. 
399. 

19.  Power  of  president  to  contract 
in  behalf  of  bank. — First  Nat.  Bank  z\ 
Kim1)erlands,    Ifi   W.   Va.   555. 

20.  Same — Proof  of  special  au- 
thority.— First  Nat.  Bank  z'.  Kimber- 
lands,  16  W.  Va.  555;  Wells  Fargo  & 
Co.  V.  Enright,  127  Cal.  669,  60  Pac. 
439,  49  L.   R.  A.  647. 

21.  Where  president  personally  in- 
terested and  acts  adversely  to  bank. 
—Rhodes  v.  Webb,  24  Minn.  292;  Lewis 
V.  First  Nat.  Bank,  1  Neb.  177,  95  S. 
W.  355;  People  v.  Mercantile  Co- 
operative Bank,  104  App.  Div.  219,  93 
N.  Y.  S.  521. 

•  Where  the  president  of  a  bank,  being 
of  sufficient  pecuniary  responsibility, 
became  personally  liable  with  the 
debtor  of  the  bank  for  a  loan  of  money, 
and  the  object  was  to  reduce  the 
debtor's  debt,  the  president  of  the  bank 
did  not  act  as  the  agent  of  the  bank, 
nor  was  it  in  any  manner  responsible 
therefor.  Lewis  v.  First  Nat.  Bank, 
1    Neb.   177,  95    N.   W.   355. 

A  bank  president  agreed  with  a  di- 
rector to  purchase  his  stock,  and,  as 
purchaser  thereof,  took  the  same, 
lianded  it  to  the  cashier,  with  instruc- 


tions to  return  the  director  the  latter's 
note  of  equal  amount,  held  by  the 
bank,  and  hold  the  stock  in  lieu 
thereof;  the  president  promising  to 
pay  the  amount  of  such  note.  The 
note  was  stamped,  "Paid,''  and  returned 
to  the  maker.  Held,  that  the  maker  of 
the  note  was  not  thereby  discharged 
from  his  liability,  in  the  absence  of 
ratification  of  the  transaction  by  the 
bank.     Rhodes  v.  Webb,  24  Minn.  292. 

Plaintiff  conveyed  land  to  a  bank, 
and  subscribed  for  stock;  the  bank 
agreeing  that  in  consideration  of  a  cer- 
tain sum.  payable  in  installments, 
equaling  the  dues  on  plaintiff's  stock, 
it  would  reconvey  the  land.  At  the 
same  time  the  bank  paid  plaintifif 
$10,000,  which  he  loaned  to  N.,  the 
bank's  president,  who  gave  to  plaintifif 
his  personal  bond,  conditioned  on  the 
payment  by  him  of  said  installments. 
I1ie  bank  received  no  benefit  from  the 
$10,000.  Held,  that  plaintifif  had  no 
claim  against  the  bank  for  said  loan, 
or  for  damages  for  failure  in  payment 
of  the  installments,  but  his  remedy  was 
on  N.'s  bond.  People  v.  Mercantile 
Co-Operative  Bank,  104  App.  Div.  219, 
93  N.  Y.   S.  521. 

A  subsequent  resolution  by  the 
l)ank"s  directors  to  indemnify  N.  from 
loss  on  his  undertaking  was  without 
consideration,  and  gave  plaintiff  no 
right.  People  r.  Mercantile  Co-Oper- 
ative Bank,  104  App.  Div.  219,  93  N. 
Y.   S.  521. 


§  105   (3a) 


REPRESENTATION    OF    BANK. 


737 


Power  to  Contract  with  Respect  to  Particular  Matters.— See  ante, 
"President/"'  §  102  (5b). 

§  105  (3)  Cashier— §  105  (3a)  In  General.— In  order  to  bind  the 
bank  b}-  any  contract  that  he  may  make,  the  cashier  must  keep  within  the 
usual  and  apparent  scope  of  his  authority.  Without  special  authority  from 
the  board  of  directors,  express  or  implied,  he  can  not  make  for  his  bank  a 
contract  in  regard  to  a  subject  matter  outside  the  usual  and  customary  busi- 
ness of  the  bank,  and  outside  the  business  usually  performed  by  cashiers. 22 
The  actual  powers  and  duties  of  the  cashier,  like  those  of  all  other  agents, 
may  be  more  or  less  qualified,  restricted  or  enlarged  by  the  corporation, 
institution  or  party  for  whom  he  acts.  Any  restriction  upon  his  usual  and 
customary  authority,  to  be  binding  upon  third  persons  dealing  with  the 
bank  through  him,  must  be  brought  to  their  knowledge,  for  where  a  party 
deals  with  the  cashier  of  a  bank  in  good  faith,  without  notice  of  any  want 
of  authority  on  his  part,  and  the  act  done  is  within  the  apparent  scope  of 
his  authority,  the  bank  is  bound  by  the  contract.23  On  the  other  hand,  con- 
tracts not  within  the  scope  of  the  powers  ordinarily  incident  to  the  office  of 
a  cashier  will  be  binding  upon  the  bank  where  authority  to  enter  into  such 
contracts  on  behalf  of  the  bank  has  been  expressly  conferred,  or  where  he 
has  been  held  out  to  the  public  as  having  such  authority  by  a  previous  course 
of  dealing.  In  short,  any  contract  is  binding  on  a  bank,  made  by  its  cashier 
acting  within  the  reasonable  or  apparent  scope  of  his  authority,  or  made  by 
him  when  acting  with  the  knowledge  and  approval  of  the  directors,  or  like 
others  which  he  had  been  accustomed  to  make  with  their  approval,  or  that 
was  afterwards  ratified  by  the  bank's  availing  itself  of  the  benefits  of  such 
contract.^-*     Arid  where  the  directors  of  a  bank  allow  the  cashier  to  take 


22.  Power  of  cashier  to  contract  in 
behalf  of  bank.— Hill  v.  Bank,  87  Mo. 
App.  5!)n:  City  Bank  v.  Perkins,  17  N. 
Y.  Super.  Ct.  420;  First  Nat.  Bank  v. 
Mansfield  Sav.  Bank.  10  O.  C.  C.  23":},  G 
O.  C.  D.  452;  Sturg-es  &  Co.  v.  Bank, 
11  O.  St.  153,  78  Am.  Dec.  296;  City 
Nat.  Bank  vr  Martin.  70  Tex.  643,  8  S. 
W.  507,  8  Am.  St.  Rep.  632;  First  Nat. 
Bank  v.  Greenville  Oil,  etc.,  Co.,  2-i 
Tex.  Civ.  App.  r,4.-),  60  S.  W.  828. 

23.  Restriction  upon  customary 
powers  of  cashier — Notice — Proof. — 
Sturj?es  &  Co.  ?■.  Bank,  11  O.  St.  153, 
78  .Am.  Dec.  296;  City  Nat.  Bank  v. 
Martin,  70  Tex.  643.  8  S.  W.  507,  8  Am. 
St.  Rep.  632;  First  Nat.  Bank  v.  Green- 
ville Oil,  etc.,  Co.,  24  Tex.  Civ.  App. 
645.   60   S.   W.   828. 

The  owner  of  a  promissory  note 
payable  to  the  paying  teller  of  a  l)ank 
and  endorsed  by  him  in  blank,  de- 
livered it  to  such  teller  for  collection, 
to  be  held  by  him  as  an  agent  of  the 
bank.  The  teller  collected  the  money 
<'n  a  clieck  given  for  it  and  payalilc 
1    B    &   B— 47 


to  his  bank  and  caused  the  same  to 
be  entered  on  the  l)ooks  of  the  bank 
to  his  individual  credit,  concealing 
from  the  owner  the  fact  that  the 
money  had  been  collected.  The  teller 
died  insolvent  and  a  defaulter  to 
his  bank.  No  other  officer  of  the 
bank  knew  of  the  act  of  the  teller 
in  collecting  and  appropriating  the 
money  to  his  own  use.  In  a  suit  by 
the  owner  of  the  note  against  the 
bank,  held:  It  being  shown  that  th? 
teller  had  in  other  transactions  made 
collections  for  others  as  an  officer  of 
the  bank,  and  the  collection  being 
within  the  scope  of  his  apparent  au- 
thority, it  was  immaterial  whether 
the  collection  was  really  within  the 
scope  of  his  authority  or  not,  and  the 
bank  would  be  bound  by  Iiis  acts. 
City  Nat.  Bank  t'.  Martin.  70  Tex.  643. 
8  S.  W.  507,  S  Am.  St.   Rep    •'-•-• 

24.  Authority  beyond  ordinary  scope 
of  powers — Proof  of. — Hill  .'.  I'ank,  87 
Mo.  .App.  590. 


738  BANKS   AND   BANKING.  §    105    (3b) 

the  general  charge  and  management  of  the  business  and  contracts  of  the 
bank,  all  his  contracts  made  within  the  scope  of  the  powers  of  the  bank  are 
binding  upon  it.^^ 

No  Power  to  Bind  the  Bank  for  His  Private  Benefit.— A  cashier 
has  no  implied  power  to  bind  the  bank  for  his  individual  benefit  or  to  pledge 
the  credit  of  the  bank  in  aid  of  his  private  enterprises,  and  where  the  trans- 
action is  such  as  to  carry  upon  its  face  notice  to  third  persons  that  an  at- 
tempt is  being  made  to  use  the  credit  of  the  bank  for  such  a  purpose,  they 
are  put  upon  inquiry  to  ascertain  whether  it  is  being  done  with  the  knowl- 
edge and  sanction  of  the  board  of  directors.-*^ 

§  105  (3b)  Particular  Powers  Considered.— Control  and  Man- 
agement of  Bank's  Property.— A  cashier  of  a  bank  is  without  implied 
authority  as  a  matter  of  law  to  lease  the  bank's  premises,  to  accept  the  sur- 
render of  a  leasehold  term  or  to  lease  premises  of  others  for  it,  though  he 
is  the  executive  officer  of  the  bank  with  reference  to  its  business,  such  as 
deposits,  discounts,  and  exchange.^^  And  his  agreement  that  the  bank's 
lessee  may  use  the  leased  premises  for  a  purpose  prohibited  by  the  lease 
does  not  bind  the  bank,  where  it  is  provided  by  statute  that  the  business 
of  the  bank  shall  be  managed  by  the  directors,  and  where,  under  the  bank's 
charter  and  by-laws,  defining  the  cashier's  duties,  it  is  a  matter  within  the 
directors'  control.-^  But  while  the  management  of  the  bank's  property  as, 
for  example,  a  hotel  property,  including  repairs,  etc.,  is  not  in  the  line  of 
the  ordinary  duties  of  a  bank  cashier,  the  corporation,  by  its  course  of  con- 
duct with  him,  may  clothe  him  with  such  power  as  to  bind  the  property  with 
a  mechanic's  lien.^^ 

25.  Same— Where  cashier  given  gen-  Bank,  93  U.  S.  557,  24  L.  Ed.  490,  af- 
eral  management  of  bank's  affairs. —  firming  Fed.  Cas.  No.  17,4c;2,  3  Dill.  403. 
City  Bank  v.  Perkins,  17  N.  Y.  Super.  The  transfer  of  a  note,  owned  by  a 
Ct    420.  bank  as  collateral  security,   for  a  note 

26.  Cashier  no  power  to  bind  bank  executed  by  the  father  of  the  cashier  of 
for  his  private  benefit.— West  St.  Louis  the  hank  by  one  of  the  owners  of  he 
Sav.  Bank  v.  Shawnee  County  Bank,  bank  and  by  the  cashier  individually 
95  U.  S.  557.  24  L.  Ed.  4')0;  State  Xat.  payable  to  the  bank  and  indorsed  and 
Bank  V.  Newton  Nat.  Bank,  14  C.  C.  \.  substituted  by  the  bank  -for  a  certifi- 
61    66  Fed    691  ^^^^    °^   deposit   issued   by   it,   was    not 

A  cashier  of  a  bank  has   no  implied  f"  attempt  to  transfer  the  note  owned 

authority  to  bind  the  bank  by  a  pledge  l?y,the  bank  f  J^curity  for  the  cash- 

of  its  credit  to  secure  a  discount  of  his  ler  s   private    debt,    for   the   transaction 

own  notes  for  the  benefit  of  a  corpora-  was  that  of  the  bank,  and  for  the  bank, 

tion    in    which    he    was    a    stockholder.  Powers  z'.  Woolfolk,  1.32  Mo.  App.  354, 

State  Nat.  Bank  v.  Newton  Nat.  Bank,  ^'^iS'  t^' '  I-     \'  f    ,^..\.;^r 
14  C.  C.  A.  61,  66  Fed.  391.  ^27.    Particular    powers    of    cashier- 
^            ,  .         r      ,       ,    ■         ^   ,  Control    and    management    of    bank  s 
The  cashier  of  a  bank  is  not,  by  rea-  property. -People's    Bank    v.    Bennett, 
son  of  his  orticial  position,  presumed  to  159^10    1    139  S    W    219 
have    the   power    to   bind   it   as    an    ac-           „„'  o       "      tt  "      r  1  ~    ^^  »,^^„or<-T/ 
commodation  indorser  on  his  individual  ^28-  Same-Use  of  leased  property.- 
note;  and  the  pavee  who  fails  to  prove  Jycus   r.    Traders     Bank.   etc.     Co.,   o. 
that  the  cashier,  as  such,  had  authority  lex.  Civ.  App.  1^5.  113  S.  W.  3~9. 
to  make   the   indorsement,   can   not  re-          29.    Same— Special   powers— Median- 
cover     against     the     bank.       West     St.  ic's    liens.— Marshall    f.    Bank,    76    Mo. 
Louis    Sav.    Bank    v.    Shawnee    County  App.  92. 


§  105  (3b) 


REPRESENTATION    OF    BANK. 


739 


Purchase  or  Sale  of  Property.— See  ante,  "Power  of  Cashier,"  §  104 
(3);  "Disposition,  Encumbrance,  or  Lease  of  Real  Estate."'  §  104  (5). 

Creation  of  Agency.— The  creation  of  an  agency  of  any  kind  for  the 
bank  is  a  matter  not  within  the  usual  and  implied  powers  of  the  cashier. 
It  must  have  been  authorized  by  those  to  whom  has  been  confided  the  power 
to  manage  its  business,  both  ordinary  and  extraordinary.-"^ 

Power  to  Release  or  Compromise  Claims,  Extend  Time  of  Pay- 
ment, etc. — The  cashier  of  a  bank,  unless  specially  empowered  to  do  so, 
either  expressly  or  implied  by  the  course  of  business,  has  no  authority  to 
release,  otherwise  than  in  due  course  of  business  and  upon  payment,  the 
makers  of  notes  or  other  debtors  of  banks,  or  to  release  sureties  or  in- 
dorsers,  and  notwithstanding  his  agreement  to  do  so,  the  parties  still  re- 
main liable  to  the  bank  even  though  the  note  or  other  security  may  have 
been  given  up  and  canceled. ^i 

Same— Extension  of  Time  Operating  a  Release.— This  doctrine  not 
only  forbids  direct  agreements  for  the  cancellation  of  securities  and  the 
release  of  the  parties  thereto,  but  forbids  any  agreement  for  an  extension 
of  time  or  any  course  of  dealing  operating  to  release  parties  secondarily 
liable  without  the    knowledge    or    consent    of    the    party  primarily  liable 


30.  Same — Creation      of      agency. — 

United  States  v.  City  Bank  (U.  S.),  :il 
How.  356,  16  L.  Ed.  130. 

The  cashier  of  a  bank  wrote  to  the 
secretary  of  the  treasury  that  the 
bearer  of  the  letter,  who  was  a  director 
of  the  hank,  was  authorized  on  behalf 
of  the  bank  to  contract  for  the  transfer 
of  money  for  the  general  government 
from  the  east  to  the  south  or  west,  and 
the  secretary  of  the  treasury  made  v.'ith 
the  said  bearer  such  a  contract,  and 
delivered  to  him  funds,  which  he  failed 
to  deliver  according  to  the  contract. 
Tn  a  suit  by  the  United  States  against 
the  bank  it  was  held  that  such  a  trans- 
action not  being  within  the  scope  of 
the  authority  of  the  cashier,  nor  au- 
thorized by  the  directors,  nor  ratified 
by  them,  the  bank  was  not  obliged  to 
icimburse  to  the  United  States  the 
moneys  so  advanced  by  the  secretary 
of  the  treasury.  United  States  v.  City 
Bank  (U.  S.),  21  How.  356,  16  L.  Ed. 
130. 

31.  Power  of  cashier  to  release  or 
compromise,  extend  time  of  payment, 
etc.— Martin  v.  Webb,  110  U.  S.  7,  38 
E.  Ed.  49,  3  S.  Ct.  428;  Thompson  v. 
ATcKee,  5  Dak.  172,  37  N.  W.  367;  Mott 
V.  Semmes,  24  Ga.  540;  Marine  Bank 
V.  Ferry,  40  111.  255;  Ecker  v.  First 
Nat.  Bank.  59  Md.  291  ;  Farmers',  etc., 
Bank  -a.  Clancy,  163  Mich.  586,  128  N. 
W.  752;  Payne  v.  Commercial  Bank 
(Miss.),    6    Smedes    &    M.    24;    Daviess 


County  Sav.  Ass'n  v.  Sailor,  63  Mo.  24; 
People's  Sav.  Bank  v.  Hughes,  62  Mo. 
App.  576;  Merchants'  Bank  v.  Rudolph, 
5  Neb.  527;  Cochecho  Nat.  Bank  z\ 
Haskell,  51  N.  H.  116,  12  Am.  Rep.  67; 
Bank  V.  Reed  (Pa.),  1  Watts  &  S.  101; 
Hodge  V.  First  Nat.  Bank,  63  Va.  (22 
Gratt.)  51;  Bank  v.  Wetzel,  58  W.  Va 
1,  50  S.  E.  886;  First  Nat.  Bank  v. 
Lowther-Kaufman  Oil,  etc.,  Co.,  66  W 
Va.  505,  66  S.  E.  713. 

Where  the  bank's  officers  were  dili- 
gent, and  where  its  discount  committee 
inet  almost  daily,  and  was  at  all  times 
accessible  to  the  cashier,  and  no  un- 
usual powers  were  conferred  on  him, 
he  was  without  authority  to  make  a 
contract  releasing  an  indorser.  Farm- 
ers', etc..  Bank  v.  Clancy,  163  Mich. 
586,   128   N.  W.  752. 

"Ordinarily,  he  has  no  power  to  dis- 
charge a  delitor  without  payment,  nor 
to  surrender  the  assets  or  securities  of 
the  bank.  And,  strictly  speaking,  he 
may  not,  in  the  absence  of  autliority 
conferred  by  the  directors,  cancel  its 
deeds  of  trust  given  as  security  for 
money  loaned — certainly  not  unless  the 
debt  secured  is  paid.  .Xs  the  executive 
officer  of  the  bank,  he  transacts  its 
business  under  the  orders  and  super- 
vision of  the  board  of  directors.  He 
is  their  arm  in 'the  management  of  its 
financial  operations."  Martin  7'.  Webb, 
110  U.  S.  7,  28  L.  Ed.  49,  3  S.  Ct.  428. 


740 


BANKS   AND   BANKING. 


§  105   (3b) 


thereon. ^^ 

Same — Changing  Character  of  Relation. — Neither  is  it  within  the 
general  powers  of  the  cashier  to  change  the  character  of  the  relation  be- 
tween the  bank  and  the  parties  to  paper  held  by  it,  as  by  an  agreement  that 
each  indorser  shall  be  liable  for  only  a  certain  portion  of  the  debt,  or  by 
an  agreement  operating  to  release  some  of  the  parties  in  consideration  of 
the  execution  of  new  or  additional  securities  by  the  others.^^ 

Same — Compromise — Substitution  of  Securities. — A  cashier  is  with- 
out authority  to  compromise  a  claim,  unless  such  authority  is  either  directly 
or  impliedly  by  the  course  of  business  conferred  on  him,  and  where  the 
bank's  officers  were  diligent  and  where  its  discount  committee  met  almost 
daily,  and  was  at  all  times  accessible  to  the  cashier  and  no  unusual  powers 
were  conferred  on  him,  he  was  without  authority  to  make  such  a  contract.^'* 


32.  Same — Extension  of  time  operat- 
ing a  release. — Vanderford  v.  Farmers', 
etc.,  Nat.  Bank,  10.5  Md.  164,  66  Atl. 
47,  10  L.  R.  A.,  N.  S.,  129;  Bank  z'. 
Hooke,  41  Tenn.  (1  Coldw.)  156;  Bank 
r.  Wetzek  58  W.  Va.  1,  50  S.  E.  886. 
But  see  Wakefield  Bank  v.  Truesdell 
(N.  Y.),  55  Barb.  602. 

A  cashier  of  a  bank  has  no  implied 
power,  merely  by  virtue  of  his  office, 
to  receive  money  for  interest  in  ad- 
vance on  a  note  owned  by  the  bank  and 
agree  to  extend  time  of  payment  and 
thus  discharge  an  endorser  from  liabil- 
ity. Bank  r.  Wetzel,  58  W.  Va.  1,  50 
S.   E.  886. 

The  cashier  of  a  bank,  after  a  bill 
had  been  protested,  accepted  another 
bill  drawn  and  indorsed  by  the  same 
parties,  not  for  the  purpose  of  a  re- 
newal, but  merely  for  the  purpose  of 
saving  the  credit  of  said  parties,  by 
preventing  the  bill  from  appearing  on 
the  list  of  protested  papers.  After- 
wards the  new  bill  was  returned  to  the 
drawer,  and  an  action  brought  on  the 
•old  bill  against  the  accommodation  in- 
dorser. Held,  that  the  arrangement 
whereby  the  cashier  accepted  the  new 
bill  was  unauthorized,  and  not  binding 
on  the  bank  and  would  not  operate  to 
release  the  indorser  of  the  original 
till.  Bank  v.  Hooke,  41  Tenn.  (1 
Coldw.)  156. 

33.  Same — Changing  character  of  re- 
lation.—Ecker  r.  First  Nat.  Bank,  59 
Md.  391;  Payne  v.  Commercial  Bank 
(Miss.),  16  Smedes  &  M.  24;  Bank  7\ 
Reed  (Pa.),  1  Watts  &  S.  101;  First 
Nat.  Bank  v.  Lowther-Kaufman  Oil, 
etc.,  Co.,  66  W.  Va.  505,  66  S.  E.  713. 

Nor  has  he  any  authority,  by  virtue 
of  his  office,  to  bind  his  bank  by  an 
agreement  with  indorsers  of  a  note, 
unknown    to    the    directors,    that    each 


indorser  shall  be  liable  only  for  a  cer- 
tain portion  of  the  debt,  whether  the 
contract  relates  to  original  notes  dis- 
counted or  to  notes  taken  in  renewal. 
First  Nat.  Bank  ?'.  Lowther-Kaufman 
Oil,  etc.,  Co.,  66  W.  Va.  505,  66  S.  E. 
713. 

The  cashier  of  a  bank  is  not  author- 
ized by  his  general  authority  to  change 
the  character  of  the  bank,  in  relation 
to  certain  paper,  from  that  of  creditor 
to  that  of  an  agent  of  its  debtor.  Bank 
z'.  Reed  (Pa.),  1  Watts  &  S.  101. 

It  is  not  within  the  general  power  of 
a  cashier  to  release  a  party  to  a  note 
from  his  liability  to  the  bank  thereon 
l)y  taking  another  note  signed  by  all 
of  the  parties  to  the  original  save  the 
one  so  attempted  to  be  released;  nor 
can  he,  by  virtue  of  his  office,  release 
a  surety,  even  though  the  bank  holds 
ether  security  to  which  it  may  resort. 
Ecker  V.  Firs't  Nat.  Bank,  59  Md.  291. 

In  an  action  by  a  bank  against  the 
parties  to  a  note  held  by  it,  it  appeared 
in  proof  that  the  cashier  of  the  bank 
had  made  an  agreement  which,  if 
carried  out,  would  have  discharged  all 
the  parties  to  the  note  but  one,  and 
that  he  made  that  agreement  after  con- 
sulting with  two  or  more  of  the  direct- 
ors. The  court  instructed  the  jury  that 
the  cashier  of  the  bank  had  no  author- 
ity to  bind  the  bank  by  any  contract 
that  would  release  the  parties,  but  that, 
if  he  acted  on  consultation  with  two  or 
more  of  the  directors,  then  his  acts 
would  be  binding  on  the  bank.  Held, 
that  the  entire  instruction,  taken  to- 
gether, and  applied  to  the  facts,  would 
not  be  erroneous  in  its  conclusion. 
Payne  7'.  Commercial  Bank  (Miss.),  6 
Smedes  &  M.  24. 

34.  Same — Compromise — Substitution 
of  securities. — Farmers',  etc..  Bank  t'. 
Clancy,  163  Mich.  586,  128  N.  W.  752. 


§  105  (3b) 


REIPRESENTATION    OF    BANK. 


741 


Neither  has  he  any  authority,  by  virtue  of  his  office,  to  go  into  another  state, 
and  settle  an  account  with  another  bank,  taking  private  securities  therefor, 
and  giving  a  receipt  in  full.  In  such  a  transaction  he  acts  as  the  agent  of 
his  bank  simply,  and,  in  order  to  bind  it.  his  acts  must  be  within  the  scope 
of  his  appointment.^-^ 

Same — Power  to  Enter  into  Composition  and  Discharge. — Without 
special  authorit}-  from  the  directors,  he  has  no  power  to  bind  the  bank  by 
an  agreement  for  composition  with  creditors  and  the  discharge  of  an  in- 
solvent, the  bank  being  one  of  the  creditors.-"'^ 

Same — Power  to  Receive  Payment  Other  than  Money. — The  cash- 
ier of  a  bank  is  not  authorized,  merely  by  virtue  of  his  position,  to  receive, 
in  payment  of  debtsdue  the  bank,  other  notes,  or  things  other  than  money, 
without  consulting  the  president  and  other  officers  of  the  bank ;  but  if  in- 
trusted by  the  corporation  with  the  business  of  renewing  notes  and  debts 
of  the  bank,  or  the  management  of  the  business  of  the  bank,  his  agreement 
to  accept  one  note  in  payment  of  another  is  binding  on  the  bank ;  which 
authority  need  not  be  expressly  conferred,  but  may  be  shown  by  the  man- 
ner in  which  the  business  of  the  bank  was  conducted,  and  by  the  cashier's 
repeated  dealings  with  the  party,  who  claims  that  he  has  such  authority, 
it  being  a  question  for  the  jury,  under  all  the  evidence.-'' 


35.  Same — Same. — Sandy  River  Bank 
V.  Merchants',  etc.,  Bank,  Fed.  Cas.  No. 
12,309,  1  Biss.  146. 

36.  Same — Power  to  enter  into  com- 
position and  discharge. — Reed  t-.  Pow- 
ell (La.).  11  Rob.  98;  Union  Bank  v. 
Bagley  (La.),  10  Rob.  43;  Clinton  & 
Port  Hudson  R.  Co.  v.  Kernan  (La.), 
10  Rob.  176;  Union  Bank  i\  Jones,  4 
La.  Ann.  236;  Chemical  Nat.  Bank  v. 
Kohner,  85  N.  Y.  189. 

A  cashier  can  not,  by  virtue  of  his 
office,  represent  the  bank  at  a  meet- 
ing of  creditors,  and  vote  for  syndic; 
he  must  be  authorized  by  the  directors. 
Reed  v.   Powell    (La.),  11   Rob.  98. 

A  cashier  may,  as  an  act  of  admin- 
istration, accept  an  insolvent's  sur- 
render and  vote  for  syndic;  but,  with- 
out express  and  special  authority  from 
the  directors,  he  can  not  discharge 
the  insolvent.  The  release  of  a  debtor 
is  an  act  of  ownership,  and  not  of  ad- 
ministration. Civ.  Code.  arts.  296,5, 
2966.  Union  Bank  v.  Bagley  (La  \ 
10  Rob.  43;  Clinton  &  Port  Hudson 
R.  Co.  V.  Kernan  (La.),  10  Rob.  176; 
Union  Bank  ?'.  Jones,  4  La.  Ann.  236. 

The  president  and  cashier  of  the  C. 
Bank  were  its  active  managers.  A 
debtor  of  the  bank  proposed  a  com- 
promise to  the  cashier,  the  debtor's 
other  creditors,  two  banks,  agrccintrto 
compromise  if  the  C.  Bank  would. 
The    president    assenting,     the     cashier 


wrote  to  one  of  the  other  banks,  stat- 
ing that  the  C.  Bank  accepted  the  com- 
promise. Soon  afterwards  the  presi- 
dent and  cashier  changed  their  minds, 
and,  when  the  delator  tendered  the  in- 
dorsed note  and  check  agreed  upon, 
the  cashier  refused  to  accept  them, 
and  repudiated  the  agreement.  Tn  the 
meantime  the  del)tor  had  settled  with 
the  other  banks.  It  did  not  appear 
that  the  cashier  had  acted  without  au- 
thority. The  repudiation  was  not  put 
upon  that  ground,  and  compromises 
were  of  common  occurrence  with  the 
bank.  Held,  that  the  cashier's  au- 
thorit}'  was  to  be  presumed;  tliat  the 
agreement  was  a  valid  composition 
agreement;  and  that  after  it  had  been 
acted  upon  by  the  other  creditors,  the 
C.  Bank  was  bound.  Chemical  Nat. 
Bank  ?■.   Kohner,  85  N.  Y.  189. 

37.  Same — Power  to  receive  pay- 
ment other  than  money. — Mitchell  f. 
Porter,  15   Ky.   L.   Rep.   335. 

.\n  agreement  liy  a  bank  cashier  to 
accept  a  verbal  assignment  of  an  in- 
terest in  a  note,  previously  assigned 
to  anotlier  bank  as  collateral  sccuritj', 
in  payment  of  another  note,  is  void, 
because  l)eyond  the  scope  of  his  au- 
thority. Piedmont  Bank  x<.  Wilson,  124 
N.    C."  561,    32    S.    K.    889. 

He  has  no  authoritj',  l)y  virtue  of  his 
office,  to  accept  tlie  certificat-s  of  the 
capital   stock  of  an   insurance  company 


742  BANKS    AND    BANKING.  §    105     {3b) 

Same— Special  Authority  to  Release  or  Compromise.— A  cashier, 
acting  in  conformity  with  the  established  practice  and  rules  of  the  bank, 
may  release  a  debt  and  mortgage  to  the  bank.^s  And  where  the  directors 
have,  for  a  number  of  years,  left  the  entire  management  of  the  bank  to  the 
cashier,  and  have  acquiesced  in  all  his  acts  in  making  loans,  taking  securities, 
and  discharging  mortgages,  his  act  in  discharging  a  mortgage  will  be  bind- 
ing on  the  bank.^^ 

Same— Restrictions  Applicable  to  Other  Subordinates.— What  has 
been  said  with  reference  to  the  want  of  power  in  the  cashier  to  release  par- 
ties indebted  to  the  bank,  applies,  of  course,  to  the  tellers  and  other  assist- 
ants subordinate  to  the  cashier.^ "^ 

Contract  to  Pay  Money  Otherwise  than  in  Way  of  Loan. — A  cashier 
of  a  bank  has  no  power,  by  virtue  of  his  office,  to  bind  the  corporation  ex- 
cept in  the  discharge  of  his  ordinary  duties,  and  the  ordinary  business  of  a 
bank  does  not  comprehend  a  contract  made  by  a  cashier — without  delegation 
of  power  by  the  board  of  directors — involving  the  payment  of  money  not 
loaned  by  the  bank  in  the  customary  way.^^ 

Agreements  as  to  the  Application  of  Money  or  Payments.— It  is 
within  the  scope  of  the  cashier's  authority  to  accept  payments  under  an 
agreement  that  they  should  be  applied  in  discharge  of  a  particular  debt  or 
debts  owing  to  the  bank.'*- 

To  Pay  Notes  and  Drafts  Out  of  Funds  of  Customers. — A  promise 
by  the  cashier  of  a  bank,  made  without  consideration  to  the  drawer  of  a 
draft,  to  pay  the  same  out  of  funds  of  a  customer  on  whom  the  draft  is 
drawn  and  who  has  been  credited  with  the  proceeds  of  negotiable  paper 
which  he  as  owner  transferred  to  the  bank,  is  not  enforceable  against  the 

in    payment    of    a    debt    due    the    bank.  Dunn  (U.  S.),  6  Pet.  51,  8  L.  Ed.  316; 

Bank  v.   Hart,   37   Neb.   197,   55   N.   W.  United    States    v.    City    Bank    (U.    S.), 

C31,  20  L.   R.  A.  780.  21  How.  356,  16  L.  Ed.  130;  Merchants' 

It  has  been  held,  however,   that   the  Nat.  Bank  v.  State  Nat.  Bank  (U.  S.), 

cashier  of  a  bank  is  its  executive  offi-  10   Wall.    604,   19    L.    Ed.    1008;    Martin 

cer,  and  has  authority  to  take  a  book  c'.  Webb,  110  U.  S.  7,  28  L.  Ed.  49,  3  S. 

account  against  a  third  person  in  pay-  Ct.   428. 

ment  of  a  note.     Santa  Fe  Exch.  Bank  42.     Agreements    as    to    the    applica- 

V.   Dick.   73   Mo.   App.   354.  tion  of  money  or  payments.— Stebbins 

38.  Same— Special  authority  to  re-  v.  Lardner,  2  S.  Dak.  127,  48  N.  W. 
lease    or    compromise. — Rvan    v.    Dun-  847. 

lap,   17    111.   40,    63    Am.    Dec.   334.  Defendants   assigned   certain   rents  to 

39.  Same — Releasing  mortgage. —  the  cashier  of  a  bank,  to  be  applied  to 
Martin  v.  Webb,  110  U.  S.  7,  28  L.  Ed.  the  satisfaction  of  a  particular  debt  due 
49,  3  S.  Ct.  428.  by  them  to  the  bank,  the  cashier  agrec- 

40.  Same — Restrictions  applicable  to  ing  that  the  rents  should  be  so  ap- 
other  subordinates.— ^Marine  Bank  v.  plied.  Held,  that  such  agreement  was 
Ferry.   40   111.   255.  within    the    scope    of    the    cashier's    au- 

The   functions   of  a   note   teller   of  a  thority.   and  that   the  bank_  \yas  bound 

bank  do  not  extend  to  the   erasure   of  thereby;    and    that,    if    sufficient    rents 

the  name  of  one  of  several  makers  of  were    paid    into    the    bank    under    such 

a  note,  simply  upon  his  request,  so  as  agreement  to  pay  said  note,  the  note, 

to     bind     the    bank.     Marine   Bank  v.  in    law.    was    paid,    without    regard    to 

Ferry,  40  111.  255.  other    indebtedness    of    defendants    to 

41.  '  Contract  to  pay  money  other-  the  bank.  Stebbins  v.  Lardner,  2  S. 
wise    than   in   way    of     loan.— Bank     r.  Dak.   127.   48   N.  W.   847. 


§  105  (3b) 


RKPRESEXTATIOX    OF    BAXK. 


743 


bank,  unless  the  customer  assents  that  the  bank  shall  make  such  an  appli- 
cation of  the  funds  so  placed  to  his  credit."*^  The  managing  partner  of  a 
firm  doing  a  banking  business,  who  is  also  the  cashier,  has  authority  to 
make  an  agreement  by  which  a  note  shall  be  charged  to  a  third  party  in 
pursuance  of  a  previous  agreement  between  the  bank  and  the  maker  of  the 
note."*-* 

To  Borrow  Money  for  the  Bank. — The  cashier  of  a  bank  is  the  proper 
officer  to  execute  its  power  of  borrowing  money,  and  he  needs  no  special 
delegation  of  authority  to  do  so.  If  done  in  the  ordinary  course  of  his 
business,  it  is  presumably  done  within  the  scope  of  his  duty,  and  the  bank 
is  bound  by  his  acts  and  representations  in  the  apparent  exercise  of  such 
authority.^^  As  an  incident  to  this  power,  it  is  within  the  apparent  scope 
of  the  authority  of  the  cashier  to  execute  the  necessary  evidences  of  the 
indebtedness  and  to  pledge  the  bank's  property  or  funds  to  secure  the  money 
borrowed  bv  him  for  the  bank  in  regular  course  of  business. ^*^ 


43.  To  pay  notes  and  drafts  out  of 
funds  of  customers. — Bullard  Bros.  t. 
Bank,   121    Ga.   527,   49    S.    E.   615. 

44.  Same — Charging  note  to  account 
of  third  person. — Wise  v.  Leob,  15  Pa. 
Super.   Ct.  GOl. 

45.  To  borrow  money  for  the  bank. 
— State  Bank  v.  People's  Nat.  Bank 
rSup.),  118  N.  Y.  S.  641;  Barnes  z.'. 
Ontario  Bank,  19  N.  Y.  152;  Donnell 
V.  Lewis  County  Sav.  Bank,  80  Mo. 
105;  Ringling  v.  Kohn,  6  Mo.  App. 
333. 

46.  Same — Power  to  execute  evi- 
dences of  indebtedness  and  give  se- 
curity.— Citizens'  Bank  v.  Bank,  31  Ky. 
L.    Rep.    305,    103    S.    W.    249. 

It  is  competent  for  the  cashier  of  a 
bank  organized  under  the  general 
banking  law  (Rev.  St.,  c.  7),  as  agent 
for  its  board  of  directors,  to  execute 
a  promissory  note  for  money  bor- 
rowed to  use  in  its  business,  and  the 
bank  will  be  bound  thereby.  Ballston 
Spa  Bank  v.  Marine  Bank,  16  Wis.  120. 

A  cashier,  having  the  general  charge 
and  management  of  a  bank,  has  au- 
thority to  transfer  the  bank's  paper  as 
collateral  security  for  the  bank's  debts. 
Powers  V.  Woolfolk,  132  Mo.  App.  354, 
111   S.  W.   1187. 

Where,  for  almost  a  year,  negotialjle 
securities  had  been  constantly  pledged 
by  the  cashier  of  one  bank,  under  his 
written  agreement  as  cashier,  with  an- 
other bank,  for  advances  made,  held, 
that  the  latter  liank  was  a  purchaser 
for  value  of  said  securities,  free  from 
all  prior  equities,  as  it  might  presume 
that  the  cashier  acted  with  the  consent 
of  the  directors.  Mercantile  Bank  z-. 
McCarthy,  7  Mo.  .\pp.  318. 


The  cashier  of  a  bank  has  the  same 
authority  to  pledge  collaterals  to 
secure  notes  given  by  the  bank  that 
he  has  to  give  the  notes,  and  it  was 
therefore  error,  in  an  action  for  an  ac- 
counting against  the  assignee  of  an 
insolvent  bank,  to  direct  the  creditor 
to  return  to  the  assignee  certain  col- 
laterals held  by  such  creditor  as  secu- 
rity for  the  notes  of  the  bank.  Sloan  z\ 
Kansas  City  State  Bank,  158  Mo.  431, 
57   S.   W.   1056. 

A  bank  cashier  arranged  with  A. 
that  A.  should  accept  the  bank's  drafts 
on  condition  that  the  bank  should 
keep  a  corresponding  balance  with  A. 
to  A.'s  credit,  on  which  balance  A. 
should  have  a  Hen  as  security  for  his 
liability,  and  should  be  kept  informed 
of  the  condition  of  the  bank,  and  have 
at  any  time  the  right  to  take  the  bal- 
ance to  pay  the  acceptances.  Held, 
that  this  agreement  was  within  the 
power  of  the  cashier  to  make,  and 
l)ound  llie  bank;  and  that,  upon  notice 
from  the  bank  of  its  insolvency,  A. 
was  entitled  to  apply  the  balance  in 
pursuance  of  the  agreement,  as  against 
the  assignee  in  insolvency.  Coats  v. 
Donnell,   94  N.   Y.   168. 

Actuary's  authority. — The  Freed- 
man's  Savinj^s  and  Trust  Company, 
chartered  by  an  act  of  congress  ap- 
proved March  3.  1805  (13  Stat.  510), 
being,  during  a  financial  crisis,  pressed 
for  means,  its  agent,  with  the  knowl- 
edge and  consent  of  its  trustees,  bor- 
rowed of  A.  moneys  which  were  ap- 
plied to  its  use.  A  note  therefor  was 
signed  by  the  actuary  of  the  institu- 
tion, who  suliscquently  transferred  to 
A.,     in      satisfaction      tliereof,      certain 


744 


BANKS   AND   BANKING. 


§    105    (3b) 


Same— Statutory  Restrictions.— There  is  no  implied  authority  in  the 
cashier  to  borrow  money  on  behalf  of  the  bank  under  a  statutory  provision 
which  vests  that  power  only  in  the  directors  or  their  duly  authorized  agents 
and  officers.4'^  And  a  statute  which  provides  that  a  bank's  cashier  shall  have 
no  power  to  indorse,  sell,  or  pledge  any  obligations  received  by  it  for  money 
loaned,  unless  authorized  in  writing  by  the  directors,  is  notice  to  the  world 
of  the  limitation  of  the  cashier's  authority ."'s  But  such  a  statute  does  not 
prevent  a  cashier  from  borrowing  money  for  the  bank's  benefit  in  the  ordi- 
nary course  of  business  without  any  authority  from  the  directors.  Such 
statute  merely  invalidates  a  pledge  of  the  bank's  securities  as  collateral  when 
made  without  the  required  written  authority.^"  And  such  statutes  do  not 
apply  to  private  banks  having  no  board  of  directors. ^"^ 


securities  belonging  to  the  company. 
That  officer  was  held  out  to  the  public 
as  competent  to  make  such  an  ex- 
change, and  there  was  no  departure  in 
this  instance  from  the  estalilished 
usages.  No  fraud  was  committed,  and 
ihe  transaction  was  advantageous  to 
the  institution.  On  the  failure  of  the 
company,  the  commissioners  appointed 
to  wind  up  its  affairs  filed  their  bill, 
praying  that  A.  be  decreed  to  deliver 
to  them  said  securities.  Held,  that 
the  commissioners  are  not  entitled  to 
relief.  Creswell  v.  Lanahan.  101  U.  S. 
347.  25  L.  Ed.  853,  citing  Merchants* 
Nat.  Bank  z>.  State  Nat.  Bank  (U.  S.), 
10  Wall.  604,   19  L.  Ed.   1008. 

47.  Same — Statutory  restrictions.— 
First  Nat.  Bank  v.  Michigan  City  Bank, 
8   N.   Dak.   608,   80  N.  W.   766. 

The  cashier  of  a  state  bank  or- 
ganized under  Laws  1890,  c.  23,  pro- 
viding (§  4,  subd.  7)  that  such  a  bank 
shall  have  power  to  exercise,  by  its 
board  of  directors  or  duly-authorized 
officers  or  agents,  subject  to  law,  all 
such  incidental  powers  as  shall  be 
necessary  to  carry  on  the  business_  of 
banking,  by  discounting  and  negotiat- 
ing promissory  notes,  bills  of  ex- 
change, drafts,  and  other  evidences  of 
debt,"  by  receiving  deposits,  etc.,  has 
no  authority  to  borrow  money  unless 
it  is  specially  given  by  the  board  of 
directors.  First  Nat.  Bank  v.  Michi- 
aan  City  Bank,  8  N.  Dak.  608,  80  N. 
W.   766. 

48.  Same — Knowledge  of  statutory 
restrictions. — Union  Nat  Bank  v. 
Lyons,  220   Mo.   538,   119   S.   W.   540. 

49.  Same  —  Statute  construed.— 
Union  Nat.  Bank  v.  Lyons,  220  Mo. 
538.   119   S.   W.   540. 

Held  absolutely  void  here. — Under 
Rev.  vSt.  1899,  §  1294,  requiring  that 
authority  of  the  directors  to  a  bank 
cashier    to    dispose    of     its      securities 


shall  be  given  in  a  regular  meeting  of 
the  l)oard,  a  written  record  of  which 
proceeding  shall  first  have  been  made, 
and  providing  that  all  acts  of  indors- 
mg,  pleading,  etc.,  by  such  cashier 
without  authority  from  the  directors 
shall  be  null  and  void,  such  acts  by 
the  cashier,  unless  previously  author- 
ized by  the  written  record  of  a  di- 
rector's meeting  of  the  bank,  are  not 
voidable,  but  are  without  any  force 
and  validity  whatever.  Hume  v. 
Eagon,    83    Mo.    App.    576. 

Not  obnoxious  to  the  statute  here. 
— Defendant,  indel)ted  to  a  bank,  in 
lieu  of  the  notes  executed  other  notes 
and  a  mortgage  to  plaintiff,  the  cash- 
ier, without  authority  of  the  directors. 
Plaintiff  assigned  the  notes  to  the 
bank,  which  reassigned  them  to  him, 
and  he  testified  that  he  had  no  .  per- 
sonal interest,  1)ut  held  them  for  the 
l^ank.  Held,  that  the  notes  were  not 
void  as  obnoxious  to  Rev.  St.  1899, 
§  1294  (Ann.  St.  1906,  p.  1054)  provid- 
ing that  the  cashier  shall  have  no 
power  to  indorse,  sell,  pledge,  or 
hypothecate  any  notes  or  other  obli- 
gations received  by  said  corporation 
for  money  loaned,  until  such  power 
shall  have  been  given  to  the  board  of 
directors,  and  declaring  such  trans- 
actions void  Donnell  v.  Miller,  153 
Mo.    Apo.   217,    132    S.    W.    1194. 

50.  Same— Same— Applicability  to 
banks  having  no  board  of  directors.— 
Powers  f.  Woolfolk.  132  Mo.  App.  354, 
111    S.   W.   1187. 

Rev.  St.  1899,  §  1294  (.Ann.  St.  1906, 
p.  1054).  forbidding  a  cashier  to  trans- 
fer notes  .of  the  bank  as  collateral 
security,  unless  such  power  shall  have 
been  given  him  by  the  board  of  di- 
rectors, and  making  transfers,  without 
such  authority,  null  and  void,  which 
section,  so  far  as  applicable,  by  §  1301, 
Rev.   St.   1899    (Ann.   St.   1906,   p.   1058), 


§  105   (3b)  re;pre:sentation  of  p.axk.  745 

To  Pay  the  Debts  and  Obligations  of  the  Bank. — It  is  within  the 
usual  and  impHed  powers  of  the  cashier  to  apply  its  funds  as  well  as  its 
negotiable  securities  to  the  discharge  of  its  obligations.''^  And  a  resolution 
of  the  directors  requiring  the  president  and  cashier  to  liquidate  the  debts 
of  the  bank,  is  sufficient  to  authorize  the  cashier,  with  the  sanction  of  the 
president,  to  indorse  the  paper  of  the  bank,  even  if  he  lacked  such  authority 
before;  and  if  it  did  not,  a  subsequent  ratification  thereof  made  the  same 
binding;^-  but  if  the  cashier  promises  to  pay  a  debt  which  the  corporation 
does  not  owe,  or  which  it  is  not  liable  to  pay,  or  if  he  represents  forged  bills 
to  be  genuine,  such  promise  or  admission  will  not  bind  the  bank,  except  as 
against  bona  fide  holders  for  value  and  without  notice,  unless  it  has  author- 
ized or  adopted  the  act.^-^ 

Power  to  Renew  Notes. — The  cashier  of  a  bank,  who,  in  addition  to  his 
usual  powers,  is,  in  the  absence  of  the  president,  running  the  bank  under  the 
advice  of  the  executive  committee,  has  authority  to  bind  the  bank  by  a  con- 
tract to  renew  notes,  in  consideration  of  the  release  by  the  indorser  of  a  lien 
on  the  maker's  property. •'•^ 

Pledging-  Assets  for  Antecedent  Debts. — The  cashier  of  a  bank  has 
not  the  power  to  pledge  its  assets  for  the  payment  of  an  antecedent  debt."'-'' 

To  Execute  Indemnity  Bond  to  Sheriff. — A  cashier  of  a  bank  has  not, 
under  his  general  authority  merely,  authority  to  execute  an  indemnity  bond 
to  a  sheriff  who  has  levied  on  property  under  an  execution  in  favor  of  the 
bank.56 

To  Bind  Bank  as  Surety  or  Guarantor.— A  bank  has  no  authority  to 
lend  its  credit ;  hence  it  is  not  within  the  power  of  the  cashier  to  bind  it 
upon  a  contract  of  guaranty  or  suretyship  for  the  accommodation  of  third 
persons  and  w'ith  respect  to  matters  in  which  it  has  no  interest. ■^''^ 

governs    private    banks,    does    not    ap-  54.   Power  of  cashier  to  renew  notes, 

ply    to    a    private    bank    which    has    no  — Bank  t'.    Briglit,   23   C.   C.   A.   58(»,   77 

board   of   directors.     Powers  v.   Wool-  Fed.   049. 

folk,  132  Mo.  App.  354,  111  S.  W.  1187.  55.     Pledging   assets   for    ante   credit 

51.  Power  of  cashier  to  pay  debts  debts. — State  v.  Davis  (N.  Y.\  50 
and   obligations    of   bank. — Fleckner   -o.  I  Tow.    Prac.   447. 

Bank    (U.  S.),  8    Wheat.    338,  5    L.    Ed.  56.     To    execute    indemnity    bond    to 

631;     Merchants'    Nat.    Bank?-'.     State  sheriff. — Watson    v.    Boinictt    (N.    Y.), 

Xat.  Bank   fU.   S.),  10  Wall.  fi04,  19   L.  12    Barl).    190. 

Ed.  1008;  Cochecio  Nat.  Bank  v.  Has-  57.  Power  to  bind  bank  as  surety  or 
kell,  51  N.  H.  116,  12  Am.  Rep.  67.  guarantor.— West  St.  Louis  Sav.  Bank- 
In  the  absence  of  all  positive  re-  v.  Sliawnee  County  Bank,  95  U.  S.  557, 
strictions,  it  is  his  duty  as  well  to  ap-  24  L.  Ed.  490;  Selic^man  z'.  Charlottes- 
ply  the  negotiable  funds,  as  the  ville  Nat.  Bank.  Fed.  Cas.  No.  12.643, 
moneyed  capital,  of  the  l)ank,  to  dis-  3  Hughes  647;  National  Bank  7'.  .Xtkin- 
charge  its  debts  and  obligations.  son,  55  Fed.  465;  Farmers',  etc..  Bank 
Fleckner  7'.  Bank  (U.  S.),  8  Wheat.  v.  Troy  City  Bank  (Mich.),  1  Doug. 
338.   5   L.   Ed.   631.  457;   Swofford  Bros.   Dry  Goods  Co.  v. 

52.  Under  resolution  of  directors. —  Bank,  81  Mo.  App.  46:  Bowcn  r/. 
Fleckner   7-.    Bank    (U.    ?.).     8      Wheat.  Needles    Nat.    Bank,    87    Fed.    430. 

338.  5  L.   Ed.  631.  The    guarantor   by    the    bank    of    the 

53.  Debts  which  bank  does  not  owe  notes  of  third  persons,  discounted  hy 
— Forged  bills. — Mercliants'  Bank  v.  a  customer  acting  thronph  the  cashier 
Marine  Bank  (Md.),  3  Gill.  96,  43  Am.  is  not  within  the  scope  of  llie  cashier's 
Dec.   300.  authority,    is     witliout      the      ordinary 


746 


BANKS   AND    BANKING. 


106    (1) 


Buying  and  Selling  Exchange.— There  being  nothing  to  show  any  re- 
striction or  qualification  of  his  powers  in  that  regard,  the  duties  of  the  cash- 
ier may  reasonably  be  understood  to  extend  to  the  buying  and  selling,  and 
negotiating  bills  of  exchange,  checks  and  promissory  notes,  as  well  as  to  that 
of  borrowing  money,  as  the  agent  of  the  bank.  In  the  discharge  of  his  duty, 
he  is  supposed  to  be  instructed  and  directed,  either  generally  or  specially,  by 
the  bank,  either  through  its  board  of  directors  or  president,  as  the  case  may 
be.58  The  written  assurance  of  the  cashier  which  accompanies  a  bill  sent 
to  the  parties  purchasing  the  same  that  it  "is  perfectly  safe,"  amounts  to  a 
warranty  or  representation  in  the  nature  of  a  guaranty  that  the  bill  is  col- 
lectible and  the  bank  is  bound  thereon."^ 

§  106.  Deposits— §  106  (1)  In  General.— An  officer  of  a  bank  can 
not  bind  the  bank  in  regard  to  a  deposit  by  an  act  for  his  own  benefit  which 
is  hostile  to  the  interests  of  the  bank.^o 

Entry  of  Deposit.— A  bank  is  bound  by  the  entry  of  a  deposit  in  a  bank 
book  by  the  proper  clerk.^^ 


course  of  the  banking  business,  and  is 
not  binding  on  the  bank.  Third  Nat. 
Bank  z-.  St.  Charles  Sav.  Bank,  244  Mo. 
554,    149    S.    W.    495. 

A  bank  cashier  has  no  authority  to 
bind  the  corporation  by  way  of  guar- 
anty- or  a  mere  accommodation  in- 
dorsement. Swofford  Bros.  Dry 
Goods  Co.  V.  Bank,  81  Mo.  App.  46. 

The  cashier  has  no  power  to  accept 
bills  of  exchange,  on  behalf  of  the 
bank,  for  the  accommodation  merely 
of  the  drawers.  Farmers',  etc..  Bank 
V.  Troy  City  Bank  (Mich.),  1  Doug. 
457. 

The  signing  of  a  replevin  bond  by  a 
bank  by  its  cashier,  in  an  action  be- 
tween third  parties  in  which  the  bank 
has  no  interest,  is  not  an  act  within 
the  apparent  authority  of  the  cashier. 
Judgment,  Sturdevant  Bros.  &  Co.  v. 
Farmers',  etc..  Bank,  62  Neb.  472,  87 
N.  W.  156,  affirmed  on  rehearing. 
Sturdevant  Bros.  &  Co.  v.  Farmers, 
etc..  Bank.  69  Neb.  220,  95  N.  W.  819. 

A  bank  cashier  has  no  authority  by 
virtue  of  his  office  to  make  a  purchase 
of  boots  and  shoes  in  the  name  of  the 
bank  for  the  benefit  of  a  third  person, 
and  the  bank  will  not  be  liable  there- 
for in  the  absence  of  consent  to  the 
purchase  or  ratification  thereof.  North 
Star  Boot,  etc.,  Co.  v.  Stebbins,  2  S. 
Dak.   74.   48   N.  W.   833. 

A  bank  having  ordered  goods  for 
third  persons  who  were  unable  to  pay 
at  the  time,  the  acting  cashier  took 
their  paper  and  sent  the  sellers  a  cer- 
tificate of  deposit  payable  in  three 
months,    regular    in    form,    but    signed 


with  his  name  alone,  and  not  as  cash- 
ier. Held,  that  the  transaction  was 
within  the  usual  course  of  business  and 
the  scope  of  the  cashier's  authority. 
Crystal  Plate  Glass  Co.  v.  First  Nat. 
Bank,   6   Mont.   303.   12   Pac.   678. 

58.  Buying  and  selling  exchange.— 
Lafavette  Bank  v.  Bank,  Fed.  Cas.  No. 
7,987^  4  McLean  208;  Wild  v.  Bank, 
Fed.  Cas.  No.  17,646,  3  Mason  505; 
Fleckner  v.  Bank  (U.  S.),  8  Wheat. 
338.  5  L.  Ed.  631;  Robb  v.  Ross  County 
Bank  (N.  Y.).  41  Barb.  586;  Marine  v. 
Hymers  (N.  Y.),  2  Kern.  223;  Sturges 
&  Co.  V.  Bank,  11  O.  St.  153,  78  Am. 
Dec.    296. 

Purchase  of  exchange. — Contracts  for 
the  purchase  and  sale  of  New  York 
funds  are  authorized  by  the  directors, 
and  are  sanctioned  by  usage  (dissent- 
ing opinion).  jNIerchants'  Nat.  Bank  v. 
State  Nat.  Bank  (U.  S.).  10  Wall.  604. 
19   L.   Ed.   1008. 

59.  Warranty  or  representation  as 
to  responsibility  of  parties  to  paper. — 
Sturges  &  Co.  r.  Bank,  11  O.  St.  153, 
78   Am.   Dec.   296. 

60.  Deposits.— Claflin  r.  Farmers . 
etc..  Bank,  25  N.  Y.  293,  24  How.  Prac. 
1,   2   Am.   Law   Reg..   N.   S.,   92. 

As  to  deposits  generally,  see  post, 
"Deposits,"  §§  119-155.  As  to  ^de- 
posits m  national  banks,  see  post,  "De- 
posits in  General.'"  §  263.  As  to 
deposits  in  savings  banks,  see  post, 
"Deposits."   §§   298-301. 

61.  Entry  of  deposit.— Mechanics , 
etc..  Bank  r.  Banks.  11  La.  260;  Hep- 
burn V.  Citizens'  Bank.  2  La.  Ann.  1007, 
46  Am.  Dec.  564. 


§  106  (1) 


REPRESENTATION    OF    BANK. 


747 


Certificates  of  Deposit. — The  bank  is  not  liable  to  a  bona  fide  holder, 
in  all  respects,  of  a  certificate  of  deposit  issued  by  a  subordinate  officer  hold- 
ing without  authority  and  unsustained  by  any  prior  practice  or  usage.*^-  An 
indorsee  of  a  certificate  of  deposit  which  is  postdated,'^^  or  which  shows  on 
its  face  that  it  was  certified  by  an  assistant  cashier.'j'*  is  not  a  bona  fide 
holder. 

Certification  of  Check. — \A'here  an  employee  of  a  bank  is  authorized  to 
certify  a  check,  his  certification  binds  the  bank  for  its  payment  without  re- 
gard to  the  state  of  the  drawer's  account.*'^  But  it  has  been  held  that  a  per- 
son dealing  with  a  bank  is  presumed  to  know  that  no  officer  has  power  to  bind 
the  bank  by  the  certification  of  a  check,  when  the  drawer  has  no  funds  on 
deposit.^ ^  Where  a  subordinate  officer  or  clerk  has  been  permitted  to  pur- 
sue a  particular  practice  in  certifying  checks  for  customers  or  otherwise,  his 
acts,  although  wrongful,  will  bind  the  bank  in  favor  of  a  person  who  fulfills 
the  conditions  of  a  dealer  in  good  faith.*^'  Since  an  agent  can  not  put  him- 
self in  a  position  of  hostility  to  his  principal,  an  agent  of  a  bank,  authorized 
by  a  by-law  to  certify  checks  drawn  upon  the  bank,  does  not  render  the  bank 
liable  by  certifying  his  ow^n  checks,  when  he  has  no  funds  to  his  credit.*'^ 

Special  Deposit. — Where  no  instructions  were  given  to  the  subordinate 
officers  of  a  bank  to  reject  packages  presented  to  it  for  safe-keeping,  and  no 
notice  given  that  they  would  not  be  received,  the  receipt  of  such  officers  binds 
the  bank,  and  renders  it  liable  for  loss  of  the  packages.*'^  AA'hether  an  offi- 
cer of  a  bank  has  power  to  bind  it  by  the  acceptance  of  a  deposit,  with  in- 


62.  Certificate  of  deposit. — Pope  z'. 
Bank.  57  N.  Y.  126,  reversing  59  Barb. 
226. 

63.  Postdated  certificate.— "The 
check  was  dated  at  Albion  on  the  1st 
of  March,  1866,  and  if  it  was  assumed 
to  have  been  a  transaction  in  the  or- 
dinary course  of  business,  was  ac- 
cepted or  certified  within  the  usual 
banking  hours  at  Albion  on  the  day 
it  bore  date.  It  was  purchased  by  the 
plaintifi^  on  the  morning  of  the  follow- 
ing day  (March  2),  and  it  seems  rea- 
sonably certain,  frorh  the  evidence, 
that  if  'accepted'  at  Albion  on  the  1st, 
it  could  not,  in  the  ordinary  course  of 
the  mail,  have  reached  New  York  un- 
til the  afternoon  of  the  following  day; 
and  of  this  fact  the  plaintiff  was  l)ound 
to  take  notice.  It  was  sufficient  to 
put  him  at  least  upon  inquiry."  Pope 
V.  Bank.  57  X.  Y.  126,  reversing  59 
Barb.  226. 

64.  Certified  by  assistant  cashier. — 
B.  drew  a  postdated  check,  payal)lc, 
to  his  own  order,  on  a  bank,  in  which 
he  had  at  the  time  no  funds  on  de- 
posit, and  procured  the  assistant  cash- 
ier thereof  to  write  an  acceptance 
across    the    face    of   the    clieck.      B.    in- 


dorsed the  check  to  G.,  who  procured 
it  to  be  cashed  by  P.  Held  that,  as 
the  assistant  cashier  had  no  autliority 
to  accept  the  check,  the  bank  was  not 
liable  thereon  to  P.  Pope  z:  Bank,  37 
X.    ^■.    126,    reversing    59    Barb.    226. 

65.  Certification  of  check. — "And 
whether  a  check  when  presented,  is 
paid  by  the  officer  of  the  bank  in 
money,  or  he  gives  the  holder  a  cer- 
tificate of  deposit  or  draft,  or  a  cer- 
tificate that  he  will  retain  sufficient  of 
the  money  standing  to  the  drawer's 
credit,  the  officer  is  acting  within  the 
line  of  his  duty,  and  the  bank  bound." 
French  :•.  Irwin.  63  Tenn.  (4  Baxt.) 
401. 

66.  Clarke  Nat.  Dank  z:  .\lbion  Bank 
(X.    Y.),    52    Barb.    592. 

67.  Pope  V.  Bank,  57  N.  Y.  126,  re- 
versing 59  Barli.  226,  citing  Farmers', 
etc.,  Bank  z'.  Butchers,  etc.,  Bank,  16 
N.   Y.   125,  69  .\m.  Dec.  678. 

68.  Claflin  z'.  l''armcrs',  etc.,  Bank, 
25  X.  V.  29:i.  24  Ihnv.  Prac.  1,  2  Am. 
L.    Reg.,    X.   S.,   92. 

69.  Special  deposits  — Pattison  v. 
Syracuse  Nat.  P-ank  (X.  Y ").  1  Hun 
606,  4  Thomp.  vt  C.  96.  Sec  post, 
"Special    Deposits,"   §    153. 


748  BANKS    AND    BANKING.  §    106    (3) 

structions  as  to  its  distribution,  is  to  be  determined  by  a  consideration  of  his 
relation  to  the  bank,  and  the  principles  governing  the  same,  and  not  by  the 
mere  opinion  of  a  witness,  such  as  the  cashier  and  secretary,  as  to  the  legal 
effect  of  that  relation."*^ 

§  106  (2)  President.— In  the  absence  of  special  authority  from  the 
directors  of  a  bank,  the  president  can  not  authorize  the  cashier  to  pay  the 
checks  of  a  person  who  holds  a  claim  against  the  president,  but  has  no  de- 
posit in  the  bank.'^^ 

Certification  of  Check.— A  general  authority  to  the  president  of  a  bank, 
to  certify  checks  drawn  upon  it,  does  not  extend  to  checks  drawn  by  him- 
self .'^^  The  identity  between  the  name  of  the  drawer  of  a  check  and  the 
president  of  the  bank  who  certified  it  informs  any  one  that  the  president  had 
certified  his  own  checks  without  funds  in  the  bank,  and  deprives  the  owner 
of  the  protection  afforded  to  holders  in  good  faith. ^^ 

Interest  on  Deposits.— Where  the  president  of  a  bank  gave  a  time  check 
bearing  interest,  signed  by  the  president  individually  with  nothing  to  show 
that  the  bank  assumed  any  obligation  for  its  payment,  but  there  was  an 
agreement  made  between  the  president  and  the  depositor  at  the  time  of  the 
deposit,  the  depositor  can  recover  from  the  bank  in  an  action  for  money  had 
and  received. '''•* 

Drawing  Check. — A  resolution  of  the  directors,  authorizing  the  presi- 
dent of  a  bank  to  draw  checks  and  drafts,  containing  no  limitation  on  its 
face  justifies  the  payment  by  a  depository  of  funds  of  the  bank  of  a  check 
drawn  by  such  president  against  such  deposit."^ ^ 

§  106  (3)  Cashier. — It  is  the  cashier's  duty  to  receive  all  the  funds 
wdiich  come  into  the  bank,  and  to  enter  them  upon  its  books.  The  authority 
to  receive  implies  and  carries  with  it  authority  to  give  certificates  of  deposit 
and  other  proper  vouchers.  Where  the  money  is  in  the  bank,  he  has  the 
same  authority  to  certify  a  check  to  be  good,  charge  the  amount  to  the  drawer, 
appropriate  it  to  the  payment  of  the  check,  and  make  the  proper  entry  on 

70.  Burnell  v.  San  Francisco  Sav.  be  left,  and  the  reply  was  that  she 
Union,    136    Cal.    499,    69    Pac.    144.  would  leave  $1,600  for  six  months,  and 

71.  President. — Dowd  v.  Stephenson,  he  promised  to  pay  four  per  cent  and 
105  N.  C.  407,  10  S.  E.  1101.  received    an     eastern      draft      for      ari 

72.  Certification  of  check.— Claflin  amount  exceeding  $1,600,  and  returned 
V    Farmers',   etc..    Bank,   25    N.   Y.   293,       a   time   check   for  the   amount,   payable 

24  How.  P'rac.  1,  2  Am.  L.  Reg.,  N.  at  the  bank  in  six  months,  with  m- 
S     92.  terest    at    four    per    cent.      The    check 

73."  Claflin    v.    Farmers",    etc..    Bank,  was   signed   by   the   president   individu- 

25  N  Y.  293.  24  How.  Prac.  1,  2  Am.  ally,  and  there  was  nothmg  to  show 
L  Reo-  N  "S  92  reversing  36  Barb.  that  the  bank  assumed  any  obligation 
540      ''"              '  for  its  repayment.     Held,  that  the  de- 

74.  Interest  on  deposit.— A  party  positor  could  recover  from  the  bank 
went  to  the  banking  house  of  defend-  in  an  action  for  money  had  and  re- 
ant  to  make  a  time  deposit  and  asked  ceived.  First  Nat.  Bank  r.  Heim,  ib 
what  interest  thev  were  paying,  and  Neb.  831,  107  N.  W  1019  ,  r,  , 
the  president  testified  that  he  asked  75.  First  Nat.  Bank  v.  National  Park 
plaintiff    how    long    the    money    would  Bank.   175  Fed.  881. 


§    106    (3)  REPRESENTATION    OF    BANK.  749 

the  books  of  the  bank.  This  he  is  authorized  to  do  virtute  officii.  The 
power  is  inherent  in  the  office."*^ 

Acceptance  of  Deposit. — The  cashier  of  a  national  bank,  unless  re- 
stricted by  special  rules,  has  authority  to  bind  the  bank  to  take  a  deposit."" 

Payment  of  Check. — A  promise  by  a  bank  cashier  to  pay  a  check  the 
drawer  of  which  has  no  funds  on  deposit  in  the  bank,  in  consideration  of 
the  drawee's  agreeing  to  deposit  the  check  in  another  bank,  and  have  it  thus 
pass  through  the  clearing  house,  is  outside  the  cashier's  authority,  and  not 
binding  on  the  bank,  unless  expressly  authorized."^ 

Certificate  of  Deposit. — Where  the  by-laws  of  a  bank  provided  that  the 
cashier  should  have  power  to  sign  all  papers  connected  with  the  business, 
and  perform  the  duties  necessary  for  the  transaction  of  business,  he  had 
power  to  sign  certificates  of  deposit."^  But  it  has  been  held  that  a  bank 
cashier,  in  the  absence  of  special  authority,  can  not  bind  his  bank  by  issuing 
its  certificates  of  deposit  to  himself. ^"^  As  to  an  innocent  holder,  the  bank 
is  liable  on  a  certificate  falsely  issued  by  the  cashier. ^^  On  the  question  as 
to  the  authority  of  a  bank  cashier  to  issue  a  specie  certificate  of  deposit  to 
a  person  who  has  no  specie  on  deposit,  similar  acts,  frequently  done  bv  the 
cashier,  are  admissible. ■^- 

Certification  of  Check. — The  cashier  of  a  bank  has  no  authority,  by 
virtue  of  his  office,  to  bind  the  bank  by  a  certification  of  his  own  individual 
check  drawn  thereon;  and,  as  in  this  case  he  has  neither  real  nor  apparent 
authority,  the  certification  is  invalid. ^^ 

Deposit  of  Worthless  Check. — The  cashier  of  a  bank  has  no  right  or 
authority  to  accept  a  worthless  check  of  another  bank  and  charge  his  bank 
with  the  amount  thereof. ^^     This  is  not  a  deposit  of  money,  against  which 

76.  Cashier. — ^lerchants'  Niit.  Bark  S.,  who  had  owned  a  private  bank. 
z\  State  Xat.  Bank  (U.  S.),  10  Wall.  of  which  L.  had  been  cashier,  was  de- 
604,  19  L.   Ed    1008.  fendant's    treasurer,    under     an      agree- 

77.  Acceptance  of  deposit. — Mer-  ment  by  which  he  was  entitled  to  use 
chants'  Nat.  Bank  v.  State  Nat.  Bank  defendant's  funds,  deposited  in  con- 
(U.  S.),  10  Wall.  004,  19  L.  Ed.  1008;  sideration  of  his  services  as  treasurer; 
City  Nat.  Bank  v.  Merchants',  etc.,  and  checks  had  been  drawn  by  defend- 
Nat.  Bank  (Tex.  Civ.  App.),  105  S.  ant  on  S.,  as  treasurer,  and  paid 
W.  338.  through    the    bank.      On    January    15. 

78.  Morse  v.  Massachusetts  Xat.  1894,  S.  caused  the  plaintiff  savings 
Bank,  Fed.  Cas.  X^o.  9,857,  Holmes  bank  to  be  formed,  of  which  he  was 
209.  president  and   L.   was  cashier,  and  the 

79.  Certificate  of  deposit. — Abbott  business  of  the  private  bank  was 
f.   Jack,    13(3    Cal.    510,    GO    Pac.    2o7.  closed   through    the   savings   bank.      At 

80.  Lee  I.'.  Smith,  84  Mo.  304,  54  .A.m.  this  time  S.,  as  defendant's  treasurer, 
Rep.  101.  was  short  in  his  accounts,  and  the  old 

81.  Merchants'  X^at.  Bank  z\  State  t)ank  liad  a  credit  in  plaintiff  bank  to 
Nat.  Bank  (U.  S.),  10  Wall.  604,  19  L.  the  extent  of  but  $1,110.  Defendant 
Ed.  1008.  then   drew   a   check   in    favor   of  S.,   as 

82.  Robinson  v.  Bealle,  20  Ga.  275.  its    treasurer,    for    $10,380,    which    was 

83.  Gale  z'.  Chase  X'^at.  Bank,  43  C.  the  amount  of  its  credit  in  the  old 
C.   A.  496,   104    Fed.  2H.  bank,    which    check    L.,     as      plaintiffs 

84.  Deposit  of  worthless  check. —  cashier,  permitted  S.  to  charge  against 
Clarke  Xat.  Bank  v.  Bank  (\.  Y.),  52  plaintiff  on  his  executing  a  check,  as 
Barb.  592;  Farmers',  etc..  Bank  7'.  defendant's  treasurer,  on  plaintiff,  in 
Butchers',  etc..  Bank,  16  X.  Y.  125,  69  favor  of  the  old  l)rink.  for  $0,000,  which 
Am.    Dec.    678.  was   charged   lo   liis   accouiu,   as   treas- 


750 


BANKS  AND    BANKING. 


106    (3) 


an  unauthorized  check  is  drawn,  but  a  credit  given  the  maker  of  the  check.s^ 
Deposit  to  Credit.— A  cashier  of  a  bank  has  power  to  make  an  arrange- 
ment whereby  a  customer  should  accept  the  bank's  drafts  on  condition  that 
the  bank  should  keep  a  corresponding  balance  to  the  customer's  credit,  on 
which  balance  the  customer  should  have  a  Hen  as  security  for  his  liabihty 
and  have  at  any  time  the  right  to  take  the  balance  to  pay  the  acceptance.s« 
Charging  Account  of  Depositor.— A  bank  is  liable  to  a  depositor  where 
the  cashier,  with  the  knowledge  of  the  president,  charged  a  deposit  with  the 
amount  of  a  draft,  which  the  depositor  directed  to  be  credited  on  a  note 
given  the  depositor  by  the  cashier,  where  the  depositor  had  no  notice  that 
the  draft  had  been  so  charged.^' 

Special  Deposit. — The  mere  voluntary  act  of  the  cashier  of  a  bank,  in 
receiving  securities  for  safe-keeping,  will  not  render  the  bank  liable  for  their 
loss;Ss  but,  if  the  deposit  is  known  to  the  directors  and  acquiesced  in,  the 
bank  will  be  liable.«'*    Where  it  is  proved  to  have  been  a  part  of  the  ordinary 


urer,  on  plaintiff's  books.  Held,  that 
L.,  as  cashier,  had  no  authority  to  ac- 
cept defendant's  check  on  the  old  bank, 
which  was  worthless,  and  charge  plain- 
tiff with  the  amount  thereof.  Van 
Buren  County  Sav.  Bank  v.  Stirling 
Woolen  Mills  Co.  (Iowa),  94  N.  W. 
945,  affirmed  in  125  Iowa  645,  101  N. 
W.  477. 

Neither  defendant,  nor  S.,  as  its 
treasurer,  was  entitled  to  credit  for 
the  full  amount  of  the  check  drawn  on 
the  old  bank,  since  neither  the  old 
bank  nor  S.  had  funds  against  which 
such  check  could  be  charged.  Van 
Buren  County  Sav.  Bank  v.  Stirling 
Woolen  Mills  Co.  (Iowa),  94  N.  W. 
945,  affirmed  in  125  Iowa  645,  101  X. 
W.    477. 

85.  Van  Buren  County  Sav.  Bank  v. 
Stirling  Woolen  Mills  Co.  (Iowa),  94 
N.  W.  945,  affirmed  in  125  Iowa  645, 
101   N.  W.   477. 

86.  Deposit  to  credit. — A  bank  cash- 
ier arranged  with  A.  that  A.  should  ac- 
cept the"  bank's  drafts  on  condition 
that  the  bank  should  keep  a  corre- 
sponding balance  with  A,  to  A.'s  credit, 
on  which  balance  A.  should  have  a 
lien  as  security  for  his  liability,  and 
should  be  kept  informed  of  the  con- 
dition of  the  bank,  and  have  at  any 
time  the  right  to  take  the  balance  to 
pay  the  acceptances.  Held,  that  this 
agreement  was  within  the  power  of 
the  cashier  to  make,  and  bound  the 
bank.  Coates  v.  Donnell,  48  N.  Y. 
Super.  Ct.  46,  affirmed  in  94  N.  Y. 
168. 

87.  Charging  account  of  depositor. 
— A  depositor  left  with  his  bank  for 
collection  a  note  payable  by  the  cash- 


ier. He  afterwards  wrote  to  the  cash- 
ier, asking  him  to  remit  to  a  certain 
person  a  draft  on  New  York,  and  to 
apply  the  amount  on  the  note.  The 
cashier  remitted  the  draft,  but,  instead 
of  applying  it  on  the  note,  he  charged 
it  to  the  depositor's  account.  The 
president  of  the  bank  knew  tlie  con- 
tents of  the  depositor's  letter,  and  that 
the  cashier  sent  the  draft,  and  also  that 
the  cashier  had  on  deposit  sufficient  to 
pay  the  note.  The  depositor  had  no 
notice  that  the  draft  had  been  so 
charged  until  some  time  later,  when 
he  demanded  the  balance  of  his  ac- 
count, which  was  refused.  Held,  in  an 
action  against  the  bank  to  recover  the 
balance,  that  the  cashier  had  no  right 
to  so  charge  the  account,  and  that 
the  bank  "was  liable.  Reynolds  v. 
Kenyon    (X.   Y.),   45   Barb.   585. 

88!^  Special  deposit. — First  Nat.  Bank 
r.  Graliam.  79  Pa.  106,  21  Am.  Rep.  49. 
The  Act  of  Pennsylvania  of  1824 
relating  to  banks  did  not  authorize 
special  deposits  of  papers  in  banks, 
and  therefore,  where  a  cashier  re- 
ceived such  deposit  without  authority 
and  without  the  knowledge  of  the  di- 
rectors, the  bank  was  not  liable  for 
loss.  Lloyd  V.  West  Branch  Bank. 
15  Pa.  172,  53  Am.  Dec.  581. 

89.  Acquiescence  of  bank. — First 
Nat.  Bank  v.  Graham,  79  Pa.  106,  21 
Am.   Rep.   49. 

Bonds  were  deposited  with  the  as- 
sistant cashier  of  a  bank  for  safe- 
keeping, and  afterwards  were  pledged 
by  him  as  cashier  as  collateral  for, 
and  sold  in  payment  of,  the  bank's 
debts,  without  the  depositor's  knowl- 
edge   or    consent.      Held    that,    though 


§    106    (4)  REPRESENTATION    OF    BANK.  751 

business  of  a  bank  to  receive  United  States  bonds  for  safe-keeping,  it  fol- 
lows that  the  cashier  in  dealing  with  the  defendants  in  error  acted  within 
the  scope  of  his  authority  as  cashier,  and  the  bank  is  therefore  bound  by 
his  acts.^*' 

Deposit  for  Investment. — A  loan  of  money  to  a  bank  on  the  representa- 
tions of  its  cashier  that  he  would  loan  it  out  on  first  mortgage  on  good  real 
estate,  must  be  considered  as  one  with  the  full  knowledge  of  the  bank,  in 
the  absence  of  evidence  to  the  contrary,  where  the  entries  of  all  dealing 
concerning  the  money  had  been  made  both  on  the  bank's  individual  ledger 
and  in  the  pass  book  of  the  creditor.^^  Where  the  cashier  and  general  man- 
ager of  a  bank  undertook  to  make  investments  for  a  depositor,  and  exhibited 
to  the  depositor,  from  time  to  time,  statements  taken  from  the  books  of  the 
bank,  purporting  to  show  investments  made  by  the  bank  for  him,  it  will  be 
presumed  that  the  officer  of  the  bank  was  acting  for  the  bank,  and  not  as 
special  agent  for  the  depositor,  and  the  bank  will  be  required  to  account  for 
the  deposits  or  the  investments. ^^  But  where  an  arrangement  is  made  with 
a  cashier  of  a  bank,  whereby  he  is  to  keep  books  and  receive  and  disburse 
funds  for  a  third  person,  he  is  the  agent  of  the  person  selecting  him,  and  not 
of  the  bank,  and  hence  the  bank  is  not  liable  for  moneys  so  received  by  him 
outside  of  the  bank  which  were  never  in  fact  paid  over  to  the  bank.^^ 

Security  for  Deposit  of  Public  Funds.— A  cashier  of  a  bank  has  au- 
thority to  execute  a  bond  on  its  behalf  to  secure  deposits  of  public  funds  in 
the  absence  of  a  rule  or  regulation  by  the  directors  or  stockholders  requiring 
special  authority  and  notice  thereof  to  the  obligee.^^ 

Interest  on  Deposit. — The  cashier  of  a  national  bank,  unless  restricted 
by  special  rules,  has  authority  to  bind  the  bank  to  pay  interest  on  daily  bal- 
ances.''^ 

Overdraft. — The  cashier  can  not,  either  with  or  without  the  express  or 
implied  permission  of  the  directors,  permit  overdrafts,  without  being  derelict 
in  duty.^^ 

§  106  (4)  Teller. — A  receipt  of  a  deposit  by  the  receiving  teller  of  a 
private  bank  is  the  receipt  by  the  private  banker,  because  he  is  the  principal 
and  the  teller  the  agent,  and  the  deposit  is  the  banker's  private  property.^' 

Entry  of  Deposit. — In  the  case  of  money  credited  in  the  books  of  a 

the  officer  was  never  authorized  to  re-  93.    Demarest   z:   Holdeman,   34   Tnd. 

ceive   such    deposits,   the   bank   became  App.  685,  73  N.   E.  714. 

liable    from    the    time    the    bonds    were  94.    Johnson   County  v.   Chamberlain 

pledged  for  its  debt,  as  the  bank  could  Banking    House,    80    Neb.    96,    113    N. 

not  retain  the  fruits  of  the  crime  and  W.   1055. 

repudiate    the     acts      of      the      agents.  95,     City    Nat.    Rank    7'.    Merchants', 

Hughes    V.    First    Nat.    Bank,    110    Pa.  etc.,    Nat.    Bank    (Tex.    Civ.    ;\pp.),    105 

428,   1   .-Xtl.   417.  S.  W.  338. 

90.  Bank  v.   Zent,   30   O.    St.   105.  96.    Overdraft.— Minor  v.  Mechanics', 

91.  Deposit  for  investment.— De-  Bank  (U.  S.),  1  Pet.  46,  7  L.  ICd.  47. 
posit  Bank  z'.  Fleming,  JO  Ky.  L.  Rep.  See,  also.  Potts  v.  Wallace,  146  U.  S. 
1947,    44    S.    W.    961.  689.  36  L.   Ed.  1135,  13   S.   Ct.   196. 

92.  Bobb  V.  Savings  Bank,  23  Ky.  97.  Teller.— Ex  parte  Rickey,  31 
L.    Rep.    817,    64    S.    W.    494.  Nev.  82,  100  Pac.  134. 


752 


BANKS   AND  BANKING. 


§  106  (4) 


teller,  or  proved  to  have  been  deposited  with  him.  though  he  omits  to  credit 
it,  the  liability  of  the  bank  depends  upon  whether  the  act  was  done  in  the 
exercise  of,  and  within  the  limits  of  the  powers  delegated.  These  facts  are 
necessarily  inquirable  into  by  a  court  and  jury.*** 

Certification  of  Check. — The  teller  of  a  banking  institution  has  no  im- 
plied authority  to  certify  checks,  though  authority  may  be  implied  from  his 
conduct  in  certifying  checks,  and  the  subsequent  payment  of  them  by  the 
institution.^^  A  bona  fide  holder  of  a  negotiable  check,  certified  by  the  pay- 
ing teller  of  the  bank  on  which  it  is  drawn,  whose  authority  is  limited  to 
cases  where  the- bank  has  funds  of  the  drawer  in  hand,  sufficient  to  cover 
the  check,  can  enforce  the  payment  of  the  check,  although  the  bank  has  not 
such  funds,  and  the  check  was  certified  for  the  mere  accommodation  of  the 
drawer,  and  upon  his  promise  that  it  should  not  be  presented  for  payment.^ 
The  bank  is  liable  to  an  innocent  holder,  where  the  teller  fraudulently  certi- 
fied a  check.-  A  bank  is  liable  on  a  postdated  check  certified  by  the  teller 
with  knowledge  of  the  cashier,  and  where  on  the  morning  of  the  day  the 
<:heck  was  payable  the  drawer's  deposit  was  sufficiently  large  to  pay  it  but 
was  exhausted  by  the  payment  of  other  checks  during  the  day.-'' 

Certificate  of  Deposit. — A  teller  who  is  authorized  to  sign  and  indorse 
checks  and  sign  certificates  of  deposit  in  the  absence  of  the  cashier  has  power 
to  bind  the  bank  by  issuing  a  certificate  for  the  balance  of  the  purchase 
price  of  property  held  by  the  bank  under  deed  of  trust  for  the  amount  of 
the  debt.4 


98.  Mechanics'  Bank  v.  Bank  of  Co- 
lum-bia  (U.  S.),  5  Wheat.  32G,  337,  5  L. 
Ed.  ]0(). 

99.  Certification  of  check. — Muth  :'. 
St.  Louis  Trust  Co.,  94  AIo.  App.  94, 
67    S.   W.   978. 

1.  Farmers',  etc.,  Bank  v.  Butchers', 
etc.,  Bank,  16  N.  Y.  125,  69  Am.  Dec. 
678,   affirming  11   N.   Y.   Super.   Ct.  319. 

2.  IMerchants'  Nat.  Bank  :■.  State 
Nat.  Bank  (U.  S.),  10  Wall.  604,  19 
L.    Ed.    1008. 

3.  The  payee  of  a  postdated  bank 
check  presented  it  to  the  drawee's  pay- 
ing teller  in  the  office,  after  banking 
hours.  The 'teller,  who  sometimes  re- 
ceived deposits  in  the  absence  of  the 
receiving  teller,  promised  to  pay  the 
check  when  due,  and  enter  it  as  a  de- 
posit to  the  credit  of  the  payee.  The 
cashier  was  in  the  bank  at  the  time 
of  the  transaction,  and  later,  in  the 
day  saw  the  check  on  the  paying  tell- 
er's desk,  and  knew  that  he  had  re- 
ceived it  from  the  payee.  On  the 
morning  of  the  day  the  check  was  pay- 
able the  drawer's  deposit  was  suffi- 
ciently large  to  pay  it,  but  was  ex- 
hausted by  the  payment  of  other  checks 
during  the  day.  and  the  check  de- 
posited   with    the    paying     teller      was 


protested  for  nonpayment.  The  payee 
sued  the  bank  for  money  had  and  re- 
ceived. Held,  that  the  teller  acted  as 
the  agent  of  the  bank,  and  hence  the 
bank  was  liable.  Washington  Second 
Nat.  Bank  r.  Averell,  2  App.  D.  C. 
470,    reversing    19    1).    C.    246. 

4.  Certificate  of  deposit. — A  debt  to 
a  bank  was  secured  by  a  deed  of  trust 
which  named  an  officer  thereof  as  trus- 
tee. The  latter  generally  attended  to 
its  loans,  and  in  the  course  of  such 
business  received  a  check  from  an  in- 
tending purchaser  of  the  property  for 
more  than  the  amount  of  the  debt, 
and  signed  a  reconveyance  of  the 
property  to  the  parties.  The  trans- 
action was  had  and  the  check  delivered 
;o  him  across  the  counter  and  at  the 
desk  or  window  where  such  transac- 
tions were  ordinarily  had;  and  he  was 
instructed  to  deduct  the  amount  of 
the  debt,  and  hold  the  balance  on  de- 
posit for  the  debtor.  He  lianded  the 
check  to  a  teller,  and  the  money  there- 
for was  received  by  the  bank.  He  was 
authorized  to  sign  and  indorse  checks 
and  sign  certificates  of  deposit  in  the 
absence  of  the  cashier,  and  in  this  case 
issued  a  certificate  to  the  debtor's  hus- 
band for  the  balance  due  her,  and  after- 


§  107  (1)  represe;ntatiox  of  bank.  753 

Charging  Account. — A  teller  has  the  power  to  charge  the  account  of 
a  depositor  with  money  withdrawn.  Where  he  acted  as  the  agent  of  the  de- 
positor in  making  collections  through  a  number  of  years  but  was  authorized 
to  draw  money  from  his  account,  the  bank  is  liable  for  an  amount  withdrawn 
by  the  teller,  because  in  so  doing  he  was  acting  as  the  agent  of  the  bank  and 
not  of  the  depositor.^'' 

Special  Deposit. — Where  the  cashier  has  entire  control  of  a  bank,  and 
he  gives  the  teller  authority  to  receive  special  deposits  of  papers  for  safe- 
keeping, the  act  of  the  teller  in  so  receiving  papers  will  be  binding  on  the 
bank."^- 

§  106  (5)  Directors.— A  director  of  a  bank  may,  if  he  chooses,  with- 
out the  knowledge  or  request  of  the  bank,  furnish  the  money  to  make  good 
an  overdraft  by  an  insolvent  depositor  and  have  it  deposited  to  the  latter's 
credit  and  thus  satisfy  the  debt  so  far  as  the  bank  is  concerned,  but  by  so 
doing  he  does  not  make  the  bank  his  debtor,  nor  acquire  any  claim  against  it, 
at  least,  beyond  the  right  to  be  subrogated  to  the  claim  of  the  bank  against 
the  depositor  which  he  has  paidJ 

§  107.  Collections— §  107  (1)  In  General.— \\'here  the  failure  of 
a  bank  holding  a  check  as  indorsee  to  present  it  for  payment  is  based  on  some 
omission  of  one  of  its  agents  not  having  authority  to  make  presentation,  it 
is  excused  by  the  fact  that  such  agent  was  ignorant  of  the  existence  of  the 
check. 8  But  the  bank  can  not  urge  the  ignorance  of  its  agent  as  an  excuse, 
where  it  withheld  the  necessary  information  from  the  agent.^ 

wards  paid  the  same  to  the  husband's  officer    of    the    bank,    and    not,    so    far 

order.      Held,    that    he   was    authorized  as  the  bank  was  concerned,  within  the 

to    receive    the    deposit,    and    the    bank  apparent   scope   of  his   agency   for   the 

was   accordingly   liable   for   the   money  depositor,  and  that  the  bank  was  liable 

received   for   the   debtor,   and   which    it  to  her  for  the  amounts  so  withdrawn, 

had    never    paid    to    her.       Burnell    z:  National   Bank  x:   Munger,  36   C.   C.  A. 

San  Francisco  Sav.  Union,  ISCj  Cal.  499,  659,  95   Fed.  87. 

f.9   Pac.   144.  6.     Pattison   z>.    Syracuse    Nat.    Rank. 

5.     Charging    account. — A    depositor  80  N.  Y_.  82.  36  Am.  Rep.  582. 

in   a   l)ank   authorized   the   teller   to   act  ''•     Director. — Where    A    voluntarily 

as   her  agent  in  making  and  collecting  pays    to    B    a    debt   which    C    owes,    he 

loans,    but    he    was    not    authorized    to  can     not    afterwards,    upon    failure    to 

draw  money  from  her  account,   except  collect   of  C  what  he   has   advanced   or 

on  checks  procured  from  her.    The  ar-  P^id    for    him,    recover    back    from    B 

rangement    was    continued    for   a    num-  the    amount    paid    him    in    satisfaction 

ber    of   years,    during   which    she    gave  of  his   debt   against   C.     Traders',   etc.. 

several    hundred    checks,     aggregating  Rank    z'.    Rlack,    108    Va.    59,    60    S.    E. 

over   $90,000.      During   the    same    time,  "-13. 

without  tlie  authority  or  knowledge  of  8.     Collections. — Temple    z\    Carroll, 

the    depositor,   the   bank   permitted   the  "5   ^^^eb.   61.   105   N.  W.  989. 

teller  from   time   to   time   to   withdraw  ^s  to  collections  generally,  see  post, 

money  from  her  account  on  a  "teller's  "Collections,"    §§    156-175.      As    to    col- 

mcmorandum,"    which    was     merely      a  lections    l)y    national    banks,    see    post, 

direction   to   the   bookkeeper  to  charge  "Collections,"    §    268. 

her    account    with    a    stated    sum.    and  9.    Where  a  l)ank  witlihcld  from  one 

such  sums  he  appropriated  to  his  own  of  its   agents  information   necessary  to 

use.      Held,    that    in    such    transaction  cnal)le    lier    jiropcrly    to     conduct     tiie 

the   teller   acted   in   his   capacity   as   an  business    intrusted    to    her,    it    can    not 

1    B    &    B— 48 


75^ 


BANKS   AND   BANKING. 


107    (3) 


§  107  (2)  President. — The  president  of  a  bank  has  authority  to  make 
collections  for  the  bank.^^^  Payment  to  the  president  discharges  the  maker 
of  a  promissory  note,  although  the  note  had  been  fraudulently  altered  by  an 
insertion  after  the  name  of  the  payee,  making  it  payable  to  the  payee  as 
president  of  the  bank.^i 

§  107  (3)  Cashier. — The  cashier  of  a  bank  which  holds  a  bill  for  col- 
lection is  the  proper  officer  to  negotiate  all  the  business  relating  to  its  col- 
lection.i-  He  has  authority  to  take  such  reasonable  measures  for  the  col- 
lection or  security  of  the  debts  due  to  the  bank  as  are  in  accordance  with  the 
ordinary  usages  of  the  banking  business, i-'^  such  as  the  payment  of  collection 
fees, 1-1  the  transmission  of  the  debt  to  another  bank^^  and  the  foreclosure  of 
a  mortffasre.^'^ 


urge  her  ignorance  as  an  excuse  for 
lack  of  diligence  on  her  part  in  pre- 
senting a  check  for  payment.  Temple 
V.  Carroll,  75  Xeb.  61,  105  N.  W.  989. 

10.  President. — Merchants'  Nat. 
Bank  v.  Camp,  110  Ga.  780,  36  S.  E. 
201. 

The  Iowa  Code,  §  1866,  directs  that 
a  state  bank  shall  be  managed  by  its 
board  of  directors.  The  entire  man- 
agement of  a  state  bank  was  intrusted 
by  the  directors  to  its  president.  For 
several  years  he  was  in  complete  con- 
trol, receiving  all  its  mail  and  indors- 
ing all  its  drafts.  Held  that,  though 
the  president  was  not  expressly  em- 
powered to  perform  these  acts,  the 
performance  for  so  long  a  time  in- 
dicated that  the  practice  had  been  ac- 
quiesced in  by  the  directors,  making 
the  acts  within  the  authority  of  the 
president.  Griffin  v.  Erskine,  131  Iowa 
444,   109    N.   W.    13. 

A  creditor  directed  a  bank  to  col- 
lect a  debt.  The  debtor  issued  a  draft, 
making  the  drawee  the  president,  and 
followed  his  name  by  the  abbreviation 
"Pt."  The  president  received  the  draft 
in  the  ordinary  course  of  mail.  For 
several  years  he  had  received  all  the 
bank's  mail  and  had  indorsed  all  its 
drafts.  The  business  of  the  bank  was 
conducted  largely  in  the  name  of  its 
officers  as  such,  instead  of  in  the  name 
of  the  bank.  Held  to  show  that  the 
president,  on  receiving  the  draft,  re- 
ceived it  in  behalf  of  the  bank,  and  his 
subsequent  misappropriation  of  it  did 
not  affect  the  debtor.  Griffin  v.  Ers- 
kine, 131    Towa  444.  100   N.  W.   13. 

11.  Where  note  altered. — Whether  a 
promissory  note  had  or  had  not  been 
fraudulently  altered  by  inserting  after 
the  name  of  the  payee  the  letters  "Ft.." 
as  an  abbreviation  of  the  word  "Presi- 
dent,"    payment     to     such     payee     dis- 


charged the  makers  from  further  lia- 
bility, where  it  appeared  that,  even 
treating  the  paper  as  the  property  of 
a  bank  of  which  the  payee  was  presi- 
dent, he  had,  as  such,  full  authority  to 
collect  the  paper  in  its  behalf.  Mer- 
chants' Nat.  Bank  v.  Camp,  110  Ga. 
780,   36   S.    E.   201. 

12.  Cashier. — Security  Sav.  Bank  v. 
Smith  (Iowa),  119  N.  W.  726;  Warren 
V.  Gilman,  17  Me.  360;  Potter  v.  Mer- 
chants' Bank,  28  N.  Y.  641,  86  Am. 
Dec.  273;  First  Nat.  Bank  v.  Ratlifif, 
33    Tex.    Civ.    App.    279,    76    S.    W.    591. 

13.  Measures  for  collection. — Briden- 
becker   v.    Lowell    (X.    Y.),   33    Barb.   9. 

The  cashier  of  a  bank  is  ordinarily 
the  active  financial  manager  and  agent 
thereof  and  has  authority  to  take 
measures  reasonably  adequate  to  the 
collection  of  debts.  Security  Sav. 
Bank  v.   Smith    (Towa).   119   N.  W.   726. 

14.  Payment  of  collection  fees. — The 
cashier  of  a  bank  is  the  collecting 
officer  of  such  bank,  and  as  such  he 
has  the  power  to  enter  into  contracts 
looking  to  the  collection  of  debts  due 
the  bank,  and  can,  if  necessity  arises, 
bind  his  principal  to  pay  reasonable 
collection  fees  for  the  collection  of  its 
claims.  First  Nat.  Bank  v.  Ratlifif,  33 
Tex.    Civ.    App.    279,    76    S.    W.    591. 

15.  Transmission  to  another  bank. — 
The  cashier  of  a  bank  has  the  power 
to  transmit  a  promissory  note  to 
another  bank  for  discount  and  collec- 
tion, and  to  transfer  the  title  thereto 
to  the  latter  bank.  Potter  v.  Mer- 
chants' Bank,  28  N.  Y.  641,  86  Am. 
Dec.  273. 

16.  Foreclosure  of  mortgage. — T^^e 
foreclosure  of  a  mortgage  to  the  bank 
on  land  to  secure  the  claim  of  the 
bank  or  the  sale  of  the  land  under 
the  mortgage,  are  steps  in  collection 
of   the   debt   for  which   the   cashier   can 


§    108    (1)  REPRESENTATION    OF    BANK.  755 

Negligence  of  Cashier.— A  bank  holding  a  bill  of  exchange  is  bound  by 
the  neglect  of  its  cashier  to  present  it  for  acceptance,  in  consequence  of  which 
the  drawer  is  released  from  liability.^" 

Cashier  of  Bank  to  Which  Transmitted  for  Collection. — Where  a 
bank  receives  a  draft  for  collection,  and  transmits  it  in  the  course  of  business 
to  another  bank,  the  cashier  of  the  latter  bank  has  no  implied  authority  to 
agree  to  defend  in  behalf  of  his  bank  an  action  against  the  first  bank  by  the 
drawer  of  the  draft  for  negligence  in  collection. ^^ 

§  107  (4)  Teller.— Where  it  appeared  that  a  bank  teller  who  had 
collected  and  appropriated  to  his  own  use  money  on  a  check  given  in  pay- 
ment of  a  promissory  note  indorsed  by  the  owner  in  blank,  and  delivered  to 
the  teller  for  collection,  had  in  other  transactions  made  collections  for  others 
as  an  officer  of  the  bank,  it  was  immaterial,  the  collection  being  within  the 
scope  of  his  apparent  authority,  whether  it  was  really  within  the  scope  of 
his  authority  or  not,  and  the  bank  was  bound  by  his  acts.^'-' 

§  107  (5)  Attorney. — Where  a  bank  employed  an  attorney  to  bring 
suit  against  the  defendant  for  a  balance  due  the  bank  on  a  note,  and  the  at- 
torney sold  shares  held  as  security  and  received  payment,  as  the  attorney 
was  the  bank's  agent  and  the  money  was  paid  to  him  as  such  agent,  a  judg- 
ment for  the  plaintift'  on  the  note  is  improper.^o 

§  108.  Loans  and  Discounts— §  108  (1)  In  General.— Where  the 
president,  cashier,  and  secretary  of  a  bank,  without  authority  of  the  board  of 
directors,  inserted  in  a  certificate  of  the  bank's  stock  purchased  by  a  depos- 
itor a  provision  that  such  stock  would  not  be  transferred  until  all  indebted- 
ness of  the  stockholder  to  the  bank  was  paid,  the  fact  that  it  was  inserted 
without  the  authority  of  the  board  of  directors  is  immaterial  as  against  such 

legally    contract    commission     fees     to  such    president    settled    between    them 

another    for    aid    and     assistance,     and  the   terms   of  sale.     The  attorney   sent 

bmd    the    bank     therefor.      First     Nat.  defendant    the    shares    for    transfer,    in- 

Bank  z:   Ratliff,  33  Tex.  Civ.  App.  379,  forming-  him  of  the  sale,  and   that  the 

^^   ^'   ^'  ■^^^'  bank  was   to  take  the  proceeds  of  the 

17.  National  Bank  v.  Williams,  46  sale  for  the  indebtedness.  The  pur- 
^o-  I'''-  .  chase    price    was    paid    by    check    and 

18.  First  Nat.  Bank  v.  Mansfield  two  notes,  which  were  sent  to  the  at- 
Sav.  Bank,  10  O.  C.  C.  233,  6  O.  C.  D.  torney,  who  deposited  the  notes,  and 
"^^2-  .  deposited  the  check,  which  was  pay- 
^  19.  City  Nat.  Bank  v.  Martin,  70  able  to  him,  to  his  own  account,  and 
Tex.  643,  8  S.  W.  507,  8  Am.  St.  Rep.  afterwards,  on  request  of  the  presi- 
^■^3.  dent,  paid  the  amount  of  the  check  to 

20.    Attorney.— A    bank    sued    to    re-  him.     .Afterwards   the   bank   failed,  and 

cover   a   balance    alleged   to   be   due    by  defendant    was    notified    that    his    note 

defendant    on    a    note.      Defendant,    at  was  unpaid.     Held  that,  as  the  attorney 

the  time   of  executing   the  note  to   the  was    the    bank's   agent   and    the   money 

tjank,  deposited  certain  shares  of  stock  was    paid    to    him   as    the    bank's   agent 

as   collateral,   and   left   other   shares   of  under  agreement  that  defendant's  note 

stock   with    the   bank    for   safe-keeping.  was  to  be  surrendered,  a  judgment  for 

An  attorney  for  the  bank  informed  the  plaintiff    was    unsupported    by    the    evi- 

president  of  an  opportunity  to  sell  part  dence.     Robeson  v.  First  Nat.  Bank,  43 

of  the  shares  of  defendant,  and   he  and  IHri.  .'■>04,  3!)  So.  33.'). 


756  BANKS    AND   BANKING.  §    108    (4) 

Stockholder,  who  subsequently  became  indebted  to  the  bank,  since  such  of- 
ficers will  be  presumed  to  have  authority  to  arrange  the  terms  of  the  loan.^i 
Soliciting  Loan. — A  bank  is  not  bound  by  the  acts  of  a  person  in  solicit- 
ing notes  for  discount  in  times  of  scarcity  of  money,  who  had  authority  to 
solicit  them  only  when  money  was  plenty.^^ 

§  108  (2)  Directors. — All  discounts  are  made  under  the  authority  of 
the  directors,  and  it  is  for  them  to  fix  any  conditions  which  may  be  proper, 
in  loaning  money.^s  This  authority  may  be  delegated  to  the  other  officers 
of  the  bank.24  Under  a  statute  providing  that  a  bank  shall  have  power  by 
its  board  of  directors,  or  fully  authorized  officers  or  agents,  to  exercise  all 
such  incidental  powers  as  shall  be  necessary  to  carry  on  the  business  of  bank- 
ing, an  officer  can  make  a  loan  only  upon  express  authority  from  the  di- 
rectors or  by  their  ratification.-^ 

§  108  (3)  Committee. — Where  the  by-laws  of  a  bank  provided  for 
the  appointment  of  an  exchange  committee,  without  whose  sanction  the  cash- 
ier was  to  make  no  loans  above  a  certain  amount,  the  committee  was  to  con- 
sist of  the  president,  cashier,  and  a  designated  director,  of  whom  a  majority 
were  to  have  power  to  act,  the  failure  to  designate  a  director  does  not  afifect 
the  power  of  the  president  and  cashier  to  act  as  such  committee. ^^  The  com- 
mittee of  the  board  of  directors  on  finance  of  the  North  American  Trust  & 
Banking  Company  of  New  York  had  the  power,  under  its  articles  of  as- 
sociation and  by-laws,  to  authorize  the  president  and  cashier  to  make  an 
agreement  and  trust  deed  to  secure  the  repayment  of  a  loan  to  the  company.^^ 

§  108  (4)  President. — The  president  can  bind  the  bank  by  an  agree- 
ment to  loan  money  for  a  certain  purpose.-^ 

21.  Loans  and  discounts. — Jennings  who  seeks  to  charge  a  banking  cor- 
v  Bank  79  Cal.  323,  21  Pac.  852,  5  L.  poration  organized  under  Laws  1890, 
R.  A.  233,  12  Am.  St.  Rep.  145.  c.  33,  providing  (§  4,  subd.  7)  that  such 

As  to  loans  and  discounts  generally,  a    bank    shall    have    power    to    exercise 

see    post,    "Loans    and    Discounts,"    §§  by   its   board   of   directors,   or  fully-au- 

176-187.  As  to  loans  bv  national  banks,  thorized    officers   or   agents,    subject   to 

see      post,      "Loans      and      Discounts,"  law,  all  such  incidental  powers  as  shall 

R   269          '  be   necessary   to   carry   on   the   business 

22.  '  Washington  Bank  t'.  Lewis  of  banking,  etc.,  on  a  loan  "lade  by 
rTT  ^  oo  P,vi.-  91  one  of  its  officers,  must  show  that 
(Mass.),   ....    rick.  w4.  ^^^^     ^^^^^     j^^^     express     authority 

23.  Directors.— Bank  t'.  Dunn  _(U.  ^^^^^  ^j^^  directors  to  make  the  loan, 
S.),  6  Pet.  51,  8  L.  Ed.  316;  United  ^^  ^j^^^  j^  ^^^  ratified  by  them.  First 
States  T'.  City  Bank  (U.S.),  31  How.  3.56.  ^^^  ^^^^  .^,  Michigan  City  Bank,  8 
16   L.    Ed.    130;    United   States   v.    Brit-  j^t    ^^^.k    608,  80  N.  W.  766. 

ton,   108  U.   S.   192,  37   L.   Ed.  703,   3   S.  gg         Committee.— Wallace      v.      Ex- 

Ct.   525.      See    Evans  v.   United   States,  change    Bank,    126    Ind.    265,    36    N.    E. 

153   U.   S.   584,   38   L.   Ed.   830,  14   S.   Ct.  -^^g    * 

934;  Jennings  v.   Bank,   79  Cal.   323,  31  g"^^   Leavitt   v.   Blatchford    (N.   Y.),   5 

Pac.    853,    5    L.    R.   A.    233,    12    Am.    St.  g^^.,^    g 

Rep.    145;    Morris     v.     Georgia    Loan,  gs.    President.— The    president    of    a 

etc.,   Co.,   109   Ga.   13,  34   S.    E.   378,  46  ^^^^■^   j^  authorized  to   make  an   agree- 

L.  R.  A.  506.  „^e,it  whereby  a  party  is  to  get  money 

24.  United  States  v.  Britton,  108  U.  from  the  bank  to  buy  a  certain  de- 
S.   193,   27   L.   Ed.   703,   2   S.   Ct.   525.  scription    of    hogs.     Roe    v.    Bank,    167 

25.  Delegation    of    authority.— One       Mo.   406,   67   S.   W.    303. 


§    108    (5)  REPRESENTATION    OF    BANK.  757 

Loan  to  Himself. — The  president  of  a  bank,  even  if  clotlied  with  general 
authority  to  lend  its  money  can  not  bind  it  by  lending  its  funds  to  himself,  or 
by  lending  them  to  the  cashier,  when  the  latter  knows  that  the  loan  was  made 
for  the  president's  own  benefit.-'' 

Security  for  Loan. — Where  a  note  is  discounted  by  a  bank,  its  president 
has  authority  to  take  collateral  securities  and  agree  to  collect  the  same,  and 
to  apply  the  proceeds  to  the  payment  of  the  note ;  and  in  such  case  no  re- 
covery can  be  had  against  an  indorser  thereon  where  the  bank  collected  a 
portion  of  the  securities  without  applying  the  proceeds  as  agreed,  and  made 
arrangements  with  the  debtors  for  the  payment  of  the  remainder.^" 

Repayment  of  Loan. — Although  the  president  of  a  bank  has  no  author- 
ity to  receive  payment  of  a  debt  due  the  bank,  yet  such  payment  will  not  be 
set  aside  after  it  has  been  accjuiesced  by  the  bank  for  many  years.-"^^ 

§  108  (5)  Cashier. — The  power  to  make  loans^-  or  to  discount  nego- 
tiable paper^-"  is  not  an  implied  power  of  the  cashier.  His  authoritv  must 
be  derived  from  the  charter,  or  by-laws,^^  or  from  the  custom  or  course  of 
business  of  the  bank  and  borrow^er.^^  Usually  the  question  of  discounting 
paper  comes  before  the  board  of  directors  or  of  a  committee,  and  the  cashier 
is  but  the  executive  officer  to  carry  out  their  decision ;  his  duties  are  ordinarily 
strictly  executive.  It  is,  however,  true  that,  beyond  his  inherent  powers, 
the  cashier  may  be  authorized  to  act  for  the  bank  by  the  organic  law,  by 
action  of  the  stockholders,  by  a  vote  of  the  board,  by  usage  and  tacit  ap- 
provals^ 

Loan  to  Himself. — The  cashier,  whatever  may  be  his  general  authority 
as  to  making  loans,  can  not  bind  the  bank  by  lending  its  money  to  him  self. ■''''' 
Where  a  rule  of  a  bank  prohibits  its  officers  becoming  its  debtor,  a  trans- 
action between  the  cashier  and  one  who  acts  with  notice  of  the  rule,  which  is 
palpable  and  colorable  evasion  thereof,  will  not  affect  the  bank.^s 

29.  McGregor  r.  Witham,  126  Ga.  ers  of  the  cashier,  and  this  is  believed 
702,  56   S.   E.   55.  to  l)e  the  law  at  the  present."  Evans  7'. 

30.  Wales  z'.  Bank  (Mich.),  Har.  United  States,  15.3  U.  S.  584,  38  L.  Ed. 
308.  ^30.  14  S.  Ct.  934. 

31.  Parker  z\  Donnally,  4  W.  Va.  34.  The  cashier  of  a  bank,  unless 
648.  specially   authorized   by  the   charter  or 

32.  Cashier. — The  cashier  of  a  bank,  by-laws,  has  no  authority  to  loan 
unless  authorized  by  the  charter  or  by  money  of  the  bank,  and  it  is  not  liable 
laws,  has  no  authority  to  lend  the  for  breach  of  a  contract  entered  into 
money  of  the  bank.  The  bank  can  by  him  without  authority  and  in  di- 
not  be  held  liable  in  damages  for  a  rect  violation  of  law.  E.  Swindell  & 
breach  of  a  contract  entered  into  by  Co.  7'.  Bainbridge  State  Bank.  3  Ga. 
the  cashier  to  lend  its  money,  without  App.   3G4.   60   S.    E.   13. 

authority    from    the    bank,    and    in    di-  35,    Blair    7'.    First    Nat.    Bank,    Fed. 

rect    violation    of   the    banking   laws    of  q^^,^   No.   1,485,  2   Flip.   111. 

the    state.     vSwindell    &    Co.    v.    Bain-  36.    Morris    v.    Georgia     Loan,     etc., 

bridge   State   Bank,   3   Ga.   Apv-   •'564,   60  q^^^   io9   Ga    12,  34    S.   K.  378,    16  L.   R. 

S.  E.  13.  A.  r>()C,. 

33.  "It  was  held  by  this  court  in  37.  Loan  to  himself. — McGregor  v. 
Bank  7-.   Dunn    (U.   S.),  6   Pet.   51,   8   L.  Withnm.   126  Ga.   702,  56  S.   E.   55. 

Ed.    316.    that    the    power    to    discount  38.  Savannah   Bank,  etc.,  Co.  v.  Hart- 

paper  was  not  one  of  tlic  im])licd  pow-       ridge,  73  Ga.  223. 


758 


BANKS    AND   BANKING. 


§  108  (5) 


Release  of  Parties.— The  cashier  of  a  bank  can  not  of  his  own  author- 
ity bind  the  bank  by  a  contract  to  release  one  or  more  of  several  parties 
to  a  note  held  by  the  bank ;  but,  if  he  acts  on  consultation  with  two  or  more 
of  the  directors,  then  his  acts  are  binding  on  the  bank.-"-' 

In  Usual  Course  of  Business.— Bona  fide  indorsees  before  maturity 
of  paper  discounted  by  a  cashier  are  not  affected  by  the  fact  that  it  was 
unauthorized  by  the  discounting  committee  of  the  bank,  if  the  paper  passed 
through  the  bank  in  the  usual  course  of  business.-^" 

Rediscount.— The  power  to  rediscount  bills  and  notes  does  not  come 
within  the  ordinary  duties  of  a  cashier  and  is  not  one  of  his  inherent  pow- 
ers;  but,  if  it  is  the  practice  of  the  cashier  in  pressing  emergencies  to  re- 
discount bills  and  notes,  a  transfer  of  the  bills  and  notes  in  the  usual  course 
of  business  of  the  bank  to  a  person,  who  has  no  reason  to  doubt  the  pro- 
priety thereof,  or  to  question  its  good  faith,  is  prima  facie  valid  and  vests 
a  good  title  in  the  transferee.-^i 

Repayment  of  Loans.— A  statute,  authorizing  a  bank  to  receive  Con- 
federate States  treasury  notes,  having  been  declared  unconstitutional  and 
void,  can  not  be  relied  upon  as  authorizing  a  cashier  of  the  bank  to  receive 
such  notes  in  discharge  of  debts  due  the  bank.-*- 


39.  Release  of  parties. — In  an  action 
l)y  a  bank  against  the  parties  to  a  note 
held  by  it,  it  appeared  in  proof  that 
the  cashier  of  the  bank  had  made  an 
agreement  which,  if  carried  out,  would 
have  discharged  all  the  parties  to  the 
note  but  one;  and  that  he  had  made 
that  agreement  after  consulting  with 
two  or  more  of  the  directors.  The 
court  instructed  the  jury  that  the  cash- 
ier of  the  bank  had  no  authority  to 
bind  the  bank  by  any  contract  that 
would  release  the  parties,  but  that,  if 
he  acted  on  consultation  with  two  or 
more  of  the  directors,  then  his  acts 
would  be  binding  on  the  bank.  Held, 
that  the  entire  instruction,  taken  to- 
gether, and  applied  to  the  facts,  would 
not  be  erroneous  in  its  conclusion. 
Pavne  -z'.  Commercial  Bank  (Miss.), 
6  Smedes  &  M.  24.  See  ante,  "Particu- 
lar  Powers   Considered."  §   105    (3b). 

40.  Blair  v.  First  Nat.  Bank,  Fed. 
Cas.   No.   1,485,   2   Flip.   111. 

41.  Rediscount. — It  is  the  practice 
for  the  cashier  of  a  bank  in  pressing 
emergencies  to  rediscount  the  bills 
and  notes  of  the  bank  to  raise  money 
to  pay  depositors  and  meet  other  de- 
mands of  the  bank.  But  this  is  only 
done  on  extraordinary  occasions  and 
when  tlTe  requirements  are  such  as  do 
not  admit  of  delay.  It  is  customary, 
wherever  it  can  be  done,  to  consult 
the  directors  and  obtain  their  consent 
to  make  such  rediscounts.  It  is  a 
matter    which    does    not    come    within 


the  ordinary  duties  of  the  cashier  and 
is  not  one  of  his  inherent  powers;  but 
inasmuch  as  it  is  a  power  which  is  ex- 
ercised by  him  under  some  circum- 
stances, a  transfer  of  such  bills  and 
notes  made  by  him  in  the  usual  course 
of  the  business  of  the  bank  to  a  per- 
son, who  has  no  reason  to  doubt  the 
propriety  of  the  transfer  or  to  ques- 
tion its  good  faith,  will  be  prima  facie 
valid  and  vest  a  good  title  in  the 
transferee.  The  validity  of  the  trans- 
fer in  such  case  will  be  sustained  upon 
the  ground  that  the  transferee  had  a 
right  to  presume  that  the  cashier  had 
from  the  board  of  directors  either  an 
express  or  implied  authority  to  make 
the  transfer,  and  not  because  he  had 
by  virtue  of  his  office  inherent  power 
to  do  so.  Smith  v.  Lawson,  18  W.  Va. 
212,  41  Am.  Rep.  688;  Lamb  v.  Cecil, 
28  W.  Va.  653,  applied  and  approved 
in   Lamb  v.  Pannell,  28  W.  Va.   663. 

42.  Repayment  of  loans. — The  act  of 
the  legislature,  passed  July,  1861,  au- 
thorizing the  Bank  of  Tennessee  to 
receive  and  pay  out  confederate  treas- 
ury notes,  having,  by  the  fifth  section 
of  the  schedule  of  the  amended 
constitution,  been  declared  unconstitu- 
tional, null  and  void,  from  the  begm- 
ning,  can  not  be  relied  upon  as  au- 
thorizing a  cashier  of  the  bank  to  re- 
ceive it  in  discharge  of  debts  due  the 
bank.  Bank  7'.  Woodson,  45  Tenn.  (5 
Coldw.)    176. 


§    109    (1)  REPRESENT  ATIOX    OF    BANK.  759 

§  108  (6)  Treasurer  and  General  Manager. — Where  the  negotia- 
tion of  a  loan  by  a  bank  and  the  execution  of  the  papers  were  intrusted  to 
its  treasurer,  his  subsequent  acts,  on  ascertaining  the  condition  of  the  title 
to  the  security,  for  the  benefit  of  the  bank,  were  within  his  impHed  pow- 
ers.^^  An  accountant  and  general  manager  of  a  bank  is  not  presumed  to 
have  authority  or  be  charged  with  the  duty  of  discounting  papers  for  the 
bank.-i-' 

§  109.  Bills,  Notes  and  Securities— §  109  (1)  In  General.— Al- 
though a  loan,  for  which  a  note  signed  by  the  vice-president  and  another 
director  and  indorsed  by  the  president  of  a  bank,  is  not  in  fact  procured 
before  the  bank  and  the  bank  does  not  receive  the  proceeds  and  the  in- 
dorsement is  not  authorized  by  the  board  of  directors,  the  bank  is  liable 
on  the  note,  the  officers  having  implied  authority  to  act.-^^ 

Making  Note  to  Cover  Overdraft. — If  a  part  of  the  directors  of  a 
bank,  including  the  president  and  cashier,  make  their  note  and  have  it  dis- 
counted, and  use  the  proceeds  to  make  good  an  overdraft  of  an  insolvent 
depositor,  from  fear  that  the  amount  of  the  overdraft  would  become  known 
to  the  public  and  injure  the  credit  of  the  bank,  and  agree  among  themselves 
that  the  bank  shall  make  good  the  amount  to  them  when  they  deem  it  safe 
to  notify  the  other  directors,  and  afterwards,  at  the  instance  of  one  of  the 
makers,  the  bank  becomes  the  owner  of  the  note,  and,  after  the  claim  against 
the  depositor  has  become  barred  by  the  act  of  limitations,  they  disclose  the 
whole  transaction  to  the  board  of  the  bank,  and  ask  that  the  bank  charge 
off  the  note  to  profit  and  loss,  the  bank  is  under  no  obligation  to  do  so,  and 
in  an  action  on  the  note  by  the  bank  against  the  makers  they  can  not  defeat 
recovery  on  the  ground  that  the  note  was  made  for  the  accommodation  of 
the  bank.46 

43.  Treasurer. — Gerrity  v.  Wareham  dorsement  was  not  authorized  by  the 
Sav.  Bank,  202  Mass.  214,  88  N.  E.  board  of  directors,  the  bank  was  liable, 
1084.  the    officers    having-    implied    authority 

44.  General  manager. — Union  Sav.  to  act.  First  Nat.  Bank  v.  Arnold.  156 
Bank,  etc..  Co.  v.  Ellis,  110  Ga.  494,  Ind.  487,  60  N.  E.  134,  See  post,  "Ex- 
3.5   S.   E.  780.  chango.     Money,     Securities,      and      Tn- 

45.  Bills,   notes   and   securities. — The      vestments."   §§    lSS-1 !)."). 

vice    president    of    a    bank    represented  46.   Making  note  to  cover  overdraft, 

to    another    bank    that    he    desired     a  — Three    directors    of    a     bank    whose 

loan    for    his    bank,    and    gave     a     note  board    consisted    of    18    members,    one 

signed     by     himself     and     another     di-  of   the   3    being-   the    president   and    an- 

rector,  indorsed  by  his  bank  and  by  its  other     the     cashier,     together     with     3 

president.      Thereafter    such    note    was  large    stockholders,    met    together    and 

rene-wed    by   another   note   indorsed   by  executed  a  note,  and  had  it  discounted 

the   bank   by   its   cashier.      The   lending  at    another    bank.      With    the    proceeds 

bank    knew    that     the     two     directors  they    aid    an    overdraft    by    a    b.inkrupt 

signing  the  first  note  were  directors  of  depositor     in     their     own     bank,     and 

the  borrowing  bank,  and  that  the  cash-  agreed  among  themselves  to  say  noth- 

ier  signing  the  indorsement  on  the  sec-  ing  about   the   matter  to  the   other  di- 

ond    note    transacted    all    the    business  rectors,  and  that  the  bank,  when   ab  e, 

of    the    borrowing     bank.      Held     that,  should  pay  them  back,  and  charge  the 

though   the   loan   was   not  in    fact   pro-  amount  to  profit  and  loss.     The  clami 

cured   for  the  bank,  and  though   it  did  on    the    overdraft    was    turned    over    to 

not    receive    the    proceeds,    and    the    in-  one    of   their    number   and    the    amount 


760  BANKS  AND  BANKING.  §    109    (2a) 

Sale  to  Bank. — A  statutory  provision  that  no  officer  of  a  bank  shall  in 
any  manner  directly  or  indirectly  use  its  funds  or  deposits  or  any  part 
thereof  except  for  the  regular  transactions  of  the  bank,  does  not  prohibit 
an  officer  of  the  bank  from  selling  negotiable  paper  to  it,  unless  the  act  is 
resorted  to  for  the  purpose  of  indirectly  obtaining  a  loan  to  him,  and  even 
then  by  appropriate  procedure  such  a  loan  may  be  efifected.^' 

Transfer  and  Indorsement. — A  bank  is  bound  by  the  transfer  of  a 
note  by  an  officer  having  general  authority  to  transfer  its  notes,  as  against 
a  bona  fide  transferee  having  no  notice  of  any  limitation  upon  such  author- 
ity as  to  the  particular  note.-*^  A  bank  authorized  to  deal  in  commercial 
paper  is  bound  by  the  indorsement  or  guaranty  by  its  executive  officers.-*^ 

§  109  (2)  President  and  Vice-President— §  109  (2a)  Presi- 
dent.— Unless  expressly  authorized  to  do  so  by  the  board  of  directors,  the 
president  of  a  bank  can  not  use  the  funds  of  the  bank  to  pay  his  personal 
obligations.^*^ 

Drawing  Check. — \\'here  no  special  authority  is  delegated  to  the  presi- 
dent of  a  bank  to  draw  checks  by  its  charter,  but  such  duty,  by  the  general 
custom  of  other  banks,  devolves  upon  the  cashier,  except  in  his  absence, 
when  the  duty  is  performed  by  the  president,  such  also  is  the  usage  of  the 
particular  bank,  and  in  the  absence  of  the  regular  cashier,  but  while  a 
temporary  cashier  is  discharging  his  duties,  the  draft  in  question  is  drawn 
and  signed  by  the  president,  the  bank  is  liable  for  the  payment  of  the 
draft.51 

Making  Note. — Where  a  party  discounts  a  note  given  by  the  president 
of  a  bank,  with  the  indorsement  of  the  bank  thereon,  supposing  that  he  is 
dealing  with  and  advancing  the  money  to  the  bank,  and  not  the  president 
personally,  the  bank  is  liable  for  the  payment  of  such  note.^^  Under  a 
bank  charter  which  declares  contracts  to  be  binding  on  the  bank  shall  be 

collected  and  applied  on  the  note.  Sub-  50-   P?"^^.^^"^-Si'7'^i!/'-  f"'*'''  ^ 

sequently   the   bank,   at   the   request    of  C^C.    A.    bOb    61    Fed.   ..ol.      See   post, 

one  of  the  makers,  purchased  the  note,  Directors.  _  §  109   (4). 

and    on    refusal   of   the    makers   to    pay  51.    Drawing    check-  A  though     the 

it   brought   suit.      Held,   that   it  was   no  president  of  a   bank  be   not  authorized, 

defense    that    the    note    was    made    for  by  virtue  of  his  oftice,  to  draw  checks 

the    accommodation    of    the    bank,    and  for  the  moneys  of  the  bank,  it  is  clear 

that     as    the    bank    had    received    full  that   the   company   may   enipo\yer   him, 

benefit  of  the  proceeds  in  the  satisfac-  as    its    agent,   in   a    particular    instance, 

tion    of    the    overdraft,    the    note    was  or    generally,    to    do    so;    and    that,    in 

fully   paid   when   the   bank   acquired   it.  such   case    the   bank  will  be  bound  by 

Traders',   etc..    Bank  v.   Black,   108   Va.  the  act.     Corporations    in  this  respect, 

59    60  S    E    743  stand  upon  the   same   footing  with  nat- 

'         J    .  '         '    o     ^^„     C-.  X          r^  ural    persons,    and    are    alike    bound    by 

.    *%  ^"^^  'T\L    i    •       lV\?n'  the  acts  of  its  agent  beyond  the  limits 

ing    Sav.    Bank.    139    Iowa    338,    115    W.  ^^  ^j^   authority,   if  done   by  their  pre- 

W.  937.  vious   or  subsequent  assent,   or  express 

48.  Transfer  and  indorsement.—  ^r  implied  direction."  Neiflfer  z:  Bank. 
Smith    T'.    Lawson.    18   W.    Va.    212.    41  33  Tenn.   (1   Head)   162. 

Am.  Rep.  688.  52.      Making      note.— Central      Trust 

49.  State  r.  Corning  Sav.  Bank,  139  Co.  i:  Cook  County  Nat.  Bank.  15  Fed. 
Towa  338,  115   N.  W.  937.  885. 


§  109  (2a) 


REPRESENTATION    OF    EANK. 


761 


signed  by  the  president  and  countersigned  by  the  cashier,  the  president 
can  not  object  to  the  regularity  of  the  contract  in  a  suit  against  him  by  the 
holder  of  a  negotiable  instrument,  drawn  by  him  as  president  of  the  bank 
and  in  his  own  favor.-J'^  The  president  of  a  bank  can  not  authorize  another 
bank  to  which  he  has  given  his  personal  note  to  charge  such  note  to  the 
account  of  his  bank/'-*  Where  the  president  of  a  bank  borrows  money  for 
it.  executing  his  personal  note  therefor,  he  will  be  personally  bound  thereon, 
though  the  payee  of  the  note  was  informed  at  the  time  it  loaned  the  money 
and  took  the  note  that  the  maker  was  acting  only  as  agent  for  the  bank.^-^ 

Acceptance  of  Note. — A  bank  which  accepts  a  note  obtained  in  negoti- 
ations conducted  by  its  president  may  not  deny  that  he  had  authority  to 
represent  the  bank  in  the  transaction.^*^ 

Rediscount  of  Note.— \Mien  a  bank  has  long  been  in  the  habit  of  re- 
discounting  its  bills  receivable  in  large  amounts,  all  other  banks  in  the  same 
locality  pursuing  the  same  practice,  and  the  president  and  cashier  of  such 
bank  propose  to  its  regular  correspondent  a  rediscount  of  its  bills,  and 
there  are  no  circumstances  attending  such  proposal  to  arouse  suspicion, 
the  bank  to  which  it  is  made  may  safely  act  upon  it,  without  furtlier  in- 
quiry, on  the  assumption  that  the  act  has  either  been  specially  authorized, 
or  that  the  officers  are  acting  within  the  purview  of  their  general  powers.'^''' 

Acceptance  of  Renewal  Note.— The  president  of  a  bank  who  secures 
a  settlement  from  an  indorser  on  a  overdue  note  held  by  the  bank,  by  tak- 
ing a  new  note  signed  and  indorsed  by  the  same  parties,  acts  as  the  agent 
of  the  bank,  and  whatever  he  does  within  the  apparent  scope  of  his  au- 
thority is  binding  on  the  bank  which  accepts  and  holds  his  security.^s 


53.  The  charter  of  the  Insurance 
Bank  of  Columbia  prescribes  the  mode 
in  which  contracts  shall  be  executed 
to  be  binding  on  the  company,  namely, 
that  they  shall  be  signed  by  the  presi- 
dent and  countersigned  by  the  cash- 
ier. In  a  suit  at  the  instance  of  the 
holder  of  a  bill  against  the  indorser, 
on  a  bill  drawn  by  himself  as  presi- 
dent of  the  said  corporation,  and  in 
his  own  favor,  he  can  not  object  to 
the  regularity  of  the  contract,  nor  is 
he  protected  on  his  indorsement  by 
its  want  of  conformity  to  the  statute. 
McDougald  7'.  Central  Rank,  .3  Ga. 
185. 

54.  Charge  of  note  to  bank. — C,  in 
order  to  obtain  a  credit  in  his  personal 
account  witli  a  liank  of  which  he  was 
the  president,  procured  defendants,  a 
banking  firm,  to  discount  his  indi- 
vidual note,  credit  the  amount  to  the 
bank,  and  notify  the  bank  that  he  had 
deposited  the  amount  with  them  to 
the  credit  of  the  bank.  The  bank  had 
previously  given  C.  credit  for  the 
amount,    and,    after    l)C'in<>-    notified    liv 


defendants  tliat  the  deposit  had  been 
actually  made  with  them,  allowed  C.  to 
overdraw  his  account.  Thereafter,  and 
while  his  account  with  the  bank  was 
overdrawn,  C,  in  his  official  cliaracter 
as  president,  authorized  defendants  to 
charge  the  note  to  the  account  of  the 
bank,  and  defendants  did  so.  Held,  in 
a  suit  by  the  receiver  of  the  bank  to 
recover  the  deposit,  that,  unless  ex- 
pressly authorized  to  do  so,  the  presi- 
dent of  the  bank  could  not  use  the 
funds  of  the  bank  to  pay  his  personal 
obligation;  and,  there  being  no  proof 
of  such  express  authority,  the  authori- 
zation given  by  him  to  defendants  was 
not  a  defense  to  the  claim.  Chrvstie  t. 
Foster,   9   C.   C.   A.   60f>,   01    Fed.'  n.')!. 

55.  Willoughby  7:    Ball,    IS   Okl.   r,3.5, 
90   Pac.   1017. 

56.  First    vState    Bank   7-.    TTare    (Tex. 
Civ.  .App.),   152  S.  W.   501. 

57.  United  States  Nat.  Rank  7-.  First 
Nat.  Rank,  24  C.  C.  .A..  597,  79  Fed.  296. 

58.  Cake   7'.   Pottsville   Rank.    Ilfi   Pa. 
201.    9    All.    .'502,    2    Am.    St.    Rep.    000. 


762  BANKS  AND   BANKING.  §    109    (2a) 

Receiving  Payment. — Authority  may  be  conferred  on  the  president  to 
receive  payment  of  bills  and  notes,  or  the  bank  may  allow  him  to  hold  him- 
self out  and  act  in  such  manner  as  to  raise  the  presumption  that  he  pos- 
sesses such  authority;  in  which  event  the  bank  is  estopped  from  denying 
his  authority  to  receive  payment  from  one  who,  relying  on  his  authority, 
pays  money  to  him.-''-' 

Transfer  and  Indorsement. — The  president  of  a  bank  has  the  general 
power  to  transfer  and  indorse  its  bills  and  notes.''''  A  bank  authorized  to 
deal  in  commercial  paper  is  bound  by  the  president's  indorsement  of  the 
paper.ci  f^e  president  and  directors  of  a  bank,  having  by  the  charter  full 
power  to  conduct  its  affairs,  may  authorize  the  president  to  indorse  its 
notes.'^^  A  bank  may,  through  its  president,  by  indorsement,  transfer  the 
legal  title  of  a  promissory  note  to  such  president. •'^^  The  president,  upon 
giving  paper  held  by  the  bank  to  creditors  of  the  bank,  as  collateral  security 
for  their  claims,  has  authority  to  indorse  or  guaranty  such  paper  in  the 
name  of  the  bank,  so  as  to  bind  the  bank  and  its  shareholders.*^^  But  it 
has  been  held  that  the  president  of  a  bank  has  no  inherent  authority  to  in- 
dorse or  transfer  notes  belonging  to  the  bank.*^^ 

Guaranty  of  Payment  or  Loss. — Where  one  purchased  negotiable 
paper  from  the  president  of  a  bank  with  a  guaranty  of  payment  executed 
by  him  apparently  in  behalf  of  the  bank,  on  his  representation  that  the 
paper  belonged  to  the  bank,  and  the  transaction  occurred  in  the  banking 
house  where  the  president  was  apparently  engaged  in  performing  his  duties 
as  such,  the  bank  was  liable  on  the  guaranty ."^'^  A  guaranty  against  loss 
or  liability  for  signing  as  sureties,  given  by  a  bank  president  in  his  own 
name  and  without  authority  from  the  directors,  to  those  whom  he  had 
solicited  thus  to  sign  a  note  given  to  the  bank  to  retire  a  prior  note  held  by 
it  against  their  principal,  is  the  individual  contract  of  the  president,  and 
not  binding  upon  the  bank.^' 

59.  Reno  z'.  James,  16  Ky.  L.  Rep.  60.       State  z:   Corning  Sav.   Bank.   139   Iowa 

60.  Transfer      and      indorsement.—       338,   115   N.   W.   937. 

Rezner  r.  Hatch,  2  Handy  42,  12  O.  The  president  of  a  bank  may  trans- 
Dec.  320.  fer,  by  his  indorsement,  a  note  made, 
It  is  within  the  implied  powers  of  to  the  corporation,  if  he  has  a  general 
the  president  of  a  bank  to  indorse  ne-  authority  for  that  purpose  from  the 
gotiable  paper  in  the  ordinary  trans-  directors;  and  the  seal  of  the  corpora- 
action  of  its  business.  United  States  tion  need  not  be  affixed  to  the  trans- 
Nat.  Bank  v.  First  Nat.  Bank,  24  C.  C.  fer,  nor  a  particular  vote  therefor  be 
A.   597,   79   Fed.   296.  passed   on   the   subject.     Spear  v.   Ladd, 

61.  Indorsement     by     president. — A  11   Mass.  94. 

bank,  purchasing  from  the  president  of  62.     Merrick  r.  Bank  (Md.).  8  Gill  59. 

another  bank  acting  in  his  official  capac-  63.    Palmer   v.    Nassau    Bank,    78    111. 

ity    notes    drawn    to    the    president    in  380. 

his    individual    capacity    as    payee,    and  64.      Irons      v.     Manufacturers'     Nat. 

indorsed    by    both    the    bank    and    the  Bank,  27  Fed.  591. 

president,   had   a   right  to   assume   that  65.  Smith  v.  Lawson,  18  W.  Va.  212, 

the  title  to  the  notes  was  in  the  bank,  41  Am.   Rep.  688. 

since    the    president    acted    within    the  66.    City    Nat.    Bank    r.    Thomas,    46 

scope   of  his   duties,   and   the   fact   that  Neb.  861.  65  N.  W.  895. 

the  notes  were  drawn  in  his  name  was  67.    First    Nat.    Bank    z:    Bennett,    33 

consistent   with    the    bank's   ownership.  Mich.   520. 


§    109    (3)  REPRESENTATION    OF    BANK.  763 

Security. — A  president  of  a  bank  who  secures  a  settlement  from  an  in- 
dorser  on  overdue  notes  held  by  the  bank,  by  taking  new  notes  signed  and 
indorsed  by  the  same  parties,  acts  as  the  agent  of  the  bank,  and  whatever 
he  does  within  the  apparent  scope  of  his  authority  to  obtain  the  new  se- 
curity is  binding  on  the  bank  which  accepts  and  holds  the  security.^ ^  The 
act  of  the  president  of  a  bank  and  another  stockholder,  in  depreciating  the 
value  of  certain  stock  pledged  as  collateral  security  for  notes  held  by  the 
bank,  is  not  the  act  of  the  bank,  so  as  to  charge  it  with  any  loss  resulting 
to  the  owner  of  such  pledged  stock  because  of  the  depreciation.^'-^ 

§  109  (2b)  Vice-President. — Where  a  bank  purchased  certain  se- 
curities at  the  suggestion  of  its  vice-president,  who  announced  that  he  would 
make  the  purchase  on  behalf  of  the  bank,  and  subsequently  informed  the 
directors  that  he  had  done  so,  and  still  later  turned  over  certain  of  the  se- 
curities to  the  bank  with  a  letter  authorizing  it  to  receive  the  balance,  and 
at  the  trial  of  an  action  for  conversion  acknowledged  that  his  intention  had 
been  to  turn  over  the  securities  to  the  bank  on  payment  of  a  note  for  which 
t-hey  were  pledged  his  possession  of  the  securities  was  the  possession  of 
the  bank,  and  title  to  the  securities  was  in  it.'^ 

Transfer  and  Indorsement. — The  vice-president  of  a  bank,  having 
authority  to  transact  its  business,  who  has  given  bond  in  his  official  capacity, 
with  himself  individually  as  surety,  to  secure  a  deposit  of  county  funds, 
has  the  power  to  afterwards  assign  to  the  county  treasurer  notes  belonging 
to  the  bank  as  additional  security,  though  the  bond  alone  may  be  ample.' ^ 

Guaranty  of  Payment. — With  the  knowledge  and  consent  of  the  presi- 
dent and  cashier,  who  were  also  directors,  but  without  any  notice  to  or 
authority  from  the  board,  one  of  the  directors  and  vice-president  of  the 
bank  guaranteed,  at  the  time  of  the  negotiability,  a  note  made  payable  to 
the  bank,  the  payment  of  the  note  at  maturity  by  an  indorsement  thereon 
to  that  effect,  in  the  name  of  and  on  behalf  of  the  bank.  Jt  is  to  be  pre- 
sumed that  the  officer  had  rightfully  the  power  he  assumed  to  exercise, 
and  the  bank  is  estopped  to  deny  it.'^- 

§  109  (3)  Cashier. — Drawing  Check. — The  cashier  of  a  bank  has 
power  to  bind  the  bank  by  drawing  a  check  in  its  name,  when  acting  as  an 
officer  of  the  bank.'''^     But  he  can  not  bind  a  bank  by  drawing  a  check  to 

68.      Security. — Cake      v.      Pottsvillc  69.    Xaj^ier  z\   Central   Georgia   Bank, 

Bank,    116    Pa.    264,    9    Atl.    303,    2    Am.  68    Ga.    r,:,7. 

St.  Rep.  600.  70.      Vice-president. — M  e  t  r  o  p  o  1  i- 

The  president  of  a  bank  held  author-  tan    Trust   Co.   7'.    McKinnon,    172    Fed. 

ized  to  unite  it  in  a  mortgage  executed  846. 

to  secure  a  loan  with  wliich  to  pay  71.  Ricliards  z'.  Osceola  Bank,  70 
the  debt  of  a  landowner  to  the  bank  Iowa  707,  45  N.  W.  204. 
for  the  purpose  of  releasing  the  bank's  72.  People's  Bank  7\  National  Bank, 
mortgage  as  to  the  part  of  the  debt  101  U.  S.  181.  25  L.  Va\.  007. 
satisfied  by  the  loan  and  subordinating  73.  C  a  s  h  i  e  r — Drawing  check. — 
the  bank's  lien  as  to  the  remainder  to  Where  a  check  was  drawn  by  a  per- 
that  of  the  complainant.  Citizens'  Life  son  who  was  the  cashier  of  an  incor- 
Ins.  Co.  V.  Owensboro  Sav.  Bank,  etc.,  porated  bank,  and  it  appeared  doubt- 
Co.,  150  Ky.  161,  150  S.  W.  26.  ful,    upon    the    face    of   the    instrument, 


764 


BANKS  AND  BANKING. 


109    ((3) 


pay  his  individual  debt.""* 

Binding  Bank  on  Note. — Where  the  cashier  of  a  bank  makes  a  note 
for  the  bank  and  the  bank  receives  the  benefit  thereof,  it  is  bound  by  such 
act.^^ 


whether  it  was  an  official  or  a  private 
act,  parol  evidence  was  admitted,  to 
show  that  it  was  an  official  act.  Me- 
chanics' Bank  v.  Bank  (U.  S.),  5 
Wheat.  326,  5  L.  Ed.  100,  approved  in 
Metcalf  V.  Williams,  104  U.  S.  93,  26 
L.    Ed.   665,  where   it  was  said: 

"The  appearance  of  the  corporate 
name  of  the  institution  on  the  face  of 
the  paper,  at  once  leads  to  the  belief, 
that  it  is  a  corporate,  and  not  an  indi- 
vidual transaction;  to  which  must  be 
added  the  circumstances,  that  the 
cashier  is  the  drawer,  and  the  teller, 
the  payee;  and  the  form  of  ordinary 
checks  deviated  from,  by  the  substitu- 
tion of  'to  order,'  for  'to  bearer.'  The 
evidence,  therefore,  on  the  face  of  the 
bill,  predominates  in  favor  of  its  being 
a  bank  transaction."  Mechanics'  Bank 
V.  Bank  (U.  S.),  5  Wheat.  326,  5  L. 
Ed.   100. 

74.  Payment  of  individual  debt  with 
cashier's  check. — The  cashier  of  bank 
E.  borrowed  for  his  individual  account 
from  bank  C.  a  sum  of  money,  and 
his  debt,  evidenced  by  his  demand 
note,  secured  by  stock  of  bank  E.  as 
collateral,  amounted,  on  the  4th  of 
May,  1893,  in  principal  and  interest, 
to  a  sum  slightly  exceeding  fifteen 
thousand  dollars.  Being  requested  to 
pay  or  furnish  additional  security, 
after  offering  $8,000  in  cash  and  a 
draft  for  $7,000,  signed  by  him  as  cash- 
ier of  the  bank  E.,  drawn  on  a  Phila- 
delphia bank,  which  was  declined,  it 
was  thereupon  agreed  that  the  cashier 
would  give  his  individual  check  on  his 
bank  for  the  principal  and  interest  of 
his  debt;  that  this  check  should  be 
by  him  certified  and  made  payable  at 
bank  C.  that  the  cash  offered  should 
be  received,  and  that  the  check  and 
cash  should  be  at  once  put,  re- 
spectively, to  the  debit  and  credit  of 
the  account  of  bank  E.  It  was  also 
understood  that  the  draft  on  Philadel- 
pliia  should  be  taken,  and  when  col- 
lected its  proceeds  should  be  credited 
to  the  bank  E.  account.  Held,  that 
the  draft  for  $7,000,  which  was  col- 
lected by  bank  C,  not  drawn  by  the 
cashier  to  his  individual  order,  but 
drawn  by  him  as  cashier  to  his  order 
as  cashier,  and  endorsed  for  deposit 
to  his  credit  as  cashier,  wds  there- 
fore but  an  order  transferring  the 
funds   of   bank    E.   which    were   on    de- 


posit in  the  Philadelphia  bank,  to  the 
deposit  account  of  bank  E.  with  bank 
C.  The  money  collected  by  bank  C. 
for  account  of  bank  E.  was  obviously 
the  property  of  the  latter.  The  draft 
on  Philadelphia  was  refused  because 
of  the  delay  which  it  was  feared  would 
attend  its  collection.  The  certified 
check  was  taken.  It  was  for  the  en- 
tire debt,  principal  and  interest.  It 
was  at  once  charged.  The  sum  to  the 
credit  of  the  account  of  bank  E.  when 
the  check  was  charged  was  more  than 
sufficient  to  pay  it.  Upon  the  theory 
of  the  good  faith  of  the  transaction,  on 
the  part  of  bank  C.  its  debt  was  paid 
by  the  check,  and  it  could  have  no  pos- 
sible interest  in  the  proceeds  of  the 
collection  of  the  draft  drawn  by  the 
cashier.  Rankin  v.  Chase  Nat.  Bank, 
188  U.  S.  557,  47  L.  Ed.  594,  23  S.  Ct. 
372. 

Held,  also  that  the  question  of  the 
legality  of  the  check  could  not  be 
raised,  no  exception  having  been 
saved  thereto;  but  that  the  cash 
actually  received  by  bank  C,  having 
been  received  in  good  faith,  as  settled 
by  the  verdict  of  the  jury,  could  not 
be  recovered  by  bank  E.  as  having 
been  embezzled  by  its  cashier,  unless 
fraud  should  be  afifirmatively  shown  by 
bank  E.  Rankin  v.  Chase  Nat.  Bank, 
188  U.  S.  557,  47  L.  Ed.  594,  23  S.  Ct. 
372. 

75.  Binding  bank  on  note. — A  bank 
dealing  with  the  cashier  of  another 
bank,  permitted  b}^  directors  to  have 
complete  control  of  its  business  rela- 
tions with  other  banks,  may  trust  in 
the  integrity  of  such  cashier  in  trans- 
acting business  with  him.  where  there 
is  nothing  in  the  known  state  of  af- 
fairs of  the  cashier's  bank  or  of  his 
relation  to  it  to  excite  suspicion  that 
he  is  using  his  position  to  the  prejudice 
of  his  bank,  and  hence  where  such 
cashier  contracted  with  another  bank 
to  keep  a  balance  with  such  bank, 
which  should  receive  collections  from 
the  cashier's  bank  and  credit  them  to 
it,  and  the  cashier  sent  his  own  note 
accompanied  by  collateral,  requesting- 
that  his  note  he  discounted  and  the 
proceeds  placed  to  the  credit  of  his 
bank,  which  was  done,  and  afterwards 
at  his  request  the  note  was  charged 
to  his  bank  and  the  collateral  returned 
to   it,   and   regular  monthly   statements 


§  109  (3) 


REPRESENTATION    OP    BANK. 


765 


Acceptance  of  Note. — Where  the  bank  received  the  benefit  thereof,  it 
is  bound  by  an  agreement  between  the  cashier  and  a  customer  for  a  loan 
to  the  customer,  a  part  of  which  was  to  be  used  by  the  cashier  in  taking 
up  an  old  loan  by  the  bank,  and  for  which  notes  secured  by  mortgage  were 
tnade  to  the  cashier  and  negotiated  by  him  for  the  benefit  of  the  bankJ^ 
Where  a  note  payable  to  the  order  of  the  cashier  at  a  designated  bank  was 
never  indorsed  by  him,  but  it  was  shown  that  he  was  the  bank's  cashier, 
and  that  he  acted  for  it  in  the  transaction  in  which  the  note  was  given,  the 
l)ank  can  sue  on  the  note  in  its  own  name."" 

Acceptance  of  Bill  of  Exchange. — The  cashier  of  the  Bank  of  Ken- 
tucky has  no  authority,  ex  officio,  to  accept  bills  of  exchange."^ 

Protest  of  Note. — The  act  of  the  cashier  of  a  bank,  in  causing  a  note 
to  be  protested,  is  the  act  of  the  bank."^ 


showing  such  transaction  were  sent  to 
the  cashier's  bank,  and  no  objection  to 
such  charging  of  the  note  was  made 
until  about  four  months  after  the 
transaction,  the  cashier's  bank  could 
not  recover  the  amount  of  the  note. 
Pensacola  Bank,  etc.,  Co.  i'.  National 
Bank   (Fla.),  52  So.  294. 

In  an  action  by  D.  Bank  against  the 
receiver  of  F.  Bank,  the  petition  al- 
leged that  G.  was  cashier  and  gen- 
eral manager  of  F.  Bank,  and,  as  such, 
had  power  to  borrow  money,  redis- 
count bills  and  notes,  and  do  all  other 
acts  necessary  for  the  conducting  of 
said  banking  business;  that  G.,  as  said 
cashier,  sold  and  transferred  to  plain- 
tiff certain  notes  made  payable  to  and 
belonging  to  said  bank,  and  indorsed 
and  guarantied  in  writing  the  payment 
thereof  to  plaintiff,  and  thereby  prom- 
ised to  pay  said  plaintiff  $1,.500;  that, 
when  the  notes  rediscounted  became 
due,  said  bank,  by  G.,  its  cashier  as 
aforesaid,  procured  from  plaintiff  a 
loan  of  $2,000,  and  that  G.  executed 
his  note  in  writing,  and  secured  the 
same  by  depositing  certain  certificates 
of  stock  in  F.  Bank  with  said  plain- 
tiff; that,  of  the  amount  so  borrowed, 
$1,500  was  applied  to  take  up  the 
aforesaid  rediscounted  notes,  and  that 
said  notes  were  returned  to  F.  Bank 
by  plaintiff,  and  placed  among,  and  in- 
cluded in,  the  assets  of  said  bank,  and 
the  remaining  $500  was  placed  to  the 
credit  of  said  bank  by  said  plaintiff, 
and  that  the  said  additional  sum  was 
accepted  and  received  from  said  plain- 
tiff by  said  F.  Bank,  and  was  used  by 
it  in  the  regular  course  of  its  business, 
and  that  a  record  thereof  was  made 
on  its  books  and  records,  at  the  time, 
by  its  proper  officer,  as  a  liability 
thereof;  that  certain  extensions  of  time 


for  the  payment  of  said  indebtedness 
were  granted,  a  new  note  being  given 
each  time  an  extension  was  granted; 
that  the  note  in  suit  was  given  to  se- 
cure an  extension  of  such  indebted- 
ness; that  the  note  in  suit  was  exe- 
cuted by  G.,  as  cashier  and  general 
manager  of  the  bank,  for  the  sole  use 
and  benefit  of  the  bank,  and  that  the 
said  indebtedness  was  duly  recorded 
in  its  books  at  the  time  by  the  proper 
officer  thereof  as  a  liability  of  it,  and 
said  note  was  received  and  accepted 
from  said  cashier  and  general  manager 
of  said  bank  by  said  plaintiff  as  an  in- 
debtedness against  said  bank.  Held, 
evidence  was  admissible,  under  the  pe- 
tition, to  show  the  capacity  in  which 
G.  signed  the  note.  Douglas  County 
Bank  v.  Ayres,  9  Kan.  App.  606,  58 
Pac.   491. 

76.  Acceptance  of  note. — Tlie  cash- 
ier of  a  bank  agreed  to  loan  a  cus- 
tomer a  certain  sum,  part  of  which 
was  to  be  used  by  the  cashier  in  tak- 
ing up  an  old  loan  by  the  bank,  the 
securities  for  which  had  been  sold  to 
third  parties,  and  the  balance  to  be 
credited  to  the  borrower's  account. 
Notes  secured  by  mortgage  were  ac- 
cordingly made  to  the  cashier,  but  he 
negotiated  part  of  them  for  the  bene- 
fit of  the  bank,  failing  to  take  up  tlie 
old  loan.  Held,  that  the  bank,  Iiaving 
received  the  benefit  of  the  transaction, 
could  not  escape  its  liability  on  tlie 
claim  that  the  agreement  was  ultra 
vires.  Owens  7:  vStapp,  :52  111.  .\pp. 
653. 

77.  First  Nat.  Brink  ?'.  Johnson,  Ki.'? 
Mich.  700,  95  N.  W.  975,  10;i  Am.  St. 
Rep.   468. 

78.  Pendleton  z'.  r..ink  (Ky.),  1  T. 
P..    Mon.   171. 

79.  i'.urnliam  t'.  Webster,   19   Me.  2:!2. 


766 


BANKS   AND   BANKING. 


§  109  (3) 


Rediscount  of  Note. — A  cashier  of  a  bank,  to  whom  its  entire  man- 
agement is  intrusted  by  the  directors,  has  authority  to  have  its  paper  re- 
discounted  in  the  usual  course  of  business ;  and  his  authority  is  not  hmited 
to  extraordinary  occasions,  not  admitting  of  delay. *^" 

Payment  of  Note. — Ordinarily  it  is  the  duty  of  the  cashier  to  receive 
payment  of  bills  and  notes  due  the  bank.-^ 

Demand  and  Notice. — The  cashier  of  a  bank  which  is  the  holder  of  a 
bill  of  exchange  may  give  notice  of  its  nonpayment.*- 

Transfer  and  Indorsement. — A  cashier  of  a  bank  has  prima  facie  au- 
thority to  transfer  and  indorse  negotiable  paper  belonging  to  the  bank.^-^ 
He  may  indorse  it  to  himself. '^•^  He  has  power,  prima  facie,  to  indorse  for 
collection  notes  discounted,  and  notes  deposited  to  be  collected,  or  deposited 
as  collateral  security  ;^-'5  but  it  has  been  held  that  he  can  not  assign  it  to 


80.  Rediscount  of  note. — Davenport 
V.  Stone,  104  Mich.  521,  62  N.  W.  722, 
53  Am.  St.  Rep.  467.  See  ante,  "Presi- 
dent," §   109   (2). 

81.  Reno  ?'.  James.  16  Ky.  L.  Rep.  60. 

82.  Bank  7'.   Vaughan,   36   Mo.    90. 

83.  Transfer  and  indorsement. — La- 
fayette Bank  z:  Bank,  Fed.  Cas.  No. 
7,987,  4  McLean  208;  Blair  v.  First 
Nat.  Bank,  Fed.  Cas.  No.  1,485,  2  Flip. 
Ill;  Lanning  v.  Lockett,  10  Fed.  451; 
Pease  v.  Dwight  (U.  S.),  6  How.  190, 
12  L.  Ed.  399;  West  St.  Louis  Sav. 
Bank  v.  Shawnee  County  Bank,  95  U. 
S.  557,  24  L.  Ed.  490;  Fleckner  v.  Bank 
(U.  S.),  8  Wheat.  338,  5  L.  Ed.  631; 
Wild  V.  Bank,  Fed.  Cas.  No.  17,646,  3 
Mason  505;  Everett  v.  United  States 
(Ala.),  6  Port.  166,  30  Am.  Dec.  584; 
Carey  v.  Giles,  10  Ga.  9;  State  Bank 
V.  Wheeler,  21  Ind.  90;  Merchants'  Ins. 
Co.  z:  Chauvin  (La.),  8  Rob.  49; 
Haynes  v.  Beckman,  6  La.  Ann.  224; 
Farrar  v.  Gilman,  19  Me.  440,  36  Am. 
Dec.  766;  Hartford  Bank  v.  Barry,  17 
Mass.  94;  Kimball  v.  Cleveland,  4 
Mich.  606;  Harper  z:  Calhoun  (Miss.), 
7  How.  203;  Bridenbecker  v.  Lowell 
(N.  Y.),  32  Barb.  9;  Robb  v.  Ross 
County  Bank  (N.  Y.),  41  Barb.  586; 
City  Bank  z:  Perkins,  29  N.  Y.  554, 
86  Am.  Dec. -332;  Rezner  v.  Hatch,  2 
Handy  42,  12  O.  Dec.  320;  Maxwell  z'. 
Planters'  Bank,  29  Tenn.  (10  Humph.) 
507.  See  Contra  Schneitman  z'.  Noble, 
75  Iowa,  120,  39  N.  W.  224,  9  Am.  St. 
Rep.  467;  United  States  Bank  v.  Fleck- 
ner (La.).  8  Mart.  (O.  S.)  309,  13  Am. 
Dec.  287. 

A  cashier  of  a  bank  has  prima  facie 
the  authority  to  indorse  or  transfer 
by  delivery  notes  belonging  to  the 
bank.  Smith  v.  Lawson,  18  W.  Va. 
212,   41   Am.    Rep.   688. 

Prima  facie,  the  cashier  of  a  bank 
possesses  the  power  to  indorse  its  ne- 


gotiable securities  in  payment  of  its 
debts.  Fleckner  v.  Bank  (U.  S.),  8 
Wheat.    338,    5    L.    Ed.    631. 

A  bank  cashier  is  an  agent  with 
authority  to  bind  the  corporation  by 
his  acts  and  statements  in  relation  to 
the  sale  of  notes  or  drafts  held  by  the 
bank.  Sturges  &  Co.  v.  Bank,  11  O. 
St.  153,  78  Am.  Dec.  296;  Union  Nat. 
Bank  v.  First  Nat.  Bank,  45  O.  St. 
236,    13    N.    E.    884. 

The  bank  may  be  bound  by  an  in- 
dorsement made  in  the  street,  after 
banking  hours,  "R.  L.  Irvin,  Cashier.' 
Bissell  V.   First  Nat.   Bank,  69   Pa.  415. 

In  an  action  on  a  note,  an  instruc- 
tion that  the  cashier  of  defendant  bank 
had  no  authority  as  cashier  to  bind  it 
by  his  indorsement  of  the  note  was 
properly  refused.  First  Nat.  Bank  v. 
Anderson,  5  Ind.  T.  118,  reversed,  82 
S.  W.  693,  73  C.  C.  A.  160,  141  Fed. 
926. 

Since  a  cashier  of  a  bank  has  prima 
facie  authority  to  indorse  negotiable 
paper  held  by  the  bank,  a  purchaser 
of  such  paper,  in  good  faith,  from  the 
cashier,  without  notice  of  any  special 
limitation  of  his  power  to  transfer  the 
same,  will  acquire  title  thereto,  and 
the  indorsement  thereof  by  the  cash- 
ier as  cashier  binds  the  bank.  Bank 
z\    Wheeler,    21    Ind.    90. 

84.  A  bank  cashier  may  indorse  to 
himself,  and  suf  (ui,  a  note  payable  to 
the  bank.  Young  z:  Hudson,  99  Mo. 
102,    12    S.    W.    632. 

An  indorsement  of  a  promissory 
note  belonging  to  a  bank,  made  by 
the  cashier  to  himself,  is  voidable 
only,  and  operates  to  pass  the  legal 
title  until  avoided  by  the  bank.  Pres- 
ton r.  Cutter.  64  N.  H.  461,  13  Atl  874. 

85.  To  indorse  for  collection.— El- 
liot v.  Abbot,  12  N.  H.  549,  37  Am. 
Dec.  227;  Corser  v.  Paul,  41  N.  H.  24, 


§  109  (3) 


REPRESENTATION    OF    BANK. 


767 


pay  a  deposit  ;'^*"'  and  that  he  can  not  indorse  it  for  the  purpose  of  making 
the  bank  Hable  on  a  contract  of  indorsement.^"  A  transfer  of  negotiable 
securities  by  a  cashier  of  a  bank,  in  order  to  pay  the  debts  of  the  bank,  is 
vahd  in  law.  when  it  is  made  after  the  board  of  directors  had  resigned,  and 
when  the  presidency  of  the  bank  has  been  assumed  by  a  person  who  is 
neither  an  officer  nor  a  director.^s  fhe  prima  facie  authority  of  a  cashier 
of  a  bank  to  transfer  its  notes  will  not  render  valid  the  transfer  of  a  par- 
ticular note  to  one  proven  to  have  known  that  it  was  made  by  the  cashier 
outside  of  the  usual  course  of  business  and  for  an  improper  purpose. ^'-^ 
But  it  has  been  held  that  the  cashier  of  a  bank  can  not  assign  notes  belong- 
ing to  it  unless  authorized  by  the  bank,  or  by  the  directors,  pursuant  to 
powers  vested  in  them.^*^  And  where  a  note  not  negotiable  is  payable  to 
the  bank,^i  or  where  a  note,  made  payable  to  the  bank,  is  discounted  and 
taken  by  a  third  person,'*-  the  cashier  can  not  make  a  valid  indorsement 
of  the  note,  without  authority  from  the  directors  or  from  the  corporation. 
Agreement  to  Save  Maker  Harmless. — A  person  induced  by  the 
cashier  to  sign  a  note  and  deliver  it  to  the  bank  in  order  that  the  cashier 
might  substitute  the  note  for  his  own  notes  and  some  charges  against  him 
by  the  bank,  under  assurance  by  the  cashier  that  he  would  not  be  liable, 
is  liable  to  the  bank  for  the  amount  of  the  note,  where  there  had  been  no 
previous  course  of  dealing  between  him  and  the  bank  authorizing  his  ex- 
emption from  liability. ^-^ 


77  Am.  Dec.  753;  State  Bank  v.  Farm- 
ers' Branch  Bank  (N.  Y.),  36  Barb. 
332. 

86.  To  pay  debt. — A  cashier  of  a 
bank  .the  management  of  which  is  in- 
trusted by  its  charter  to  a  board  of  di- 
rectors has  no  authority  to  assign  dis- 
counted bills  and  notes  to  a  depositor 
in  pa}'ment  of  his  deposit.  Lamb  v. 
Cecil,   25   W'.  Va.  288. 

87.  To  make  bank  liable. — A  bank 
cashier  was  authorized  to  indorse 
notes  for  the  purpose  of  transmitting 
them  to  other  banks  for  collection, 
but  not  for  the  purpose  of  making  the 
bank  liable  on  a  contract  of  indorse- 
ment; he  indorsed  a  bill,  to  facilitate 
the  collection,  with  his  own  name,  "P. 
S.  C,  Cas."  Held,  that  this  did  not 
render  the  bank  liable  ^s  indorser. 
State  Bank  v.  Farmers'  Brancli  Bank 
(N.    Y.),    36    Barb.    332. 

88.  Carey  v.  Giles,  10  Ga.  9. 

89.  Smith  v.  Lawson,  18  W.  Va.  212, 
41   Am.   Rep.   688. 

90.  Hartford  Bank  v.  Barry,  17 
Mass.  94;  Laml)  7'.  Cecil,  25  W.  Va. 
288. 

91.  Note  payable  to  bank. — The 
cashier  of  a  bank  to  which  a  note  not 
negotiable  is  payaljle  has  no  authority 
to    transfer    the    same,    witlmut    author- 


ity from  the  bank,  evinced  by  usage  in 
similar  cases,  or  in  some  other  way. 
Barrick  v.  Austin  (N.  Y.),  21  Barb. 
241. 

92.  Note  taken  by  third  person. — 
The  separate  assent  of  a  majority  of 
the  creditors  (without  any  meeting), 
that  he  should  make  an  indorsement, 
confers  no  authority  upon  the  cashier 
for  that  purpose.  Elliott  v.  Abbot,  12 
N.   H.  549,  37  Am.  Dec.  227. 

93.  Agreement  and  save  maker  harm- 
less.— Defendant  was  induced  by  the 
cashier  of  a  bank  to  sign  a  note  and 
deliver  it  to  the  bank,  in  order  that 
the  cashier  might  substitute  the  note 
for  the  notes  of  the  cashier  held  by 
the  bank  and  some  charges  against 
him  by  the  bank,  and  signed  the  note 
under  the  assurance  of  the  cashier  that 
he  would  not  be  liable  upon  it,  and 
would  never  be  asked  to  pay  it.  The 
cashier  turned  the  note  in  to  the  bank 
and  withdrew  his  own  notes,  and  re- 
ceived the  excess  of  the  note  over  his 
indebtedness  to  the  bank  in  money. 
There  was  no  evidence  that  the  offi- 
cers or  directors  of  the  bank  author- 
ized the  cashier  to  make  any  such  ar- 
rangement with  plaintiff,  and  it  was 
the  first  note  of  the  kind  which  he 
had    given    the    l)ank.       Held,    tliat     tiie 


768 


BANKS   AND   BANKING. 


109    (3) 


Ag-reement  to  Save  Surety  Harmless. — An  agreement  by  a  bank 
cashier  that  the  Habihty  of  sureties  on  a  note  taken  by  the  bank  shall  be 
subordinate  to  collateral  to  be  obtained  by  him  is  not  within  his  author- 
ity.^'^ In  the  absence  of  special  restrictions  known  to  the  sureties  on  a  note 
payable  to  a  bank,  the  apparent  scope  of  the  authority  of  the  cashier  is 
broad  enough  to  include  an  agreement  by  him  with  the  sureties  to  proceed 
to  make  the  debt,  if  practicable,  out  of  land  owned  by  the  maker,  pointed 
out  to  the  cashier  by  the  sureties,  and  against  which  the  bank  held  other 
unsecured  claims  which  were  kept  secret  from  the  sureties. ^^ 

Crediting  Proceeds  of  Draft. — It  is  within  the  apparent  scope  of  the 
business  of  the  cashier  to  credit  a  customer  with  the  proceeds  of  a  draft 
presented  to  the  bank;  and,  by  authorizing  and  ratifying  the  act  of  the 
cashier  in  giving  such  a  credit,  the  bank  gave  him  implied  authority  to  do 
so  in  future,  even  though  he  would  not  otherwise  have  had  such  authority.*^^ 

Entries  in  Bank  Books. — A  cashier  has  authority  to  bind  his  bank, 
and  entries  made  by  him,  even  though  relating  to  forged  paper,  charge  such 
bank  with  notice  of  transactions  being  conducted  by  him  on  behalf  of  the 
bank.»" 

Security. — Since  the  cashier  of  a  bank  is  the  executive  arm  of  the  board 
of  directors,  he  had  authority  to  bind  the  bank  by  recognition  of  a  mort- 
gage of  collaterals  pledged  to  the  bank  for  a  loan.o^^  The  mortgagor  is 
liable  to  the  bank,  although  the  mortgage  was  made  to  the  cashier,  where 
the  bank  made  loans  thereon.'^'^     A  cashier,  intrusted  with  entire  manage- 


cashier  had  no  authority  by  virtue  of 
his  office,  to  make  such  an  arrange- 
ment, that  defendant  was  chargeable 
with  notice  that  the  arrangement  was 
not  authorized,  and  that  defendant 
acted  upon  the  cashier's  statement  at 
his  peril.  State  Bank  v.  Forsyth,  41 
Mont.   349,   108    Pac.   914. 

94.  Agreement  to  save  surety  harm- 
less.— Alartin  z:  First  Nat.  Bank,  11  O. 
C.  C,  N.  S.,  93,  20-30  O.  C.  D.  398. 

95.  Where  sureties  on  a  note  pay- 
able to  a  bank  failed  to  proceed  against 
land  owned  by  the  maker,  relying  on 
the  agreement  of  the  cashier  of  the 
bank  to  enforce  collection  out  of  the 
land,  and  stating  that  the  sureties  need 
not  trouble  themselves  about  the  mat- 
ter, and  concealing  from  them  the  ex- 
istence of  unsecured  claims  of  the 
bank  against  the  maker,  the  bank  pro- 
ceeding against  the  land  for  the  col- 
lection of  the  note  and  its  other 
claims,  could  not  deny  the  power  of 
the  cashier  to  make  the  agreement, 
and  the  sureties,  when  sued  on  the 
note,  were  entitled  to  hold  the  bank 
to  the  extent  of  the  injuries  sustained 
by  their  reliance  on  such  agreement, 
occasioned  by  the  fact  that  the  pro- 
ceeds of  the  land,  being  insufficient  to 


pay  the  note  and  the  unsecured 
claims,  were  applied  to  the  payment 
of  the  unsecured  claims.  Security 
Sav.  Bank  z:  Smith,  144  Iowa  203,  122 
N.  W.  825. 

96.  German  Nat.  Bank  v.  Grinstead, 
21  Ky.  L.  Rep.  G74,  52  S.  W.  951. 

97.  Hansel  z\  First  Nat.  Bank.  158 
111.   App.   127. 

98.  Security. — Bank  z\  Kirkman,  156 
Mo.   App.   309,   137   S.   W.   38. 

99.  A  dealer  in  agricultural  imple- 
ments mortgaged  to  the  plaintiff,  who 
was  the  cashier  of  a  bank  of  which 
the  mortgagor  was  a  customer,  his  en- 
tire stock  and  all  additions  thereto  to 
secure  payment  of  his  present  and  fu- 
ture obligations  to  the  bank.  The 
bank  continued  for  more  than  two 
years  after  the  execution  of  the  mort- 
gage to  discount  paper  for  the 
mortgagor,  and  furnished  him  other 
financial  assistance  when  he  made  an 
assignment  for  the  benefit  of  creditors 
and  the  receiver  appointed  on  the  fail- 
ure of  the  assignee  to  qualify  took  pos- 
session of  the  assigned  property  which 
was  replevied  by  the  mortgagee. 
Held,  that  defendant  can  not  object  to 
said  recovery  on  the  ground  that  the 
mortgage   was    taken   in   the   individual 


§  109  (4) 


REPRESENTATION    OF    BANK. 


769 


ment  of  a  bank's  affairs,  and  possessing  general  authority  to  receive  ad- 
ditional security  for  notes  held  by  it,  is  not  disqualified  from  receiving  col- 
lateral in  the  bank's  behalf  to  secure  a  note  held  by  it,  because  of  interest 
in  the  transaction,  due  to  his  being  an  indorser.^  Where  the  by-laws  of  a 
bank  provide  that  the  cashier  shall  be  responsible  for  all  moneys,  funds 
and  valuables  of  the  bank  and  deliver  the  same  to  the  order  of  the  directors 
or  to  the  person  authorized  to  receive  them,  and  the  cashier,  to  pay  a  deposit 
without  the  authority  from  the  directors  transferred  securities  of  the  bank, 
the  transaction  is  without  authority  and  void.-  Where  title  conveyed  by 
a  deed  to  secure  a  debt  is  in  a  bank,  the  power  of  sale  on  default  can  not 
be  exercised  by  the  cashier.-"  An  assignment  of  a  mortgage  to  the  cashier 
of  a  bank  to  have  and  to  hold  the  same  unto  the  assignee,  his  successors 
and  assigns  forever,  as  collateral  security  to  a  note  which  the  assignors 
had  given  to  the  bank,  is  held  to  have  been  made  to  the  assignee  as  a  bank 
officer,  and  to  be  a  contract  with  the  bank,  and  that  the  bank  can  foreclose 
the  mortgage  in  its  own  name.^ 

§  109  (4)  Directors.— The  directors  have  authority  to  control  all 
the  property  of  the  bank,  and  they  may  authorize  one  of  their  number  to 
assign  any  securities  belonging  to  the  corporation.^  Where  an  act  estab- 
lishing a  bank  does  not  give  to  the  president  and  directors  thereof  the  power 
of  assigning  notes  executed  to  themselves,  and  power  not  being  necessary 
in  the  ordinary  course  of  their  business,  it  is  not  to  be  inferred;  and  there- 
fore an  action  on  a  note  transferred  by  them  is  properly  brought  in  the 


name  of  plaintiff;  it  appearing  that  its 
purpose  was  fully  understood,  not  only 
by  the  mortgagor  but  by  the  creditors, 
that  all  of  the  business  was  done 
through  plaintiff,  and  that  no  one  has 
been  prejudiced  by  reason  of  the  mort- 
gage not  running  direct  to  the  bank. 
Chafey  v.  Mathews,  104  Mich.  103,  27 
L.  R.  A.  5.58,  62  N.  W.  141. 

1.  Judgment  104  N.  Y.  S.  1040,  120 
App.  Div.  542,  affirmed.  First  Nat. 
Bank  v.  Sing  Sing  Gas  Mfg.  Co.,  194 
N.  Y.  580,  88   X.   E.  1119. 

2.  Where  the  by-laws  of  a  bank  pro- 
vide that  the  cashier  "shall  be  respon- 
sible for  all  moneys,  funds,  and  valu- 
ables of  this  bank,  *  *  *  and  deliver 
the  same  to  the  order  of  the  board  of 
directors  of  this  bank,  or  to  the  per- 
son or  persons  authorized  to  receive 
the  same,"  and  the  cashier,  to  pay  a 
deposit,  without  authority  from  the  di- 
rectors, transfers  certain  securities  of 
the  bank  to  the  treasurer  of  a  corpora- 
tion, who  is  also  assistant  cashier  of 
the  bank,  after  which  the  l^ank  as- 
signed to  said  assistant  cashier,  the 
transfer  of  the  securities  is  without  au- 


thority,   and   void.      In   re   Assignment, 
32  Or.  84,  51   Pac.  87. 

3.  Where  a  deed  given  to  a  vice  pres- 
ident of  a  bank  individually  recites 
that  it  is  given  as  security  for  a  debt, 
and  contains  a  pov/er  of  sale,  that 
power  can  not  be  exercised  by  the 
cashier  of  the  bank.  Greenfield  v. 
Stout,   ]22  Ga.  303,  50  S.   E.   111. 

4.  Michigan  State  Bank  v.  Trow- 
l)ridge,  92  Mich.  217,  52  N.  W.  632. 

5.  Directors. — A  note  belonging  to  a 
l)ank  may  Ije  assigned  or  transferred 
by  its  directors  having  the  control  of 
its  financial  affairs.  Stevens  v.  Hill,  29 
Me.  133. 

.\  blank  indorsement,  in  pursuance 
of  such  authority,  by  the  person  so 
authorized,  is  sufficient  to  transfer  a 
note,  and  the  indorsement  may  be 
properly  filled  at  the  bar.  Northamp- 
ton Bank  v.  Pepoon,  11  Mass.  288. 

A  negotialde  promissory  note,  made 
I)ayable  to  a  bank  or  order,  but  not  dis- 
counted by  them,  may  1)c  indorsed  to 
the  holder  of  the  note  by  a  vote  of  the 
directors  of  the  bank.  Cross  v.  Rowe, 
22  .v.  II.  77. 


1   B  &  B— 49 


770  BANKS   AND   BANKING.  §110    (2) 

name  of  the  bank,  for  the  use  of  the  transferee.^ 

§  109  (5)  Clerk  and  Actuary. — A  clerk,  acting  as  cashier  in  the 
absence  of  that  officer,  has  no  authority  to  transfer  any  of  the  notes  or 
securities  of  the  bank,  unless  such  authority  has  been  given  him  by  the 
directors;  and  the  cashier  can  not  clothe  such  clerk  with  any  more  of  his 
power  than  is  necessary  to  enable  the  latter  to  carry  on  the  usual  and  or- 
dinary business  of  the  bank.'^  An  act  incorporating  a  bank  provided  that 
the  business  thereof  should  be  managed  by  a  board  of  trustees.  A  by-law 
adopted  by  the  trustees  provided  that  no  securities  belonging  to  the  bank 
should  be  sold  or  transferred,  except  as  authorized  by  a  vote  of  the  finance 
committee.  Money  was  loaned  to  the  bank  on  its  note  and  collateral  se- 
curities. The  money  was  used  for  its  exclusive  benefit.  The  actuary  trans- 
ferred other  secured  notes  to  the  holder  of  the  note  who  surrendered  his 
collaterals  to  the  bank.  The  transfer  was  made  without  authority.  The 
bank  could  not  maintain  a  bill  in  equity  for  the  return  of  the  secured  notes 
so  transferred  without  rescinding  the  agreement  and  refunding  the  amount 
actually  loaned  or  at  least  returning  the  collaterals  which  had  been  sur- 
rendered.^ 

§  110.  Actions — §  110  (1)  Directors. — The  directors  of  a  bank, 
appointed  by  the  governor  and  council,  under  the  Act  of  Maine,  1841,  ac- 
cepting the  surrender  of  the  charter,  had  power  to  enter  into  a  reference 
of  all  demands  between  the  bank  and  a  person  claiming  to  be  the  creditor 
thereof.'^ 

§  110  (2)  President. — The  president  of  a  bank  has  power  to  employ 
counsel  and  manage  the  litigation  of  the  bank,i^  jj-j  ^]-^q  absence  of  any  order 
of   the   board   of   directors^^    or   of    any   by-law^-    depriving   him   of   such 

6.  Hamtramck  z-.  Bank.  2  INIo.  169.  against      National      Banking     Associa- 

7.  Clerk   acting   as   cashier. — A   clerk       tions,"'  §§  273-280yi. 

acting  as  cashier,  in  the  absence  of  that  As  to  actions  by  or  against  savings 

officer,    has    power    to    transmit    notes  banks,  see  post.  "Actions,"  §  306. 

owned  by  the  bank,   or  held  by  it  for  10.      President. — Deitz     v.      National 

collection  and  payable  in  other  places,  Exch.  Bank,  4  Ky.  L.  Rep.  837. 

or    at    other   banks,    to    its    agents,    for  The    president    of   a   bank,    being   its 

that    purpose;    to    indorse    such    paper  chief   executive    officer,   has   a   right  as 

for  the  bank,  when  necessary;  and   to  such  to  appear  and  answer  for  it,  and 

vest  in  the  collecting  agents  such  title  employ   counsel    for  its    defense.     Sav- 

as   is   necessary  and  proper  to  accom-  ings    Bank    v.    Benton    (Ky.),    2    j\Ietc. 

plish  that  object.    But  he  has  no  power  240. 

to    transfei    any    other    or    higher    title  11.   Citizens'   Nat.   Bank  z'.   Berry,  53 

thereto,    and    the    agents    will    not,    as  Kan.  696,  37  Pac.  13],  24  L.  R.  A.  719. 

against   the   bank,   acquire   any  lien   on  12.    Where    the    by-laws    of    a    bank 

the    notes    for    any    balance    due    from  vested   the   authority  to  bring  suit   and 

the  bank.     Potter  v.   Merchants'   Bank,  employ    counsel     in     the     directors,     a 

28  N.  Y.  641,  86  Am.  Dec.  373.  warrant    of    attorney,     signed    by    the 

8.  Actuary. — Creswell  v.  Lanahan,  2  president,  and  containing  the  seal  of 
MacArthur  (9  D.  C.)   484.  the  corporation,  was  not  the  act  of  the 

9.  Actions — Directors. — Emerson  z\  corporation,  if  the  directors  did  not 
Washington  County  Bank,  24  Me.  445.       authorize    it.      Citizens'    Bank   v.    Keim 

As  to  actions  generally,  see  post,  (Pa.),  10  Phila.  311,  1  Wkly.  Notes  Cas. 
"Actions,"    §§   213-231;    "Actions   by   or       263. 


§    110    (3)  REPRESEXTATIOX    OF    BANK.  771 

power.  Other  cases  hold  that  the  president  has  no  such  inherent  power 
and  can  act  only  upon  authority  from  the  directors.  The  president  of  a 
bank  can  contract  for  legal  services  in  conducting  litigation  for  the  bank.^^ 

Pleading  Statute  of  Limitations.— Power  to  agree  not  to  plead  the 
statute  of  limitations  it  would  seem  should  be  vested  either  virtute  officii  or 
by  custom  and  "usage  in  some  of  the  officers  of  the  bank  for  the  convenient 
transaction  of  its  business.  In  the  absence  of  any  different  distribution  of 
power  by  the  charter,  or  by  official  action  of  the  board  of  directors,  it  might 
be  rightfully  exercised  by  general  custom  and  usage,  by  the  president.^^ 

Provisional  Remedies.— The  president  of  a  bank  is  the  proper  person 
to  verify  pleadings  and  affidavits  for  provisional  remedies  on  behalf  of  the 
bank,  if  he  is  in  the  county  where  the  bank  is  situated. ^^ 

Letters  as  Evidence.— Letters  relating  to  a  transaction  of  the  business 
of  a  bank  written  by  the  president  of  the  bank,  who  negotiated  the  transac- 
tion, are  competent  against  the  bank  in  a  controversy  growing  out  of  such 
transaction. i'^ 

Confession  of  Judgment.— The  president  and  cashier  of  an  incorpo- 
rated state  bank  are  not  authorized  to  enter  a  confession  of  judgment  against 
the  corporation,  under  the  Nebraska  Code  more  than  two  years  after  the 
bank  has  ceased  doing  business,  and  on  notes  executed  by  the  cashier  in  the 
name  of  the  bank  after  the  bank  had  ceased  doing  business. i' 

§  110  (3)  Cashier.— By  virtue  of  his  general  authority,  the  cashier 
of  a  bank  may  maintain  an  action  on  a  note  by  the  bank,  without  express 
proof  of  authority.is  He  may  employ  an  attorney  to  collect  a  claim,  al- 
though the  directors  have  appointed  an  attorney  to  take  charge  of  the  land, 
business,  and  affairs  of  the  bank.i"  But  other  cases  hold  that  it  is  not 
within  the  scope  of  the  powers  ordinarily  conferred  upon  a  cashier  to  ap- 
pear and  defend  suits  against  the  bank,2o  and  to  employ  an  attorney.21  An 
answer,  therefore,  by  the  cashier,  when  the  bank  is  garnished,  will  not 
support  a  judgment  against  the  bank.22 

13.    No    inherent   power.— Merchants'  16.    Panhandle   Nat.    Bank  z'.    Emery 

-\at.    Bank  v.   Eustis,   8  Tex.   Civ.   App.  78   Tex.   498,   15   S    W    2.1 

350    28  S.  W.  227.  17.    Code   Civ.   Proc.   §   433;   Fogg  v. 

A    power     of    attorney     to     institute  Ellis,   61   Xeh.   829    86   N    W    494 

bank  ^v^rhn;ft'^.,uh    r>'    f'-'^^'t"S^f    ^,  18.    Cashier.-Battersbee    v.    Calkins, 

bank  without  authority  from  the  boar;  J28   Mich.  569,  87  N.  W.  760. 

of  directors,  is  not  suthcient.     Citizens  ,„      t^      .          ^, 

Bank   z:    Keim    fPa.),    10    Phila    311     1  ^r    ,      5°°^    ^-    Ol^ott,    42    Hun    536,    4 

Wkly.  Notes  Cas.  263.                              '  •'^-   ^-   St.   Rep.  709.   affirmed   in   115   N. 

14."  Pleading  statute  of  limitations.—  "^^  ^^^'  ^^  ^-  E-  m*'^- 
But  it  does  not  appear  from  this  rec-  20.  Branch  Bank  r.  Poe,  1  Ala.  396. 
ord  that  the  president  of  the  bank  had  21.  It  is  not  within  the  authority 
the  inherent  power  as  president,  to  of  the  cashier  of  a  bank  to  make  a  con- 
agree  that  the  bank  would  not  plead  tract  authorizing  the  employment  of 
the  statute  of  limitations  to  the  claim  attorneys  to  defend  a  suit  on  a  claim 
set  up  against  it.  Morgan  &  Co.  v.  brought  against  another  Iiank,  whereon 
Merchants'  Nat.  Bank,  81  Tenn.  (13  his  bank  might  have  been  liable.  First 
Lea)  234.  Nat.   Bank  7:   Mansfield   vSav.   Bank,   10 

15.    Dcitz  V.   National  Exch.   Bank,   4  O.   C.   C.   233,   6   O.    C.   D.   452. 

Ky.   L.   Rep.   837.  22.    Branch  Bank  v.  Poe,  1  Ala.  396. 


^72  BANKS    AND    BANKING.  §110    (4) 

Provisional  Remedies. — The  president  of  a  bank  is  the  proper  person 
to  verify  pleadings  and  affidavits  for  provisional  remedies  on  behalf  of  the 
bank,  if  he  is  in  the  county  where  the  bank  is  situated,  but  the  making  of 
the  affidavit  by  the  cashier  is  an  assumption  that  the  president  was  not 
then  in  the  county,  and  the  proper  way  to  question  this  assumption  is  by 
filing  an  affidavit  in  the  lower  court,  showing  that  the  president  was  in  the 
county  at  the  time  the  cashier  swore  to  the  affidavit.  The  question  can  not 
be  raised  on  appeal  for  the  first  time.^^ 

On  Note  or  Mortgage  Given  Cashier. — An  action  by  the  cashier  of  a 
certain  bank,  upon  a  note  to  him  as  such  cashier,  is  not  an  action  by  the 
bank,  and  although  the  declaration  states  that  notice  was  given  and  protest 
made  in  behalf  of  the  bank,  such  allegation  is  a  mere  surplusage,  especially 
where  the  note  is  nonnegotiable ;  and  hence  the  question  as  to  whether  the 
bank  could  deal  in  paper  of  the  kind  sued  on  does  not  arise  in  such  case.-^ 
The  defendant,  indebted  to  the  bank  on  notes,  in  lieu  of  the  notes  executed 
other  notes  and  a  mortgage  to  the  plaintiff,  the  cashier,  without  authority 
of  the  directors.  The  plaintifif  assigned  the  notes  to  the  bank,  which  re- 
assigned them  to  him ;  and  he  testified  that  he  had  no  personal  interest, 
but  held  them  for  the  bank.  The  plaintiff,  as  trustee  for  the  bank,  having 
the  mortgage,  after  condition  broken,  is  the  party  to  maintain  replevin  for 
the  chattels  under  authority  contained  in  the  mortgage. ^^ 

Presumption  of  Authority. — It  will  be  presumed  that  a  cashier  of  a 
bank  had  authority  to  institute  an  action  which  was  in  the  name  of  the 
bank,  and  commenced  by  capias  issued  on  his  affidavit,  which  alleged  his 
connection  with  the  bank  and  authority  to  make  the  affidavit.-^ 

Assistant  and  Acting  Cashier. — An  assistant  cashier  of  a  plaintiff 
bank  may  make  an  affidavit  in  attachment  in  its  behalf,  where  he  is  ac- 
quainted with  the  facts.-"  In  an  action  by  a  bank  on  a  note,  its  acting  cash- 
ier may  make  an  affidavit  of  demand  where  the  office  of  cashier  is  vacant. ^^ 

Confession  of  Judgment. — See  elsewhere.-^ 

§  110  (4)  Treasurer. — A  treasurer  of  a  bank  may  direct  a  suit  to 
be  brought  on  an  overdue  note;  and  if,  judgment  being  obtained,  and  land 
taken 'on  execution  set  ofif  to  the  bank,  the  attorney  of  the  bank,  acting 
under  the  direction  of  the  treasurer  and  of  a  trustee,  to  whom  such  matters 
have  been  intrusted,  accepts  seisin,  and  brings  a  writ  of  entry  to  recover 
possession  of  the  land,  it  is  no  objection  to  the  proceedings  that  a  previous 
vote  of  the  trustees,  authorizing  them,  has  not  been  passed.*^*^ 

Presumption  of  Authority. — \\'here  an  action  is  brought  in  the  name 

23.  Deitz  v.  National  Exch.  Bank,  4  27.  National  Park  Bank  v.  Whit- 
Ky.    L.    Rep.    837.  more,  40  Hun  499,  2  N.  Y.  St.  Rep.  87. 

24.  Porter  v.  Nekervis,  25  Va.  (4  28.  Philadelphia  Nat.  Bank  v.  Mor- 
Rand.)    359.  p^an    (Del.),    1    Marv.   265,   40   Atl.   1113, 

25.  Donnell  v.   Miller,  152   Mo.   App.  2  Hardesty  9. 

217,   132   S.   W.   1194.  29.     See  ante,  "President."  §  109   (2). 

26.  Wachsmuth  v.  Merchants'  Nat.  30.  Treasurer. — Bristol  County  Sav. 
Bank,    96    Mich.    426,    56    N.    W.    9.               Bank  v.  Keavy,  128  Mass.  298. 


§    111     (1)  REPRESENTATION    OF    BANK.  77'h 

of  a  bank,  by  direction  of  its  treasurer,  for  trespass  on  land  on  which  the 
bank  holds  a  mortgage,  it  is  presumed  that  the  suit  was  brought  with  the 
bank's  authority.-"^i 

§  111.  Representations  or  Admissions — §  111   (1)  In  General. — 

The  authority  of  officers  of  banks  is  restricted  to  such  modes  of  binding 
the  company  as  results  from  the  nature  of  their  duty  and  the  powers 
vested  in  them  by  their  offices.  The  property  of  stockholders  is  not  bound 
by  the  regular  transactions,  or  by  the  declarations  or  confessions  of  their 
officers,  beyond  the  legal  sphere  of  their  action. ^^  f  j^g  declarations,  or  in- 
cidental and  casual  remarks  of  the  officers  of  a  bank  do  not,  as  a  rule,  bind 
it;  especially  where  they  relate  to  transactions  past  and  ended.^^-' 

Personal  Interest  of  Officer.— A  bank  is  not  liable  for  the  representa- 
tions of  its  officers  on  a  sale  of  bonds  in  which  the  officers  were  individually 
interested,  and  in  which  the  bank  had  no  interest,  though  the  officers  used 
the  funds  and  credit  of  the  bank  to  consummate  the  sale.^-* 

Personal  Liability  to  Bank.— A  surety  on  a  defaulting  officer's  bond 
can  not  set  up  a  defense  of  misrepresentations  made  by  the  officer  as  to  his 
liability  to  the  bank,  as  the'  officer  was  not  then  acting  as  the  agent  of  the 
bank  and  the  bank  is  not  bound  thereby. ^-^ 

Release  of  Party  to  Note.— The  officers  of  a  bank  have  no  authority 
as  its  agents  to  bind  it  by  statements  and  assurances  that  would  relieve  par- 
ties to  a  note  held  by  it  from  their  obligations  thereon.-"^*' 

Financial  Condition  of  Third  Person. — Representations  by  the  offi- 
cers of  a  bank  that  an  insurance  company  had  a  certain  amount  of  paid-up 
capital  stock  and  surplus  are  ultra  vires. ^^ 

Investment  for  Customer. — Where  the  managing  officer  and  principal 
stockholder  of  a  bank,  while  acting  in  a  fiduciary  capacity  for  its  customer, 
by  means  of  concealment  and  false  representations  induces  the  latter  to 
invest  in  bonds  bought  and  held  by  the  bank  for  speculative  purposes,  the 
customer  may  rescind  the  transaction,  and  recover  from  the  bank  the  money 
it  received  therefrom. ^^ 

31.  Bangor  Sav.  Bank  v.  Wallace,  tics  from  a  defaulting  officer;  and  in 
87   Me.  28,  32   Atl.   716.  obtaining   securities    from   a   third   per- 

32.  Representations  and  admissions.  son.  to  be  used  by  him  for  that  pur- 
— Wyman  v.  Hallowell,  etc.,  Bank,  14  pose,  such  defaulting  officer  will  not 
]\Iass.  58,  7  Am.  Dec.  194;  Salem  Bank  lie  regarded  as  the  agent  of  tiie  bank, 
V.  Gloucester  Bank,  17  Mass.  1,  9  Am.  so  as  to  make  his  representations  as 
Dec.   111.  to    his    liability    to    the    bank    binding 

33.  Puryear  v.  McGavock,  5o  Tenn.  on  the  bank.  Tccumsch  Xat.  Hank  :•. 
("9  Heisk.)  461;  Jones  z'.  Planters' Bank,  Chamlierlain  Banking  House.  6:5  N'el). 
50    Tenn.    (9    Heisk.)    455.  16:5.  88  N.  W    186,  57  L.   R.   .\.  811. 

34.  Ruohs  V.  Third  Nat.  Bank,  94  36.  Bank  7'.  Jones  ( U.  S.).  8  Pel.  12, 
Tenn.   57,  28   S.   W.   .30.3.  8   L.    Ed.   850. 

35.  Personal  liability  to  bank. — A  37.  Financial  condition  of  third  per- 
bank  in  charge  of  the  comptroller,  be-  son. —  Ilindinan  r.  I''irst  .\'at.  Itrmk.  8() 
ing  represented  by  a  majority  of  its  b'ed.  10):!,  reversed  in  .39  C.  ('.  A.  1, 
board  of  directors,  who  are  not  in  de-  98    Fed.   562,   48   Tv.    R.   K.   210. 

fault,    may,    with    the    consent    of    the  38.       Investment      for      customer.— 

comptroller,    accept    collateral     securi-       Where   the   managing  officer   and   prin- 


774  BANKS    AND   BANKING.  §111     (3) 

Made  to  Accommodation  Acceptor  of  Draft. — \Miere  a  bank  has 
several  branches  in  different  places,  the  managers  of  which  are  treated  as 
its  agents,  and  a  draft  in  favor  of  the  bank  is  payable  at  and  presented  by 
one  of  such  branches,  an  accommodation  acceptor  may  assume  that  such 
manager  is  authorized  to  give  information  as  to  the  draft,  so  that  state- 
ments by  the  manager  to  the  acceptor  are  admissible  against  the  bank.^^ 

§  111  (2)  Directors. — Statements  by  one  of  the  directors  and  mem- 
bers of  the  discount  board  of  a  bank  concerning  the  terms  on  which  the 
bank  would  discount  a  customer's  paper  are  not  binding  on  the  bank  in  the 
absence  of  special  authority  to  such  director  to  act  as  agent  for  the  bank.'*^ 
In  an  action  by  a  bank  on  a  note  given  to  it  in  part  payment  of  a  draft  on  a 
banking  firm  which  failed  before  the  draft  Vv^as  paid,  evidence  that  a  di- 
rector of  the  bank  advised  the  defendant  to  buy  the  draft  before  it  was 
needed,  and  promised  in  the  name  of  the  bank  to  lend  him  the  money,  is 
admissible,  if  it  is  shown  that  the  promise  was  communicated  to,  and  acted 
upon  or  acquiesced  in  by,  the  bank.^^ 

§  111  (3)  President. — The  statements  of  the  president  of  a  bank 
which  holds  an  unrecorded  mortgage  executed  by  a  corporation  as  to  the 
solvency  of  the  corporation,  made  to  third  persons  subsequently  becoming 
creditors  of  the  corporation,  are  binding  on  the  bank.-*-  Where  the  pres- 
ident was  acting  for  the  bank,  the  fact  that  he  was  not  authorized  by  the 
board  of  directors  to  make  a  false  representation  does  not  relieve  the  bank 
from  liability  therefor.^^  But  the  bank  is  not  liable  for  representations 
made  by  the  president   while   not  acting   for  the  bank  Imt    for  himself.^^ 

cipal  stockholder  of  a  bank,  while  act-  43.    Binghampton  Trust  Co.  v.  Auten, 

ing  in  a  fiduciary  capacity  for  its  cus-  68  Ark.  299,  57  S.  W.  1105,  82  Am.  St. 

tomer,    by   means    of   concealment   and  Rep.   29"). 

false  representations  induces  the  lat-  44.  While  acting  for  himself. — C. 
ter  to  invest  in  bonds  bought  and  held  and  M.  were  sureties  on  a  bond  given 
by  the  bank  for  speculative  purposes,  for  the  faithful  performance  of  a  con- 
in  reliance  wholly  on  his  representa-  tract  to  build  railroad  machine  shops, 
tions  that  they  were  firsv-class  securi-  The  contractors  being  about  to  aban- 
ties,  and  that  he  had  got  them  for  her  den  work,  M.,  then  president  of  the 
expressly,  when  in  fact  they  were  plaintiff  bank,  told  C.  that  they  ought 
second  mortgage  bonds,  and  were  sold  lo  make  a  note,  in  order  to  carry  out 
at  .a  profit,  the  customer  may  rescind  the  contract,  and  thus  save  themselves 
the  transaction,  and  recover  from  the  from  being  sued  as  sureties.  C.  said 
bank  the  money  received  therefrom.  that  he  had  risked  all  he  intended  to 
Judgment  52  N.  Y.  S.  61,  23  Misc.  Rep.  in  the  matter,  whereupon  M.  stated 
308,  affirmed  in  59  N.  Y.  S.  618,  43  that  they  would  not  have  to  pay  a 
App.  Div.  10;  Carr  v.  National  Bank,  cent;  that  he  had  a  contract  with  the 
etc.,  Co.,  167  N.  Y.  375,  60  N.  E.  649,  railroad  company  that  would  protect 
82   Am.    St.    Rep.    725.  them;    that    the    bank    had    loaned    the 

39.  Canadian  Bank  v.  Coumbe,  47  contractors  all  the  money  it  could  af- 
Mich.   358,   11    N.  W.   196.  ford    to,    and    simply   wanted    the    note 

40.  Directors. — East  River  Bank  v.  to  show  to  the  bank  examiner;  and 
Hoyt  (N.  Y.),  41   Barb.  441.  that  the   first  money  paid   in  under  his 

41.  West  Branch  State  Bank  v.  contract  with  the  railroad  company 
Haines,  135  Iowa  313,  112  N.  W.  552.  v.'ould   be    applied    to   the    note.      Upon 

42.  President. — State  Bank  v.  Camp-  these  representations.  C.  executed  the 
bell,  152  App.  Div.  335,  136  N.  Y.  S.  note.  Held,  that  the  bank,  having  no 
390.  actual    knowledge    of    M.'s    representa- 


§    111     (3)  REPRESENTATION    OF    BANK.  775 

And  the  president  of  a  bank  can  not  charge  it  with  a  debt  by  his  admissions."* ^ 

Certificate  of  Deposit. — The  president  of  a  bank  has  general  authority 
to  receive  a  deposit  and  issue  a  certificate,  and  his  statements  and  represen- 
tations made  when  transacting  the  business  are  binding  upon  the  bank,  but 
he  has  no  authority,  after  the  certificate  has  been  paid,  either  by  admissions 
or  otherwise,  to  bind  the  bank  to  pay  the  amount  of  the  certificate  a  second 
time  to  other  parties ;  such  power,  if  it  exists,  being  vested  in  the  board  of 
directors,  and  not  in  the  president. ■**^ 

Statement  of  Depositor's  Account. — The  making  of  a  statement  as 
to  past  conduct  and  the  condition  of  the  account  of  the  cashier,  made  and 
signed  by  the  president  and  accompanying  an  appHcation  to  a  surety  com- 
pany for  a  bond,  is  no  part  of  the  duties  of  the  ofiice  of  president,  and  the 
bank  is  not  bound  thereby."*" 

Bond  of  Other  Officer. — \\'here  a  bank  seeks  to  avail  itself  of  the  bene- 
fit of  the  actions  of  its  president  in  securing  the  execution  of  a  bond  guaran- 
teeing the  fidelity  of  its  cashier,  it  must  accept  such  actions  subject  to  the 
president's  representations  inducing  the  execution  of  the  contract  l^y  the 
surety.^ ^  But  where  the  statute  and  by-laws  under  which  a  bank  was 
organized  gave  all  power  with  reference  to  acceptance  of  the  cashier's  bond 
to  the  board  of  directors,  and  there  was  no  evidence  that  the  president  was 
authorized  to  speak  for  the  board,  his  statements  to  the  surety  on  the  cash- 
ier's bond  as  to  the  cashier's  reliability  could  not  be  binding  on  the  bank, 
so  as  to  prevent  recovery  from  the  surety  on  the  cashier's  defalcation. ^^ 

Financial  Condition  of  Third  Person. — Where  the  president  of  a 
bank  owning  notes  of  an  insolvent  corporation  sent  the  notes  to  another 
bank  to  be  discounted  and  credited  to  his  bank's  account,  accompanied  by 
false  representations  as  to  the  solvency  of  the  maker  of  the  notes,  the  bank 
is  liable  for  his  misrepresentations,  although  he  was  not  authorized  to  make 
them  by  the  board  of  directors. •■^"    In  an  action  by  the  receiver  of  a  national 

tions,  who  was  acting  for  himself,  was  as  a  defense  in  a  suit  on  the  bond;  de- 

not    bound    thereby,    and,    having    ad-  fendant    claiming    that    the    statement 

vanced  money  on  the  note,  could  hold  was    either    a   false    warranty    by     the 

C.    liable    therefor.      National    Bank    v.  bank,    or   a   misrepresentation   by   it   of 

Carper,    28    Tex.    Civ.    App.    334,    67    S.  material    facts,    which    induced    defend- 

W.    188.  ant   to   execute    the    bond.      Held,    that 

45.  Henry  &  Co.  v.  Northern  Bank,  making  the  statement  was  no  part  of 
63    Ala.    527.  the    duties    of    the    office    of   president, 

46.  Hazelton  z'.  Union  Bank,  32  and  not  within  his  implied  powers  or 
Wis.   34.  ordinary  duties,  but  was  his  individual 

47.  Statement  of  depositor's  account.  act,  ])y  which  tlic  bank  was  not  bound. 
— A  bank  cashier  applying  to  a  surety  United  States  Fidelity,  etc.,  Co.  f. 
company  for  a  bond  accompanied  the  Muir,  .')3  C.  C.  A.  56,  115  Fed.  264. 
application  with  a  statement  as  to  his  48.  Warren  Deposit  Bank  7'.  Fidelity, 
past  conduct  and  the  condition  of  his  etc.,  Co.,  116  Ky.  38,  74  S.  W.  nil,  25 
account,    signed    by    the    president    of  Ky.  L.  Rep.  289. 

the  l)ank,  which  was  incorrect,  though  49.  Ida  County  Sav.   Bank  r.   Seidcn- 

made    in    good    faith.    Such    statement  sticker  (Towa),  92  N.  W.  862. 

was    not    referred    to    in    the    bond    is-  50.   Financial  condition  of  third  per- 

sued.      The    president    had    no    special  son. — The  president  of  defendant  bank, 

authority  to   make   it,  and   none   of  the  to  which   an  insolvent  corporation  was 

directors    knew    of    it    until    interposed  indel)ted,   took  its  notes   for  a  part  of 


716 


BANKS   AND   BANKING. 


§  111   (4) 


bank  on  a  bond  and  for  an  overdraft,  an  affidavit  of  defense  alleging  that 
the  president  of  such  bank  prior  to  its  failure  was  also  president  of  another 
institution  in  which  the  defendant  was  a  depositor,  and  that  the  president 
falsely  assured  the  defendant  of  the  soundness  of  such  other  institution, 
and  that  the  defendant  thereby  lost  a  sum  in  excess  of  the  claim  in  suit,  is 
insufficient.^^ 

Financial  Condition  of  Bank. — A  statement  of  the  president  of  a  bank, 
for  the  purpose  of  procuring  from  another  bank  a  discount  of  paper,  that 
such  former  bank  is  in  good  condition,  when,  in  fact,  it  is  hopelessly  in- 
solvent in  consequence  of  the  president's  own  malversation,  is  a  fraud,  and 
entitled  the  discounting  bank  to  recover  back  the  proceeds  of  the  discount.^^ 

Exempting  Maker  from  Payment  of  Note. — In  an  action  by  a  bank 
on  a  note  made  by  the  defendant  for  the  payee's  accommodation,  and  dis- 
counted by  the  bank,  evidence  offered  by  the  defendant  that,  when  the  note 
was  made,  the  president  of  the  bank  agreed  that  he  should  not  be  called  on 
to  pay  it,  is  inadmissible.^^ 

§  111  (4)  Cashier. — The  cashier  of  a  bank  has  no  incidental  author- 
ity to  make  any  declarations  binding  the  bank,  not  within  the  scope  of  his 
ordinary  duties^-^  and  not  in  the  interest  of  the  bank.-'*^  A  cashier  of  a 
bank,  who  was  also  a  director  of  a  manufacturing  company,  and  as  such 


the  amount,  and,  after  indorsing  them, 
inclosed  them  in  a  letter  to  plaintiff, 
and  requested  plaintiff  to  discount  them 
and  place  the  proceeds  to  defendant's 
credit  at  a  New  York  bank.  The  let- 
ter was  written  on  the  bank's  letter 
head,  and  was  signed,  "A.,  President." 
In  it  he  stated  that  the  maker  of  the 
note  was  solvent  and  owned  certain 
property,  and  that  the  note  was  good, 
for  the  reason  that  they  held  ware- 
house receipts  therefor.  These  state- 
ments were  false,  and  the  maker  was 
insolvent.  Plaintiff  discounted  the 
notes,  and  had  the  proceeds  deposited 
to  defendant's  credit  in  the  Xew  York 
bank,  and  the  defendant  credited  the 
maker  with  the  amount  thereof  on  its 
indebtedness.  Held,  that  the  president 
was  acting  for  defendant,  and  the  fact 
that  he  was  not  authorized  by  the 
board  of  directors  to  make  tlie  false 
representations  did  not  relieve  it  of  lia- 
bility therefor.  Binghamton  Trust  Co. 
V.  Auten,  68  Ark.  299,  57  S.  W.  1105,  82 
Am.  St.  Rep.  295. 

51.  Karle  v.  Munce,  133  Fed.  1008. 

52.  Fisher  v.  United  States  Nat. 
Bank,  12  C.  C.  A.  413,  fi4  Fed.  710. 

53.  Whitehall  Bank  v.  Tisdale  (N. 
Y.),  18  Hun  151. 

54.  Cashier. — Hindman  v.  First  Nat. 
Bank,  50  C.  C.  A.  623,  112  Fed.  931,  57 
L.  R.  A.  108;  Merchants'  Bank  v.  Ma- 


rine Bank  (Aid.).  3  Gill  96,  43  Am.  Dec. 
300;  Morgan  &  Co.  v.  Merchants"  Nat. 
Bank,  81  Tenn.   (13  Lea)   234. 

If  the  cashier  of  a  bank  promises  to 
pay  a  debt  which  the  corporation  did 
not  owe,  or  was  not  liable  to  pay,  or 
should  admit  forged  bills  to  be  genu- 
ine, such  promise  or  admission  would 
not  bind  the  bank  (except  as  to  bona 
fide  holders  for  value  and  without  no- 
tice) unless  it  had  authorized  or 
adopted  the  act.  Merchant.s'  Bank  v. 
Marine  Bank  (Md.),  3  Gill  96,  43  Am. 
Dec.  300. 

55.  Not  in  interest  of  bank. — Defend- 
ant signed  notes  payable  to  a  bank  for 
the  accommodation  of  the  cashier,  and 
after  maturity  was  told  that  they  were 
not  paid,  whereupon  he  executed  other 
notes  for  similar  amounts,  intended  by 
him  as  renewals  of  the  prior  notes. 
Held,  in  an  action  by  the  bank  on  the 
last  notes  given,  that  the  bank  was  not 
chargeable  with  representations  made 
by  tile  cashier,  as  he  was  acting  in  his 
own  interests,  and  adversely  to  those 
of  the  bank.  State  Sav.  Bank  v. 
Montgomery,  126  Mich.  327,  85  N.  W. 
879. 

Declarations  of  a  cashier  of  a  bank 
can  not  bind  it,  where,  at  the  time  of 
making  them,  he  was  not  transacting 
any  business  for  it.  Consolidated  Mill. 
Co.  V.  Fogo,  104  Wis.  92,  80  N.  W.  103. 


§  111  (4) 


re;presentation  of  bank. 


777 


director  assisted  in  promulgating  false  statements  as  to  the  financial  con- 
dition of  the  company,  for  the  purpose  of  defrauding  all  of  its  creditors,  in- 
cluding the  bank,  was  not  the  agent  of  the  bank  in  such  matter  so  as  to 
affect  the  validity  of  its  claims  against  the  company.""^  Representations  by 
a  bank  cashier  need  not  be  made  at  the  counter  or  office  of  the  bank  in 
order  to  bind  it/'' 

Injury  from  Misrepresentation. — A  person  relying  upon  a  false  repre- 
sentation made  by  the  cashier  o-f  a  bank  can  not  complain  thereof  in  the 
absence  of  evidence  of  injury.'"'^ 

Past  Transactions. — The  cashier  of  a  bank  has  no  authority,  and  it  is 
no  part  of  the  duty  pertaining  to  his  office,  to  give  customers  of  the  bank 
information  as  to  transactions  of  the  bank  which  have  been  fully  trans- 
acted and  passed. ^*^ 

Statement  of  Depositor's  Account. — Representations  by  the  cashier 
of  a  bank  to  an  insurance  commissioner,  that  an  insurance  company  had  on 
deposit  in  such  bank  a  certain  amount  which  had  been  paid  in  as  capital 
stock  and  net  surplus,  are  not  ultra  vires. '^'^ 

Certificate  of  Deposit. — The  cashier  of  a  bank  is  the  proper  officer  to 
receive  deposits  and  to  give  certificates  or  vouchers  in  respect  thereto,  which 
may  properly  include,  with  the  consent  of  the  depositor,  a  statement  of  the 


56.  Decree  34  C.  C.  A.  338,  92  Fed. 
274.  affirmed  on  rehearing  in  fiadden 
V.  Dooley,  35  C.  C.  A.  554,  93  Fed.  728, 
reversed  Dooley  v.  Hadden,  179  U.  S. 
646,  45  L.  Ed.  357,  21  S.  Ct.  259. 

57.  Representations  not  made  at 
bank. — Houghton  v.  First  Xat.  Bank, 
26  Wis.  663,  7  Am.  Rep.   107. 

But  in  Merchants'  Bank  c'.  Rudolf, 
5  Neb.  527,  it  was  held  that  casual 
statements  made  by  the  cashier  away 
from  the  bank  do  not  bind  the  bank. 

58.  Injury  from  misrepresentation. 
— Defendant  signed  two  accommoda- 
tion notes  for  the  benefit  of  a  bank 
cashier,  the 'notes  to  be  discounted  by 
the  bank.  After  maturity  he  was  told 
by  the  cashier  that  one  of  the  notes 
was  paid,  whereupon  he  executed  a 
note  intended  as  a  renewal  of  the  un- 
paid notes.  Defendant  testified  that 
he  had  intended  demanding  security  of 
the  cashier,  but  did  not  do  so  because 
of  his  representation  that  the  one  note 
was  paid;  but  it  appeared  that  the  cash- 
ier was  then  insolvent,  and  could  not 
have  given  security  if  required.  The 
last  note  given  was  subsequently  re- 
turned to  defendant.  Held,  in  an  ac- 
tion on  the  first  note,  that,  even  if  the 
bank  could  be  charged  with  such  rep- 
resentation, defendant  had  failed  to 
show  that  he  was  injured  thereby. 
State  Sav.  Bank  v.  Montgomery,  126 
Mich.  327,  85  X.  W.  879. 


59.  Franklin  Bank  %•.  Steward,  37 
Me.  519. 

60.  Statement  of  depositor's  ac- 
count.— Hindman  v.  First  Nat.  Bank, 
86  Fed.  1013.  reversed  39  C.  C.  A.  1,  98 
Fed.  562,  48  L.  R.  A.  210. 

A  statement  made  by  the  cashier  of 
a  l)ank,  certifying  to  the  insurance 
commissioner  of  a  state  that  a  recently 
organized  insurance  company  had  on 
deposit  in  the  bank  a  sum  which  had 
been  paid  in  as  the  full  amount  of  the 
capital  stock  of  the  company,  and  as  a 
surplus  fund,  is  false  where  a  consider- 
able portion  of  the  deposit  consisted 
of  the  proceeds  of  notes  given  by  sub- 
scribers in  payment  for  stock,  and  by 
officers  of  the  company,  which  the 
l>ank  had  discounted  on  the  indorse- 
ment of  the  company,  and  for  which 
it  held  the  stock  as  collateral  security, 
whetlier  such  discounts  were  real  or 
pretended,  since  the  liank  had  knowl- 
edge that  the  deposit  did  not  represent 
either  capital  or  surplus;  and,  \yhcrc 
such  certificate  was  made  in  the  inter- 
ests of  the  bank,  for  the  purpose  of  en- 
abling it  to  secure  a  large  deposit  from 
the  company,  or  to  sell  the  stock  it 
held  as  collateral,  it  was  an  act  done 
in  the  due  course  of  l)usincss,  for  which 
the  bank  is  responsible.  Hindman  v. 
l<irst  Nat.  liank.  50  C.  C.  .\.  623.  112 
Fed.   931,   57   L.    R.   A.   108. 


778  BANKS  AND   BANKING.  §    HI     (4) 

source  from  which  the  deposit  arose;  and  for  a  false  statement  in  that 
respect,  made  to  subserve  the  interests  of  the  bank,  the  latter  is  liable  in 
tort  to  one  injured  thereby,  although  the  cashier  was  not  expressly  authorized 
to  make  such  statement  by  the  board  of  directors.*^! 

Special  Deposit.— In  the  absence  of  knowledge  of  the  directors  or  of  a 
custom  of  the  bank,  statements  of  the  cashier  are  not  admissible  to  vary  a 
receipt  given  for  a  special  deposit.*^ - 

Payment  of  Note. — Declarations  made  to  an  indorser  by  a  cashier, 
who  was  also  an  indorser,  as  to  the  payment  of  the  note  held  by  the  bank, 
may  estop  the  bank  from  asserting  a  contrary  state  of  facts,  and  to  impose 
on  the  bank  the  consequent  loss.^s  But  where  a  surety  on  a  note  payable  to 
a  bank  claimed  that  he  was  induced  by  representations  of  the  cashier  that 
the  note  was  paid  to  surrender  securities  to  the  principal,  so  that  he  was 
thereby  released,  statements  made  by  the  cashier  at  casual  meetings  away 
from  the  bank  do  not  bind  the  bank-^^-i 

Use  of  Rented  Premises. — In  an  action  for  rent  against  a  banking 
company,  the  fact  that  a  certain  person  was  its  cashier,  and  negotiated  for 
the  renting  of  the  premises,  does  not  constitute  evidence  of  his  authority  to 
bind  the  company  by  remarks  made  to  plaintiff  as  to  the  purpose  for  which 
the  premises  were  rented,  or  the  terms  of  a  previous  renting  thereof.*'^ 

Financial  Responsibility  of  Maker  of  Note.— In  an  action  by  a  bank 
against  indorsers  of  a  note  discounted  for  the  accommodation  of  the  maker, 
declarations  of  the  cashier  and  one  of  the  directors  that  they  considered  the 
maker  perfectly  good,  although  willfully  false,  does  not  affect  the  rights  of 
the  bank,  not  being  made  in  the  course  of  their  duty  as  officers.*^*^ 

Financial  Standing  of  Third  Persons.— In  the  absence  of  evidence 
of  authorization,  the  cashier  of  a  bank  has  no  authority  by  virtue  of  his 
position  to  make  any  representations  on  behalf  of  the  bank  as  to  the  sol- 
vency of  a  customer  who  is  one  of  its  debtors,  and  the  bank  is  not  estopped 
by  such  representations  made  by  him  to  one  whom  the  debtor  of  the  bank 
referred  to  the  bank  for  information.^'"     Declarations  made  by  the  cashier 

61.  Hindman  ?'.  First  Nat.  Bank,  50  was  not  sufficient  to  change  the  ef¥ect 
C.  C.  A.  623,  113  Fed.  931,  57  L.  R.  A.  of  the  receipt  so  as  to  affect  the  bank. 
108.  Comp  V.  Carlisle  Deposit  Bank,  91  Pa. 

62.  Special  deposit. — A.,  at  the  solic-  409. 

itation    of   the    cashier    of   a    bank,    de-  63.  Grant  v.  Cropsey,  8  Neb.  205. 

posited   with    it,    for   safe-keeping,   cer-  64.      Merchants'    Bank    v.    Rudolf,    5 

tain    bonds,   taking   a   receipt    therefor,  Neb.  527.                                                  , 

stating    that    they    were    received    "for  65.    Union    Banking    Co.  v.    Gittings, 

deposit  in  the  vault  of  this  bank  at  the  45  Md.  181. 

risk  of  the  depositor."  Held,  that  in  66.  Mapes  v.  Second  Nat.  Bank,  80 
the  absence  of  any  evidence  that  the  Pa.  163.  i  u-  a 
bank  was  accustomed  to  receive  .bonds  67.  Financial  standing  of  third  per- 
for  safe-keeping,  except  at  owner's  son.— Plaintiff  sold  goods  on  credit 
risk,  or  that  the  directors  had  knowl-  to  a  customer  of  a  bank  on  the  state- 
edge  that  bonds  were  left  at  the  in-  ment  of  the  cashier  that  the  note  to  be 
stance,  request,  or  solicitation  of  the  given  in  payment  would  be  good.  1  he 
cashier,  evidence  of  the  latter's  repre-  cashier  knew  that  the  customer  was 
sentations,  at  the  time  of  the  deposit,  largely  indebted  to  the  bank  and  was 
as    to    the    safe-keeping    of    the    bonds,  practically    insolvent.      There    was    no 


§    111     (5)  REPRESENTATION    OF    BANK.  779 

of  a  bank  to  a  merchant  residing  in  another  state  touching  the  financial 
standing  of  a  merchant  residing  near  the  bank  are  not  competent  against 
the  bank  unless  evidence  is  introduced  tending  to  show  that  by  virtue  of 
the  official  position  of  the  cashier  or  otherwise  it  was  his  duty  to  make  such 
statements.^^ 

Exempting  Surety  from  Liability. — A  surety  on  a  note  given  to  a 
bank  by  a  third  person  in  renewal  of  a  prior  note  on  w^hich  such  surety 
was  also  an  indorser  may  show,  as  against  the  bank,  that,  at  the  time  he 
signed  such  renewal,  its  cashier  informed  him  that  the  bank  had  sufficient 
funds  of  the  maker  to  pay  such  renewal  note;  that  its  execution  was  a 
matter  of  form,  necessary  only  to  keep  the  bank  accounts  straight ;  and 
that  the  bank  would  not  hold  him  hable  thereon. *^^' 

Exempting  Maker  from  Payment  of  Note. — In  an  action  by  a  bank 
against  a  joint  maker  of  a  note,  the  defendant  can  not  show  that  he  signed 
it  on  the  representations  of  the  plaintiff's  cashier  that  it  was  intended  as 
a  mere  matter  of  form,  and  that  he  would  not  be  called  upon  to  pay  it."*^' 

Character  and  Conduct  of  Another  Employee. — Statements  made  by 
a  cashier  of  a  bank  as  to  the  character  of  a  coemployee  and  the  condition 
of  his  accounts  are  not  binding  on  the  bank.'^  But  as  the  making  of  certifi- 
cates by  a  bank  cashier,  for  the  renewal  of  a  bookkeeper's  bond,  that  the 
bookkeeper's  books  had  been  found  correct,  was  an  act  which  he  might 
have  been  authorized  to  do  by  the  directors,  and  where,  on  a  defalcation 
being  discovered,  the  cashier,  in  behalf  of  the  bank,  presented  the  claim 
against  the  surety,  a  finding  was  warranted  that  the  cashier  had  authority 
to  make  the  certificates,  and  that  his  action  was  binding  on  the  bank."- 

§  111  (5)  Teller. — The  statement  of  a  bank  teller  that  an  indorse- 
ment upon  a  check  is  genuine  does  not  bind  the  bank,  which  holds  him  out 
to  the  pubHc  as  an  agent  with  limited  powers.'-^ 

Certified  Check. — The  bank  is  bound  by  the  representations  of  its 
teller  to   another  bank  that  a  certificate  of  deposit  was  good,   where  the 

evidence    of    any    authority    given    the  cashier   may  make   to   the   solvency  of 

cashier  in   such   regard,   or  of  any  au-  some    third    partJ^      Horrigan   v.    First 

thority  given  him  to  bind  the  l)ank  by  Xat.  Bank,  68  Tenn.  (O  Baxt.).  137. 

representations    as    to    its    customers.  68.    In    absence    of    such    proof    the 

Held,    that    the    bank    was    not    liable,  statements    of    the    cashier    would    not 

where  such  customer  thereafter  l>ecame  affect   the   bank.     This   rule   would   not 

insolvent.     Judgment  73   N.   Y.    S.  924,  be   affected   by   the   truth   or   falsehood 

68  App.   Div.   458,   reversed.     Taylor   v.  of  such   declarations.     Goodbar  v.  City 

Commercial  Bank,  174  N.  Y.  181,  66  X.  Xat.  Bank,  78  Tex.  461,  14  S.  W.  851. 

E.  726,  62  L.  R.  A.  783,  95  Am.  St.  Rep.  69.    First   Nat.    Bank  v.   Pegram,   113 

564.  X.   C.  671,  24  S.  E.  487. 

Answering   questions   as    to    the    sol-  70.    Fi^rst    Nat.     Bank    v.    Foote,    12 

vency  of  parties  is  no  part  of  the  busi-  Utah   157,  42  Pac.  205._                   r>      i      « 

ness  of  a  cashier  of  a  bank,  nor  fairly  71.  Lieberman  r.   First  Nat.   Bank,  8 

included  within  the  scope  of  such  busi-  l^cJ-  Ch.  220,  40  Atl.  382. 

ness.     It  may  be,   and  probably  is,   an  72.^Xational^  ^^o  V'',  Equitable  Trust 

accident   of   such    position,    but    not   an  Co..  223  Pa.  328,  72  Atl.  794. 

incident    to    it.      Held,    no    liability    at-  73.  Teller.— Walker  v.  St.  Louis  Nat. 

taches  to  the  bank   for  any  answer  the  P.ank.  5  Mo.  App.  214. 


780 


BANKS   AND   BANKING. 


§  112  (2b) 


teller  failed  to  state  that  the  payment  thereof  had  been  stopped.''* 

§  112.  Wrongful  Acts— §  112  (1)  In  General.— For  the  torts' ^  or 
acts  done  by  the  officers  or  the  agents  of  a  bank  in  delicto,'*^  in  the  course  of 
its  business  and  of  their  employment,  the  bank  is  responsible  as  an  indi- 
vidual  is    responsible   under   similar   circumstances. 

As  Defense  of  Bank. — Where  a  transaction  with  an  incorporated  bank- 
ing association  properly  pertains  to  the  business  of  such  an  association,, 
the  abuse  or  disregard  of  his  authority  by  its  managing  officer  or  agent, 
will  not  be  permitted  to  be  shown  in  defense  of  such  bank  in  an  action 
against  it  by  an  innocent  party,  growing  out  of  such  transaction."^ 

§  112  (2)  Torts  of  Managing  Officer  and  Cashier  Generally— 
§  112  (2a)  Acts  Not  within  Corporate  Capacity. — A  managing  officer 
of  a  bank  is  not  a  servant  of  the  corporation,  but  the  head  thereof;  and 
the  bank  is  liable  for  his  torts  committed  while  acting  in  the  scope  of  his 
powers,  even  though  the  tortious  acts  are  not  within  the  corporate  powers 
of  the  bank."^ 

§  112  (2b)  Acts  without  Scope  of  Authority. — For  an  act  neither 
within  the  scope  of  the  powers  of  the  cashier,  nor  authorized  by  the  di- 
rectors, the  bank  is  not  liable,  or  bound  thereby,'''  unless  it  receives  and 


74.  Certified  check. — After  a  check 
had  been  certified,  the  bank  on  which 
it  was  drawn  was  notified  by  the 
drawer  that  the  check  had  been  lost, 
and  not  to  pay  the  same.  Subse- 
quently, a  person  in  possession  of  the 
check,  representing  himself  to  be  the 
owner  thereof,  presented  the  same  at 
another  bank,  to  have  it  discounted, 
and  this  bank,  before  accepting  it.  pre- 
sented it  to  the  drawee's  teller,  asking 
whether  the  certificate  was  good.  The 
teller  replied  that  it  was,  but  said 
nothing  about  payment  having  been 
stopped.  Upon  faith  of  this  the  check 
v-as  discounted.  Held,  that  the  drawee 
by  failure  to  state  that  circumstance, 
was  estopped  from  denying  its  liability 
thereon.     Clews  v.  Bank,  89  N.  Y.  418. 

75.  Liability  for  torts  of  officers  or 
agents. — National  Bank  i'.  Graham,  100 
U.  S.  699,  25  L.  Ed.  750;  Reed  v.  Home 
Sav.  Bank,  130  Mass.  443,  39  Am.  Rep. 
468;  Wachsmuth  v.  Merchants',  Nat. 
Bank,  96  Mich.  426,  56  N.  W.  9,  21  L.  R. 
A.  278;  Johnson  Fife  Hat  Co.  v.  Na- 
tional Bank.  4  Okl.  17.  44  Pac.  192; 
Merchants'  Bank  v.  State  Bank  (U.  S.). 
10  Wall.  604,  19  L.  Ed.  1008;  Zinc  Car- 
bonate Co.  T'.  First  Nat.  Bank,  103  Wis. 
125,  79  N.  W.  229,  74  Am.  St.  Rep.  845. 

76.  Wheless  v.  Second  Nat.  Bank, 
60  Tenn.  (1  Baxt.)  469,  citing  Philadel- 
phia, etc.,  R.  Co.  i:  Quigley  (U.  S.),  21 


How.  202,  16  L.  Ed.  73;  Humes  v. 
Knoxville,  20  Tenn.  (1  Humph.)  403; 
Ohio  Life  Ins.,  etc.,  Co.  v.  Merchants' 
Ins..  etc.,  Co.,  30  Tenn.  (11  Humph.)  1; 
Nashville  r.  Brown,  56  Tenn.  (9  Heisk.) 
1.  See  also,  the  case  of  Goodspeed  v. 
East  Haddam  Bank,  22  Conn.  530. 

77.  As  defenses  of  bank. — Citizens' 
Sav.   Bank  f.   Blakesley.   42   O.   St.   645. 

78.  Acts  not  within  corporate  pow- 
ers.— Johnson  Fife  Hat  Co.  r.  National 
Bank,  4  Okl.  17.  44  Pac.  192;  Silver- 
stein  z'.  National  Bank,  4  Okl.  35,  44 
Pac.  198;  Sanger  v.  National  Bank,  4 
Okl.  36.  44  Pac.  198;  Mayer  v.  National 
Bank,  4  Okl.  37,  44  Pac.  198. 

79.  Cashier. — Where  the  cashier  of 
a  bank  wrote  to  the  secretary  of  the 
treasury,  saying  that  the  bearer  of  the 
letter  was  authorized  to  contract  for 
the  transfer  of  money  from  New  York 
to  New  Orleans,  and  such  a  transaction 
was  not  within  the  scope  of  the  powers 
of  the  cashier,  nor  authorized  by  the 
directors,  the  bank  was  not  bound  to 
reimburse  the  money  which  the  secre- 
tary of  the  treasury  advanced.  United 
States  7'.  City  Bank  (U.  S.),  21  How. 
356,    16   L.    Ed.    130. 

Effect  of  exceeding  authority. — 
United  States  v.  City  Bank  (U.  S.).  21 
How.  356.  16  L.   Ed.  130. 

If  the  letter  was  the  cashier's  own 
act.    and    had    been    given    without    the 


§  112  (3aa) 


REPRESENTATION    OF    BANK. 


781 


accepts  the  benefit  thereof."^"  Where  a  bank  receives  the  benefit  of  a 
transaction,  it  is  bound  to  account  notwithstanding  its  cashier  exceeded 
his  authority  in  assuming,  on  behalf  of  the  bank,  to  act  in  the  transaction.'*^ 

§  112  (3)  Particular  Torts  or  Wrongful  Acts— §  112  (3a)  Fraud 
— §  112  (3aa)  In  General. — Fraudulent  representations,  or  a  fraudu- 
lent concealment  of  material  facts  by  the  agent  of  a  bank,  when  engaged 
in  the  transaction  of  the  business  of  the  bank,  will  charge  the  latter,  con- 
structively,  through   the   agent. ^- 

A  banking  corporation  may  be  guilty  of  a  fraud.  In  its  relations  to 
others,  it  is  represented  by  its  officers  and  agents,  and  their  fraud  in  the 
course  of  corporate  dealings,  is,  in  law,  the  fraud  of  the  corporation. ^-^ 

As  Defense  of  Bank. — Where  a  transaction  with  an  incorporated  bank- 


knowledge  or  authority  of  the  board 
of  directors,  or  any  of  them  individu- 
ally, except  the  bearer,  who  was  also 
a  director,  and  if  the  agency  was  not 
constituted  by  or  known  to  the  board 
of  directors,  or  the  directors  individu- 
ally, or  any  of  them  except  him,  but 
was  the  act  of  the  cashier  alone;  and 
if  the  cashier  had  no  power  as  cashier, 
except  such  as  belonged  to  the  office 
of  cashier  generally,  or  such  as  are 
given  by  the  charter  or  by  the  by-law 
or  other  law  or  usage  of  the  said  bank, 
then  the  bank  was  not  concluded  by 
that  letter,  and  is  not  bound  by  the 
contract  made  by  the  bearer,  without 
some  subsequent  ratification  of  the 
same,  though  the  secretary  had,  in 
contracting  with  him,  relied  upon  it  as 
the  act  of  the  bank.  United  States  v. 
City  Bank  (U.  S.),  21  How.  356,  16  L. 
Ed.  1.30. 

In  a  transaction  between  the  cash- 
iers of  two  banks,  upon  which  one  bank 
was  seeking  to  hold  the  other  Ijank 
liable,  where  the  circumstances  show 
that  the  cashier  of  the  plaintiff  bank 
must  have  known  that  the  other  acted 
without  the  knowledge  of  the  direct- 
ors, and  if  the  cashier  of  the  defendant 
bank  had  no  authority,  and  the  cash- 
ier of  the  plaintiff  bank  knew  it,  it  is 
clear  to  a  demonstration  that  the  de- 
fendant bank  is  not  liable  (dissenting 
opinion).  Merchants'  Nat.  Bank  ?■. 
State  Nat.  Bank  (U.  S.),  10  Wall.  604. 
19  L.  Ed.  1008. 

Where  a  cashier  knew  that  he  him- 
self had  no  authority  to  do  such  an 
act  as  cashier;  that  the  law  of  the  state 
forbade  it;  that  no  cashier  of  a  national 
bank  in  that  city  had  ever  exercised 
any  such  authority  and  that  the  means 
of  ascertaining  whether  the  cashier  of 
the  defendant  l)ank  had  such  authority 
were  at  hand,  the  rule,  under  such  cir- 


cumstances, is  well  settled  that  the 
party  must  inquire  before  assuming  to 
act  or  take  the  risk  that  the  necessary 
authority  exists  (dissenting  opinion). 
Merchants'  Nat.  Bank  v.  State  Nat. 
Bank  (U.  S.),  10  Wall.  604,  19  L.  Ed. 
]008. 

80.  Alerchants'  Nat.  Bank  z'.  State 
Nat.  Bank  (U.  S.),  10  Wall.  604,  19  L. 
Ed.  1008. 

81.  Acceptance  of  benefit. — First 
Xat.  Bank  z:  Bakken,  17  N.  Dak.  2;}4, 
116  N.  W.  92. 

Tf  a  cashier,  without  authority  to  bu}^ 
coin  in  behalf  of  his  bank,  do  so  buy  it. 
and  it  goes  into  the  funds  of  the  bank, 
the  bank  is  liable  upon  the  principle 
of  quantum  valebat.  Merchants'  Nat. 
Bank  7-.  State  Nat.  Bank  (U.  S.),  10 
Wall.  604.  19  L.  Ed.  1008. 

82.  Fraud.— Bank  v.  Davis  (N.  Y.). 
2  Hill  451;  Union  Bank  z:  CampI)eH. 
23  Tenn.  (4  Humph.)  394. 

President  or  managing  oflficer. —  If 
the  president  or  managing  officer  of  a 
bank  is  guilty  of  fraud,  in  exercising 
the  powers  conferred  on  him  by  the 
hank,  it  is  lial)le  for  the  consequences 
which  flow  therefrom.  Johnson  Fife 
Hat  Co.  V.  National  Bank,  4  Okl.  17, 
44   Pac.    192. 

83.  Banking  corporation. — Johnson 
Fife  Hat  Co.  z:  National  Bank.  I  Okl. 
17.  44  Pac.   192. 

Tf  an  officer  of  a  I)anking  corpora- 
lion,  wliile  exercising  the  authority' 
conferred  on  him  liy  the  corporation, 
is  guilty  of  falsehood  and  fraud,  the 
corporation  is  liable  for  the  conse- 
quence which  may  flow  therefr^ni. 
InliniUon  Fife  Hat  Co.  z'.  NaHc  n.il 
Bank,  4  Okl.  17,  44  Pac.  192;  Silver- 
stein  7'.  National  Bank.  4  Okl.  35,  44 
Pac.  198;  Sanger  z\  National  Raiik.  4 
Okl.  36.  44  Pac.  198;  Mayer  z\  National 
P.ank.  4   Okl,  3  7.  44  Pac.   198. 


782 


BANKS    AND    BANKING. 


§  112  (3ac) 


ing  association  properly  pertains  to  the  business  of  such  association,  the 
fraud  or  bad  faith  of  its  managing  officer  or  agent  will  not  be  permitted 
to  be  shown  in  defense  of  such  bank  in  an  action  against  it  by  an  innocent 
party  growing  out  of  such  transaction.S'* 

§  112  (Sab)  Fraud  in  Obtaining  Loan  for  Bank.— Where  it  is 
within  the  apparent  authority  of  the  cashier^s  or  president^«  of  a  bank  to 
borrow  money  for  the  bank  in  the  regular  course  of  business  it  is  liable 
for  fraud  practiced  by  him  in  such  transaction. 

Vice-President.— A  bank,  whose  vice-president  borrows  money  in  its 
name  of  another  bank,  and  appropriates  it  to  his  own  use,  is  not  liable 
therefor,  unless  he  was  specially  authorized  to  borrow  the  money,  or  his  act 
was  ratified,'^'  but  where  he  has  authority  to  negotiate  the  loan  the  rights 
of  the  loanor  are  not  affected  by  the  fact  that  the  transaction  was  fraudu- 
lent as  between  the  vice-president  and  his  bank.^s 

§  112  (Sac)  Fraud  in  Receiving  Deposits.— Fraud  of  officers  of  a 
bank  in  receiving  deposits  is  a  fraud  of  the  bank.'-^ 

Fraud  Respecting  Paper  Deposited  for  Collection.— A  bank  is 
liable  for  the  fraud  of  its  cashier  in  colluding  with  the  maker  of  paper  sent 
to  it  for  collection  to  allow  such  paper  to  accumulate  in  the  bank  unpaid.^^ 


84.  As  defense  of  bank. — Citizens" 
Sav.   Bank  v.   Blakesley,   43   O.   vSt.   045. 

85.  Fraud  in  obtaining  loan  for 
bank. — Where  a  cashier  of  an  insolvent 
bank,  acting  for  it,  induced  his  fiancee 
to  furnish  securities  for  a  loan  to  aid 
the  institution,  any  fraud  practiced  on 
her  through  advantage  taken  of  the  re- 
lation between  them  was  that  of  the 
bank.     Hallett  v.  Fish,  120  Fed.  986. 

The  lender  of  money  to  a  hank 
through  its  cashier  acted  in  good  faith 
and  in  the  course  of  business.  There 
was  nothing  in  the  transaction  to  put 
him  on  notice  that  the  cashier  exceeded 
his  authority  or  misapplied  the  funds 
of  the  bank,  or  that  the  bank  author- 
ities' were  not  regularly  constituted 
and  doing  their  duty.  The  cashier  de- 
livered to  the  lender  a  spurious  reso- 
lution, purporting  to  have  been  passed 
by  the  bank's  board  of  directors,  au- 
thorizing the  loan  and  the  pledging 
of  the  bank's  notes  as  collateral. 
Held,  that  the  transaction  was  bind- 
ing on  the  bank.  Citizens'  Bank  v. 
Bank,  31  Ky.  L.  Rep.  365,  103  S.  W. 
249. 

86.  Money  borrowed  by  president 
by  means  of  fraudulent  representa- 
tions.— If  a  bank  permits  its  president 
to  usurp  its  functions,  so  that  thereby 
he  is  enabled  to  borrow  money  from 
another  bank  by  means  of  fraudulent 
representations,  and  retains  the  money 


thus  fraudulently  obtained,  it  is  re- 
sponsible, and,  in  a  suit  against  the 
bank  from  which  money  was  thus 
fraudulently  obtained,  that  bank  may 
set  off  the  amount.  City  Nat.  Bank  v. 
National  Park  Bank  (N.  Y.),  32  Hun 
105. 

87.  Vice-president. — Chemical  Nat. 
Bank  v.  Armstrong,  13  C.  C.  A.  47,  65 
Fed.  573,  28  L.  R.  A.  231.  modifying  8 
C.  C.  A.  155,  59  Fed.  372,  to  accord 
with  152  U.  S.  346,  38  L.  Ed.  470,  14 
S.   Ct.   572. 

88.  Fraud  between  vice-president 
and  his  bank. — Where  a  bank  in  good 
faith  advanced  money  on  collateral 
forwarded  to  it  by  the  vice-president 
of  another  bank,  and  charged  the  loans 
to  the  latter,  its  rights  are  not  af- 
fected by  the  fact  that  the  transaction 
was  fraudulent  as  between  the  vice- 
president  and  the  bank  which  he 
represented,  for  the  vice-president  had 
authoritv  to  negotiate  the  loan,  and 
the  validity  was  not  affected  by  his 
fraud.  Webb  r.  Stasel,  4  N.  P..  N.  S., 
587.   17   O.   D.   N.   P.   317. 

89.  Fraud  in  receiving  deposits. — 
Warner  v.  Armstrong,  21  Wkly.  L. 
Bull.    124,    10   O.    Dec.    426. 

90.  Fraud  respecting  paper  de- 
posited for  collection.— Notes  and 
bills  were  sent  by  plaintiff  to  the  cash- 
ier of  defendant  for  collection,  with  a 
request   to  protest  and   return  such   as 


§  112  (3alO 


REPRESENTATION   OF   BANK. 


783 


§  112  (Sad)  Depreciating  Collaterals.— The  depreciation  of  stock 
held  by  a  bank  as  collateral  security,  by  the  president  of  the  bank  and  stock- 
holders with  a  view  of  purchasing  the  controlling  interest  therein,  does  not 
alone  make  such  conduct  the  act  of  the  bank  so  as  to  furnish  a  basis  for 
an   action  against  it.^^ 

§  112  (3ae)  Fraud  in  Procuring  Note.— If  a  cashier,  as  agent  of 
the  bank,  procure  a  note  by  improper  means  from  the  maker,  and  contrary 
to  the  original  design  of  the  indorser  when  he  delivered  it  to  the  maker, 
lay  it  before  the  directors  to  be  discounted,  which  is  done,  the  bank  can 
not  recover  of  the  indorser.^^ 

§  112  (3af)  Fictitious  Entry  of  Credit.— A  bank  is  not  liable  for 
the  amount  of  a  fictitious  entry  of  credit  made  by  its  cashier  on  the  pass 
book  of  a  depositor.^'^ 

§  112    (Sag)   Deposit  of  Worthless  Check  in  Another  Bank.— An 

agent  of  a  bank  to  deposit  a  quantity  of  coin  in  another  bank  has  no  right 
to  substitute  his  own  worthless  check  for  the  money,  and  nothing  but  an 
actual  and  bona  fide  deposit  of  money  to  his  principal's  credit  can  charge 
the  depositee  bank,  and  the  depositor  bank  was  responsible  for  the  act 
of  its  agent  as  if  it  had  itself  deposited  the  worthless  check.^-* 

§  112  (Sah)  Conspiracy  to  Defraud  Third  Person.— W' here  the 
president  of  a  bank  has  the  active  control  and  management  of  its  afifairs, 
and,  in  conducting  its  business,  enters  into  a  conspiracy  to  defraud  third 


were  not  paid.  They  were  never  col- 
lected, nor  were  they  protested  or  re- 
turned. The  cashier  was  guilty  of 
gross  fraud  in  colluding  with  the 
maker  of  the  paper,  and  in  failing  to 
enter  the  paper  on  the  books  of  the 
bank.  Held,  that  the  fraud  of  the  cash- 
ier did  not  relieve  defendant  from  lia- 
bility. National  Pahquioque  Bank  v. 
First  Xat.  Bank,  36  Conn.  325,  4  Am. 
Rep.  80. 

91.  Depreciating  collaterals.— Xapier 
V.  Central  Georgia  Bank,  OS  Ga.  637. 

92.  Fraud  in  procuring  note. — P.ank 
Z-.    Irvine    fPa.),    3    Pen.    &    W.    250. 

93.  Fictitious  entry  of  credit. — L..  as 
cashier  of  a  l)ank  and  treasurer  of  a 
building  association,  credited  himself 
with  $10,000  on  the  books  of  the  bank 
and  entered  a  credit  for  a  like  amount 
on  the  pass  book  of  the  building  as- 
sociation. On  the  faith  of  this  ficti- 
tious credit  the  building  association 
declared  and  paid  a  dividend  to  its 
stockholders.  Subsequently  receivers 
were  appointed  for  both  the  bank  and 
the  building  association,  and  the  re- 
ceiver of  the  building  association  sued 
the  receiver  of  the  l)ank  on  an  account 


which  included  this  fraudulent  credit. 
Held,  that  no  cause  of  action  existed 
for  the  amount  represented  by  the 
fictitious  entry,  and  as  to  that  item 
the  petition  should  be  dismissed.  Webb 
r.  Stasel,  4  N.  P.,  N.  S.,  587,  17  O.  D. 
X.    P.   317. 

94.  Deposit  of  worthless  check  in 
another  bank. — A  bank  delivered  to  a 
savmgs  institution  coin  to  be  trans- 
mitted to  the  agent  of  the  bank.  The 
agent  received  the  coin  and  sold  it, 
and  notified  the  institution  that  he  had 
deposited  the  amount  to  its  credit  in 
another  bank.  The  institution  credited 
the  bank  on  account  and  sent  the 
agent's  letter  to  the  bank.  After  some 
days  it  was  discovered  that  tlic  agent 
had  only  deposited  his  check,  which 
was  worthless,  as  he  had  failed.  Held, 
that  neither  the  institution  nor  the 
bank  in  which  the  deposit  was  made 
was  bound  by  the  credit  given  on  the 
faith  of  the  check  and  notification. 
The  agent  was  the  agent  of  the  bank, 
and  the  transaction  was  the  same  as 
though  the  Iiank  had  made  tlic  deposit 
of  the  worthless  check.  Dimes  Sav. 
Inst.  V.  Allcntown   Bank,  65  Pa.  116. 


784 


BANKS   AND   BANKING. 


§  112  (3ai) 


persons,  and  puts  the  same  into  execution,  whereby  another  is  damaged, 
the  bank  will  be  liable  in  tort  for  the  damages.^^ 

Cashier. — Where  the  cashier  of  a  bank  assisted  a  gang  of  conspirators 
in  defrauding  a  stranger  by  inducing  him  to  bet  on  a  foot  race,  the  re- 
sult of  which  was  determined  in  advance,  by  allowing  the  use  of  the 
bank  for  the  transference  of  money  and  to  give  an  appearance  of  respecta- 
bility, the  bank,  as  well  as  the  cashier,  is  liable  with  the  conspirators  for 
the  amount  of  which  the  stranger  was  defrauded. ^'"^ 

§  112  (3ai)  Bank's  Retaining-  Benefits  of  Transaction. — When  a 
bank  holds  out  its  officer  to  the  public,  by  his  employment,  as  worthy  of 
confidence,  it  can  not  profit  by  the  frauds  he  perpetrates  in  the  apparent 
scope  of  his  employment.^'     The  fraud  of  the  officer  is  imputable  to  the 


95.  Conspiracy  to  defraud  third  per- 
son— President. — Jolmson  Fife  Hat  Co. 
7/.  National  Bank,  4  Okl.  17,  44  Pac.  192. 

Where  the  president  of  a  banking 
corporation,  who  has  the  control  and 
management  of  its  business,  enters 
into  conspiracy  to  defraud  third  per- 
sons, and  carries  out  such  fraudulent 
design  through  his  relations  with  the 
bank,  the  corporation  has  notice  of 
the  fraud,  and,  on  accepting  the  bene- 
fits resulting  therefrom,  becomes  a 
participant  in  the  fraud  and  liable  for 
the  damage.  Johnson  Fife  Nat.  Co.  z'. 
National  Bank,  4  Okl.  17,  44  Pac.  192; 
Silverstein  v.  National  Bank,  4  Okl. 
35,  44  Pac.  198;  Sanger  v.  National 
Bank,  4  Okl.  36,  44  Pac.  198;  Mayer  f. 
National   Bank,   4   Okl.  37,  44  Pac.   198'. 

It  is  a  part  of  the  duty  of  a  banking 
corporation  to  loan  money,  and  to  col- 
lect such  loans  by  sale  of  goods  or 
other  securitj%  and  where  the  presi- 
dent of  the  bank  has  the  active  con- 
trol and  management  of  the  affairs  of 
the  bank,  and  in  conducting  its  busi- 
ness enters  into  a  conspiracy  to  de- 
fraud, and  puts  the  same  into  execu- 
tion whereby  another  is  damaged,  the 
bank  will  be  liable  in  tort  for  the  dam- 
ages. Johnston  Fife  Hat  Co.  v.  Na- 
tional Bank,  4  Okl.  17,  44  Pac.  192; 
Silverstein  v.  National  Bank,  4  Okl. 
35,  44  Pac.  198;  Sanger  v.  National 
Bank,  4  Okl.  36,  44  Pac  198;  Alaver 
7'.  National  Bank.  4  Okl.  37,  44  P'ac. 
198. 

Where  the  president  of  a  banking 
corporation,  having  control  and  man- 
agement of  its  business,  entered  into 
a  conspiracy  with  a  merchant  whereby 
the  latter  was  to  purchase  of  whole- 
sale dealers  a  large  amount  of  goods 
on  credit,  on  which  the  bank  was  to 
take  a  mortgage  in  an  amount  largely 
in   excess   of   a  loan   which   was   to  be 


made  the  merchant,  under  which  it 
was  to  sell  the  goods,  the  proceeds  of 
such  sale  to  be  given,  one-third  to  the 
1)ank  and  two-thirds  to  the  merchant, 
leaving  the  creditors  unpaid;  and,  in 
pursuance  thereof,  goods  were  bought 
of  the  value  of  $10,000,  on  which  the 
bank  loaned  $1,000,  taking  a  mortgage 
for  $9,960;  and,  before  the  bills  for 
the  goods  became  due,  the  bank  fore- 
closed the  mortgage,  and  took  pos- 
session thereunder,  and  sold  the  goods 
for  $5,300,  which  was  divided  accord- 
ing to  the  agreement — the  bank  was  li- 
able to  each  of  the  defrauded  creditors 
for  the  amount  of  goods  so  sold  by 
each.  Johnson  Fife  Hat  Co.  v.  Na- 
tional  Bank,   4   Okl.   17.   44   Pac.   192. 

96.  Cashier. — Hobbs  7'.  Boatright. 
195  Uo.  693.  5  L.  R.  A..  N.  S.,  906,  93 
S.  W.  934,  113  Am.  St.  Rep.  709. 

97.  Banks  retaining  benefits  of  trans- 
action.—City  Nat.  Bank  r.  Martin,  70 
Tex.  643,  8  S.  W.  507.  8  Am.  St.  Rep. 
632. 

Assets  obtained  by  fraud. — Where  a 
l)ank.  through  the  fraud  of  its  agent, 
obtained  certain  assets  as  security  for 
its  liabilities  through  another  bank, 
though  it  is  not  liable  criminally,  yet 
is  liable  civiliter,  as  it  appointed  the 
end  though  not  the  means,  and  it  can 
not  retain  any  advantages  which  had 
been  gained  through  the  agent.  Johns- 
ton 7'.  Southwestern  R.  Bank  (S.  C); 
3   Strob.  Eq.  263. 

The  president  of  a  bank  borrowed 
money  for  his  own  use  on  the  security 
of  bank  stock  fraudulently  issued  to 
the  president.  The  amount  borrowed 
was  transferred  to  the  bank  without 
consideration,  and  the  bank  collected 
it,  and  placed  the  money  among  its 
assets.  No  stock  was  transferred  on 
the  books.  The  cashier,  as  well  as  the 
president,      had      knowledge       of      the 


§  112  (3ajb) 


REPRESENTATION    OF    BANK. 


785 


bank  when  it  receives  the  benefit.*'^ 

§  112  (3aj)  Fraudulent  Acts  in  Personal  Transactions — §  112 
(3aja)  In  General. — A  bank  is  not  Hable  for  fraudulent  acts  of  its  offi- 
cers performed  in  a  transaction  conducted  for  their  private  benefit,  although 
they  may  have  illegally  used  the  funds  and  credit  of  the  bank  in  effecting 
their  purpose. ■'•*  A  bank  is  not  chargeable  v^ith  notice  of  the  fraudulent 
acts  of  an  officer  outside  the  scope  of  his  authority  and  in  furtherance  of 
his  personal  designs.^ 

§  112  (3ajb)  Use  of  Name  of  Bank. — An  officer  or  agent  of  a  bank 
can  not  prostitute  the  name  of  his  bank  to  the  service  of  his  own  personal 
ends. 2  The  use  of  the  bank's  name  by  an  officer  in  negotiating  notes  which 
do  not  belong  to  it  does  not  render  the  bank  liable  to  the  indorsee  although 
the  proceeds  were  deposited  in  the  bank.-'^ 


fraudulent  issue  of  the  stock.  Held, 
that  a  fraud  had  been  committed  by 
the  president  on  the  lender,  and  that 
the  latter  was  entitled  to  reschid  the 
contract;  that  the  bank  received  the 
money  to  the  use  of  the  lender;  and 
that,  upon  his  surrendering  the  cer- 
tificates, he  was  entitled  to  share,  as  a 
creditor  of  the  bank,  in  the  distribu- 
tion of  its  assets.  Manliattan  Life  Ins. 
Co.  7'.  Farmers',  etc.,  Nat.  Bank,  Fed. 
Cas.  No.  9,024,  10  Blatchf.  344. 

98.  The  president,  a  heavy  stock- 
holder in  defendant  bank,  who  was  an 
intimate  friend  of  plaintiff,  agreed,  as 
a  matter  of  friendship,  to  invest  her 
money  in  good,  first-class  securities. 
She  relied  entirely  on  his  representa- 
tions that  he  had  purchased  first-class 
securities.  He  retained  them  in  his 
possession,  and  she  did  not  examine 
them.  As  a  ma,ttcr  of  fact,  the  securi- 
ties were  not  first-class,  and  had  be- 
longed to  the  bank  before  their  trans- 
fer to  plaintiff  at  their  par  value — five 
per  cent  above  what  the  bank  had  paid 
for  them.  Held,  that  plaintifif  was  en- 
titled to  rescind  the  contract,  and,  on 
returning  the  securities,  to  recover  the 
price  from  the  bank,  since  the  fraud 
of  the  president  is  imputable  to  the 
bank,  which  received  the  benefit.  Carr 
V.  National  Bank,  etc.,  Co.,  23  Misc. 
368,  .52  N.  Y.  vS.  61;  S.  C,  43  App.  Div.  10, 
.59  N.  Y.  S.  018,  affirmed  in  107  N.  Y. 
375,  60  N.  E.  649,  82  Am.   St.   Rep.  725. 

99.  Fraudulent  acts  in  personal 
transactions. — Ruchs  v.  Third  Nat. 
i!ank,   94   Tenn.   57,   28   S.   W.   303. 

1.  Jones  V.  First  Nat.  Bank,  3  Neb. 
73.  90  N.  W.  912. 

2.  Use  of  name  of  bank. — City  Elect. 
St.  R.  Co.  V.  I-irst  Xut.  Bank,  05  Ark. 
543,   47    So.   855. 

1   B  &  B— 50 


3.  Negotiation  of  notes. — A  bank  is 
not  liable  to  a  company  for  proceeds 
of  the  company's  note,  made  payable 
to  one  who  was  president  of  the  bank 
and  an  officer  of  the  company,  though 
in  negotiating  it  he  used  the  bank's 
name,  and  though  he  deposited  the 
proceeds  in  it;  it  having  been  to  his 
own  credit,  and  he  having  used  the 
same.  City  Elect.  St.  R.  Co.  v.  First 
Nat.   Bank,   65   Ark.   543,   47   S.   W.   855. 

The  president  of  defendant  bank 
took  to  plaintiff  bank  a  note  executed 
by  third  persons,  and  asked  plaintiff 
to  discount  it.  Plaintiff's  directors 
asked  the  president  if  the  signers  of 
the  note  were  good,  and  he  said  they 
were.  They  then  agreed  to  discount 
the  note  if  the  president  would  in- 
dorse it,  which  he  did;  the  proceeds 
being  credited  to  defendant  l^ank  on 
account  of  the  signers  of  the  note. 
The  signers  were  financially  involved 
at  the  time  the  note  was  issued,  and 
later  failed.  Held,  that  defendant's 
president  was  acting  individually  in 
the  matter,  and  that  defendant  was  not 
liable  on  the  ground  that  it  had  prac- 
ticed a  fraud  upon  plaintiff  in  procur- 
ing it  to  discount  tlie  note.  American 
Nat.  Bank  v.  Warren  Deposit  Bank, 
22   Ky.   L.    Rep.    195.   92   S.   W.   585. 

Plaintiff  bank  held  a  note,  which  it 
bad  discounted  upon  the  request  of 
the  president  of  defendant  bank:  the 
note  being  indorsed  by  both  president 
and  cashier  of  defendant  bank.  De- 
fendant had  a  first  mortgage  on  cer- 
tain cattle  l)elonging  to  the  maker  of 
the  note,  and,  when  the  proceeds  of 
the  cattle  were  turned  over  to  defend- 
ant's cashier,  he  paid  a  portion  thereof 
to  plaintiff,  and  a  portion  to  the  holder 
of  anotlirr   note   exccult'd   by   the    same 


786 


BANKS    AND    BANKING. 


§    112    (3b) 


Procuring  Execution  of  Note. — Where  the  president  of  a  bank,  in 
seeking  to  defraud  certain  persons,  told  them  that  the  bank  would  accept 
their  notes,  would  renew  them  indefinitely,  and  under  certain  circumstances 
would  not  enforce  payment,  the  bank  is  not  charged  with  the  knowledge  of 
the  president,  and  therefore,  being  innocent,  may  enforce  the  notes. ^ 

§  112  (3ajc)  Buying  and  Selling  Stock. — Buying  and  selling  stock 
is  not  a  part  of  the  legitimate  business  of  a  bank,  and  the  bank  is  not  bound 
by  the  fraud  or  wrongful  acts  of  its  officer  in  such  transactions.-^ 

§  112  (3ajd)  Fraud  on  Depositor. — An  employee  of  a  bank  in  the 
perpetration  of  a  fraud  on  a  depositor  is  not  the  agent  of  the  bank."^ 

§  112  (3ak)  Application  of  Principle  of  Estoppel. — The  principle 
that,  when  one  of  two  innocent  parties  must  suiter  by  reason  of  a  fraudu- 
lent transaction  it  must  be  the  one  whose  act  made  it  possible  for  the  fraud 
to  be  perpetrated,  can  not  be  so  perverted  as  to  enable  a  bank  to  profit  by 
a  fraud  perpetuated  by  the  cashier  who  had  the  general  charge  of  its  afifairs.'^ 

§  112   (Sal)  Proof  of  Fraud. — The  fraud  must  be  clearly  shown. '^ 

§   112    (3b)    False  Representations  as  to  Credit    of    Another. — 

Where  an  officer  of  defendant  bank  was  not  acting  in  his  official  capacity 


parties,  and  on  which  he  was  also  a 
surety.  Defendant  bank,  though  it 
had  a  first  lien  on  the  cattle,  received 
nothing.  Held,  that  plaintiff  had  no 
cause  of  action  against  defendant  be- 
cause of  the  manner  in  which  the 
money  was  applied.  American  Xat. 
Bank  v.  Warren  Deposit  Bank,  22  Ky. 
L.    Rep.    19.5,    92    S.   W.    585. 

4.  Procuring  execution  of  note. — 
Baker  v.  Berrv  Hill  Mineral  Springs 
Co..  112  Va.  2S0.   71    S.   E.  (>2f>. 

5.  Buying  and  selling  stock. — Plain- 
tiff applied  to  the  cashier  of  a  bank 
to  purchase  shares  of  stock.  The  pur- 
chase was  made  from  S.,  who  retained 
the  stock  for  some  time,  when  he 
sent  it  to  the  cashier,  with  a  letter  ad- 
dressed to  the  cashier  individually. 
The  account  kept  by  plaintiff  was  with 
the  cashier  individually.  Plaintiff 
gave  his  check  for  the  price  to  the 
cashier  individually,  and  the  transac- 
tion did  not  appear  on  the  books  of 
the  bank.  The  bank  was  not  engaged 
in  buying  and  selling  stock  for  itself 
or  for  others.  On  receipt  of  the  stock, 
the  cashier  kept  it  in  his  own  private 
drawer  of  a  desk  in  the  bank.  The 
cashier  thereafter  converted  the  stock, 
and  plaintiff  sued  the  bank  in  trover. 
Held,  that  the  bank  is  not  liable.  Pres- 
ton f.  Marquette  County  Sav.  Bank, 
122   Mich.    696,   81    N.   W.   920. 

6.  Fraud    on    depositor. — Brown    v. 


Lynchburg   Xat.   Bank,   109  Va.   530,  64 
S.    E.   9.50. 

7.  Application  of  principle  of  es- 
toppel.— Daniels  z\  Empire  State  Sav. 
Bank.  92  Hun  450.  38  X.  Y.  S.  580,  74 
X.  Y.   St.   Rep.  257. 

Plaintiff,  then  an  unmarried  woman, 
having  a  deposit  in  a  bank,  on  leaving 
for  Europe,  to  be  absent  a  year,  signed 
checks  in  blank,  and  left  them  with 
the  cashier,  who  was  also  manager  of 
the  bank,  to  be  used  as  she  might 
thereafter  direct.  The  follov/ing  year 
she  returned,  and  later  married.  After- 
wards the  cashier  filled  out  one  of  the 
checks,  though  it  was  not  charged  to 
plaintiff's  account  on  her  book.  Held, 
that  the  bank  could  not  charge  plain- 
tiff with  the  amount  of  the  check. 
Daniels  r.  Empire  State  Sav.  Bank,  92 
Hun  450,  38  N.  Y.  8.  580,  74  X.  Y.  St. 
Rep.  257. 

8.  Fraud  in  procurement  of  notes  for 
insurance  premium. — Where  A.  &  B. 
were  induced  by  ihe  cashier  of  a  bank 
to  take  out  policies  of  insurance  and 
borrow  money  from  the  bank  on  notes 
to  pay  the  premiums,  by  his  promise 
that  the  bank  would  protect  them_  in 
the  first  payment  of  the  premium 
when  they  came  due,  and  the  bank 
sued  them  on  their  notes,  it  was  held 
that  fraud  was  not  sufficiently  shown 
by  these  facts.  Vanzant  r.  Bank,  2 
Ga.  App.  763,  59  S.  E.  85. 


§112    (3e)  REPRESENTATION    OF    BANK.  787 

at  the  time  he  made  certain  false  representations  to  plaintiff  concerning 
the  financial  responsibility  of  a  corporation  with  which  plaintiff  entered 
into  a  lumbering  contract,  the  bank  was  not  liable  in  an  action  for  deceit.^ 

§  112  (3c)  Slander  of  Credit. — A  bank  corporation  is  not  liable  for 
slanderous  statements  made  by  its  officer  or  agent,  injurious  to  a  depositor, 
in  his  occupation  of  merchant  or  trader,  though  made  in  connection  with  a 
refusal  to  honor  his  check  drawn  on  the  bank.^*'  And  a  bank  is  not  liable 
for  slander  for  unauthorized  declarations  of  its  cashier  that  plaintiff'  had 
previously  overdrawn  his  accounts. ^^ 

Wrongful  Publication  of  Protest  by  Notary. — A  bank  is  not  liable 
for  the  malicious  and  wrongful  publication  of  a  protest  by  a  notary  public 
employed  by  it,  unless  it  shared  in  the  malicious  act;  since  a  notary  public 
is  a  public  officer,  and  the  liability  for  his  official  acts  is  in  no  way  aff'ected 
by  the  fact  that  he  was  also  an  employee  of  the  bank.^-  In  order  to  render 
the  bank  liable,  it  would  at  least  have  to  be  alleged  that  it  shared  maliciously 
in  the  production  or  publication  of  the  libel. ^^ 

§  112  (3d)  Negligence. — A  bank  can  not  ignore  the  negligence  of 
all  its  officers  and  profit  by  their  omission  of  duty.^'* 

Negligent  Keeping  of  Record  of  Director's  Meeting. — The  neglect 
by  the  cashier  of  a  directory  by-law,  as  to  keeping  a  record  of  the  proceed- 
ing of  the  directors,  will  not  aft'ect  their  validity. ^^ 

§  112  (3e)  Receiving  Foreign  Bank  Note  in  Payment. — The  teller 
of  a  bank  does  not  render  the  corporation  liable  to  the  penalty  prescribed 
by  statute  by  receiving  in  payment  a  foreign  bank  note,  unless  his  act  was 

9.  False  representations  as  to  credit  — Effect. — Where  the  cashier  is  re- 
of  another. — Simons  v.  Cissna,  52  quired  to  keep  a  fair  and  regular 
Wash.  115,   100   Pac.   200.  record    of    the    proceedings    of    the    di- 

10.  Slander  of  credit. — Judgment,  20  rectors,  it  is  a  by-law  of  the  corpora- 
Misc.  Rep.  90,  45  X.  Y.  vS.  68,  reversed.  tion,  directory  to  its  officers,  enacted 
Eichner  v.  Bowery  Bank,  24  App.  Div.  for  its  own  security  and  benefit,  and 
63,  48  N.  Y.  S.  978,  5  N.  Y.  Ann.  Cas.  not  for  the  purpose  of  restricting  tlie 
106.  acts    of    the    directors.      If    the    cashier 

11.  Unauthorized  declarations. — Et-  should  neglect  to  keep  such  records, 
ting  V.  Commercial  Bank  (La.),  7  Rob.  or  should  omit  any  single  vote,  the 
459.  by-law  has   not  declared  that  the  vote 

12.  Wrongful  publication  of  protest  shall  be  void,  and  the  •  proceedings 
by  notary. — May  v.  Jones,  88  Ga.  308,  nugatory.  Bank  ?'.  Dandridge  (U.  3.), 
14    S.    E.   552,   15    L.    R.   A.   637,   30   Am.  12    Wheat.   64,   ('    L.    Ed.   552. 

St.   Rep.   154.  Mr.   Justice    Story,   in    discussing   the 

13.  An  allegation  "that  the  action  of  su])ject  in  Bank  t-.  Dandridge,  12  Wheat, 
the  notary  in  the  matter,  he  acting  64,  6  L.  Ed.  552,  said:  "A  lioard  may  ac- 
under  the  authority  of  the  bank,  is  the  cept  a  contract,  or  approve  a  security, 
action  of  said  1)ank,"  is  not  sufficient  by  a  vote,  or  1)y  a  tacit  or  implied  as- 
to  charge  the  bank  as  a  joint  tort  sent.  The  vote  or  assent  may  be  more 
feasor  with  the  notary.  Alay  v.  Jones,  difficult  of  proof  by  parol  evidence 
88  Ga.  308,  14S.  E.  552,  15  L.  R.  A.  637,  than  if  reduced  in  writing.  But  this  is, 
30  Am.  St.  Rep.  154.  surely,    not    a     sufficient      reason      for 

14.  Liability  for  negligence. — Kissam  declaring  that  the  vote  or  assent  is  in- 
7:  Anderson,  145  U.  S.  435,  36  L.  Ed.  operative.''  Jacksonville,  etc.,  Nav. 
765.    12    S.    Ct.   960.  Co.    V.    Hooper,    160    U.    S.    514,    40    E. 

15.  Neglect  of  cashier  to  keep  record  Ed.  515,  16  S.  Ct.  379. 


788 


BANKS    AND    BANKING. 


§  112   (4a) 


authorized  or  adopted  by  the  board  of  directors. i*5 

§  112  (3f)  Organization  of  Another  Bank  in  Evasion  of  Charter. 

— The  act  of  a  cashier,  making  an  arrangement  with  the  stockholders  of 
another,  not  an  organized  bank,  to  organize  that  bank  in  evasion  of  their 
charter,  although  illegal,  still,  if  it  is  an  act  done  ty  him,  not  for  himself 
or  his  benefit,  but  for  the  bank  and  the  bank's  benefit,  and  beneficial  thereto, 
and  known  to  the  directors,  or  which,  if  unknown,  is  unknown  on  account 
of  their  negligence,  and  not  repudiated,  exposed,  or  neutralized,  is  the  act 
of  the  bank,  and  debars  it  from  resorting  to  the  stockholders  of  the  other 
bank  for  payment  of  bills  held  by  it  on  that  bank.^'^ 

§  112   (3g)  Attempt  to  Prefer  Bank  Officer  to  Other  Creditors.— 

As  against  third  parties,  the  terms  of  a  resolution  of  the  directors  of  a 
national  banking  association,  when  the  exigencies  of  a  financial  crisis  are 
upon  them,  in  the  attempt  to  prefer  one  of  the  bank's  officers,  can  not 
properly  be  regarded  as  decisive  upon  the  question  of  the  facts  actually 
existing  in  respect  to  such  third  parties  in  a  given  case.^*^ 

§  112  (4)  Embezzlement  and  Misappropriation— §  112  (4a)  In 
General. — A  bank  is  liable  to  the  owner  for  funds  embezzled  or  misap- 
propriated by  its  officers  or  agents  by  virtue  of  their  positions  in  the  bank,^*^ 
but  it  is  not  liable  where  it  had  no  connection  with  the  fraud ;  as,  for  in- 
stance, where  funds  are  obtained  by  the  president  as  trustee  for  creditors, -"^ 


16.  Receiving  foreign  bank  note  in 
payment. — Clark  v.  Metropolitan  Bank, 
10   X.  Y.   Super.   Ct.  241. 

17.  Organization  of  another  bank  in 

evasion       of       charter. — RolMnson      z'. 
Beallc,    20    Ga.    275. 

18.  Resolution  preferring  bank  of- 
ficer— Effect. — Revnes  t'.  Dumont,  130 
U.   S.  354,  32   L.   Ed.  934,  9   S.   Ct.  48()._ 

19.  Embezzlement  and  misappropria- 
tion.— If  a  bank  cashier,  on  its  behalf, 
has  received  monej-  on  account  of  A., 
its  subsequent  misapplication  l:)y  the 
cashier  forms  no  defense  to  A.'s  suit 
a!?ainst  the  bank.  Concord  r.  Concord 
Bank,    16   N.   H.   26. 

M.  was  president  of  defendant  bank, 
and  embezzled  money  belonging:  to  a 
town  of  which  he  was  a  railroad  com- 
missioner, but,  before  absconding, 
crave  his  note  to  the  bank  to  cover  this 
shortage,  and  the  bank's  receiver,  in 
assessing  stock,  included  such  short- 
age among  the  debts  to  be  paid  by  the 
bank.  Held,  that  the  facts  showed  that 
M.  had  deposited  the  money  in_  the 
bank,  and  hence  eml^ezzled  it  bv  virtue 
of  his  position  as  president  of  such 
bank,  and  not  as  railroad  commis- 
sioner, and  hence  the  bank  was  liable 
therefor.  Kilby  z'.  First  Nat.  Bank,  32 
Misc.  Rep.  370,  66  N.  Y.  S.  579. 


Bonds  deposited  with  bank. — Where 
the  treasurer  of  a  !)ank,  who  was  also 
cashier  and  managing  agent,  took  cer- 
tain bonds  belonging  to  plaintiff,  and 
pledged  them  in  the  name  of  the  bank 
to  secure  advances  made  to  it  liable 
for  the  conversion,  though  its  di- 
rectors were  ignorant  of  the  taking. 
Fishkill  Sav.  Inst.  v.  National  Bank, 
so   N.   Y.    162,   affirming   19    ?Tun   354. 

20.  Funds  received  by  president  as 
trustee  for  creditors. — A  bank  can  not 
be  held  liable  as  trustee  for  money  col- 
lected by  its  president  and  financial 
manager,  as  trustee  for  benefit  of 
creditors  of  the  maker  of  notes  to  the 
liank,  and  paid  into  the  bank  on  a  cer- 
tificate of  deposit  in  his  name,  and  ap- 
plicable to  payment  of  the  notes,  where 
the  bank  had  no  connection  v/ith  the 
trust  property.  Alpena  Nat.  Bank  z'. 
Greenbaum,  80  Mich.  1,  44  _N.  W.  1123. 

In  this  case  M.  was  president  of  the 
bank  and  also  trustee  for  creditors  of 
the  makers  of  the  notes,  said  maker  be- 
ing indebted  not  only  to  M.'s  bank, 
but  to  third  persons  who  had  taken 
the  notes  of  the  makers,  which  they 
h.eld.  and  discounted  them  at  M.'s 
bank.  The  bank  was  now  suing  these 
third  persons  as  indorsers  of  these 
discounted  notes   and  they,  as   defend- 


§  112  (4ba) 


REPRESENTATION    OE    BANK. 


789 


or  as  railroad  commissioner  ;-^  or  where  funds  were  borrowed  by  the  vice- 
president  in  its  name  and  appropriated  to  his  own  use  when  he  had  no 
authority  to  borrow  money  and  his  act  was  not  ratified  by  the  bank.-- 

Liability  on  Checks  Drawn  by  Cashier. — A  bank  is  bound  by  the  act 
of  its  cashier  in  drawing  checks  in  its  name,  though  with  the  intent  of  em- 
bezzhng  the  proceeds,  and  payment  of  the  checks  by  the  drawee  is  binding 
on  the  bank. -3 

Liability  for  Drafts  Drawn  on  Another  Bank. — A  bank  is  responsible 
for  the  act  of  its  cashier  in  making  a  draft  on  another  bank  for  the  pay- 
ment of  money  on  a  future  day,  contrary  to  Rev.  St.,  c.  36,  §  S7,  though 
fraudulently  drawn  by  him  to  conceal  his  embezzlement  of  the  funds  of 
the  bank.24 

§  112  (4b)  Misappropriation  of  Deposits — §  112  (4ba)  In  Gen- 
eral.— Where  a  person  occupying  the  position  of  managing  officer  of  a 
bank,  receives  moneys  which  are  deposited  in  the  bank,  his  knowledge  will 
be  treated  as  that  of  the  bank,  and  it  is  liable  to  the  depositor,  even  though 
such  officer  misappropriates  the  moneys. ^^  If  such  officer  converts  the 
money  wathout  the  bank  having  received  it,  and  without  credit  being  given 
on  its  books,  it  will  not  be  liable.  6ut,  when  he  receives  funds  which  go 
into  the  bank,  it  is  chargeable  with  all  the  knowledge  possessed  by  him ; 
otherwise  those  dealing  with  the  bank  would  be  without  remedy  in  the 
case  of  fraud  or  misappropriation  on  the  part  of  its  managing  officer.-''- 

Clerk  or  Teller  Agent  of  Customer  in  Making  Deposit. — Where 


ants,  claimed  that  M.  had  realized  on 
the  property  conveyed  to  him  as  trus- 
tee and  placed  the  proceeds  in  his 
bank,  now  suing  as  plaintiff.  Defend- 
ants claimed  that  M.  should  have  used 
this  money  or  part  thereof  to  pay 
these  notes  on  which  they  were  in- 
dorsers,  and  that  the  money  having 
been  placed  in  the  bank,  the  liank 
should  be  charged  as  a  trustee  for 
their  benefit.  Held,  as  in  the  Alpena 
Nat.  Bank  v.  Greenbaum,  80  Mich.  1, 
44   N.   W.   1123. 

21.  Funds  obtained  as  railroad  com- 
missioner.— Killjy  c'.  First  Nat.  Bank, 
:i2    Misc.    Rep.   370,   fifi   N.   Y.    vS.   570. 

22.  Funds  borrowed  and  misappro- 
priated by  vice-president. — Clicmical 
Nat.  Bank  v.  Armstrong,  13  C.  C.  A. 
47,  65  Fed.  573,  28  L.  R.  A.  231,  modi- 
fying 8  C.  C.  A.  155,  59  Fed.  372,  to 
accord  152  U.  S.  346,  38  L.  Ed.  470,  14 
S.    Ct.    572. 

23.  Liability  on  checks  drawn  by 
cashier. — Phillips  v.  Mercantile  Nat. 
Bank.  140  N.  Y.  556,  35  N.  E.  982,  37 
Am.  St.  Rep.  596,  23  L.  R.  .\.  584,  af- 
firming 22  N.  Y.  S.  254,  67  Hun  378, 
54   N.   Y.   St.   Rep.   918. 


24.  Liability  for  drafts  drawn  on  an- 
other bank. — Faneuil  Hall  Bank  v. 
Bank    (Mass.\    in    Gray    534. 

25.  Misappropriation  of  deposits. — 
Smith  V.  Anderson,  57  Hun  72,  10  N. 
Y.  S.  278,  32  N.  Y.  St.  Rep.  5;  Holden 
c'.  New  York,  etc..  Bank,  72  N.  Y.  286; 
Port  Jervis  v.  First  Nat.  Bank,  96  N. 
Y.  550;  Cragie  v.  Hadley,  99  N.  Y.  131, 
1  N.  E.  537,  52  Am.  Rep.  9;  Bartow  v. 
People,  78  N.  Y.  377;  Fishkill  Sav. 
Inst.  V.  Bostwick,  92  N.  Y.  564;  Fish- 
kill  Sav.  Inst.  V.  Nat.  Bank,  8  N.  Y. 
162. 

Where  plaintiff  delivered  moneys  to 
the  president  of  a  bank  to  be  deposited 
therein,  and  the  latter,  without  plain- 
tiff's knowledge  or  consent,  deposited 
them  in  his  own  name  as  her  attorney, 
and  afterwards  unlawfully  appropri- 
ated a  large  part  thereof  to  his  own 
use,  the  bank  is  lial)lc,  since  it  is 
chargeal)le  with  the  knowledge  pos- 
sessed by  its  president.  Smith  7'.  .An- 
derson, 57  Hun  72,  10  X.  Y.  S.  278, 
32  N.  Y.  St.  Rep.  5. 

26.  Smith  v.  .Anderson,  57  Hun  72. 
10  N.  Y.  S.  278,  32  N.  Y.  St.  Rep.  5. 


790 


BANKS    AND    BANKING. 


§    114    (4bb) 


a  clerk-"  or  paying  teller,-"*  of  a  bank  to  whom  a  customer  delivered  money 
for  deposit  in  the  bank,  but  who  embezzled  it,  was  agent  of  the  customer 
in  making  the  deposit,  the  bank  is  not  liable,  but  the  depositor  is  answer- 
able for  the  deficit;  but  where  the  bank  held  him  out  as  authorized  to  re- 
ceive the  money  it  will  be  liable. ^'^ 

Trust  Deposit. — Where  a  bank  cashier  is  enabled  to  misappropriate  a 
trust  deposit  by  the  failure  of  the  director  to  supervise  the  officers,  the 
bank  is  liable  for  the  amount  misappropriated.^^' 

§  114  (4bb)  Special  Deposits  for  Safe-Keeping. — For  a  special  de- 
posit, received  by  a  bank  through  its  cashier  for  gratuitous  safe-keeping 
and  return  to  the  depositor  on  demand,  the  bank  is  not  liable  if  the 
cashier,  without  its  knowledge  or  consent,  steals  it  or  fraudulently  appro- 
priates it  to  his  own  use,  provided  the  bank  has  exercised  due  diligence  in 
selecting  the  cashier  and  in  not  keeping  him  in  office  after  it  knew,  or  ought 
to  have  known,  that  he  was  or  had  become  untrustworthy.  In  stealing  or 
clandestinely  appropriating  the  deposit  to  his  own  use,  the  cashier  would 
not  be  acting  in  the  bank's  business,  or  within  the  scope  of  his  employment ; 


27.  Clerk,  agent  of  customer  in  mak- 
ing deposit. — ^A  clerk  in  the  bank,  who 
acted  as  a  bookkeeper,  and  whose  par- 
ticular duty  it  was  to  keep  the  ledger, 
into  which  the  entries  are  copied  from 
the  teller's  cash  book,  received  money 
from  A.,  who  was  a  dealer  with  the 
bank,  for  the  purpose  of  having  the 
same  deposited  in  the  bank,  and  which 
he  entered  in  the  ledger,  and  after- 
wards into  the  dealer's  bank  book,  but 
which  was  not  received  by  the  teller, 
nor  entered  in  his  cash  book,  and  was 
supposed  to  be  einbezzled,  with  other 
moneys,  by  the  clerk,  who  absconded. 
It  was  held  that  the  clerk,  in  making 
the  deposit,  v/as  the  agent  of  A.,  and 
not  of  the  bank,  and  that  A.  must  be 
answerable  for  the  deficit  in  the  de- 
posit. Manhattan  Co.  t'.  Lydig  (N. 
Y.),  4  Johns.  377,  4  Am.  Dec.  280. 

28.  A  paying  teller,  receiving  the 
funds  of  a  stranger,  and  promising  to 
apply  them  to  the  payment  of  a  bill  or 
a  note,  acts  as  the  agent  of  the  stran- 
ger, and  not  of  the  bank,  which  is  not 
liable  for  any  breach  or  neglect  of  his 
promise.  Thatcher  z'.  Bank,  7  N.  Y. 
Super.   Ct.   121. 

29.  A  package  of  money  was  sent  by 
express  from  plaintiff  to  defendant 
bank,  directed  to  its  cashier.  The 
clerk  of  the  express  company  took  it 
to  the  bank,  and,  the  receiving  teller 
being  temporarily  absent,  delivered 
the  package  to  S..  who  v/as,  and  had 
for  some  time  been,  assistant  receiv- 
ing teller,  and  who  at  the  time  was  at 


the  receiving  teller's  desk.  Tlie  pack- 
age was  never  delivered  by  S.  to  the 
cashier,  and  the  money  never  came 
into  the  posses?ion  of  the  bank.  Held, 
that  since  the  bank  placed  S.  at  the  re- 
ceiving teller's  desk,  and  permitted 
him  to  act  as  receiving  teller,  it 
thereby  held  him  out  to  the  express 
agent  as  authorized  to  receive  the 
package,  and  that  the  liank  was  liable 
for  its  loss.  Hotchkiss  v.  Artisans' 
Bank,  41  N.  Y.  (2  Keyes^  564.  2  Abb. 
Dec.    403,    affirming   42    Barb.    517. 

30.  Trust  deposit. — Directors,  by 
failing  in  their  duty  of  supervision  and 
control,  permitted  the  cashier  to  have 
complete  control  over  the  business,  so 
that  he  was  able  for  a  long  time  to 
commit  irregularities,  issuing  worth- 
less checks  in  the  name  of  a  company 
of  which  he  was  manager,  which  were 
paid  by  the  bank  and  eventually  taken 
up  by  him  in  exchange  for  his  cliccks, 
on  the  account  of  an  estate  of  which 
he  was  administrator.  Two  notes  of 
his  companv  being  presented  for  pay- 
ment when  the  compan}^  had  no 
money  on  deposit,  they  were  not  paid 
by  the  bank,  but  the  cashier  took  them 
up  l)y  drawing  on  the  account  of  the 
estate.  Held,  that  the  bank  was  liable 
for  the  sum  so  drawn,  though  it  re- 
ceived no  benefit  from  the  transac- 
tions; the  directors'  neglect  being  re- 
sponsible for  the  cashier's  opportunity 
to  commit  irregularities.  Lowndes  f. 
Citv  Nat.  Bank,  82  Conn.  8,  72  Atl. 
150. 


§  112  (4d) 


REPRESENTATION    OF    BANK. 


791 


he  would  be  representing  himself  and  not  the  bank.^^  There  is  no  under- 
taking on  the  part  of  the  bank  to  the  bailor  that  an  officer  of  the  bank 
should  not  steal ;  the  case  does  not  rest  on  any  such  warranty  or  undertak- 
ing, but  on  gross  negligence  in  care  taking.-'-' 

Effect  of  Recovery  as  Revesting  Title  in  Depositor. — \\  here  the 
cashier  of  a  bank  pledges  bonds  deposited  therein  for  safe-keeping,  the 
pledgee,  acting  in  good  faith,  takes  a  good  title ;  and  a  recovery  of  the 
bonds  through  the  cashier's  bad  faith  does  not  revest  the  title  in  the  de- 
positor.^-^ 

§  112  (4c)  Money  Received  for  Transmission. — The  transmission 
of  money  being  an  essential  function  of  a  commercial  bank,  and  its  cashier 
being  clothed  with  apparent  authority  to  act  for  it  therein,  a  cashier,  on  re- 
ceiving a  depositor's  check,  with  instructions  to  transmit  the  amount  named 
to  a  trust  company  for  deposit,  is  the  agent  of  the  bank,  and  not  of  the 
depositor,  and  the  bank  is  liable  for  the  cashier's  misappropriation  of  the 
fund. 34  Even  on  the  theory  that  the  cashier  was  the  depositor's  agent  the 
bank  was  liable   for  its  misappropriation,  being  cognizant  of  the   fraud. ^^ 

§  112  (4d)  Collateral  Security. — Where  the  president-''^'  or  cashier^" 
of  a  bank  converts  securities  pledged  to  it  as  collateral  to  secure  a  loan,  the 


31.  Special  deposits  for  safe-keep- 
ing.— Merchants'  Nat.  Bank  z'.  Guil- 
martin,  88  Ga.  797,  15  S.  E.  831;  Mer- 
chants' Nat.  Bank  v.  Demere,  02  Ga. 
735,  19  S.  E.  38;  Merchants'  Nat.  Bank 
V.  Carhart,  95  Ga.  394,  22  S.  E.  628. 

When  the  bank  does  its  full  duty 
in  selecting  a  proper  person  and  in  not 
disregarding  indications  of  dishonesty 
which  ought  to  arouse  suspicion  and 
investigation,  it  is  not  responsible  to 
one  who  has  obtained  from  it  the  favor 
of  barely  keeping  specific  property 
without  recompense,  though  the  cash- 
ier steal  the  property  so  put  in  his 
charge.  Merchants'  Nat.  Bank  t'.  Guil- 
martin,   93    Ga.   503,   21   S.   E.  .55. 

32.  Merchants  Nat.  Bank  v.  Guil- 
martiii,    93    Ga.    503,    21    S.    E.    55. 

33.  Effect  of  recovery  as  revesting 
title  in  depositor. — Ringling  r.  Kohn, 
4  I\Io.  App.  59. 

34.  Money  received  for  transmis- 
sion.— Goshorn  t'.  People's  Nat.  Bank, 
32  Ind.  App.  428.  GO  N.  E.  185,  102  .\m. 
St.    Rep.   248. 

35.  A  depositor,  desiring  to  with- 
draw his  bank  deposit  and  commit  it 
to  a  trust  company,  received  from  the 
bank  cashier  a  suggestion  as  to  a  par- 
ticular trust  company,  and,  drawing  a 
check,  delivered  it  to  the  cashier,  with 
instructions  to  deposit  the  amount 
named  with  the  company  suggested. 
Instead  of  doing  so,  the  cashier  sub- 
stituted the  depositor's  money  for  paid 


checks  of  his  own  on  the  bank,  which 
he  was  carrying  as  cash.  Held  that, 
even  on  the  theory  that  the  cashier 
was  the  depositor's  agent  for  the  trans- 
inission  of  the  fund,  the  bank  was 
liable  for  its  misappropriation,  the 
transaction  amounting  to  a  payment  of 
the  depositor's  check  merely  with  the 
evidences  of  the  cashier's  indebtedness, 
and  the  bank,  moreover,  l^eing  cog- 
nizant of  the  fraud  through  its  cash- 
ier. Goshorn  v.  People's  Nat.  Bank, 
32  Ind.  App.  428,  69  N.  E.  185,  102  .\m. 
St.    Rep.    248. 

36.  Collateral  security. — The  presi- 
dent of  a  banking  association  con- 
verted securities  pledged  to  the  bank 
as  collateral  for  a  loan.  The  evidence 
showing  negligence  on  the  part  of  the 
directors,  held,  that  the  association 
was  lial)le.  Cutting  z'.  Marlon  (N.  Y.), 
57  How.  Prac.  56,  6  Abb.  N.  C.  388,  af- 
firmed  in   78   N.   Y.   454. 

37.  A  cashier  was  intrusted  with  the 
management  of  afi'airs  of  a  1)ank,  which 
lield  a  note  on  which  lie  was  indorser. 
He  received  bonds  as  collateral,  and 
sold  them  and  used  the  proceeds  to 
reduce  his  indel)tedness  to  it  for  money 
unlawfully  appropriated.  Held,  tliat 
the  liank  was  responsible  for  the  loss 
resulting  from  the  conversion  of  the 
bonds.  Judgment.  104  N.  Y.  S.  1040, 
120  \pp.  Div.  542,  aftirmed.  First  Nat. 
Bank  z:  Sing  Sing  Gas  Mfg.  Co.,  191 
N.   Y.  580,  88  N.  E.  1110. 


792 


BANKS    AND    BANKING. 


§   112    (4f) 


bank  is  responsible  for  the  loss  resulting  therefrom ;  but  one  who  borrows 
money  from  a  bank  for  the  cashier  thereof,  on  collaterals  belonging  to 
cashier,  is  not  entitled  to  credit  for  amount  of  such  collaterals  after  they 
have  been  wrongfully  withdrawn  and  converted  by  the  cashier. -"'^ 

§  112  (4e)  Paper  Left  for  CoUection. — ^^'here  a  note  is  left  with 
the  teller  for  collection,  and  the  bank  receives  the  money,  but  the  teller 
deposits  the  amount  in  his  own  name,  the  bank  has  notice  as  to  the  owner- 
ship of  the  note,  and  is  liable  to  the  true  owner,  although  it  was  payable 
to  the  teller's  order.-^" 

§  112  (4f)  Right  of  Bank  to  Money  or  Paper  Used  to  Conceal 
Embezzlement. — Where  the  president  and  cashier  of  a  bank  co-operate 
in  abstracting  and  misapplying  its  funds,  and,  in  order  to  accomplish  their 
purpose  and  secrete  their  transactions  from  the  board  of  directors,  the  note 
of  a  friend,  with  fictitious  collaterals  attached,  is  obtained  and  placed  in 
the  portfolio  of  the  bank,  the  bank  is  not  bound  thereby ;  but  the  maker  of 
such  a  note  is  bound  to  the  bank,  notwithstanding  it  was  without  considera- 
tion as  to  him.^'^ 

Money  Obtained  by  Fraud. — Where  the  teller^i  or  cashier*-  of  a 
bank,  in  order  to  conceal  a  defalcation,  procured  funds  of  another  by  fraud 


38.  Merchants"  Nat.  Bank  f.  Demere. 
92    Ga.    735,    ]9    S.    E.    38. 

The  officers  representing  the  bank- 
in  making  the  loan  not  being  aware 
that  the  money  was  for  the  use  of  the 
cashier  or  that  the  collaterals  belonged 
to  hhii.  and  not  acquiring  this  informa- 
tion until  after  the  cashier  had  fraudu- 
lently withdrawn  the  collaterals  and 
applied  them  to  his  own  use,  the  bank 
is  not  accountable  for  their  value  in 
settling  its  claim  against  the  borrower 
for  this  loan  and  for  ether  transactions 
giving  rise  to  a  general  balance  against 
him  in  favor  of  the  bank.  Merchants' 
Nat.  Bank  v.  Demere,  93  Ga.  735.  19 
S.  E.  38. 

39.  Paper  left  for  collection. — City 
Nat.  Bank  r.  IMartin,  70  Tex.  643.  8  S. 
W.    507.   8   Am.    St.    Rep.   C-,22. 

40.  Right  of  bank  to  money  or  pa- 
per used  to  conceal  embezzlement. — 
Richardson  ?'.  Watson,  51  La.  .\nn. 
1390,    26    So.    422. 

41.  Money  obtained  by  fraud. — 
]\Ioney  fraudulently  tak_en_  from  the 
owner  by  his  clerk,  and  paid  into  a  bank, 
to  a  defaulting  teller  therein,  athis  re- 
quest, for  the  purpose  of  enabling  him 
to  exhibit  it  to  the  bank  officers  as 
money  of  the  bank,  and  thus  to  conceal 
his  embezzlement,  does  not  become  the 
money  of  the  bank,  although,  in  ex- 
amining and  settling  the  accounts  of 
the    defaulting    teller,    and    before    the 


discovery  of  the  embezzlement,  it  was 
received  and  counted  by  different  of- 
ficers of  the  bank  as  money  of  the 
bank,  and  treated  as  such,  and  put  to 
his  credit  on  the  books,  and  after- 
wards returned  to  his  custody.  Skin- 
ner 7'.  Merchants'  Bank  (Miss.),  4 
Allen   290. 

42.  Atlantic  Bank  z:  Merchants 
Bank    (Mass.).    10   Gray    532. 

By  a  fraudulent  conspiracy  between 
the  paying  teller  of  defendant  bank, 
the  teller  of  plaintiff  bank,  and  a 
broker,  the  l:)roker  drew  a  check  on 
defendant,  where  he  had  no  funds, 
which  the  paying  teller  marked 
"Good,"  and  the  broker  took  it  to  the 
teller  of  the  plaintiff,  who  gave  him 
the  money  for  it  in  current  bills.  The 
broker  took  these  to  defendant's  bank, 
and  gave  them  to  the  paying  teller, 
who.  for  the  purpose  of  covering  a 
deficit,  unknown  to  any  of  the  bank 
officers,  in  his  cash,  placed  them  with 
it.  The  purpose  for  which  the  money 
was  obtained  was  known  to  the  two 
other  parties,  Imt  no  other  officer  of 
either  bank  knew  anything  of  the 
transaction.  Held,  that  the  defend- 
ant could  not  hold  the  money  as 
against  the  plaintiff,  but  was  liable  to 
the  latter,  after  demand,  in  an  action 
for  monev  had  and  received.  Atlantic 
Bank  7:  IMerchants'  Bank  (Mass.),  10 
Gray  532. 


§  11-^   (4g) 


REPRESEXTATION    OF    BANK. 


793 


and  placed  same  in  his  cash  to  be  counted  by  the  directors,  the  true  owner 
may  recover  the  same  in  an  action  for  money  had  and  received ;  ahter  in 
South  Carolina  where  the  money  was  obtained  by  the  teller  of  B  bank  for 
the  teller  of  A  bank,  neither  having  authority  to  loan  or  borrow  money  and 
not  returned  to  A  bank.-*-"^ 

§  112  (4g)  Recovery  by  Bank. — Persons  who  receive  from  an  offi- 
cer of  a  bank  money,  checks,  or  drafts  of  the  bank  in  payment  of  such  offi- 
cer's personal  obligations  under  circumstances  charging  them  with  notice 
that  the  money  was  embezzled  from  the  bank,  are  liable  to  the  bank  there- 
for ;  aliter,  where  the  payee  is  not  charged  with  such  notice.'*'* 

Draft  Drawn  on  Bank's  Funds. — If  a  bank  gives  a  cashier  authority 
to  draw  drafts  for  his  own  account  on  its  funds,  or  ratifies  his  acts  in 
known  transactions  which  he  openly  conducts  honestly  or  dishonesth',  it 
will  not  be  permitted  to  say  that  a  similar  transaction  which  he  secretlv  and 
by  concealment  conducts  does  not  bind  it.-*-"^  Where  the  cashier  of  a  bank 
transferred  a  draft  drawn  on  the  bank's  funds  in  payment  of  his  individual 
note,  to  a  payee  who  was  not  by  any  action  of  the  officers  of  the  bank  in- 
duced to  rely  on  the  authority  of  the  cashier  to  use  the  bank's  funds  for  his 
own  benefit,  the  payee  was  charged  with  knowledge  that  the  draft  was 
drawn  on  the  bank's  funds,  and  he  could  not,  as  against  a  showing  that  the 
cashier  acted   without  autlioritv.   insist  on  the  right  to  retain  the  funds."*^ 


43.  South  Carolina. — The  teller  of 
B.,  a  bank,  having  abstracted  from  his 
till,  and  fraudulently  used,  the  money 
of  his  bank,  in  order  to  return  the 
same,  and  escape  detection,  borrowed 
the  money  of  A.,  another  bank,  from 
the  teller  thereof,  and  secretly  placed 
it  in  his,  the  borrower's  till,  where  it 
became  inmgled  with  the  money  of 
his  bank,  was  on  the  same  day  counted 
by  the  cashier  as  the  bank's  money, 
and  was  afterwards  used  by  the  teller 
for  his  bank  in  its  current  transactions. 
Neither  teller  had  the  right  to  bor- 
row, on  the  one  hand,  nor  to  lend,  on 
the  other,  money  for  his  bank,  and 
the  transaction  was  fraudulent  on  the 
part  of  both  tellers.  By  means  of  the 
money  thus  ol)tained,  the  teller  of  B. 
escaped  detection  for  some  time,  and 
when  he  left  his  bank  his  cash  was 
counted,  and  found  correct.  Held,  that 
A.  was  not  entirfed  to  recover  from  B. 
the  amount  thus  restored  to  it  by  its 
teller.  Bank  z:  Bank  (S.  C),  13  Rich. 
L.   291. 

44.  Recovery  by  bank. — A  bank  can 
not  compel  the  refunding  of  the  pro- 
ceeds of  a  draft  fraudulently  drawn 
by  its  cashier  in  favor  of  the  state 
for  taxes  received  by  such  cashier  as 
tax  collector,  if  the  state  had  no  knowl- 


edge of  the   fraud.    Goshen   Nat.    Bank 
V.   State,  141   N.   Y.  379,  36   N.   E.  .'ilC). 

45.  Drafts  drawn  on  bank's  funds. 
— Campbell  t-.  Manufacturers'  Nat. 
Bank,  67  N.  J.  L.  301,  51  Atl.  497,  91 
Am.  St.  Rep.  438;  Goshen  Nat.  Bank 
z:  State,  141  N.  Y.  379,  36  N.   E.  316. 

A  cashier  of  a  bank  under  its  by-laws 
had  power  to  sign  drafts  in  favor  of 
the  bank  on  its  correspondent.  There 
was  no  rule  of  the  bank  forbidding 
him  to  obtain  drafts  for  his  own  use, 
and  he  had  been  allowed  to  overdraw 
his  personal  account.  Held,  that  wliere 
he  paid  for  personal  property,  when 
his  account  was  overdrawn,  with  a 
draft  on  the  correspondent  of  the 
bank,  payable  to  the  order  of  the 
vendor,  and  signed  by  him  as  cashier, 
and  fraudulently  entered  the  draft  at 
a  sum  much  less  than  its  face,  the  Inuik 
could  not  recover  (he  difference  from 
the  pavee  of  the  draft.  Judgment,  66 
App.  Div.  434,  73  N.  Y.  S.  1084,  af- 
firmed. Campbell  v.  Upton,  171  N.  Y. 
<'.44,  ('.:!  N.  E.  1115. 

46.  Home  Sav.  Bank  :-.  Otlcrbach, 
135    Iowa   157,    112    N.   W.   709. 

Where  there  was  no  proof  that  the 
act  of  the  cashier  of  a  bank  in  using 
a  draft  on  tlie  bank  to  ])ay  his  own 
debt  was  authorized  or  ratified  by  the 


794 


BANKS    AND    BANKING. 


112  (4g) 


There  is  no  estoppel  as  against  the  bank.  The  payee  was  bound  to  know- 
that  the  cashier  had  no  apparent  authority  to  use  the  bank's  funds  for  his 
own  benefit.^"    The  burden  of  estabhshing  an  estoppel  was  upon  the  payee.^*^ 

Drafts  Sent  by  President  to  Broker. — Brokers  who  receive  from  a 
bank  president  drafts  of  the  bank  in  payment  for  his  private  losses  in 
board  of  trade  speculations,  under  circumstances  charging  them  with  notice 
that  the  drafts  represent  money  embezzled  from  the  bank,  are  liable  to 
the  bank  for  the  proceeds  of  such  drafts.^'' 

Checks  or  Drafts  Sent  by  Cashier  to  Broker. — Where  drafts  drawn 
by  the  cashier  of  a  bank  to  his  own  order  are  transmitted  to  a  broker  for 
use  in  speculative  transactions  on  the  board  of  trade,  the  broker  will  be  held 
liable  to  the  true  owner  of  the  funds  so  used,  though  he  has  no  knowledge 
as  to  the  ownership^*^  in  the  absence  of  a  showing  that  the  misappropriation 
had  been  made  good  by  the  cashier,"^!  and  can  not  base  a  defense  upon  any 
custom  or  usage  to  the  effect  that  such  checks  are  used  in  private  trans- 
actions and  regarded  as  cash.-^^  where  drafts  were  drawn  by  the  cashier 
of  a  bank,  payable  to  himself,  and  transmitted  to  a  grain  broker  to  be  used 
in  speculative  transactions  on  the  board  of  trade,  the  nature  of  the  drafts 


directors,  and  there  was  nothing  on 
the  face  of  the  draft  when  it  was  re- 
turned to  show  that  it  was  not  a  regu- 
lar bank  transaction,  nor  by  the  ex- 
ercise of  any  care  could  the  president 
or  directors  of  the  bank  have  discov- 
ered the  fraudulent  act  of  the  cashier, 
in  issuing  the  draft  in  question,  the 
bank  was  not  liable  therefor.  Camp- 
bell t'.  Manufacturers'  Nat.  Bank,  67 
N.  J.  L.  301,  51  Atl.  497.  91  Am.  St. 
Rep.    438. 

47.  Home  Sav.  Bank  z'.  Otterbach, 
135  Iowa  157,  112  N.  W.  769;  Camp- 
bell V.  Manufacturers'  Nat.  Bank,  67 
N.  J.  L.  301,  51  Atl.  497,  91  Am.  St. 
Rep.  438;  Wheeler  z'.  Home  Sav.,  etc., 
Bank,  188  111.  34,  58  N.  E.  598,  80  Am. 
St.    Rep.   161. 

48.  Burden  of  showing  estoppel. — 
Home  Sav.  Bank  r'.  Otterbach,  135 
Iowa  157,  112  N.  W.  769;  City  Bank  r. 
Radtke,  87  Iowa  363,  54  N.  W.  435; 
Redhead  7'.  Iowa  Nat.  Bank,  127  Iowa 
572,    103    N.   W.   796. 

49.  Drafts  sent  by  president  to 
broker. — Beard  z'.  IMilmine,  88  Fed. 
868. 

What  constitutes  notice. — Knowledge 
that  tlieir  customer  is  president  of  the 
bank,  that  his  purchases  and  sales  are 
purely  speculative,  and  that  he  has 
been  steadily  losing  money  in  such 
speculations  for  ten  years,  is  sufficient 
to  charge  the  broker  with  notice  that 
the  drafts  represent  money  embezzled 
from  the  bank.  Beard  v.  Milmine,  88 
Fed.  868. 


50.  Checks  or  drafts  sent  by  cash- 
ier to  broker. — Mendel  z'.  Boyd,  3  Neb. 
473,  91   N.  W.   860. 

51.  The  cashier  of  a  national  bank 
having  drawn  checks  on  the  bank's 
correspondent,  in  favor  of  defendant, 
who  was  a  broker,  and  who  used  the 
avails  thereof  in  buying  stocks  for 
such  cashier  individually,  the  bank 
l^rought  action  to  recover  the  amount 
thus  wrongfully  appropriated.  During 
the  period  covered  by  the  transactions 
the  cashier  made  certain  deposits  of 
his  own  funds  with  Mie  correspondent, 
to  his  bank's  credit.  Held,  that  the 
defendant  was  liable  for  the  full 
amount  so  misapplied,  in  the  absence 
of  evidence  showing  that  the  misap- 
propriations had  been  made  good  by 
the  cashier's  deposits.  Anderson  z'.  Kis- 
sam.  35  Fed.  699. 

52.  Usage  or  custom. — A  cashier  ot 
a  national  bank  drew  checks  in  his  of- 
ficial capacity  in  favor  of  a  broker,  the 
avails  of  which  the  latter  used  in  buj^- 
ing  stocks  for  said  cashier  individu- 
ally. Held,  in  an  action  by  the  bank 
against  the  broker  to  recover  the 
money  so  misapplied,  that  defendant 
was  bound  to  know  that  the  cashier 
had  no  authority  to  use  such  checks 
for  his  individual  use,  and  that  he  can 
not  base  a  defense  upon  any  custom 
nr  usage  to  the  effect  that  such  checks 
are  used  in  private  transactions,  and 
regarded  as  cash.  Anderson  z'.  Kissam, 
3.i   Fed.  699. 


§    113    (1)  REPRESENTATION    OF    BAXK.  795 

was  sufficient  in  itself  to  put  the  broker  on  inquiry  as  to  the  ownership  of 
the  funds  used  in  such  transactions.^-'^  Where  the  cashier  of  a  bank  trans- 
mitted to  a  broker,  for  use  in  speculative  transactions  on  the  board  of  trade, 
drafts  drawn  to  his  own  order,  payment  to  the  cashier  of  the  proceeds  of 
such  transactions  is  no  defense,  in  an  action  against  the  broker  to  recover 
the  money  lost  in  such  transactions,  unless  such  payments  are  traced  into 
the  hands  of  the  ow-ner  of  the  funds.^-*  In  such  action  the  broker  may  be 
charged  with  the  amount  of  the  funds  actually  received  and  converted  by 
him,  and  is  entitled  to  credit,  by  way  of  mitigation  of  damages,  for  all 
money  repaid  by  him  which  can  be  traced  into  the  hands  of  the  owner  of 
the   funds.'' -^ 

Recovery  of  Deposit  for  Safe  Keeping  as  Revesting  Title. — See 
ante,  "^lisappropriation  of  Deposits,"  §   112   (4b). 

§  113.  Estoppel  to  Deny  Authority  of  Officer  or  Agent ■'•^='—§  113 
(1)  In  General. — Where  a  party  deals  with  a  banking  corporation  in  good 
faith — the  transaction  not  being  ultra  vires — and  he  is  unaware  of  any  de- 
fect of  authority  or  other  irregularity  on  the  part  of  those  acting  for  the 
corporation,  and  there  is  nothing  to  excite  suspicion  of  such  defect  or  ir- 
regularity, the  corporation  is  bound  by  the  contract,  although  such  defect 
or  irregularity  in  fact  exists.  If  the  contract  can  be  valid  under  any  cir- 
cumstances, an  innocent  party  in  such  a  case  has  a  right  to  presume  their 
existence,  and  the  corporation  is  estopped  to  deny  them.^"  In  a  trans- 
action in  which  the  officer  of  a  bank  acts  strictly  within  the  line  of  the 
duties  devolving  upon  him  as  such  officer,  the  bank  can  not,  for  the 
purpose  of  avoiding  the  legal  consequences  of  his  malfeasance  or  mistake, 
be  heard  to  repudiate  his  authority.-^"^ 

Appointment  and  Qualification  of  Cashier. — If  a  person  acts  noto- 
riously as  cashier  of  a  bank,  and  is  recognized  by  the  directors,  or  by  the 
corporation,  as  an  existing  officer,  a  regular  appointment  will  be  presumed ; 
and  his  acts,  as  cashier,  will  bind  the  corporation,  although  no  written  proof 
is  or  can  be  adduced  of  his  appointment.'^^  He  is  the  executive  officer  of 
the  bank  through  whom  its  financial  transactions  are  conducted,  under  the 

53.  Alendel  v.  Boyd,  3  Neb.  473,  91  57.  Citizens'  Rank  t-.  Fromholz.  04 
N.  W.  860.  Neb.    284,    89    N.    W.    775. 

54.  Mendel  v.  Boyd,  3  Xeb.  473,  91  Where  the  president  and  cashier  of 
N.  W.  860.  a  bank,  acting  as  such,  collects  money 

55.  Mendel  v.  Boyd,  3  Neb.  473,  91  and  deposits  it  in  the  bank  to  the 
N.  W.  860.  credit    of    a    customer,    and    pays    out 

55a.      Officer    of   trust    company,    see  checks  drawn  by  the  customer  against 

post,    "Representation   by   Officers   and  such   deposit,  the  bank  can  not,  to  es- 

Agents,"    §    31.5    (2).      Officers    of    na-  cape    liability    for    the    fraud    of    such 

tional   bank,    see   post.   "Representation  president,  deny  his  authority  to  repre- 

of   Bank   by   Officers,"   §   2G2.  sent    it.      Citizens'    Bank    7'.    Fromholz, 

56.  Estoppel   of  bank   to    deny    lia-  64  Neb.  2S1.  S9  N.  W.  77.". 

bility. — Mercliants'    Nat.    Bank  t'.    State  58.    Presumption  of  regular  appoint- 

Nat.   Bank   CU.  vS.).   10  Wall.   604,  19   L.  ment.— i'.:nik   7'.    Dandridge    (U.    S.\   12 

Kd.   1008;   Creswell  v.   T.anahan.   101    U.  Wheat.    64,    6    L.    Ed.    552. 
S.  347,  25  L.  Ed.  853. 


796 


BANKS    AND    BANKING. 


§  113   (1) 


directors'  supervision.^^  And  where  he  has  been  duly  appointed  and  per- 
mitted to  act  for  a  long  time,  the  regular  acceptance  and  approval  of  his 
bond  is  not  essential  to  his  legal  performance  of  his  duties,  and  conse- 
quent liabilities. '5'^ 

Form  in  Which  Duties  Prescribed. — Where  the  by-law  of  a  bank  re- 
quires the  directors  to  prescribe  the  duties  of  the  various  offices,  there  is 
no  particular  form  in  which  these  duties  are  to  be  prescribed,  and  even  if 
there  were,  a  due  prescription  might  be  inferred  from  circumstances,  as 
from  evidence  of  acts  on  the  part  of  such  officer.  And  by  the  performance 
of  certain  duties  in  his  office,  he  is  estopped  to  deny  that  they  had  been 
prescribed  by  the  board.*"'^ 

Knowledge  of  Board  of  Directors. — The  board  of  directors  of  a  bank 
have  a  general  superintendence  over  and  the  management  of  all  its  busi- 
ness affairs  and  transactions  which  ordinarily  vest  with  it,  and  they  are 
bound  to  know  all  that  has  been  done  beyond  the  merest  matter  of  daily 
routine ;  and  what  they  ought  to  know  as  to  the  general  course  of  the 
bank's  business  they  will  be  presumed  to  have  known,  in  a  contest  between 
the  bank  and  third  persons  dealing  in  good  faith  with  it.*'^- 

Knowledge  of  Facts  by  Person  Alleging  Estoppel. — Where  a  person 
dealing  wnth-an  officer  or  agent  of  a  bank  has  or  is  charged  with  knowl- 
edge of  the  facts,  there  can  be  no  claim  of  estoppel  against  the  bank  to 
deny  the  authority  of  such  officer  or  agent,  as,  for  instance,  a  director  of 
the  bank,*^''^  or  a  creditor  of  an  officer  of  the  bank  who  receives  in  payment 


59.  Cashier  as  executive  officer  of 
bank. — Merchants'  Nat.  Bank  v.  State 
Nat.  Bank  (U.  S.),  10  Wall.  604.  19  L. 
Ed.  1008;  Martin  v.  Webb.  100  U.  S. 
7,  28  L.  Ed.  49,  3  S.  Ct.  428;  Case  v. 
Citizens'  Bank,  100  U.  S.  446,  25  L. 
Ed.  695;  Bank  v.  Dunn  (U.  S.),  6  Pet. 
51,  8  L.  Ed.  316;  Minor  v.  Mechanics' 
Bank  (U.  S.).  1  Pet.  46,  7  L.  Ed.  47; 
American  Surety  Co.  r.  Pauley,  170  U. 
S.   133.  42   L.   Ed.  977.   18   S.   Ct.  552. 

60.  Qualification  by  acceptance  of. 
bond. — Where  the  cashier  of  a  bank  is 
duly  appointed,  and  permitted  to  act 
in  his  office,  for  a  long  time,  under 
the  sanction  of  the  directors,  it  is  not 
necessary  that  his  official  bond  should 
be  accepted  by  the  board  of  directors 
as  satisfactory,  according  to  the  terms 
of  the  charter,  in  order  to  enable  him 
to  enter  legally  on  the  duties  of  his 
office,  or  to  make  his  sureties  respon- 
sible for  the  nonperformance  of  those 
duties;  the  charter  and  the  by-laws 
are  to  be  considered,  in  this  respect, 
as  directory  to  the  board,  and  not  as 
conditions  precedent.  Bank  f.  Dand- 
ridge  (U.  S.),  12  Wheat.  64,  6  L.  Ed. 
552.  See,  also,  Jacksonville,  etc..  Nat. 
Co.  V.  Hooper,  160  U.  S.  514,  40  L.  Ed. 


515,    16    S.    Ct.    379. 

"There  need  not  be  express  vo*-e3  of 
approval  and  satisfaction.  An  accept- 
ance of  the  bond  by  the  directors 
would,  necessarily,  in  intendment  of 
law,  include  the  approval  of  it,  and  be 
conclusive  of  it."  Bank  v.  Dandridge 
(U.   S.).  12  Wheat.  64,  6  L.  Ed.  552. 

61.  Form  in  which  duties  prescribed. 
— Durkin  v.  Exchange  Bank  (Va.),  2 
Pat.  &  H.  277. 

62.  Knowledge  of  board  of  directors. 
—Union  Nat.  Bank  r.  Hill,  148  Mo. 
380,  49  S.  W.  1012,  71  Am.  St.  Rep. 
615;   S.   C,   155  Mo.  279.  55   S.  W.  1133. 

63.  Directors  of  bank. — Where  a 
bank  cashier  represented  to  a  mem- 
ber of  a  firm,  which  was  surety  on  a 
note  due  the  bank,  that  the  note  was 
partly  or  wholly  paid,  whereby  the 
surety  was  induced  to  surrender  prop- 
erty of  the  principal  to  the  latter,  the 
bank  is  not  estopped  to  deny  the  truth 
of  the  statement,  where  the  member 
of  the  firm  was  vice  president  and  di- 
rector of  the  bank,  in  which  capacity 
he  is  conclusively  presumed  to  know 
that  the  note  is  unpaid.  Merchants' 
Bank  v.   Rudolf,   5   Neb.   527. 


113   (2) 


REPRESENTATION    OF    BANK. 


797 


of  his  debt,  a  draft  of  the  bank  on  its  correspondent.*'-* 

Unknown  Limitation  Contained  in  By-Laws  or  Resolution  of 
Board. — A  bank  which  has  intrusted  the  conduct  of  its  affairs  to  its  presi- 
dent, such  conduct  being  within  the  range  of  the  authority  customarily  given 
to  such  an  office,  is  bound  to  one  who  has  parted  with  his  money  in  good 
faith  in  reliance  upon  the  authority  so  exercised,  whatever  may  be  the  Hm- 
itations  which  the  by-laws  or  resolutions  of  the  board  of  directors  in  fact 
place  upon  it.  of  which  he  has  no  knowledge.^'^ 

§  113    (2)  Receiving  and  Retaining  Benefits  of  Transaction.— A 

bank  by  accepting  and  enjoying  the  benefits  of  an  act  of  its  officers  or 
agents  is  estopped  to  deny  such  officers,  etc.,  authority  to  act  in  the  prem- 
ises, in  order  to  escape  the  liabilities.*"^'^  A  bank  can  not  hold  and  enjoy 
the  benefits  of  and  escape  the  liabilities  of  the  unauthorized-  acts  of  its 
president,*^"  cashier.*^^  or  other  officer,*^''  which  are  not  criminal  or  against 
public  policy ;  but  in  the  absence  of  any  evidence  that  the  bank  obtained  or 
enjoyed  any  of  the  proceeds  of  such  act  it  is  not  estopped.'" 

Contracts. — A  bank  can  not  receive  and  retain  the  benefits  arising  from 
a  contract  made  on  its  behalf  by  one  of  its  officers  or  agents  and  at  the 


64.  Creditor  of  officer  receiving 
bank's  draft  in  payment. — Where  de- 
fendant was  not  induced  by  the  action 
of  the  officers  of  a  bank  to  rely  on  the 
authority  of  the  cashier  to  use  the 
bank's  funds  for  his  own  benefit,  he 
was  bound  to  know  that  the  cashier 
had  no  apparent  authority  to  do  so, 
and.  in  an  action  l^y  the  bank  to  re- 
cover funds  diverted  by  the  cashier, 
he  can  not  claim  estoppel  as  against 
the  bank.  Home  Sav.  Bank  z'  Otter- 
bach,   135    Iowa   157,    n2    X.   W.   7 (59. 

65.  Unknown  limitation  contained  in 
by-laws  or  resolution  of  board. — Citi- 
zens' Bank,  etc.,  Co.  :■.  Tliornton,  98 
C.   C.  A.  472.   174   Fed.  752. 

66.  Receiving  and  retaining  benefits. 
— Where  all  the  parties  engaged  in  the 
transaction  and  the  privies  were  agents 
of  the  bank,  if  there  were  any  defect 
of  authority  on  their  part,  the  reten- 
tion and  enjoyment  of  the  proceeds  of 
the  transaction  by  the  bank  constitutes 
an  acquiescence  as  eftectual  as  would 
have  been  the  most  formal  authoriza- 
tion in  advance,  or  the  most  formal 
ratification  afterwards.  People's  Bank 
V.  Manufacturers'  Nat.  Dank.  101  U.  S. 
181,   25   L.    Ed.   907. 

67.  President.— J'irst  .\'at.  liank  i\ 
Hanover  Nat.  Bank,  13  C.  C.  A.  Si 3. 
66  Fed.  34;  Akers  v.  Ray  County  Sav. 
Bank     <V.\    Mo.    .App.    3K). 

68.  Cashier. — Hawkins  v.  Fourth 
Nat.    Bank.   150   Ind.   117,   49   N.    E.   957. 

Acts  of  the  cashier  of  a  bank,  which 


are  done  on  behalf  of  the  bank,  and 
which  are  not  criminal,  or  against  pub- 
lic policy,  when  once  executed  in  whole 
or  in  part,  are  binding  on  the  bank: 
so  that  it  can  not  hold  and  enjoy  the 
benefits,  and  escape  the  liabilities. 
Owens   -.■.    Stapp,    32    111.   Anp.    G53. 

69.  Carr  z:  National  Bank,  etc.,  Co., 
167  N.  Y/.  375,  60  N.  E.  649,  82  .\m.  St. 
Rep.  725;  First  Nat.  Bank  v.  State 
Bank,   15   N.   Dak.  594,   109  N.  W.  61. 

70.  Where  there  is  no  evidence  that 
a  bank  had  obtained  or  enjoyed  the 
proceeds  of  a  discount  of  his  note 
fraudulently  obtained  from  another 
liank  by  its  president  nor  received  any 
interest,  commission  or  other  benefit 
from  the  transaction;  the  former  is  not 
estopped  to  question  the  authority  of 
its  president  to  change  it  with  liability 
on  the  note.  First  Nat.  Bank  z\  Han- 
over Nat.  Bank,  13  C.  C.  A.  313,  66 
Fed.   34. 

A  New  York  l)ank,  at  the  request 
of  the  president  of  a  Kansas  bank,  dis- 
counted a  note  made  by  him,  and  liy 
liis  direction  placed  the  proceeds  to 
the  credit  of  the  Kansas  bank,  and 
telegraphed  him  tiiat  it  had  done  so. 
On  "  the  receipt  of  the  telegram,  he 
caused  the  proceeds  to  be  placed  to  his 
credit  in  the  Kansas  bank,  and  used 
the  same.  Field,  that  tiie  Kansas  bank 
was  not  estopped  to  question  the  aii- 
tliority  of  its  president  to  charge  it 
witli  liability  on  the  note.  I-'irst  Nat. 
r>ank  z:  Hanover  Nat.  Bank.  13  C.  C. 
A.   313,    6,'>    l-'cd.   34. 


798 


BANKS    AND    BANKING. 


§  113   (2) 


same  time  repudiate  its  burdens  by  denying  his  authority  to  act  as  its  agent 
in  making  the  contract,  as,  for  instance,  a  contract  or  agreement  made  by 
its  president' 1  or  cashier;"-  thus  a  bank  which  receives  and  retains  the 
proceeds  of  a  rediscount,'^  the  proceeds  of  a  sale  of  its  securities,""*  money 
borrowed  in  its  name  upon  a  pledge  of  certain  of  its  assets,"-^  money  paid 
it  on  a  note  under  a  receipt  reciting  that  it  was  held  for  collection  and 
credit;"*'  which  retains  the  consideration  for  a  deed;"'   or  which  takes  the 


71.  Contract   by    bank    president. — 

Swindell  &  Co.  v.  Bainbridge  State 
Bank.  3  Ga.  App.  364,  60  S.  E.  13;  BarC- 
lett  Estate  Co.  v.  Eraser,  1]  Cal.  App. 
373,  105  Pac.  130;  Akers  v.  Ray  County 
Sav.  Bank,  63  Mo.  App.  316;  Eirst  Xat. 
Bank  v.  State  Bank,  15  N.  Dak.  594, 
109   N.   W.    61. 

72.  Cashier. — Hawkins  v.  Eourth 
Nat.  Bank,  150  Ind.  117,  49  N.  E.  957; 
First  Nat.  Bank  v.  Brown,  20  Utah  85, 
57  Pac.  877. 

A  bank  can  not  be  heard  to  deny  its 
cashier's  authority  to  act  as  its  agent 
in  making  a  contract,  while  receiving 
and  retaining  the  benefits  thereof. 
Porter  z'.  Farmers',  etc.,  Sav.  Bank,  143 
Iowa   629,    120    N.    W.    633. 

73.  Proceeds  of  a  rediscount. — 
Even  if  the  internal  policy  of  a  bank 
requires  the  indorsements  on  its  re- 
discounts to  be  executed  by  the  cashier 
or  other  officer,  where  a  bank  retained 
the  proceeds  of  a  rediscount  of  a  note 
obtained  from  an  assignment  by  the 
president,  it  was  estopped  to  deny  the 
president's  authority  under  Civ.  Code, 
§  3519,  providing  that  he  who  can  and 
does  not  forbid  that  which  is  done  on 
his  behalf  is  deemed  to  have  bidden 
it.  Bartlett  Estate  Co.  v.  Eraser,  11 
Cal.   App.   373,   105   Pac.    130. 

74.  Sale  of  bank's  securities. — Where 
a  note  was  sold  by  a  cashier,  and  the 
proceeds  received  and  retained  by  the 
iiank,  it  and  its  receiver  are  estopped 
irom  denying  the  authority  of  the 
cashier  to  make  the  sale.  Hawkins  z'. 
Eourth  Nat.  Bank,  150  Ind.  117,  49  N. 
E.    957. 

Proceeds  of  sale  of  bonds  held  for 
speculative  purposes. — Where  a  l)ank 
received  the  proceeds  of  a  sale  of 
bonds  held  by  it  for  speculative  pur- 
poses, effected  by  means  of  fraud  on 
the  part  of  its  managing  officer,  it  can 
not  escape  liability  on  the  ground  that 
the  acts  of  the  officer  were  individual 
acts,  and  its  business  of  buying  and 
selling"  bonds  was  not  within  the 
scope  of  its  powers.  Judgment,  59  N. 
Y.  S.  618.  43  App.  Div.  10,  affirmed. 
Carr    z'.    National    Bank,    etc.,    Co..    167 


X.    Y.    375,    60    N.    E.    649,    82    Am.    St. 
Rep.  725. 

75.  Loan  on  pledge  of  banks  securi- 
ties.— Where  an  officer  of  a  bank  with- 
out authority  borrowed  money  in  the 
name  of  his  bank  and  pledged  certain 
of  its  assets  as  security,  and  the  bor- 
rowed money  was  received  and  used 
by  the  bank,  the  transaction  was  such 
that  the  directors  had,  or  ought  to 
have  had,  knowledge  of  it,  and  the 
bank  was  estopped  to  deny  the  au- 
thority of  its  officer  to  make  the  loan 
in  its  behalf.  First  Nat.  Bank  z:  State 
Bank,   15   N.   Dak.  594,  109  N.  W.  61. 

76.  Money  on  note  for  collection. — 
The  cashier  of  a  bank  obtained  a  de- 
positor's consent  to  loan  his  deposit 
through  the  bank  to  another  of  the 
l)ank's  customers,  and  the  cashier  ar- 
ranged with  two  customers  to  continue 
the  unpaid  balance  of  a  loan  to  them, 
whereupon  a  note  for  the  same  amount 
as  said  deposit  was  given,  and  the 
cashier  represented  to  the  depositor 
that  he  had  made  the  loan  consented 
to;  and,  at  the  suggestion  of  the  cash- 
ier, the  note  was  left  in  the  bank  for 
collection.  The  cashier  gave  the  de- 
positor a  receipt  for  the  note,  reciting 
that  it  was  held  for  collection  and 
credit.  Afterwards  several  install- 
ments of  interest  on  the  note  were 
paid  to  the  bank,  and  credited  to  de- 
fendant in  his  account.  The  bank 
afterwards  collected  the  note,  and  re- 
fused to  credit  defendant  with  the 
amount  collected.  Held,  tiiat  the  bank, 
having  received  and  retained  the 
money,  is  estopued  ^'rom  disputing  the 
authority  of  its  cashier  in  the  transac- 
tion. First  Xat.  Bank  v.  Brown,  20 
Utah  85,  57  Pac.  877. 

77.  Retaining  consideration  for  deed. 
— In  an  action  against  a  bank  _  for 
breach  of  covenant  of  warranty  in  a 
deed  executed  by  its  president  and 
secretary,  where  the  bank  has  received 
and  retains  the  consideration  for  the 
deed,  it  "can  not  set  up  want  of  au- 
thority in  such  officers  to  make  it. 
Akers  :'.  Ray  County  Sav.  Bank,  63 
Mo.  App.  316. 


113  (3) 


REPRESENTATION    OF    BANK. 


799 


profits  of  speculative  stock  transactions  i""*  receives  the  benefits  of  an  in- 
demnity bond,"^  or  claims  credit  for  payments  on  a  construction  contract 
in  violation  of  its  terms, ^^  is  estopped  from  denying  the  authority  of  its  offi- 
cers or  agents  to  bind  it.  in  order  to  escape  liability  therefor. 

Allegation  and  Proof  of  Notice. — Where  acquiescence  in  and  benefits 
from  an  unauthorized  agreement  of  a  president  of  a  bank  are  relied  on  as 
estoppel,  notice  of  such  agreement  by  the  directors  and  beneficial  results  to 
the  bank  from  the  agreement  must  be  alleged  and  proved.^ ^ 

§  113  (3)  Delay  or  Acquiescence — Established  or  Settled  Course 
of  Business. — \\  here  bank  directors  through  long  usage  permit  an  officer 
or  agent  of  the  bank,^-  as,  for  instance,  the  president^-'  or  cashier*'*  to  act 
without  their  express  authority,  in  matters  in  which  they  might  lawfully 
authorize  him  to  act,  they  can  not,  after  such  action  on  his  part,  deny  his 
authority,  to  the  detriment  of  those  who  have  relied  on  it.-^  Where,  on 
numerous  previous  occasions,  the  cashier  issued  the  bank's  drafts  in  pay- 
ment of  his  individual  debt,'*"  or  guaranteed  rediscounts,'^"  where  the  presi- 


78.  Speculative  stock  transactions. — 

Xational    Bank   t'.    Fridenberg.    206    Pa. 
243,    55    Atl.    960. 

Stock  transactions  on  margins. — 
Where  a  cashier  of  a  bank  was  au- 
thorized to  buy  and  sell  stock,  and  his 
authority  was  apparently  general  as  to 
the  character  of  the  securities  he  was 
to  purchase,  and  as  to  whether  they 
were  to  be  on  margins  or  cash,  and 
he  opened  an  account  in  the  name  of 
the  bank  with  certain  brokers,  and 
bought  and  sold  stock  both  for  cash 
and  on  margins,  and  large  profits  were 
made  for  the  bank  on  the  cash  trans- 
actions, it  could  not  claim,  where  the 
cashier  subsequently  absconded,  that 
it  was  not  liable  for  the  losses  on  the 
margin  transactions.  National  Bank 
V.   Fridenberg,  206  Pa.  243,  55  Atl.  960. 

79.  Indemnity  bond. — Peninsular 
Bank   v.    Hanmer,    14    :\Iich.   208. 

80.  Credits  or  construction  contract. 
— The  performance  of  a  construction 
contract  lor  a  bank  was  in  the  hands 
of  the  president  in  so  far  as  it  was  con- 
cerned. Orders  by  the  contractor  on 
the  bank  were  taken  to  the  president, 
who  ordered  them  paid.  Some  pay- 
ments were  in  violation  of  the  con- 
struction contract,  which  required  pay- 
ments to  be  made  only  on  certificates 
and  estimates  of  the  architect.  Held, 
that  the  bank,  claiming  credit  for  such 
payments,  could  not  deny  the  au- 
thority of  the  president  to  make  them. 
First  Nat.  Bank  v.  Fidelity,  etc.,  Co., 
145  Ala.  335.  5  L.  R.  A.,  N.  S.,  418.  40 
So.    415,    117    Am.    St.    Rep.    45. 

81.  Allegation  and  proof  of  notice. 
— Swindell    &   Co.   v.    Bainbridgc    State 


Bank,  3   Ga.  App.  364,  60  S.   E.  13. 

82.  When  the  directors  of  a  bank 
permit  an  officer  to  hold  himself  out 
to  the  public  as  being  invested  with 
absolute  power  to  manage  and  control 
its  affairs,  in  such  manner  and  for  such 
length  of  time  as  to  lead  innocent  per- 
sons to  make  contracts  with  him, 
honestly  believing  that  he  has  the  au- 
thority he  claitns,  the  bank  can  not 
repudiate  such  contracts.  Cox  v.  Rol)- 
inson,    27    C.    C.    A.    120,    82    Fed.   277. 

83.  President. — Lamson  v.  Beard,  36 
C.  C.  .\.  56,  94  Fed.  30,  45  L.  R.  A.  822. 

84.  Cashier. — Campbell  v.  National 
Broadway  Bank,  65  C.  C.  A.  664,  130 
Fed.  699;  National  Bank  v.  Equitable 
Trust    Co.,    22.3    Pa.    32S,    72    .\ !  1.    794. 

85.  Without  express  authority. — Na- 
ricnal  Bank  :'.  Equitable  Trust  Co., 
223    Pa.   32S.   72   .-\tl.   794. 

86.  Cashier's  draft  payable  to  in- 
dividual creditor. — .\  bank  can  not  re- 
cover tlie  amount  collected  on  a  cash- 
ier's draft  issued  by  its  cashier  and 
payalile  to  his  individual  creditor, 
where  it  is  shown  that  he  had  on  nu- 
merous previous  occasions  drawn  simi- 
lar drafts  to  pay  his  own  debts,  and 
such  acts  had  continued  sufficiently 
long  to  establish  a  settled  course  of 
Inisincss  sanctioned  by  its  officers,  and 
was  known,  or  should  have  been,  to 
its  directors.  Campbell  v.  National 
Broadway  Bank,  65  C.  C  A.  664.  130 
Fed.    699. 

87.  Cashier's  guarantying  redis- 
counts.— Where  the  casliier,  intrusted 
by  its  directors  with  its  eiUire  man- 
agement, has  been  accustomed,  in  iiav- 
ing   paier  rediscounted,  to  guaranty  its 


800 


BANKS    AND    BANKING. 


§  113  (3) 


dent  was  accustomed  to  indorse  paper  for  rediscount,*-"  and  where  the  man- 
ager discharged  guarantors  of  notes  and  accepted  collaterals  in  lieu 
thereof,*'^  the  bank  was  estopped,  by  reason  of  the  settled  course  of  busi- 
ness to  question  his  authority  to  do  so. 

Where  the  directors  have  no  knowledge  of  the  prior  acts  relied  on 
to  establish  a  course  of  dealing,  the  bank  books  having  been  purposely  kept 
in  a  manner  to  conceal  the  truth,  no  estoppel  arises.^o  Whether  in  a  particu- 
lar case  an  estoppel  has  arisen  is  a  question  of  fact  depending  upon  the 
circumstances."^ 

Evidence  of  Powers  Habitually  Exercised. — Evidence  of  powers 
habitually  exercised  by  a  cashier  of  a  bank  with  its  knowledge  and  ac- 
quiescence defines  and  establishes,  as  to  the  public,  those  powers.  And  this 
principle  is  equally  true  when  applied  to  the  president.  But  as  the  inherent 
power  of  the  president  is  so  much  more  limited  than  that  of  the  cashier, 
the  evidence  of  this  character,  from  which  the  right  to  exercise  unusual 
powers  can  be  inferred,  should  be  much  stronger  in  the  case  of  the  presi- 
dent than  in  the  case  of  the  cashier  of  a  bank.'^^ 


payment,  the  bank  will  be  estopped 
from  denying-  his  authority'  to  so  guar- 
anty it.  First  Nat.  Bank  v.  Stone.  106 
j\!k-!i.   ;-:r.7.   r,4   N.   VV.   4S7. 

A  bank  -which  intrusts  its  entire 
management  to  the  cashier,  and  its  as- 
signee, are  estopped  to  deny  -his  au- 
thority to  guaranty  the  payment  of  its 
paper  upon  his  having  it  rediscounted 
for  the  bank.  Davenport  z'.  Stone.  104 
Mich.  521,  62  N.  W.  722,  Sri  Am.  St. 
Rep.  467. 

88.  President's  indorsing  paper  for 
lediscount. — When  the  directors  of  a 
bank  have  known  for  many  months 
that  its  paper  was  being  rediscounted 
in  large  amounts,  under  the  president's 
direction,  and  without  consulting  the 
board,  and  that  the  money  so  ob- 
tained was  being  used  in  the  business 
of  the  bank,  and  they  have  made  no 
inquiry  as  to  how  the  paper  was  in- 
dorsed, the  bank  is  estopped  to  dis- 
pute the  authority  of  the  president  to 
indorse  such  paper  for  rediscount. 
United  States  Nat.  Bank  v.  First  Nat. 
BaTik.    24    C.    C.    A.    507,   79    Fed.    206. 

89.  Discharge  guarantors  and  accept 
collaterals  in  lieu  thereof. — Where  the 
manager  of  a  bank,  with  the  knowledge 
of  the  directors  and  without  objec- 
tion, habitually  exercises  the  authority 
to  discharge  guarantors  of  notes  and 
accept  collaterals  in  lieu  thereof,  the 
bank  is  estopped,  after  third  persons 
have,  in  good  faith,  acted  on  such  ap- 
pearances, to  deny  his  authority.  Arm- 
strong V.  Cache,  etc.,  Co.,  14  Utah 
450.   48   Pac.   690. 

90.  Concealment     of     misappropria- 


tion.— Where  the  president  of  a  bank 
wrongfully  appropriated  the  bank's 
funds  to  his  personal  use,  by  means  of 
drafts,  which  he  so  entered  on  the 
bank's  books  as  to  conceal  _  their 
fraudulent  character,  the  bank  is  not 
estopped,  by  the  president's  course  of 
dealing,  from  denying  his  authority  to 
draw  drafts  for  such  purpose.  Lam- 
son  7'.  Beard,  36  C.  C.  A.  56,  94  Fed. 
30,  45   L.   R.   .\.   822. 

91.  Question  of  fact. — Lamson  v. 
Beard,  36  C.  C.  A.  56,  94  Fed.  30,  45 
L.   R.  A.  822. 

92.  Evidence  of  powers  habitually 
exercised. —  First  Xat.  Bank  :■.  Kimber- 
lands,    16   W.   V^a.   555. 

It  may  be  flifricult  in  some  cases  to 
say.  when  the  authority  to  make  the 
contract  or  arrangement  for  the  cor- 
poration by  its  president  or  other  of- 
ficer may  be  fairly  inferred  from  the 
proof  of  the  president  or  other  officer 
being  in  the  habit  of  doing  acts  be- 
yond that  which  were  inherent  in  him 
by  virtue  of  his  office.  For  the  doing 
of  some  such  acts  habitually  would 
not  justify  the  inference,  that  he  had 
authority  to  make  the  contract  or  ar- 
rangement, if  it  differed  essentially  in 
its  "character  from  the  acts  not  in- 
herent in  his  office  which  he  was  in 
the  habit  of  doing,  unless  t!ie  acts,  he 
was  in  the  habit  of  doing  were  so  nu- 
merous and  variant  as  to  justify  clearly 
the  inference,  that  a  general  authority 
had  lieen  impliedly  conferred  on  him 
to  do  all  acts  and  make  all  contracts, 
which  the  directors  had  authority  to 
make    and   power    to    confer     on     the 


113  (3) 


REPRESENTATION    OF    BANK. 


801 


Failure  to  Repudiate  after  Knowledge. — Where  a  bank,  with  full 
knowledge  of  all  the  facts,  fails  to  repudiate  an  unauthorized  act  of  its 
officers  or  agents,  within  a  reasonable  time,  but  acquiesces  therein  and  per- 
mits the  other  party  to  rest  in  security,  to  his  prejudice,  it  is  estopped  to 
deny  the  authority  of  such  officer  or  agent. ^'> 

Prejudice  Question  for  Jury.— Whether  the  mere  silence  of  a  bank 
and  failure  to  repudiate  its  agent's  acts  within  a  reasonable  time  after 
knowledge  thereof,  prejudices  the  other  party,  so  as  to  amount  to  an  es- 
toppel, is  a  question  for  the  jury  f^^  as,  for  instance,  where  a  bank's  deposit 
in  a  correspondent  bank  was  applied  by  direction  of  its  cashier  to  his  in- 
dividual debt,^^  or  where  the  execution  of  an  indemnity  bond  to  a  creditor 
receiving  a  second  mortgage  in  payment  of  his  debt  was  not  repudiated 
until  limitations   had  run  against  his  demand.^^ 

Loan  of  Money. — Where  a  bank  acquiesces  in  a  loan  of  money  by  its 
cashier'"'  or  president-''  it  is  estopped  to  question  his  authority  to  make  the 

president  to  make.  If  the  acts,  he  was 
in  the  habit  of  doing,  were  not  thus 
numerous  and  variant,  to  justify  the 
inference,  that  he  had  authority  to  do 
the  particular  act  or  make  the  par- 
ticular contract  for  the  corporation, 
the  acts  so  done  must  be  of  the  same 
general  character,  so  as  to  involve  the 
same  general  power,  though  it  may  be 
applied  in  the  particular  act  or  con- 
tract done  or  made  to  a  different  sub- 
ject. First  Nat.  Bank  z:  Kimberlands, 
16  W.  Va.  555. 

93.  Failure  to  repudiate  after  knowl- 
edge.—Iron  City  Nat.  Bank  v.  Fifth 
Nat.  Bank,  31  Tex.  Civ.  App.  308,  71 
S.  W.  612";  Creswell  v.  Lanahan,  :01 
U.   S.   347,   25   L.    Ed.   853. 

93a.  Defendant  bank,  upon  being  in- 
structed by  the  cashier  of  plaintiff 
bank,  applied  the  latter's  deposit  to 
the  payment  of  the  cashier's  private 
debt,  and  sent  him  the  note  and  col- 
lateral therefor.  Plaintiff  did  not  learn 
of  this  for  several  months,  at  which 
time  the  cashier,  who  was  not  then 
connected  with  plaintiff,  was  hope- 
lessly insolvent,  and  the  collateral, 
even  if  he  still  had  it,  was  worthless. 
Held,  that  the  question  whether  preju- 
dice resulted  to  the  defendant  from 
the  plaintiff's  silence  so  as  to  estop 
plaintiff  is  a  question  ior  jurv.  Fifth 
Nat.  Bank  v.  Iron  City  Nat.  Bank,  92 
Tex.  436,  49  S.  W.  368,  modifying  47 
S.  W.  533.    _  ^ 

94.  Applications  of  bank's  deposit 
to  cashier's  debt.— Plaintiff's  cashier, 
who  was  insolvent,  instructed  defend- 
ant bank  to  apply  plaintiff's  deposit  in 
payment  of  his  individual  notes,  which 
was  done;  and  at  the  end  of  the  month 
defendant  sent  plaintiff  a  statement 
showing  the  payment.     It  was  the  duty 

1  B  &  B— 51 


of  plaintiff's  Ijookkeeper  and  teller  to 
examine  such  statements,  and  the 
1,'ookkeeper  and  at  least  one  director 
examined  the  statement;  and  the  di- 
rector questioned  the  cashier  in  regard 
to  the  items,  and  testified  that  he  "was 
not  satisfied  with  the  answers  given. 
The  cashier  remained  with  plaintiff  for 
at  least  six  months  thereafter,  and  sev- 
eral months  later  I)ecame  a  fugitive 
froni  justice,  subsequent  to  which 
plaintiff  sued  defendant  to  recover  the 
money  misapplied.  Held,  that  .t  was 
the_  duty  of  plaintiff's  officers  to  ex- 
amine defendant's  statement,  and  to 
have  notified  defendant  of  any  want  of 
authority  of  the  cashier  within  a  rea- 
sonable time,  and  thpt  plaintiff,  by  its 
failure  so  to  do,  was  precluded  from 
recovering  the  money.  Iron  City  Nat. 
Bank  v.  Fifth  Nat.  Bank,  31  Tex.  Civ. 
App.    308,    71    S.    W.    612. 

95.  Execution  of  bond  of  indemnity 
against  a  prior  mortgage.— .\  creditor 
of  a  bank  took  a  moi  tgage  upon  land 
belonging  to  a  debtor  of  the  1)ank  in 
satisfaction  of  his  claim,  induced  by 
the  cashier's  giving  a  bond  of  in- 
dernnity  in  the  name  of  the  bank 
against  a  prior  mortgage  on  the 
debtor's  land.  Held  that,  after  the 
I)ank's  acquiescence  in  the  arrange- 
ment until  the  statute  of  limitation  had 
run  against  the  creditor's  demand  and 
receiving  its  Ijcnofits,  the  bond  was 
binding  upon  the  1-,ank.  Peninsular 
Bank  7'.   Hanmer,   14   IMich.  208. 

96.  Loan  by  cashier. — Union  Gold 
Min.  Co.  7'.  Rocky  Mountain  Nat. 
Bank,  2  Colo.  248. 

Overdraft    by   agent. — An    overdraft, 

97.  Loan  by  president. — Roe  z/.  Bank, 

167    Mo.    4 or.,    07    vS.    W.    303. 


802 


BANKS  AND   BANKING. 


113  (4) 


loan  in  an  action  for  the  recovery  of  the  money,  or  to  deny  the  legitimate 
nature  of  the  loan.^^ 

Cashier's  Making  Loan  to  Himself. — Acquiescence  by  the  officers  of 
a  bank  in  permitting  the  cashier  to  make  loans  to  himself  does  not  estop 
the  bank  from  claiming  that  such  loans  are  illegal  under  the  state  banking 
law,99 

Release. — A  bank  which  acquiesces  in  a  release  from  liability  for  a 
valuable  consideration  of  an  indorser^  or  joint  maker^  of  a  note  held  by  it, 
or  a  release  of  a  mortgage  lien,^  is  estopped  to  repudiate  the  release. 

§  113  (4)  Prejudice  to  Other  Party. — Where  the  apparent  scope 
of  authority  of  an  officer  or  agent  of  a  bank  is  broad  enough  to  include 
the  acts  and  agreements,  or  statements  and  representations,  in  reliance 
upon  which  the  person  with  whom  he  was  dealing  acted  to  his  injury,  the 
bank  will  not  be  heard  to  deny  the  authority  of  such  officer  in  that  respect  ;■* 
as,  for  instance,  where  a  person  was  induced  to  change  his  position  to  his 


by  an  agent,  ot  his  principal's  account, 
with  the  knowledge  of  the  cashier  of 
the  bank,  the  credit  being  extended 
to  the  principal,  amounts  to  a  simple 
loan  of  money;  and,  whether  the  cash- 
ier had  authority  to  extend  such  ac- 
commodation or  not,  his  authority  can 
not  be  questioned  in  an  action  by  the 
bank  to  recover  the  money.  Union 
Gold  Min.  Co.  v.  Rocky  ^Mountain  Nat. 
Bank,  2  Colo.  248. 

98.  Loan  for  purchase  of  stock. — 
Where  a  bank  permits  its  president  as 
its  agent  to  arrange  a  loan  of  money 
for  the  purchase  of  stock,  it  is  estopped 
to  afterwards  deny  the  legitimate  na- 
ture of  the  loan.  Roe  z.  Bank,  3  67 
Mo.   406,    67    S.   W.   :^03. 

99.  Cashier's  making  loan  to  him- 
self.— Iowa  State  Sav.  Bank  v.  Black, 
91   Iowa  490,  59  N.  W.  2S:j. 

1.  Release  of  indorser. — A  cashier 
loaned  the  bank's  money,  without 
knowledge  of  the  directors,  to  mem- 
bers of  a  land  company,  including 
plaintiff,  and  took  their  notes  therefor, 
but,  in  consideration  of  a  transfer  of 
his  interest  to  the  bank,  released  plain- 
tiff from  liability  as  indorser  on  notes 
of  the  other  members.  Later,  to  pre- 
vent failure  of  the  company  and  loss 
to  the  bank,  a  new  company  was 
formed,  which  paid  to  such  cashier, 
for  the  bank,  money  sufficient  to  pay 
all  debts  of  the  old  company  to  the 
bank,  including  plaintiff's  note.  The 
cashier  converted  most  of  the  money 
to  his  own  use,  and  the  rest  was  used 
by  the  bank,  but  none  of  the  notes 
were  surrendered.  The  directors  dis- 
claimed all  knowledge  of  any  of  such 
transaction    except   the    receipt   by    the 


cashier  of  the  money,  which  they 
claimed  he  received  in  his  former  ca- 
pacity of  treasurer  of  the  first  land 
company.  Complete  control  of  the 
bank's  affairs  was  left  to  the  cashier, 
and  the  directors,  v;ho  rarely  met,  al- 
lowed him  to  do  as  he  chose.  Held, 
that  plaintifif's  note  v.as  paid,  and  the 
directors  were  estopped  to  repudiate 
the  release  by  the  cashier.  Wing  v. 
Commercial,  etc..  Bank,  10.3  Mich.  565, 
01    X.   W.    1009. 

2.  Releasing  joint  maker  of  note. — 
A  bank  ratifies  and  estops  itself  to  dis- 
pute the  act  of  its  cashier  and  vice- 
president  releasing  one  of  several  joint 
makers  of  a  note,  when,  with  full 
knowledge  of  all  the  facts,  it  fails  to 
object,  and  permits  the  released  party 
to  rest  in  security  until  the  other  mak- 
ers, then  solvent,  have  become  utterly 
insolvent.  Bank  v.  Shook,  100  Tenn. 
436,  45  S.  W.  338,  citing  Union  Bank 
c.  Campbell.  23  Tenn.  (4  Humph.)  394; 
Fort  V.  Coker,  58  Tenn.  (11  Heisk.) 
579;  Raht  v.  Union  Consol.,  etc.,  Co., 
73  Tenn.  (5  Lea)  1;  Hart,  etc.,  Co.  v. 
Dixon  &  Co..  73  Tenn.  Cs  Lea)  336; 
Evans  V.  Buckner,  48  Tenn.  (l  Heisk.) 
291;  Williams  v.  Storm.  46  Tenn.  (6 
Coldw.)   203. 

3.  Release  of  mortgage  liens. — While 
the  cashier  of  a  bank  has  no  authority 
to  release  a  mortgage  lien,  the  bank 
may  so  acquiesce  in  the  release  as_  to 
estop  it  from  denying  its  validity. 
Brennen  v.  Connecticut  Fire  Ins.  Co., 
99  Mo.   App.  718.  74  S.  W.  406. 

4.  Prejudice  to  other  party. — Secu- 
rity Sav.  Bank  v.  Smith,  144  Iowa  203, 
122  X.  W.  825.  reversing  on  rehearing 
119  N.  W.  726,  on  another  point. 


113  (5) 


REPRESENTATION    OF    BANK. 


803 


injury,^  to  surrender  property  or  securities'^  held  as  collateral,^  to  refrain 
from  further  action,'^  or  to  allow  the  bank  to  proceed  to  exhaust  the  only 
means  by  which  he  could  have  protected  himself.^ 

Party  Alleging  Estoppel  Not  Injured. — Where  the  act  of  the  bank's 
officer  or  agent  does  not  mislead  or  injure  the  person  alleging  the  estoppel, 
but  was  an  advantage  to  him,  the  bank  is  not  estopped  from  denying  his 
authority  to  act  for  it.^°  Thus  a  bank  is  not  estopped  in  favor  of  the 
surety  in  a  suit  for  the  difference  between  the  amount  received  and  the 
face  of  a  note,  from  denying  the  authority  of  an  attorney  who  induced  a 
third  person  to  settle  the  note  and  deducted  his  commission  therefrom. ^^ 

§  113  (5)  Loss  to  One  of  Two  Innocent  Persons. — The  principal 
that  where  one  of  two  innocent  parties  must  suffer  by  the  wrongful  act  of 
a  third,  he  who  gave  the  power  to  do  the  wrong  must  bear  the  loss,  is 


5.  Change  of  position. — Security  Sav. 
Bank  v.  Smith,  144  Iowa  203,  122  N.  W. 
825,  reversing  on  rehearing  119  N.  W. 
726,  on  another  point. 

6.  Surrender  of  property  or  securi- 
ties.— Security  Sav.  Bank  v.  Smith,  144 
Iowa  203,  122  N.  W.  825,  reversing  on 
rehearing  on  another  point  119  N.  W. 
726. 

Where  a  bank  cashier  represented  to 
a  surety  on  a  note  to  the  bank  that  the 
note  was  paid,  whereby  the  surety  was 
induced  to  surrender  property  of  the 
principal  maker  to  the  latter,  the  bank 
is  estopped  to  deny  the  truth  of  the 
cashier's  statements.  Franklin  Bank  v. 
Steward.  37   Me.  519. 

7.  Collateral. — The  cashier  of  a  bank, 
knowing  that  defendant  was  surety  on 
the  note  discounted  by  it,  falsely  in- 
formed him  that  the  note  was  paid,  in- 
tending that  he  should  rely  on  the 
statement,  which  he  did,  thereupon 
surrendering  securities  he  held  as  col- 
lateral, and  signing  other  notes  for  the 
same  debtor.  Held,  that  since  defend- 
ant had  changed  his  position,  to  his  in- 
jury, on  the  faith  of  the  statement,  the 
bank  was  estopped,  as  to  him,  from 
denying  that  the  note  was  paid.  Coch- • 
echo  Nat.  Bank  v.  Haskell,  51  N.  H. 
116,  12  Am.   Rep.  67. 

8.  Bank  v.  Shoak,  100  Tenn.  436,  45 
S.  W.  338. 

9.  Where  sureties  on  a  note  payal)le 
to  a  bank  failed  to  proceed  against  land 
owned  by  the  inaker,  relying  on  the 
agreement  of  the  cashier  to  enforce 
collection  out  of  the  land,  who  con- 
cealed from  them  the  existence  of  un- 
secured claims  of  the  bank  against  the 
maker,  the  bank,  proceeding  against 
the  land  ff)r  the  collection  of  the  note 
and  its  other  claims,  could  not  deny  the 
power    of    the     cashier    to    make     the 


agreement,  and  the  sureties,  when  sued 
on  the  note,  could  hold  the  bank  to  the 
extent  of  the  injuries  sustained  by  their 
reliance  on  the  agreement  occasioned 
by  the  fact  that  the  proceeds  of  the 
land,  being  insufficient  to  pay  the  note 
and  the  unsecured  claims,  were  applied 
to  the  payment  of  the  unsecured 
claims.  Judgment,  119  N.  W.  726,  re- 
versed on  rehearing.  Security  Sav. 
Bank  v.  Smith,  144  Iowa  203,  122  N.  W. 
825,  reversing  on  rehearing  119  N.  W. 
726,  on  another  point. 

10.  Party  alleging  estoppel  not  in- 
jured.— Bank  f.  Maxey,  76  Ark.  472, 
88  S.  W.  968. 

11.  A  bank  advanced  money  to  a 
merchant  on  a  note  signed  by  sureties. 
The  merchant  having  gone  into  bank- 
ruptcy, an  attorney  retained  by  the 
bank  generally,  but  who  had  no  au- 
thority to  collect  claims  for  it  except 
when  specially  intrusted  to  him  act- 
ing for  other  creditors,  and  without 
special  authority,  afterwards  had  a 
meeting  with  the  merchant  and  some 
of  his  sureties  at  which  it  v/as  divulged 
that  a  third  party  was  a  secret  partner 
and  liable  for  the  debts  contracted  by 
him.  Thereupon  the  attorney  secured 
evidence  against  the  third  party,  and 
induced  him  to  settle  for  the  dci)ts,  in- 
cluding the  note.  The  attorney  then 
paid  over  the  sum  collected  on  the 
note,  deducting  commissions,  and  the 
bank  sued  the  sureties  for  the  differ- 
ence between  the  amount  received  and 
the  face  of  the  note.  Held  that,  since 
the  act  of  tiie  Inink  in  receiving  the 
money  did  not  mislead  or  injure  the 
sureties,  but  was  an  advantage  to  them, 
the  bank  was  not  estopped,  as  against 
them,  to  deny  the  authority  of  tlie  at- 
torney. Bank  v.  Maxey,  76  Ark.  472, 
88   S.  W.  968. 


804 


BANKS    AND   BANKING. 


§  113  (6) 


applicable  to  a  bank  whicb  seeks  to  deny  the  authority  of  its  officer  or  agent 
to  act  for  it.^-  This  principal  applies  to  the  acts  of  the  president/^  vice- 
president/**  or  cashier^^  within  the  apparent  scope  of  his  authority ;.  aliter, 
where  the  act  of  the  officer  is  not  within  the  apparent  scope  of  his  au- 
thority.i^ 

§  113  (6)  Attempt  to  Enforce. — A  bank  seeking  to  recover  on  a  con- 
tract can  not  claim  the  benefits  arising  therefrom  and  at  the  same  time 
repudiate  its  burdens.  To  allow  a  bank  while  suing  on  a  contract  to  ques- 
tion the  authority  of  the  officer  or  agent  who  made  it  on  its  own  behalf  to 
make  the  statements  and  misrepresentations  which  are  part  of  the  contract 
sued  on,  would  be  to  allow  it  to  accept  its  benefits  and  reject  its  burdens. ^'^ 
The  same  is  true  where  the  action  is  brought  by  a  receiver  of  the  bank.^^ 


12.  Loss  to  one  of  two  innocent  per- 
sons.— People's  Bank  v.  Manufacturers' 
Nat.  Bank,  101  U.  S.  181,  25  L.  Ed.  907. 

"The  doctrine  of  ultra  vires  has  no 
application  in  cases  like  this.  Mer- 
chants' Nat.  Bank  v.  State  Nat.  Bank 
(U.  S.),  10  Wall.  604,  19  L.  Ed.  1008." 
People's  Bank  v.  Manufacturers'  Nat. 
Bank,  101  U.  S.  181,  25  L.  Ed.  907. 

13.  President. — Where  one  bank  con- 
tracted and  parted  with  its  money  on 
the  faith  of  the  representations  of  an- 
other bank  by  its  president  that  there 
was  to  its  credit,  in  a  third  bank,  a 
specific  sum,  and  the  fund  which  came 
into  the  hands  of  its  voluntary  as- 
signee is  the  fund  as  to  which  the  rep- 
resentations were  made,  the  second 
bank  and  its  assignee  are  in  equity  es- 
topped from  asserting,  to  the  prejudice 
of  the  first  bank,  that  the  character  and 
condition  of  the  fund  was  otherwise 
than  it  was  represented  to  be.  Fourth 
St.  Nat.  Bank  v.  Yardley,  165  U.  S.  634, 
41  L.  Ed.  855,  17  S.  Ct.  439. 

14.  Vice-president. — People's  Bank  v. 
Manufacturers'  Nat.  Bank,  101  U.  S. 
181,  25  L.   Ed.  907. 

A  bank  which  has  enaliled  its  vice- 
president  to  mislead  another  bank  into 
making  a  loan  under  the  belief  that  it 
was  conducting  a  genuine  transaction 
with  the  former,  which  was  in  fact 
made  by  its  vice-president  in  futher- 
ance  of  his  own  criminal  purposes;  is 
estopped  to  show  the  facts  and  must 
be  held  responsible  for  the  fraudulent 
loan.  Stewart  v.  Armstrong,  56  Fed. 
167. 

The  vice-president  of  the  Fidelity 
National  Bank  wrote  a  letter  to  the 
Chemical  National  Bank,  signed  by 
himself  as  vice-president,  requesting 
a  loan  upon  a  certain  certificate  of  de- 
posit, and  certain  bills  receivable,  as 
collateral.     Tlie    Chemical    Bank    made 


the  loan,  crediting  the  Fidelity  Bank 
with  the  amount,  and  so  notified  the 
cashier.  The  amount  was  thereupon 
placed  to  the  vice-president's  credit  by 
liis  order,  and  was  used  by  him  so  that 
the  bank  received  no  benefit  therefrom. 
The  certificate  of  deposit  was  false, 
and  notes  deposited  as  collateral  were 
obtained  by  him  for  the  purpose  of 
raising  money  for  his  personal  use. 
Held  that,  as  the  Chemical  Bank  dealt 
with  him  solely  in  his  official  capacity, 
the  Fidelity  Bank  is  estopped  to  deny 
that  the  loan  was  made  to  it,  and  for 
its  benefit,  and  it  is  liable  for  its  repay- 
ment. Stewart  v.  Armstrong,  56  Fed. 
167. 

15.  Cashier. — People's  Bank  v.  Na-. 
tional  Bank,  101  U.  S.  181,  25  L.  Ed. 
907. 

16.  If  it  be  conceded  that  it  was 
within  the  power  of  the  board  of  di- 
rectors of  a  national  bank  to  borrow 
S200,000  on  time,  it  is  yet  obvious  that 
the  vice-president,  however  general 
his  powers,  could  not  exercise  such  a 
power  unless  specially  authorized  so 
to  do,  and  it  is  equally  obvious  that 
persons  dealing  with  the  bank  are  pre- 
sumed to  know  the  extent  of  the  gen- 
eral powers  of  the  officers.  Western 
Nat.  Bank  v.  Armstrong,  152  U.  S.  346, 
38  L.   Ed.   470,   14   S.   Ct.   572. 

17.  Attempt  to  enforce. — Willoughby 
V.  Fidelity,  etc.,  Co.,  16  Okl.  546,  85 
Pac.  713,  7  L.  R.  A.,  N.  S.,  548.  ap- 
proved in  205  U.  S.  537,  51   L.  Ed.  920. 

18.  Willoughby  v.  Fidelity,  etc.,  Co., 
16  Okl.  546,  85  Pac.  713,  7  L.  R.  A.,  N. 
S.,  544.  affirming  205  U.  S.  537,  51  L. 
Ed.  920. 

Fidelity  bond. — Where  the  bond  of 
a  defaulting  bank  president,  issued  by 
a  surety  company  and  accepted  by  the 
bank,  is  based  on  statements  and  rep- 
resentations  made   to  the   surety  com- 


§  H4  (1) 


repre;sentation  of  bank. 


805 


§  113  (7)  Receiver  or  Assignee  for  Creditor. — An  estoppel  which 
precludes  a  bank  from  denying  the  authority  of  one  of  its  officers  or  agents, 
binds  its  assignee  for  creditors^-'  or  receivers.-*^  \\'here  a  bank  is  estopped 
to  deny  the  authority  of  its  cashier  to  sell  a  note  belonging  to  it-^  or  of  an 
agent  to  make  the  statement  and  misrepresentations  upon  which  a  fidelity 
bond  was  executed,--  the  receiver  is  also  estopped  from  denying  the  author- 
ity of  such  officer  or  agent. 

§  113  (8)  Estoppel  of  Person  Dealing  with  Bank. — A  person  bor- 
rowing money  from  a  bank  through  its  president  can  not  deny  the  authority 
of  the  president  either  to  loan  the  money  to  him  or  to  dictate  the  terms  of 
such  loan.-^ 

§  114.  Ratification-;'^— §  114  (1)  Authority  and  Acts  Which  May 
Be  Ratified. — \M:ere  ratification  by  bank  is  claimed,  it  must  be  by  some 
party  that  had  power  to  do  the  act  in  the  first  place. -^  The  directors  of 
a  bank  may  ratify  any  act  done  or  contract  made  by  the  president,-^  cashier,-*^ 


pany  by  the  assistant  cashier,  a  re- 
ceiver of  the  bank  thereafter  appointed 
in  an  action  on  the  bond  can  not  ques- 
tion the  authority  of  the  assistant  cash- 
ier to  bind  the  bank  by  his  statements 
and  representations  as  to  the  duties 
and  accounts  of  the  defaulting  presi- 
dent, and  at  the  same  time  recover  on 
the  bond  procured  on  the  strength  of 
such  statements  and  representations. 
Willoughby  r.  Fidelity,  etc.,  Co.,  16 
Okl.  546,  85  Pac.  713,  7  L.  R.  A.,  N.  S., 
548,  affirmed  in  Cherry  t'.  Fidelity,  etc., 
Co.,  205  U.  S.  537,  51  L.  Ed.  920,  27  S. 
Ct.  790. 

19.  Assignee  for  creditors. — Fourth 
St.  Nat.  Bank  v.  Yardley,  165  U.  S.  634, 
4]  L.  Ed.  855,  17  S.  Ct.  439;  Davenport 
V.  Stone,  104  Mich.'  521,  62  N.  W.  722, 
53  Am.  St.  Rep.  467. 

20.  Receiver. — Hawkins  v.  Fourth 
Nat.  Bank,   150  Ind.  117,  49  N.  E.  957. 

21.  Sale  of  note  by  cashier. — Haw- 
kins V.  Fourth  Nat.  Bank,  ]50  Ind.  117, 
49  N.  E.  957. 

22.  Fidelity  bond. — Where  the  bond 
of  a  defaulting  bank  president,  issued 
by  a  surety  company  and  accepted  by 
the  bank,  is  l)ased  on  statements  and 
representations  made  to  the  surety 
company  by  the  assistant  cashier,  a  re- 
ceiver of  the  bank  tlicreafter  appointed 
in  an  action  on  the  bank  can  not  ques- 
tion the  authority  of  the  assistant  cash- 
ier to  bind  the  I)ank  by  his  statements 
and  representations  as  to  the  duties 
and  accounts  of  the  defaulting  presi- 
dent, and  at  the  same  time  recover  on 
the  bond  procured  on  the   strength   of 


such  statements  and  representations. 
Judgment,  Willoughby  v.  Fidelity,  etc., 
Co.,  16  Okl.  546,  85  Pac.  713,  7  L.  R.  A., 
N.  S.,  548,  affirmed  in  Cherry  v.  Fidel- 
ity, etc.,  Co.,  205  U.  S.  537,  51  L.  Ed. 
920,   27    S.   Ct.   790. 

23.  Estoppel  of  person  dealing  with 
bank.— Roe  v.  Bank,  167  Mo.  406,  67  S. 
W.  303. 

23a.  See  ante,  "Loans  and  Discounts,'' 
§  108;  post,  "In  General,"  §  116  (l); 
as  affecting  officer's  liability  for  illegal 
loan.  See  ante,  "Duties  and  Liabilities 
with  Respect  to  Loans,  Discounts, 
Overdrafts,  etc.."  §  54   (3). 

Estoppel  to  deny  authority,  sec  ante, 
"Estoppel  to  Deny  Authority  of  Officer 
or  Agent,"  §  113. 

24.  Authority  and  acts  which  may  be 
ratified. — Western  Nut.  Bank  v.  .Arm- 
strong, 152  U.  S.  346,  38  L.  Ed.  470,  14 
S.   Ct.   572. 

25.  Directors — Act  of  president. — 
First  Nat.  Bank  v.  Kimberlands,  16 
W.  Va.  555;  Swindell  &  Co.  v.  Bain- 
bridge  State  Bank,  3  Ga.  App.  364,  60 
S.    E.    13. 

Transfer  of  note. — 'IMie  directors  of 
a  hank  may  ratify  a  transfer  of  a 
note  belonging  to  the  liank  made  by 
the  president  without  autliority.  Smith 
V.  Lawson,  18  W.  Va.  213,  41  Am.  Rep. 
688. 

26.  Act  of  cashier. — Wynn  v.  Tal- 
lapoosa County  I'.ank,  168  Ala.  469,  53 
So.   228. 

Where  a  cashier  oi  a  Iiaiik  under- 
took to  pay  liis  personal  in(lel)tedness 
to     the    bank     l)y     Iiis    acceptance     as 


806 


BANKS   AND   BANKING. 


114  (1) 


vice-president,-'  or  any  other  officer  or  employee,  without  authority,  which 
they  could  have  authorized  him  to  do  or  make,-^  but  not  as  ultra  vires 
act  or  contract.^*^ 

Directors  Personally  Interested  in  Transaction  Sought  to  Be 
Ratified. — The  directors  of  a  bank  who  are  directors  of  a  corporation  in- 
debted to  the  bank  and  others  are  incompetent  to  ratify,  on  the  part  of  the 
bank,  a  transaction  whereby  the  corporation  executed  a  mortgage  to  secure 
an  indebtedness  to  the  directors  and  to  the  bank  so  as  to  make  the  lien  of 
one  of  the  directors  superior  to  the  hen  of  the  bank.^"^ 

Stockholders  Who  May  Ratify  Acts  of  Directors. — Subscribers  to 
the  capital  stock  of  a  state  bank,  who  have,  by  fraudulently  representing 
that  the  stock  has  been  paid  up,  obtained  permission  from  the  auditor  to 
commence  business,  can  not,  as  stockholders,  ratify  a  resokition  which  they 
themselves  have  adopted  as  directors  of  the  bank.-'^ 

Acts  of  Cashier  Undertaken  Away  from  Bank. — A  cashier,  by  con- 
tinuing an  act  undertaken  while  away  from  the  domicile  of  the  bank,  after 
his  return,  without  objection  on  the  part  of  the  directors,  makes  the  act 
that  of  the  bank,  though  he  could  not  represent  the  bank  away  from  its 
domicile. ^- 


crishier  of  a  note  of  a  third  person,  the 
bank  might  ratify  his  action  so  as  to 
render  it  a  payment  of  his  obligation. 
First  Nat.  Bank  7'.  Ganhus,  133  Iowa 
409,  110  N.  W.  611. 

27.  Vice-president. — Wyckofif  v.  River- 
side Bank,  111)  X.  Y.  S.  937.  135  App. 
Div.    400. 

28.  First  Nat.  Bank  v.  Kimberlands, 
16  W.  Va.  555;  Parker  v.  Dounally,  4 
W.   Va.   648. 

29.  Ultra  vires  acts — Excessive  loan. 
— Where  the  cashier  of  a  bank  con- 
tracted to  loan  to  one  person  more 
than  ten  per  cent  of  its  capital  stock 
and  surplus,  the  loan  not  being  amply 
secured  by  security,  the  contract  could 
not  be  rendered  legal  by  ratification 
or  binding  by  estoppel.  Swindell  & 
Co.  V.  Bainbridge  State  Bank,  3  Ga. 
App.   364,   60   S.    E.    13. 

An  agreement  to  work  mining  prop- 
erty.— Weston  V.  Estey,  22  Colo.  334, 
45    Pac.    367. 

30.  Directors  personally  interested 
in  transaction  sought  to  be  ratified. — 
Shaw  V.  Crandon  State  Bank,  145  Wis. 
639,   129    N.    W.    794. 

A  corporation  executed  a  mortgage 
to  secure  notes  payable  to  S.,  K.,  and 
a  bank.  S.  and  K.  were  directors  of 
the  corporation  and  of  the  bank.  The 
note  of  S.  matured  first.  The  proceeds 
of  the  loan  from  S.  were  deposited  by 
the  corporation  with  the  bank.  S.  was 
also  interested  in  the  prosperity  of  the 


village  in  which  the  corporation  and 
bank  did  business,  and  he  advanced 
his  money  as  a  loan  to  the  corpora- 
tion, expecting  to  be  paid  out  of  the 
proceeds  of  the  business  of  the  cor- 
poration, but  his  loan  brought  no  profit 
to  the  corporation.  Held,  that  the 
bank  did  not  thereby  ratify  the  trans- 
action whereby  S.  claimed  a  priority 
of  lien  under  the  mortgage  to  secure 
his  note.  Shaw  v.  Crandon  State  Bank, 
145  Wis.  639.   129   X.  W.  794. 

Where,  in  a  suit  to  foreclose  a  mort- 
gage to  secure  notes  payable  to  S.,  K., 
and  a  bank,  brought  bj'  S.,  who  claimed 
a  priority  of  lien  under  the  mortgage,- 
because  his  note  first  matured,  it  was 
shown  that  S.  and  K.  were  directors 
of  the  mortgagor,  a  corporation,  and 
were  also  directors  of  the  bank,  the 
act  of  the  bank  in  setting  up  a  counter- 
claim for  foreclosure  and  averring  a 
priority  of  lien  over  S.  did  not  amount 
to  a  ratification  of  the  transaction  in- 
volving the  execution  of  the  mortgage 
creating  a  priority  of  lien  in  favor  of 
S.  Shaw  V.  Crandon  State  Bank,  145 
Wis.   639,   129    N.   W.   794. 

31.  Stockholder's  who  may  ratify 
acts  of  directors. — McNulta  v.  Corn 
Belt  Bank,  1G4  111.  427.  45  X.  E.  954, 
56   Am.    St.    Rep.   203. 

32.  Acts  of  cashier  undertaken  away 
from  bank. — Valdetero  v.  Citizens' 
Bank.  51  La.  Ann.  1651.  22  So.  425,  26 
So.  425. 


§   114  (2b) 


REPRESEXTATIOX    OF    BAXK. 


807 


§  114  (2)  What  Constitutes  and  Requisites— §  114  (2a)  In 
General. — Unauthorized  acts  or  contracts  of  the  president,  cashier,  or  their 
assistants  may  be  ratitied  by  the  directors,  either  expressly  or  impHedly,  as 
by  accepting  the  benefits  thereof  with  knowledge  of  the  facts,  or  by  any 
course  of  dealing  sufficient  in  equity  and  good  conscience  to  work  an  es- 
toppel.^^     It  is  ,iQt  necessarily  that  they  formally  ratify  his  act  or  conduct.^* 

§  114  (2b)  Knowledge  of  Facts.— Although  the  directors  of  a  bank 
are  conclusively  presumed  to  know  the  financial  condition  of  the  bank,  its 
general  business,  and  its  receipts  and  expenditures,  as  shown  by  its  reg- 
ular books,  they  can  not  be  adjudged  to  have  ratified  an  act  of  which  they 
have  no  knowledge  actual  or  constructive,  as  ratification  implies  knowl- 
edge.^^ 

Unauthorized  Contracts.— A  bank  can  not  be  adjudged  to  have  rati- 
fied an  unauthorized  contract  or  an  agreement  made  on  its  behalf  of  which 
its  directors  or  managing  heads  have  no  knowledge  actual  or  constructive, 
for  ratification  implies  knowledge.  Thus  ratification  of  the  act  of  a  bank 
officer  in  procuring  a  loan  for  the  bank,3c  in  taking  a  note  for  value  pro- 
cured by  fraudulent  representations  on  part  of  its  president^''  or  cashier,^^ 


33.  What  constitutes  and  requisites. 

— Apperson  v.  Exchange  Bank,  10  Ky. 
L.  Rep.  943,  10  S.  W.  801.  See  post, 
"Receiving  and  Retaining  Benefits  of 
Transaction,"  §  114   (2e). 

34.  The  president  borrowed,  of  his 
bank,  money  which  he  loaned  to  a  fail- 
ing debtor  of  the  bank  and  of  himself. 
The  debtor  gave  a  mortgage,  and  de- 
livered the  mortgaged  property  to  the 
president,  with  authority  to  sell,  and 
apply  the  proceeds,  etc.  The  president 
promised  that  the  debtor's  debt  to  the 
bank  should  thus  be  paid.  Held,  that 
directors  having  relied  on  the  presi- 
dent's promise  that  the  debt  would  be 
paid  by  means  of  such  dealings,  and 
having  made  no  other  attempt  to  col- 
lect it,  but  having  permitted  the  presi- 
dent to  acquire  the  mortgage  lien  on 
property  which  otherwise  might  have 
been  subjected  to  the  debt  to  the  bank, 
it  was  not  necessary  that  they  should 
formally  authorize  or  ratify  his  proceed- 
ings. Apperson  v.  Exchange  Bank,  10 
Ky.   L.   Rep.   '.)4;i,   in   S.   W.  801. 

35.  Knowledge  of  facts. — Western 
Nat.  Bank  v.  Armstrong,  152  U.  S.  346. 
38  L.  Ed.  470,  14  S.  Ct.  572;  First 
Nat.  Bank  v.  Drake,  29  Kan.  311,  44 
Am.   Rep.   646. 

Unknown  and  concealed  fraudulent 
transactions  of  a  cashier  can  be  neither 
authorized  nor  ratified  by  the  bank. 
Campbell  v.  Manufacturers'  Nat.  Bank, 
67  N.  J.  L.  301,  51  Atl.  497,  91  Am.  St. 
Rep.   438. 


36.  Procuring  loan  for  bank. — Ratifi- 
cation of  the  unauthorized  act  of  a 
national  bank  ofiicer  in  borrowing 
$200,000  for  the  bank  can  only  be  made, 
if  at  all,  by  the  board  of  directors,  act- 
ing with  knowledge  of  the  material 
facts,  and  can  not  be  inferred  from  the 
mere  fact  that  by  direction  of  the  same 
ofiicer  the  money  was  placed  to  the 
credit  of  the  bank,  when  it  appears  that 
it  was  drawn  out  by  him  and  the  as- 
sistant cashier,  and  that  no  part  of  it 
came  to  the  use  or  benefit  of  the  bank. 
WIestern  Nat.  Bank  v.  Armstrong,  152 
U.    S.   346,   38   L.    Ed.   470,   14   S.   Ct.   572. 

37.  Fraud  in  procuring  note. — Where 
the  president,  seeking  to  defraud  third 
persons,  told  them  that  they  could  give 
the  bank  their  note,  and  such  note 
would  not  be  enforced,  and  the  bank, 
without  knowledge  of  such  promise, 
discounted  the  note,  giving  full  value, 
there  was  no  ratification  of  the  presi- 
dent's acts.  Baker  v.  Berry  Hill  Min- 
eral Springs  Co.,  112  Va.  280,  71  S.  E. 
626. 

38.  A  bank  that  takes  for  value  a 
note  sitrncd  by  its  cashier  and  others, 
v/ithout  knowledge  of  a  representation 
by  the  cashier  to  his  comakers  that  it 
would  not  be  delivered  until  signed  by 
the  president  of  the  bank,  does  not 
thereby  ratify  the  casliicr's  representa- 
tions. First  Nat.  Bank  i\  Footc,  12 
Utah   ].'-)7,  42  Pac.  205. 


808 


BANKS   AND   BANKING. 


§  114  (2c) 


can  not  be  inferred  from  action  of  the  directors  in  absence  of  knowledge  of 
the  facts. 

What  Constitutes  Knowledge.— In  determining  whether  or  not  a  bank 
must  be  deemed  to  have  ratified  unauthorized  acts  of  its  agents  or  em- 
ployees, it  is  chargeable  with  knowledge  of  what  in  the  exercise  of  ordinary 
diligence  ought  to  have  been  known  to  its  board  of  directors  or  managing 
officials.39  Banks  have  knowledge  of  the  acts  of  their  officers  engaged  in 
the  business  of  their  employment  and  are  bound  thereby.  Thus,  where  at 
the  end  of  the  month  a  statement  of  account  w^as  forwarded  by  one  bank, 
in  the  usual  course  of  business,  to  another,  and  its  correctness  approved, 
the  latter  had  knowledge  of  what  occurred  in  the  transactions  included  in 
the  account  and  ratified  it.'**' 

Mere  Mention  of  Unauthorized  Contract. — The  mere  mention  by  an 
officer  of  a  bank  of  a  contract  which  he  had  no  power  to  make,  to  the  board 
of  directors  and  their  making  no  objection  thereto  does  not  amount  to  a 
ratification.-*  1 

Failure  to  Object  to  Course  of  Business. — Directors  will  be  held  to 
have  ratified  the  cashier's  acts  where  they  impose  on  him  a  duty  which  they 
should  perform,  and  fail  to  object  to  his  course  of  business  when  they 
know,  or  could  easily  know,  all  the  facts."*- 

§  114  (2c)  Negligence.— Knowledge  of  Irregularities— Failure  to 
Investigate. — Where   the  bank   has   notice  of   irregularities   or  misappro- 


39.    What     constitutes    knowledge. — 

St.   Paul,  etc.,  Trust  Co.   r.   Howell,   59 
Minn.   295,   61    X.    W.   141. 

Payment  not  assumed  by  president 
and  cashier. — The  president  and  cashier 
of  a  bank,  intrusted  with  the  manage- 
ment of  its  business,  for  a  valuable  con- 
sideration paid  by  the  makers,  assumed 
the  payment  of  a  note  belonging  to  the 
bank,  and  due  in  nipety  days.  They 
subsequently  assumed,  in  behalf  of  the 
bank,  to  extend  the  time  of  payment 
11  times  in  succession  for  ninety  days 
each  time,  and  at  each  extension  paid 
the  interest  to  the  bank.  It  did  not 
appear  that  during  all  this  time  the 
directors  or  other  oflfici?ls  of  the  bank 
made  any  inquiry  or  investigation  as 
to  the  management  of  its  afTairs  by  the 
president  and  cashier.  Held,  that  the 
jury  were  justified  in  finding  that  the 
bank  was  chargeable  v/ith  constructive 
notice  of  the  fact  that  the  president 
and  cashier  were  interested  in  the  note, 
and  hence  ratified  their  acts  in  making 
the  extensions.  St.  Paul,  etc.,  Trust 
Co.  V.  Howell,  59  Minn.  295,  61  X.  W. 
141. 

40,  Kennedy  r.  First  Xat.  Bank,  Fed. 
Cas.  No.  7,70la. 

The  act  of  a  bank  president  in  dis- 
counting   with    another    bank,    without 


authority,  a  note  made  to  the  cashier 
of  his  own  bank,  and  having  the  pro- 
ceeds placed  to  the  credit  of  his  bank, 
from  which  he  obtained  an  equal  sum 
for  his  personal  benefit  by  misrepre- 
senting the  character  of  the  transaction 
to  his  cashier,  held  to  have  been  rati- 
fied by  his  bank,  through  the  action  of 
its  cashier  in  drawing  for  the  proceeds 
of  the  note,  and,  together  with  the  vice- 
president,  accepting  and  approving  a 
statement  of  the  account  sent  to  them 
at  the  end  of  the  month  by  the  dis- 
counting bank.  Kennedy  v.  First  Nat. 
Bank,   Fed.   Cas.    No.   7,701a. 

41.  Mere  mention  of  unauthorized 
contract. — Plaintiff  obtained  subscrib- 
ers to  the  stock  of  a  national  bank  just 
before  and  after  its  organization,  under 
agreement  with  the  principal  stock- 
holder and  president  that  he  should  be 
paid  therefor.  Held,  that  the  president 
had  no  right  to  make  such  contract 
binding  on  the  bank,  and  the  fact  that 
when  he  mentioned  such  contract  to 
the  board  of  directors  they  made  no 
objection  thereto  did  not  amount  to  a 
ratification.  Tifift  v.  Quaker  City  Nat. 
Bank,   8   Pa.  Co.  Ct.  Rep.  606. 

42.  Failure  to  object  to  course  of 
business. — W^ynn  v.  Tallapoosa  County 
Bank,  168  Ala.  469,  53   So.  228. 


§  114  (2d) 


REPRESENTATION    OF    BANK. 


809 


priation  of  funds  by  its  cashier  and  continues  him  in  its  service,  it  is  Hable 
for  any  loss  whicli  may  result  to  the  customer  through  his  theft  or  em- 
bezzlement.■*•'' 

Negligence  in  Failing  to  Discover  Fraud  of  Officer.— W  here  plain- 
tiff bank  acted  fraudulently  in  accepting  an  unauthorized  pledge  of  another 
bank's  credit  from  its  cashier,  the  latter  bank  did  not  ratify  the  transaction 
because  its  officers  and  stockholders  were  negligent  in  failing  to  discover 
the  fraud.-^-^ 

§  114  (2d)  Delay  or  Acquiescence.— Delay  to  repudiate  or  long  ac- 
quiescence in  an  unauthorized  act  of  a  bank  official,  after  knowledge  of 
the  same  is  brought  home  to  the  bank,  will  operate  a  ratification  thereof.-*^ 
Thus  long  acquiescence  in  the  payment  to  the  president  of  a  debt  due  to 
the  bank,-^'^  in  the  unauthorized  release  of  a  judgment  lien  by  the  bank's 
president,^"  or  in  a  cashier's  collateral  agreement  as  to  presenting  a  sight 
draft  ;-i^  have  each  been  held  to  operate  a  ratification. 


43.  Knowledge  of  misappropriation 
— Failure  to  investigate. — Where  a  bank 
knew  of  the  misappropriation  of  funds 
by  its  cashier,  and  continued  him  in  its 
service,  it  is  liable  to  the  depositor  for 
bonds  lost  through  the  gross  negli- 
gence of  the  cashier,  or  through  his 
theft.  Stefife  v.  Bank  (Pa.),  22  Pittsb. 
Leg.  J.   (O.  S.)  157. 

Knowledge  of  stock  gambling  trans- 
action.— A  bank  which  allows  its  cash- 
ier to  retain  his  position,  and  omits  to 
make  an  investigation  as  to  the  correct- 
ness of  his  afifairs,  after  finding  out  that 
he  was  in  the  habit  of  gambling  in 
stocks,  is  chargeable  with  gross  negli- 
gence, and  will  be  liable  for  loss  occur- 
ring after  such  knowledge,  through 
embezzlement  by  the  cashier  of  securi- 
ties deposited  in  the  bank.  Prather  t-. 
Kean,   29    Fed.   498. 

44.  Negligence  in  failing  to  discover 
fraud  of  officer. — Fort  Dearborn  Xat. 
Bank  v.  Seymour,  75  Minn.  100,  77  X. 
W.  543. 

45.  Where  the  transaction  was  made 
known  to  the  trustees  individually, 
and  they  never  objected,  this  intelli- 
gent acquiescence  was  a  binding  ratifi- 
cation. Creswell  v.  Lanahan,  101  U.  S. 
347,   25    L.    Ed.   853. 

46.  Payment  of  debt  to  president. — 
Payment  of  a  debt  due  to  a  bank,  made 
to  the  president,  will  not  be  set  aside 
at  the  instance  of  the  bank's  creditors, 
on  the  ground  of  such  officer's  want  of 
authority  to  receive  payment,  the  con- 
trol of  the  affairs  of  the  bank  having 
passed  to  him  by  the  failure  of  the  di- 
rectors and  cashier  to  act;  and  it  not 
appearing  that  any  loss  or  injury  was 
sustained  by  the  bank  or  its  creditors 


in  consequence  of  such  payment,  which 
was  acquiesced  in  by  the  bank  for 
many  years.  Parker  z\  Donnally,  4  W. 
Va.    648. 

47.  Release  of  judgment. — C.  a  bank, 
loaned  money  to  A.,  taking  a  note  and 
confession  of  judgment  as  security 
therefor.  The  note  was  made  to  "B., 
President,  or  Bearer."  Subsequently, 
B.  gave  a  release  of  lien,  signed,  "B., 
President,"  to  enable  A.  to  sell  part  of 
the  land.  The  note  was  not  paid  at 
maturity,  and  execution  issued  against 
the  sureties  was  enjoined,  and  an  issue 
framed  and  tried  between  "B.,  Presi- 
dent of  the  Bank,"  and  the  sureties. 
B.  had  negotiated  the  loan,  and  done 
all  the  business  connected  with  it.  and 
the  judgment  stood  in  his  name.  Held, 
that  the  long  acquiescence  of  the  bank 
in  the  acts  of  B.  constituted  a  ratifica- 
tion of  them,  and  that  it  was  bound  by 
the  release  given  by  B.  Winton  z: 
Little   (Pa.),  9  Wkly.  Notes  Cas.  ;;7. 

48.  Agreement  as  to  presenting  a 
sight  draft. — The  cashier  of  a  I)ank  ad- 
vanced money  to  a  broker  to  purcliasc 
cotton,  and  the  latter  gave  the  cashier 
a  sight  draft  on  a  Boston  firm,  to  be 
kept  as  a  memorandum,  and  not  to  be 
presented  until  shipments  of  cotton  had 
been  made  to  the  drawee  to  meet  it. 
The  bank  kept  the  draft  for  nearly  nine 
months,  not  entering  it  on  its  books  as 
a  discount  draft,  but  counting  it  as  a 
cash  item.  When  the  cotton  adventure 
proved  a  failure,  tlie  I)ank  presented  the 
draft,  and,  upon  dislionor,  it  Ijrought 
an  action  against  the  drawer.  Ileid, 
that  the  bank's  treatment  of  the  draft 
rendered  it  subject  to  the  casliier's 
agreement.  National  I'ank  :'.  WilHams^ 
4G   Mo.    17. 


810 


BANKS   AND   BANKING. 


§  114  (2e) 


Delay  to  Enforce  Payment  As  Ratification  of  Release. — Mere  delay 
in  enforcing  payment  of  notes  is  not  a  ratification  of  an  unauthorized  agree- 
ment to  release  payment.'*^ 

§  114  (2e)  Receiving  and  Retaining  Benefits  of  Transaction.— A 

bank  impliedly  ratifies  the  unauthorized  acts  or  contracts^*^  of  its  presi- 
dent,^*^^  vice-president,"^  cashier,^-  or  any  agent  or  employee  or  their 
assistants'^  by  receiving  and  keeping  the  benefits  thereof  with  knowledge 
of  the  facts.  As  if  under  the  contract  so  made  by  the  president  or  other 
officer  money  is  to  be  paid  to  the  corporation,  and  it  is  received  by  the 
corporation  and  appHed  to  its  use  even  without  the  knowledge  of  the  di- 
rectors, if  it  is  not  returned,  when  it  becomes  known  to  the  directors  that 
it  has  been  apphed  to  the  bank's  use,  such  conduct  would  be  a  ratification  of 
the  contract  of  such  president  or  other  officer.^'*  A  bank  ratifies  the  acts 
of  its  officer  or  agent  with  all  its  legal  consequences  and  can  not  be  heard 
to  dispute  his  authority  where  it  receives  and  retains  a  loan  secured  by  a 
pledge  of  its  securities,''-''  the  proceeds  of  a  discount, •''''  the  proceeds  of  a 


49.  Delay  to  enforce  payment  not 
ratification  of  release. — Swindell  &  Co. 
V.  Bainbridge  State  Bank,  3  Ga.  App. 
364,  60   S.   E.   13. 

50.  First  Nat.  Bank  v.  Kiniberlands, 
16  W.  Va.  555;  Parker  v.  Donnally,  4 
W.  Va.  648. 

Ratification  need  not  be  shown  by 
direct  evidence  that  it  was  expressly 
approved  by  the  board  of  directors,  but 
such  ratification  may  be  inferred  from 
their  accepting  the  benefits  of  the  act 
or  contract.  First  Nat.  Bank  v.  Kini- 
berlands, 16  W.  Va.  555. 

50a.  President. — First  Nat.  Bank  v. 
Kimberlands,  16  W.  Va.  555;  Parker  v. 
Donnally,  4  W.  Va.  648;  Apperson  r. 
Exchange  Bank,  10  Ky.  L.  Rep.  943,  10 
S.  W.  801. 

51.  Vice-president. — Wyckoff  v.  River- 
side Bank,  119  N.  Y.  S.  937,  135  App. 
Div.  400;  Lechenger  v.  Merchants'  Nat. 
Bank  (Tex.  Civ.  App.),  96  S.  W.  638, 
affirmed  in  101  Tex.  646,  no  op. 

52.  Apperson  v.  Exchange  Bank,  10 
Ky.  L.   Rep.  943,   10   S.  W.  801. 

A  bank  ratifies  the  unauthorized  act 
of  its  cashier  by  receiving  and  keeping 
a  part  of  the  fruits  thereof.  German 
Nat.  Bank  v.  Grinstead,  21  Ky.  L.  Rep. 
674,   52   S.   W.   951. 

53.  Apperson  v.  Exchange  Bank,  10 
Ky.  L.   Rep.  943,  10  S.  W.  801. 

After  accepting  the  benefits  of  the 
contract  made  by  its  agent,  the  bank 
can  not  be  heard  to  deny  his  agency, 
especially  where  he  acted  under  the 
direct  authority  and  advice  of  the  presi- 
dent of  the  bank.  Waxahachie  Nat. 
Bank  v.   Vickery    (Tex.   Civ.   App.),   26 


S.  W.   876.     See,  also.   Panhandle   Nat. 
Bank  v.  Emery,  78  Tex.  498,  15  S.  W.  23. 

54.  First  Nat.  Bank  v.  Kimberlands, 
16  W;  Va.  555. 

Where  money  is  received  by  the  bank 
cashier  for  the  bank  under  a  contract 
made  by  the  president;  even  when  such 
receipt  was  unknown  to  the  directors, 
it  will  be  a  ratification  of  the  contract 
unless  the  money  so  received  is  re- 
turned, when  its  receipt  becomes 
known  to  the  directors.  First  Nat. 
Bank  v.  Kimberlands,  16  W.  Va.  555; 
Parker  v.  Donnally,  4  W.  Va.  648. 

Where  a  president  of  a  bank  has 
without  authority  transferred  a  note 
belonging  to  the  bank,  the  acceptance 
and  appropriation  of  a  consideration 
by  the  directors  of  the  bank  is  an  im- 
plied ratification  of  the  president's  act. 
where  such  acceptance  and  appropria- 
tion is  with  knowledge  of  the  presi- 
dent's act,  and  if  such  acceptance  and 
appropriation  have  been  made  by  the 
officers  of  the  bank  without  the  knowl- 
edge of  the  directors,  failure  of  the 
directors  to  return  the  consideration 
when  its  receipt  becomes  known  to 
them  will  be  held,  also,  a  ratification 
of  the  president's  act.  Smith  v.  Law- 
son,  18  W.  Va.  212.  41   Am.  Rep.  688. 

55.  Loan  secured  by  pledge. — A  sav- 
ings  institute   at   Fishkill   conducted  its 


56.  Proceeds  of  discount. — Where  a 
bank  has  received  the  proceeds  of  a 
discount,  and  used  them,  it  can  not 
dispute  its  cashier's  authority  to  apply 
for  the  discount.  Tradesmen's  Nat. 
Bank  v.  Bank,  6  App.  Div.  358,  39  N. 
Y.  S.  554. 


§  114  (2e) 


REPRESENTATION    OF    BANK. 


811 


sale  or  transfer  of  notes  made  payable  to  it,^"  or  the  consideration  paid 
for  a  contract  ;^^  as,  for  instance,  a  payment  by  an  obligor  on  a  note  under 
an  agreement  for  his  release  from  further  liability  thereon,^'^  or  a  payment 
bv  the  principal  of  a  portion  of  his  debt  under  an  agreement  for  an  ex- 
tension of  time  thereby  discharging  the  surety  ;^*^  where  it  accepts  the  bene- 
fits of  an  indemnifying  contract'^^  or  of  a  bond  guarantying  the  fidelity  of  an 
employee;^-  where  it  accepts  the  benefits  and  assumes  the  burdens  of  a 
purchase  of  real  estate,'^'^  or  of  a  fraudulent  purchase  of  property  held  by 


business  through  a  bank,  whose  cash- 
ier, B.,  was  treasurer  of  the  institute, 
and  active  manager  of  both.  Without 
the  knowledge  or  consent  of  the  other 
officers  of  the  bank,  B.  took  from  a 
safe-deposit  company  in  New  York 
certain  securities  of  the  institute,  and 
pledged  them  to  secure  a  loan  for  the 
bank.  In  an  action  against  the  bank 
and  its  receiver,  held,  that  the  insti- 
tute was  entitled  to  recover  for  the 
conversion,  the  bank  being  chargeable 
v/ith  B.'s  knowledge,  and  the  applica- 
tion of  the  money  to  its  uses  being  a 
ratification  of  his  borrowing  it.  Fish- 
kill  Sav.  Inst.  V.  Bostwick,  19  Hun  354, 
affirmed  in  80  N.  Y.  162. 

57.  Where  notes  given  to  a  bank  by 
its  cashier  in  his  individual  capacity 
and  as  treasurer  of  a  company  were 
sold  by  the  cashier,  and  the  proceeds 
received  and  retained  by  the  bank,  it 
ratified  the  acts  of  the  cashier.  Ger- 
man Sav.  Bank  v.  Des  Moines  Nat. 
Bank,  122  Iowa  737,  98  N.  W.  606. 

If  a  note  for  the  purpose  of  raising 
money  be  made  payable  to  a  bank,  and 
be  discounted  l)y  the  cashier  of  that 
bank  on  his  private  account,  and  after- 
wards be  transferred,  before  maturity, 
by  him,  with  his  indorsement  in  the 
name  of  the  bank  as  cashier  thereon, 
this  constitutes  a  sufficient  recognition 
of  the  note  by  the  bank  to  render  it 
binding  upon  all  the  parties  to  it, 
whether  principals  or  sureties.  Keith 
V.  Goodwin,  31  Vt.  268,  73  Am.  Dec. 
345. 

58.  W'yckofif  v.  Riverside  Bank,  135 
App.  Div.  400,  119  N.  Y.  S.  937;  Mer- 
chants' Nat.  Bank  v.  McAnulty  (Tex. 
Civ.  App.),  31  S.  W.  1091,  affirmed  in 
part  and  reversed  in  part  in  89  Tex. 
124,  citing  Ft.  Worth  Pub.  Co.  v.  Hit- 
son,  80  Tex.  216,  14  S.  W.  843,  16  S. 
W.  551. 

Retaining  money  paid  in  considera- 
tion.— Where  a  bank  through  its  execu- 
tive committee  retained  the  money  paid 
to  its  vice-president  in  consideration  of 
a  contract  made  by  him,  the  act  of  the 
vice-president  was  ratified,  though  it 
was     originally     unauthorized.      W'yck- 


ofif  V.    Riverside    Bank,    135    App.    Div. 
400,  119  N.  Y.  S.  937. 

59.  Payment  by  one  obligor  under 
agreement  for  his  release. — When  pay- 
ments were  made  on  a  note  bj'  one  of 
the  obligors  in  consequence  of  an  un- 
derstanding with  the  president  of  the 
payee  bank  th^t  the  obligor  was  to  be 
released,  and  the  bank,  with  knowledge 
of  the  president's  act,  retains  the  monej', 
it  adopts  the  act  with  all  its  legal  con- 
sequences though  it  was  unauthorized 
when  done.  Merchants'  Nat.  Bank  v. 
McAnulty  (Tex.  Civ.  App.),  31  S.  W. 
1091. 

60.  Discharge  of  surety. — Where  the 
cashier  of  a  bank  grants  an  extension 
of  time  to  the  principal  debtor,  on  the 
payment  of  a  portion  of  the  debt,  and 
thereby  discharges  a  surety,  the  bank 
ratifies  the  extension  by  receiving  and 
retaining  the  payment.  Perkins  f. 
Bank,  5  La.  Ann.  222. 

61.  Indemnifying  contract. — A  bank, 
being  indebted  to  a  depositor,  induced 
him  to  accept  a  second  mortgage  from 
one  of  its  debtors  in  payment  thereof; 
and,  to  induce  him  to  accept,  the  cash- 
ier, in  the  name  of  the  bank,  gave  him 
a  contract  indemnifying  him  against 
the  first  mortgage.  The  bank  never 
repudiated  the  act  of  the  cashier,  but 
accepted  the  benefits  of  the  transac- 
tion. Held,  in  an  action  on  the  con- 
tract, that  it  was  binding  on  the  bank, 
even  though  it  be  considered  in  excess 
of  the  cashier's  authority.  Peninsular 
Bank   t'.    Hanmer,    14    Mich.   208. 

62.  Fidelity  bond. — A  bank,  in  accept- 
ing its  president's  action  in  procuring 
a  bond  guarantying  the  fidelity  of  its 
cashier,  must  be  held  to  have  assented 
to  the  conditions  of  the  bond  provid- 
ing that  the  representations  made  by 
the  president  relative  to  the  duties  and 
accounts  of  the  cashier  should  consti- 
tute an  essential  part  and  form  the 
basis  of  the  contract.  Warren  Deposit 
Bank  v.  Fidelity,  etc.,  Co.,  116  Ky.  38, 
25  Ky.  L.  Rep.  289.  74  S.  W.  11  H. 

63.  Purchase  of  real  estate. — The 
trustees  of  a  hank,  wiilnnit  any  formal 
order,   directed   its   cashier   to   purchase 


812 


BANKS   AND   BANKING. 


114    (2f> 


it  as  collateral  security,'^^  or  takes  and  uses  a  judgment  purchased  for  it;*^^ 
and  where  it  takes  and  retains  the  assets  of  a  private  banking  business 
under  an  agreement  to  take  the  assets  and  assume  the  liabilities  of  such 
business. '^'^ 

§  114   (2f)  Attempt  to  Enforce  Contract.— Suing  on  Contract. — 

A  bank  by  bringing  an  action  upon  a  contract  made  in  its  behalf  by  one 
of  its  officers,  ratifies  his  action  in  making  the  contract,  and  confirms  his 
agency,^"  even  though  his  duties  did  not  include  such  transaction.*^^  A 
bank  by  suing  upon  a  check  paid  by  its  cashier,*^^  an  indemnifying  bond;"*^ 
a   contract   of   loan;"^!    a    lease;'-    or   a   note,   whether   made    directly    to 


certain  real  estate  for  the  use  of  the 
bank;  and  he,  acting  under  such  di- 
rections, contracted  with  C.  for  his 
interest  therein.  The  bank  at  once 
took  the  benefits  and  assumed  the  bur- 
dens of  the  contract,  paying  the  first 
instaUment  of  the  price;  and  there- 
after the  board  of  trustees,  by  a  formal 
order  recorded  in  their  minutes,  rati- 
fied all  the  acts  of  the  cashier.  Held 
that,  though  such  ratification  did  not 
occur  until  after  an  action  to  compel 
the  specific  performance  of  the  con- 
tract after  the  vendor  had  refused  to 
complete  the  same,  it  was  sufficient  to 
render  the  acts  of  the  cashier  the  acts 
of  the  corporation  from  the  beginning. 
Washington  State  Bank  z.  Dickson,  ,35 
Wash.  641,  77  Pac.  10G7. 

64.  Memphis  City  Bank  7'.  Smith,  110 
Tenn.  Xil,  75  S.  W.  10G5. 

65.  Purchase  of  a  judgment  and  al- 
lowance of  credit  thereon. — The  ac- 
ceptance by  a  bank  of  a  judgment  sold 
to  its  president  under  an  agreement  by 
which  the  bank  was  to  allow  the  judg- 
ment creditors  a  certain  credit  on  ac- 
count of  the  transaction,  and  the  use 
of  the  judgment  by  the  bank  in  pur- 
chasing the  property  against  which  it 
was  a  lien,  is  a  ratification  of  the  act 
of  its  president  in  making  such  agree- 
ment, and  cures  any  want  of  authority 
on  his  part  in  the  premises.  Goldbeck 
2'.  Kensington  Nat.  Bank,  147  Pa.  267, 
23  Atl.  565. 

66.  Agreement  to  take  over  a  private 
bank. — Where  a  majority  of  bank  di- 
rectors informally  agree  to  take  the 
assets  and  assume  the  liabilities  of  a 
private  banking  business,  and  the  cor- 
poration thereupon  takes  and  retains 
such  assets,  it  will  be  held  to  have  rati- 
fied the  agreement.  Bank  z:  Ketcham. 
04  Wis.   7.  24  N.  W.  468. 

67.  Suing  on  contract. — Wilson  v. 
Pauly,  18  C.  C.  A.  475,  72  Fed.  129; 
First  Nat.  Bank  v.  New  Milford,  36 
Conn.     93;     Lechinger     Z'.     Merchants' 


Nat.   Bank   (Tex.   Civ.  App.),  96   S.  W. 
638. 

68.  Wilson  r.  Pauly,  18  C.  C.  A.  475, 
72  Fed.  129. 

69.  Though  the  cashier  of  a  bank 
who  paid  a  check  drawn  on  another 
bank  as  agent  of  the  bank  had  no  au- 
thority to  pay  it  with  the  funds  of  his 
principal,  his  action  in  so  doing  was 
ratified  by  the  bank  when  it  brought 
suit  on  the  check  in  its  own  name. 
Preston  v.  Dozier,  135  Ga.  25,  68  S.  E. 
793. 

70.  New  indemnifying  bond  substi- 
tuted for  old  one. — In  an  action  against 
the  surety  on  a  bond  given  to  a  bank 
to  indemnify  it  against  all  discount, 
etc.,  of  the  paper  of  a  certain  corpora- 
tion, the  defense  was  that  the  bond 
had  been  surrendered,  and  another  one, 
in  a  larger  sum,  taken,  and  plaintiff  de- 
nied the  authority  of  the  cashier  to 
surrender  the  bond.  The  president 
and  a  co-director  testified  that  they 
did  not  know  that  a  new  bond  had 
been  accepted  as  a  substitute  for  the 
old  one,  but  it  appeared  that  all  the 
bank  ofiicials  knew  that  the  corpora- 
tion's discounts  were  in  excess  of  the 
amount  secured  by  the  first  bond,  and 
ihe  bank,  in  endeavoring  to  recover  for 
the  discounts,  sued  on  the  second  bond 
first.  Held,  that  the  cashier's  action 
had  been  ratified.  Judgment,  78  N.  Y. 
S.  38,  75  App.  Div.,  393,  affirmed. 
German-American  Bank  z:  Schwinger, 
178  N.  Y.  569,  70  N.  E.  1099. 

71.  Loan.— A  bank,  by  bringing  an 
action  upon  a  contract  of  loan  made  in 
its  behalf  by  one  of  its  officers,  ratifies 
his  action  in  making  the  contract,  and  is 
in  law  chargeable  with  knowledge  pos- 
sessed by  the  agent  that  the  loan  was 
in  furtherance  of  an  illegal  purpose. 
Singleton  :•.  Bank.  113  Ga.  527,  38  S.  E. 
947. 

72.  The  institution  by  a  bank  of  a 
suit  based  on  a  lease  executed  by  its 
vice-president    being    a    ratification    of 


§  114  (2f.) 


REPRESENTATION    OF    BANK. 


813 


it,"^  discounted  by  an  incompetent  number  of  directors'-*  or  by  the  cashier 
without  the  knowledge  of  the  directors/ ^  or  taken  by  the  cashier,  under  a 
contract  which  he  was  unauthorized  to  make,'^  or  altered  by  the  payee  at  the 
instance  of  the  president  of  the  bank/"  ratifies  the  transaction  in  toto"^ 
and  is  in  law  chargeable  with  knowledge  of  whatever  he  knew  at  the  time 
of  making  the  contract,''-^  thereby  binding  itself  by  his  knowledge  of  fraud,**" 
or  that  it  was  in  furtherance  of  an  illegal  purpose.**^ 

Protesting  Check. — A  bank  may  ratify  the  receipt  of  a  postdated  check 
for  collection,  by  its  paying  teller,  by  protesting  the  same  where  there  was 
a  balance  to  the  credit  of  its  drawer  on  the  day  of  its  date  which  was  paid 
out  on  drafts,  part  of  which  was  held  by  the  bank.**- 

Enforcing  Payment  of  Interest.— Where  the  cashier  of  a  bank,  being 
•at  the  time  a  stockholder  and  director  of  an  insurance  company,  acted  as 
cashier  for  the  bank,  and  at  the  same  time,  either  for  the  makers  of  notes, 
the  insurance  company,  or  himself  in  receiving  the  notes  and  carrying 
them  through  the  books  of  the  bank  as  discounted  paper,  evidence  that 
after  the  bank  became  fully  advised  of  what  the  cashier  had  done  in  the 


his  act,  his  authority  to  execute  it  can 
not  be  assailed  in  the  suit.  Lechenger 
V.  ]\Ierchants'  Nat.  Bank  (Tex.  Civ. 
App.),  96  S.  W.  638. 

73.  In  an  action  bj'-  a  national  banic 
on  a  note  made  directly  to  it,  the 
maker  may  set  up  the  fraud  of  plain- 
tiff's president  in  procuring  the  note, 
as,  by  bringing  the  action,  the  bank 
ratifies  the  agency  of  the  president, 
even  though  his  duties  did  not  include 
such  transactions.  Wilson  v.  Pauly,  18 
C.  C.  A.  475,  72  Fed.  129. 

74.  Although  a  note  be  discounted 
by  an  incompetent  number  of  the  di- 
rectors of  a  bank,  yet,  if  the  bank  sue 
upon  the  note,  this  is  a  ratification  of 
the  discount,  and  it  is  binding  upon  the 
parties  thereto.  Planters'  Bank  v. 
Sharp  (Miss.),  4  Smedes  &  M.  75,  43 
Am.  Dec.  470. 

75.  Where  one  who  was  both  town 
treasurer  and  cashier  of  a  bank  drew 
a  note  as  treasurer,  intending  to  use 
the  proceeds  for  his  own  benefit,  and 
discounted  it  at  the  liank  in  which  he 
was  cashier,  but  witliout  the  knowledge 
of  the  directors,  held  that,  if  the  bank 
should  sue  the  town  on  the  note,  they 
would  ratify  the  contract,  and  confirm 
his  agency,  thereby  binding  themselves 
by  his  knowledge  of  the  fraud  pro- 
posed. First  Nat.  Bank  v.  New  Mil- 
ford,  36  Conn.  93. 

76.  A  bank,  by  suing  on  a  note  taken 
by  its  cashier  under  a  contract  made 
by  him,  ratifies  the  contract  in  toto, 
though  he  was  unauthorized  to  make 
it.  La  Grande  Nat.  Bank  v.  Blum,  27 
Or.  215,  41   Pac.  659. 


77.  Where  the  president  of  a  bank 
at  which  the  note  was  payable  caused 
the  payee  in  the  note  to  make  an  alter- 
ation therein,  the  acceptance  by  the 
bank  of  a  payment  on  the  note  and  the 
bringing  of  a  suit  thereon  as  altered 
amounted  to  a  ratification  of  the  alter- 
ation. First  Nat.  Bank  v.  Fricke,  75 
Mo.  178,  42  Am.   Rep.  397. 

78.  It  ratifies  the  contract  in  toto. — 
La  Grande  Nat.  Bank  v.  Blum,  27  Or. 
215,  41  Pac.  659. 

79.  A  bank,  by  bringing  an  action 
upon  a  contract  made  in  its  behalf  by 
one  of  its  officers,  ratifies  his  action  in 
making  the  contract,  and  is  in  law 
chargeable  with  knowledge  of  what- 
ever he  knew  at  the  time  of  so  doing. 
Singleton  v.  Bank,  113  Ga.  527,  38  S.  E. 
947. 

80.  First  Nat.  Bank  v.  New  Milford, 
36  Conn.  93. 

81.  Singleton  v.  Bank.  113  Ga.  527, 
38  S.  E.  947. 

82.  Protesting  check. — A  postdated 
check  was  given  after  banking  hours 
to  the  paying  teller,  on  his  promise  to 
carry  it  to  the  credit  of  the  holder  on 
the  day  of  its  date.  On  that  day  there 
was  a  balance  due  the  drawer,  wiiicli 
was  paid  out  a  part  on  drafts  held  by 
tlic  bank  itself.  The  check  was  pro- 
tested at  the  request  of  the  liank,  and 
returned  to  the  payee.  Held  that,  by 
protesting  the  check,  the  1)ank  ratified 
its  receipt  for  collection  by  the  paying 
teller,  and  could  api)ly  none  of  the 
money  on  its  own  drafts  until  tlic  check 
was  first  paid,  .\vcrell  v.  Second  Nat. 
Bank,  6  Mackey  (17  D.  C.)  358. 


814 


BANKS   AND   BANKING. 


§  114  (3a) 


matter,  instead  of  repudiating  his  acts,  it  affirmed  them  by  coercing  from 
the  company  payment  of  interest  from  the  date  of  the  notes  and  by  threaten- 
ing to  dishonor  its  checks,  is  sufficient  to  bind  the  bank.^^ 

Foreclosure  of  Mortgage. — Foreclosure  by  entry  and  sale  by  vote  of 
the  board  of  investment  was  a  sufficient  ratification  of  procuring  an  assign- 
ment of  a  mortgage  to  a  bank  by  its  treasurer. ^^ 

§  114  (2g)  Assertion  of  Individual  Liability  of  Officer. — For  a 
bank  to  assert  the  individual  liability  of  one  of  its  officers  for  his  unauthor- 
ized act  is  not  to  ratify  but  to  disaffirm,  as,  for  instance,  to  seek  to  assert 
his  liability  for  a  diversion  of  its  funds. ^^ 

§    114    (2h)    Bank  Seeking  to  Indemnify  Itself  against   Fraud. 

— A  bank  which  was  induced  to  make  a  loan  by  fraudulent  representations 
does  not  ratify  the  transaction  by  taking  steps  to  protect  itself  by  means 
of  a  mortgage  upon  the  payees  so  as  to  preclude  itself  from  setting  up 
the  fraud  in  an  action  by  the  principal  of  the  payees  to  reap  the  fruits 
of  his  wrongful  act.*^ 

§   114   (3)   Operation  and  Effect— §   114   (3a)   In  General.— The 

ratification  by  a  bank  of  an  unauthorized  contract  made  on  its  behalf  by 
any  of  its  officers  or  employees,  renders  it  valid  and  effective^"  and  it  is 
conclusive  upon  it.^^  Thus  an  unauthorized  alteration  of  the  nature  of  a 
debt  due  the  bank,^^  an  unauthorized  transfer  or  hypothecation  of  any 
note  or  security    of    the    bank,^*'    a    loan    of    money    for  the  purchase  of 


83.  Enforcing   payment   of   interest. 

— EUerbe  r.   National  Exch.  Bank,   100 
Mo.  445.  19  S.  W.  241. 

84.  Foreclosure  of  mortgage. — Ger- 
rity  V.  Wareham  Sav.  Bank,  202  Mass. 
214,  88  N.  E.  1084. 

85.  Assertion  of  individual  liability 
of  officer. — Where  a  cashier  of  a  bank 
without  authority  used  the  bank  funds 
to  pay  his  individual  debt,  no  ratifica- 
tion of  his  unauthorized  act  arose  by 
the  bank  attempting  to  hold  the  cash- 
ier individually  liable  for  the  funds 
wrongfully  diverted.  Home  Sav.  Bank 
z>.  Otterbach.  135  Iowa  157,  112  N.  W. 
769. 

86.  Bank  seeking  to  indemnify  it- 
self against  fraud. — Bank  v.  McGilvray 
&  Co.  (Ala.).  52  So.  473. 

Where  defendant's  cashier  declined 
to  make  a  loan  until  proper  security 
should  be  given,  and  during  his  absence 
plaintiff  applied  to  the  acting  cashier, 
and  by  fraudulently  rej^resenting  that 
the  cashier  had  agreed  to  make  the 
loan  for  the  bank  obtained  a  cashier's 
check  to  the  borrower,  which  the  bor- 
rower transferred  to  plaintiflf,  and  as 
soon  as  the  cashier  returned  he  at- 
tempted   to    repudiate    the    transaction. 


and  took  steps  to  protect  the  bank  and 
himself  by  taking  the  mortgage  from 
the  payees,  such  attempt  did  not  con- 
stitute a  ratification  of  the  transaction 
by  the  bank.  Bank  v.  McGilvray  & 
Co.   (Ala.),  52  So.  473. 

87.  Effect  of  ratification. — Hume  v. 
Eagon,  73  Mo.  App.  271. 

88.  Bank  v.  Reed  (Pa.),  1  Watts  & 
S.  101. 

li  any  act  or  contract  of  an  officer 
of  a  bank  made  without  authority  is 
subsequently  ratified  by  the  directors 
upon  full  knowledge  of  all  the  circum- 
stances of  the  case,  the  bank  will  be 
bound  thereby  as  fully  as  if  the  officer 
had  been  expressly  authorized  to  do 
the  act  or  make  the  contract.  First 
Nat.  Bank  :•.  Kimherlands,  16  W.  Va. 
555. 

89.  Alteration  of  nature  of  debt. — 
Though  the  cashier  of  a  bank  exceeds 
his  authority,  in  altering  the  nature  of 
a  debt  due  the  l)ank,  a  subsequent  ac- 
quiescence by  the  bank  in  such  an  ar- 
rangernent  is  conclusive  upon  it.  Bank 
7'.  Reed  (Pa.).  1  Watts  &  S.  101. 

90.  Transfer  or  pledge  of  note. — 
Rev.  St.  1889.  §  2759,  as  amended  in 
1895,  providing  that  the  transfer  or  hy- 


§  114  (4) 


REPRESENTATION    OF    BANK. 


815 


stock,^^  and  a  conveyance,  not  authorized  by  resolution  of  the  directors,^- 
are,  after  ratification,  binding  on  the  bank  or  its  receiver.^^ 

§  114  (3b)  Adoption  of  Entire  Contract. — A  bank  in  ratifying  an 
unauthorized  contract  in  its  behalf  by  one  of  its  agents  must  adopt  the  con- 
tract in  its  entirety,  and  not  in  part,^'*  and  this  it  can  not  do  if  the  contract 
is  in  part  ultra  vires,  as,  for  instance,  an  agreement  by  its  cashier  to  go 
into  the  mining  business  and  work  mining  properties. ''•'' 

§  114  (4)  Pleading  and  Proof. — Where  ratification  by  the  bank  of 
an  unauthorized  agreement  by  the  president  to  release  its  debtor  is  relied 
upon,  some  specific  act  or  acts  of  ratification  should  be  alleged. ^^ 

If  estoppel  from  acquiescence  is  relied  upon,  knowledge  of  an  un- 
authorized agreement  made  by  an  officer  of  a  bank  on  its  behalf  by  the 
directors  and  the  beneficial  results  accruing  therefrom  must  be  alleged  and 
proved. ^^ 

Evidence  of  Ratification. — The  proof  of  a  ratification  of  an  unau- 
thorized contract  made  on  its  behalf  bv  an  officer  of  a  bank  must  be  clear 


pothecation  of  any  note  or  security  of 
a  bank  by  any  officer  or  employee 
without  being  authorized  by  the  board 
of  directors  shall  be  "null  and  void," 
does  not  render  such  transfer  abso- 
lutely void,  but  only  voidable,  and  its 
ratification  by  the  directors  afterwards 
renders  it  valid  and  effective  from  the 
beginning.  Hume  v.  Eagon,  73  Mo. 
App.  271. 

91.  Loan  for  purchase  of  stock. — 
Though  the  act  of  a  bank's  president 
in  arranging  for  a  loan  of  money  for 
the  purchase  of  stock  is  unauthorized, 
yet,  if  the  loan  is  afterwards  ratified 
by  the  bank,  the  bank  can  not  subse- 
quently question  its  legitimate  charac- 
ter. Roe  V.  Bank,  167  Mo.  406,  67  S. 
W.  303. 

92.  Conveyance. — Under  Rev.  St., 
p.  591,  §  8,  providing  that  no  convey- 
ance not  authorized  by  previous  reso- 
lution of  the  board  of  directors  shall 
be  made  by  any  moneyed  corporation 
of  any  of  its  effects  exceeding  in  value 
$1,000,  a  subsequent  confirmation  of 
such  conveyance,  made  by  the  officers 
of  a  bank,  is  equivalent  to  a  previous 
resolution,  and  renders  the  conveyance 
valid  as  against  a  receiver  subsequently 
appointed.     Curtis  v.  Leavitt,  15  N.  Y.  9. 

93.  Receiver. — Curtis  v.  Leavitt,  15 
N.  Y.  9. 

94.  Weston  v.  Estey,  22  Colo.  334, 
45  Pac.  367. 

Where  a  bank  manager  in  general 
charge  of  its  business  procured  de- 
fendant's signature  to  a  note  for  the 
bank's   accommodation   to  enable   it   to 


exhibit  the  note  to  the  bank  examiner 
as  an  asset,  the  matter  being  within 
the  scope  of  the  manager's  agencj'.  the 
bank  could  not  ratify  his  act  in  dis- 
counting the  note  and  repudiate  his 
agreement.  National  Citizens'  Bank?'. 
Bowen,   109   Minn.  473.   124   N.  W.  241. 

95.  Mine  owners  indebted  to  a  bank 
made  their  note,  and  executed  a  deed 
of  trust  to  the  bank's  cashier,  to  secure 
the  indebtedness.  The  note  was  not 
paid  at  maturity,  and  without  the  pay- 
ment of  any  money  to  him  or  to  the 
bank,  and  without  authority,  the  cash- 
ier released  the  deed  of  trust,  and  two 
other  papers  were  executed  between 
the  parties.  One  was  an  absolute  deed 
of  the  property  to  the  cashier;  the 
other,  an  agreement  whereby  he  was 
to  work  the  mines  till  the  indebtedness 
of  the  bank  was  paid  from  the  pro- 
ceeds, and  certain  amounts  paid  to  the 
grantors,  after  which  he  was  to  become 
the  absolute  owner.  Subsequently  a 
creditor  of  the  bank  attached  the  prop- 
erty as  belonging  to  the  bank.  Held, 
that  the  bank  could  not  be  held  to  have 
adopted  the  contract  of  its  cashier, 
since  it  must  have  done  so  in  its  en- 
tirety, and  the  agreement  to  operate 
the  mines  would  have  been  ultra  vires. 
Weston  z>.  Estey,  22  Colo.  334,  45  Pac. 
367. 

96.  Pleading  and  proof. — Swindell 
&  Co.  V.  Bainbridge  State  Bank.  3  C.a. 
App.  364,  60  S.  E.  13. 

97.  Estoppel  from  acquiescence.— 
Swindell  i^  Co.  7'.  Bainbridge  State 
Bank,  3  Ga.  .\pp.  364,  60  S.   E.  13. 


315  BANKS  AND  BANKING.  §    H^ 

and  not  vague  and  indefinite.  Evidence  of  a  vague  and  indefinite  character 
should  not  ordinarily  be  admitted  as  a  basis  for  inferring  a  ratification 
from  a  habit  of  the  officer  to  make  similar  contracts  or  do  similar  acts,  but 
such  evidence  may  be  admitted  where  it  is  to  be  followed  up  by  proof 
that  the  contract  or  arrangement  was  subsequently  ratified  by  the  board 
of   directors  with   knowledge  of  the  fact.'''* 

Facts  Which  Are  Evidence.— The  fact  that  the  directors  of  a  bank 
unite  in  making  a  guaranty  note  to  secure  a  loan  to  the  bank  previously 
arranged  for  by  the  cashier  is  evidence  of  ratification  of  the  cashier's  act.^^ 
So  also  is  the  fact  that,  where  on  the  discovery  of  the  robbery  of  a  bank, 
the  cashier,  with  the  advice  of  a  minority  of  the  directors,  offered  a  reward 
for  the  capture  of  the  thief  and  return  of  money ;  all  the  directors  lived  in 
the  same  place,  and  did  not  disavow  the  cashier's  act.^ 

Submission  to  Jury.— \Miether  a  mere  silence  of  the  bank  in  failure 
to  repudiate  its  agents'  acts  within  a  reasonable  time  after  knowledge 
thereof  amounts  to  ratification  is  a  question  for  the  jury.2 

§  115.  Rights  Acquired  by  Bank.— Rule  as  to  Addition  of  Words 
Descriptio  Personae  and  Exception  Thereto.— The  general  rule  is 
that  the  addition  of  such  words  as  "Agent,"  "Treasurer,"  "President," 
etc.,  to  the  name  of  an  officer  of  a  bank  is  simply  descriptio  personae;  but 
there  is  an  exception  or  partial  exception,  to  the  rule  in  the  case  of  cashiers 
■of  banks.  It  is  now  held  that,  where  negotiable  paper  is  made  to  A.  B., 
"Cashier,"  or  any  abbreviation  of  that  word,  it  is  prima  facie,  at  least  the 
property  of  the  bank  of  which  A.  B.  is  cashier.^     In  such  cases,  where  the 

98.  Proof  of  accord  and  satisfaction  Nat.  Bank  v.  Fifth  Xat.  Bank  (Tex. 
agreed  to  by  president.— First  Nat.  Civ.  App.),  47  S.  W.  533,  modified 
Bank  z:   Kimberlands,    IT.   W.   Va.   555.       Fifth      Nat.     Bank    v.    Iron    City    Nat. 

99.  Facts  which  are  evidence.—  Bank.  92  Tex.  436.  49  S.  W.  368,  which 
American  Exch.  Nat.  Bank  v.  First  held  that  the  evidence  was  sufficient 
Kat.  Bank,  27  C.  C.  A.  274,  82  Fed.  961.       to   justify   the    submission   to   the   jurv. 

1.     Kelsey  v.   National   Bank,   69   Pa.  3.    Anheier  v.  Signor,  8  N.  Dak.  499, 


426. 


79    N.    W.    983;    Bank    z'.    Muskingums 


2.     Submission    to    jury.— Fifth    Nat.  Branch,  29  N.  Y.  619;  First  Nat.  Bank 

Bank  v.   Iron   Citv  Nat.   Bank,  92  Tex.  r.  Hall,  44  N.  Y.  395. 

436.  49  S.  W.  368.  "This  exception  to  the  rule  has  been 

The  cashier  of  plaintiff  bank  au-  established  because  banks  act  _  only 
thorized  defendant  bank  to  apply  through  agents,  and  the  cashier  is  the 
plaintiff's  deposit  to  his  private  in-  chief  financial  agent  of  the  bank,  and 
debtedness.  Plaintiff  had  no  knowl-  usage  has  sanctioned  the  practice  of 
edge  of  this  until  some  time  after  it  permitting  banks  to  do  business  in 
had  ceased  to  have  any  business  rela-  that  manner.  This  being  so,  the  en- 
tions  with  defendant,  and  after  it  had  forcement  of  the  general  rule  would 
severed  its  connection  with  its  cash-  often  work  injustice,  and  the  exception 
ier,  who  had  been  indicted  for  the  em-  becomes  a  legal  necessity.  But  we 
bezzlement  of  the  funds  in  question.  find  no  case  where  this  exception  has 
After  learning  of  the  act.  plaintiff  been  applied  to  any  transactions  other 
neglected  to  repudiate  it.  The  cashier  than  those  relating  to  commercial  pa- 
was  insolvent,  and  plaintiff  received  no  per.  In  Daniel,  Neg.  Inst.,  §  417,  the 
benefit  from  the  transaction  in  ques-  exceptions  are  limited  to  such  trans- 
tion.  Held,  that  there  was  not  suffi-  actions.  The  reason  upon  which  it  is 
cient  evidence  of  ratification  to  justify  based  necessarily  so  confine  it.  Banks, 
Its   submission  to  the  jury.     Iron   City  particularly  national  banks,  do  not  or- 


11; 


REPRESEXTATIOX    OF  BANK. 


817 


instrument  is  indorsed  by  "A.  B.,  Cashier,"  and  delivered  to  a  bona  fide 
holder,  the  bank  alone  is  liable  on  the  indorsement.^  The  most  that  could 
be  claimed  for  the  word  "Cashier"  in  any  other  case  would  be  that  it  raised 
a  presumption  of  fact.^  Indeed,  that  is  its  entire  scope  in  commercial  paper, 
except  where  the  paper  is  in  the  hands  of  a  bona  fide  indorsee.*' 

Cashier  Deemed  to  Hold  for  Bank.— The  cashier  of  a  bank  who  re- 
ceived money  on  a  mortgage  to  the  bank,  and  deposited  it  in  his  own  name 
holds  it  for  the  bank,  and  the  bank,  in  favor  of  third  parties,  must  be 
deemed  to  have  received  it  when  the  cashier  took  it." 

Guaranty  of  Note. — A  guaranty  of  a  note,  the  consideration  of  which 
moved  from  a  bank,  to  whose  cashier  it  was  addressed,  and  whose  official 
action  it  imported,  although  not  addressed  to  him  as  cashier,  may  well  run 
to  the  bank.s 

Defense  by  Makers  of  Note  Indorsed  by  Cashier  to  Bank.— Where 
directors  are  chosen  and  recognized  as  such  by  the  proprietors  of  a  bank, 
and  they  appoint  a  cashier,  and  he  acts  under  that  appointment  by  their 
direction,  the  maker  of  a  note  afterwards  indorsed  by  the  cashier  can  not 
set  up,  in  defense  to  a  suit  brought  by  the  indorsee,  irregularities  in  the 
choice  of  the  directors  and  appointment  of  the  cashier.^ 


dinarily  deal  in  real  estate.  In  the 
exceptional  cases  where  they  are  per- 
mitted to  do  so,  they  do  not  take  or 
convey  real  estate  through  an  agent. 
Such  matters  require  more  formality, 
and,  in  cases  of  transfer  by  the  bank, 
they  require  a  corporate  seal.  A  trans- 
fer to  'A.  B.,  Cashier,'  might,  in  equity, 
be  enforced  by  the  bank,  upon  a  show- 
ing that  it  was  intended  as  a  transfer 
to  the  bank.  The  same  might  be 
done  to  whomsoever  the  transfer 
might  be  made,  but  it  would  require 
evidence  to  establish  such  intention." 
Anheier  v.  Signor,  8  N.  Dak.  499,  79 
N.   W.    983. 

4.  Anheier  v.  Signor,  8  N.  Dak.  499. 
79  N.  W.  983;  Folger  v.  Chase  (Mass.), 
18  Pick.  63;  Farmers',  etc..  Bank  v. 
Troy  City  Bank  (:\Iich.),  ]    Doug.  457. 

5.  Assignment  to  A.,  "Cashier." — A 
land  contract  was  assigned  to  "C.  C. 
Schuyler,  cashier,"  the  assignor  know- 
ing that  Schuyler  was  the  cashier  of  a 
certain  bank,  and  being  also  at  the 
time  indebted  to  the  bank  as  surety  on 
his  mother's  notes.  The  assignor  was 
indebted  to  Schuyler,  and,  at  the  time 
the  indebtedness  was  incurred,  he 
stated  to  Schuyler  that  he  owned  a 
certain  section  of  land,  and  that  Schuy- 
ler should  lose  nothing.  The  assign- 
ment of  such  land  was  drawn  up  in 
the  bank  l)y  Schuyler,  and  given  to  a 
notary   with    instructions   to   go   to   the 

1   B   &   B— 52 


assignor's  place  and  get  it  signed  and 
acknowledged.  The  assignor  stated  to 
the  notary  that  he  would  not  sign  it 
if  it  was  for  the  bank,  a.s  he  did  not 
wish  to  get  his  property  mixed  up  in 
his  mother's  affairs.  The  notary  told 
him  that  Schuyler  said  that  he  (the 
assignor)  would  know  what  it  was  for. 
The  assignor  replied  that  he  would 
sign  it  for  Schuyler,  but  would  not 
sign  it  for  the  bank.  Thereupon  it  was 
signed  and  delivered  to  the  notary. 
Held  that,  conceding  a  presumption 
arose  that  the  assignment  was  to  the 
bank  because  of  the  addition  of  the 
word  "cashier."  such  presumption  was 
one  of  fact,  and  was  rebutted  by  the 
evidence.  Anheier  7'.  Signor,  8  X.  Dak. 
499,   79   N.   W.   983. 

6.  Anheier  v.  Signor.  8  X.  Dak.  499. 
79  ?x^  W.  983;  Baldwin  7/.  Bank  (U.  S.), 
1  Wall.  234.  17  L.  Ed.  534;  Bank  r. 
French  VMass.),  21  Pick.  486;  Metcalf 
T'.  Williams,  104  U.  S.  93,  26  L.  Ed. 
665;  Southern  Pac.  Co.  7'.  Von  Schmidt 
Dredge   Co.,   118   Cal.   368,   50   Pac.   650. 

7.  Cashier  deemed  to  hold  for  bank. 
— Bridenbcckcr  .-.  Lowidl  (X.  V.).  32 
Barl).  9. 

8.  Guaranty  of  note. — Woodstock 
Bank  f.  l^owner.  27  Vt.  482.  65  .\m. 
Dec.  210 

9.  Defenses  by  makers  of  note  in- 
dorsed by  cashier  to  bank. — Cooper  r'. 
Curtis,   liO    Me.   488. 


818  BANKS   AND  BANKING.  §    116    (1) 

Cashier  Treasurer  of  Another  Company. — Using  Funds  of  Com- 
pany to  Conceal  Embezzlement  of  Bank. — Where  the  cashier  of  a 
bank  who  had  become  indebted  to  it,  in  order  to  conceal  his  defalcation  or 
pay  his  indebtedness,  transferred  to  the  bank  the  funds  of  a  company  of 
which  he  was  treasurer,  and  to  account  for  such  transfer,  drew  checks 
upon  the  company  payable  to  the  bank  and  charged  the  amount  of  them 
against  the  company  upon  the  bank  books,  the  bank  in  accepting  such  pay- 
ment through  its  cashier,  can  not  retain  the  benefits  of  his  act  without  ac- 
cepting the  consequences  of  his  knowledge  and  becoming  liable  with  the 
cashier  to  the  company  in  the  amount  of  the  funds  so  fraudulently  trans- 
ferred.io 

Cashier's  Misappropriation  of  Deposit  of  Company  of  Which 
Cashier  Treasurer. — Where  the  cashier  of  a  bank  who  has  the  entire  man- 
agement of  its  affairs,  draws  checks  of  a  company  of  which  he  is  treasurer, 
payable  to  the  bank  and  presents  such  checks  as  treasurer  to  himself  as 
cashier,  and  misappropriates  the  proceeds  thereof,  the  bank  will  be  held  to 
knowledge  of  his  fraudulent  purpose  at  the  time  of  presenting  the  check, 
and  can  not  base  thereon  a  claim  of  liability  in  its  favor  against  the  com- 
pany.^ i 

§  116.  Notice  to  Officer  or  Agent— §  116    (1)   In  General.— It  is 

well  established,  both  in  law  and  in  equity,  that  notice  to  an  agent  in  rela- 
tion to  the  business  in  which  he  is  employed  is  notice  to  the  principal. ^^ 
The  same  rule  applies  equally  to  a  corporation  as  to  a  natural  person. ^^ 
Notice  to  an  ofiicer  or  agent  or  attorney  of  a  bank,  who  is  at  the  time  acting 
for  the  bank  and  within  the  limitations  of  his  authority  to  supervise,  is 
notice  to  the  bank.^-*     Notice  to  an  active  managing  officer  of  an  incorpo- 

10.  Using  funds  of  company  to  con-  other  appropriate  officer  of  a  banking 
ceal  embezzlement  of  bank. — Emerado  institution,  is  notice  to  the  company. 
Farmers'  Elevator  Co.  :'.  Farmers"  Messick  &  Co.  v.  Roxbury,  1  Hand. 
Bank,  20  N.   Dak.  270.   127   N.  W.  .522.  190,    12    O.    Dec.   95. 

11.  Cashier's  misappropriation  of  de-  -^s  a  rule,  knowledge  to  officers  of  a 
posit  of  company  of  which  cashier  ''^nk  is  knowledge  to  the  bank.  Baker 
treasurer.— Emerado  Farmers'  Eleva-  "'•  Orme,  6  O.  C.  C.  N.  S.,  289,  17-27 
tor  Co.  7'.  Farmers'  Bank,  20  N.  Dak.  O.  C.  D.  46.5,  affirmed  in  74  O.  St.  337. 
270,   127   N    Y    vS    522  14-    Notice   within   limitation   of   au- 

12.  Notice  to  officer  or  agent.-  S^^J^'-L^''^'^'^^  ^^'''..^^"^.r  ^  v'^' 
Bank  r.   Mumford,  6  Ga.  44;  Vefsey  v.       "  ,}^'-  ^-\  ^^    Am.    Rep     3  9,    atmg 

Graham,  17   Ga.  99,  63  Am.  Dec.  228.  r        m     v^   '\    p'^       To-'       t'  P^.^i 

,o      A      1-       ^                     .           ^     ,  Co.    (N.    Y.),    4    Paige     127;      LaFarge 

13.  Applies  to  corporation.-Bank  e'.  Fire  Ins  Co  v  Belle  (X  Y)  22 
Mumford  6  Ga  44;  Veasey  r.  Graham,  garb.  54;'National  Bank  v.  Norton'  (N. 
17    Ga.   99,   63   Am.    Dec.   228.  y.),  1  Hill  572;  Bank  v.  Davis  (N.  Y.), 

Where    a    cashier    has    entire    charge  2     Hill     451;    North      River     Bank     f. 

of  the  business  of  a  bank  its  president  Aymar    (N.    Y.),   3    Hill   262;    Smith   v. 

being    such    in    name    only    service    on  South    Royalton    Bank,    32    Vt.    341,    76 

the  cashier,  by  the  surety  on  a  note,  of  Am.    Dec.    179;    Washington    Bank    v. 

notice   to   sue    the   principal,   is    service  Lewis    (Mass.),   22    Pick.   ~4;    Commer- 

on   the    bank.      Skillern    v.     Baker,      82  cial    Bank   v.    Cunningham    (Mass.),   24 

Ark.  86,  100  S.  W.  764.     See  post,  ".\c-  Pick.   270;   Housatonic   Bank  t'.   Martin 

tions    on    Loans    or     on      Paper      Dis-  (Mass.),  1  Mete.  294;  Hoover  v.  Wise, 

counted,"    §   187.  91    U.    S.   308,   23    L.    Ed.   392. 

Notice    to    the    agent,     attorney,      or  In    respect    to   discounts    and   sccuri- 


§  116  (1) 


REPRESENTATION    OF    BANK. 


819 


rated  bank,  given  during  banking  hours  at  the  usual  place  of  business  is 
notice  to  the  bank.^^  Hence,  where  the  proper  officers  of  a  bank  are  charge- 
able with  knowledge  of  the  state  of  its  account  with  another  bank,  such 
knowledge  is  that  of  the  bank/*^  -and  notice  to  an  officer  of  a  bank,  which 
imposes  a  duty  on  the  bank,  is  notice  to  all  agents  of  the  bank  acting  in  their 
official  capacity.^' 

Extent  of  Constructive  Notice  Rule. — It  seems  that  a  bank  will  be 
held  to  have  constructive  notice  only  of  such  facts  as  have  been  brought  to 
the  actual  notice  or  attention  of  its  officers  or  agents  or  of  such  facts  only 
as  have  been  constructively  brought  to  the  notice  or  attention  of  some  of 
its  officers  or  agents,  by  the  actual  notice  of  such  other  facts  as  would  nat- 
urally put  the  officer  or  agent  upon  inquiry. ^'"^     The  rule  under  considera- 


ties,  see  post,  "In  Respect  to  Dis- 
counts  and    Securities,"    §    116    (2). 

In  respect  to  deposits,  see  post,  "In 
Respect  to  Deposits,"  §  116   {?,). 

As  to  evidence  of  authority,  see  post, 
"Evidence    as    to    Authority,"    §    118. 

As  to  knowledge  or  notice  with 
reference  to  business  outside  scope  of 
official  duties,  see  post.  "Xotice  Re- 
ceived in  Private  Business  or  Outside 
Scope    of    Duties,"    §    116    (4). 

Where  the  president  and  cashier  ot 
a  bank,  being  also  members  of  a  part- 
nership composed  of  themselves  and 
another  person,  to  the  capital  stock  of 
which  they  had,  under  the  partnership 
articles,  agreed  to  contribute  a  given 
sum,  without  the  knowledge  or  con- 
sent of  the  other  partner  executed  and 
delivered  to  the  bank  a  note  in  the 
name  of  the  partnership,  for  the  pur- 
pose of  raising  the  money  they  had 
agreed  to  pay  into  the  partnership 
business,  the  bank  was  affected  with 
notice  that  the  transaction  was  for  the 
private  benefit  alone  of  the  two  par- 
ties raising  the  money,  and  hence  could 
not  hold  the  partnership  itself,  nor  the 
remaining  partner,  liable  on  the  note. 
Rrobston  v.  Pcnniman.  97  Ga.  527,  25 
S.   E.  350. 

Where  the  cashier  of  a  bank  in 
liquidation  is  also  its  general  agent, 
he  has  all  the  powers  of  a  cashier,  and 
also  the  power  to  manage  and  control 
the  bank,  and  his  knowledge  of  a 
transaction  with  a  debtor,  resulting  \n 
a  compromise  of  the  bank  s  claim 
against  the  debtor,  is  imputable  to,  and 
his  action  binding  on,  the  l)ank.  Metz- 
ger  V.  Southern  Bank,  98  Miss.  108,  54 
So.  241. 

Plaintifif's  husband  took  a  bond  of 
hers  and  her  bank  book  to  the  cashier 
of  a  bank.  The  casliier  put  the  bond 
in  the  bank  safe,  and  v.'rote  on  plain- 
tifif's bank  book  a  memorandum   show- 


ing a  receipt  of  the  bond  from  plain- 
tifif.  Held,  that  the  bank  could  not 
claim  that  the  cashier  was  acting  in 
his  individual  capacity  alone,  and  that 
the  bank  had  no  notice  of  plaintiff's 
title.  Zugner  v.  Best,  44  N.  Y.  Super. 
Ct.    393. 

A  manufacturing  company  having 
sold  out  all  its  property,  thereby  de- 
termining the  agency  of  its  officers, 
a  bank,  the  president  of  which  was 
also  a  director  of  the  corporation,  was 
bound  by  the  legal  eflfect  of  its  presi- 
dent's knowledge  in  receiving  a  note 
executed  to  it  by  the  officers  of  the 
corporation  after  the  sale.  Union  Bank 
V.  Wando  Min.,  etc.,  Co..  17  S.  C.  339. 

15.  Notice  to  active  managing  officer. 
— Second  Xat.  Bank  z'.  Howe.  40  Minn. 
390.  42  N.  W.  200.  12  Am.  St.  Rep.  744. 

As  to  notice  to  directors,  see  post, 
"Xotice   to   Directors."   §   116    (5). 

16.  Knowledge  of  officers  imputed 
to  bank. — Kissam  r'.  Anderson.  145  U. 
S.    435.    36    L.    Ed.    765.    12    S.    Ct.   960. 

17.  Notice  imposing  duty  on  bank. 
—Gibson  z-.  Xational  Park  P.ank,  49 
N.   Y.    Super.   Ct.  429. 

18.  Extent  of  constructive  notice 
rule. —  Iowa  Xat.  Bank  <■.  Slurman.  17 
S.  Dak.  396,  97  X.  W.  12.  106  Am.  St. 
Rep.  778,  modified  on  rehearing  19  S. 
Dak.  238,  103  X.  W.  19;  Mann  7'. 
Second  Xat.  Bank.  34  Kan.  746,  10  Pac. 
150. 

The  fact  that  the  cashier  of  plaintiff 
bank  knew  that  the  maker  of  a  note 
discounted  by  it,  who  had  transferred 
to  it,  as  collateral,  several  of  defend- 
ants l)onds.  whicii  on  tlicir  face  ap- 
peared to  be  still  due.  and  regular  in 
form,  but  which  had  in  tact  lieen  paid, 
was  the  treasurer  of  defendant,  and 
also  of  the  corporation  holding  tlie 
trust  deed  to  secure  the  bondlmlders, 
did  not,  as  a  matter  of  law.  charge 
plaintiff     with      knowledge      that      such 


820 


BANKS   AND  BANKING. 


§  116  (1) 


tion  alike  includes  and  applies  to  positive  information  or  knowledge  ob- 
tained or  possessed  by  the  agent  in  the  transaction,  and  to  actual  or  construc- 
tive notice  communicated  to  him  therein.^'* 

Reason  of  Rule  and  Qualifications. — The  rule  is  based  on  the  ground 
that  it  is  the  duty  of  the  agent  to  communicate  to  his  principal  all  knowl- 
edge which  he  possesses  material  to  the  principal's  business,  and  the  pre- 
sumption that  he  has  done  so.^o  When  the  fact  in  question  comes  to  the 
knowledge  of  an  officer  of  a  bank  when  he  is  making  authorized  official  in- 
quiries, or  is  otherwise  engaged  officially  for  his  principal,  it  can  be  of  no 
consequence  that  he  fails  to  communicate  it.^i  The  rationale  of  the  rule 
has  been  differently  stated  by  different  authorities.  Some  authorities  rest 
the  rule  entirely  upon  the  presumption  of  an  actual  communication  between 
the  agent  and  his  principal ;  others  upon  the  legal  conception  that  for  many 
purposes  the  agent  and  the  principal  are  regarded  as  one.-^  Under  the 
operation  of  this  reason,  what  are  sometimes  called  exceptions  or  qualifi- 
cations to  the  rule  have  grown  up.^s  For  example,  an  agent  is  not  pre- 
sumed to  have  communicated  to  his  principal  professional  confidences  re- 
ceived in  representing  a  third  person,  or  knowledge  acquired  while  acting 
for  himself  or  for  a  third  person  and  not  for  his  principal, ^-^  or  where  the 


maker  held  the  bonds,  in  a  fiduciary 
capacity,  or  obtained  possession  of 
them  by  fraud.  Rockville  Nat.  Bank 
V.  Citizens'  Gas  Light  Co.,  72  Conn. 
576,    45    Atl.    361. 

A  mortgagor  of  cattle  sold  them 
with  the  consent  of  the  first  mort- 
gagee, and  deposited  the  proceeds  of 
the  sale  to  his  own  credit  in  a  bank, 
which  was  a  second  mortgagee,  and 
applied  the  money  to  the  payment  of 
the  debt  due  to  the  bank.  Prior  to  the 
sale  the  mortgagor  agreed  with  the 
first  mortgagee  that  the  proceeds  of 
the  sale  should  be  sent  to  the  l)ank  to 
be  applied  on  the  first  mortgage.  Held, 
that  the  fact  that  the  bank  officers 
knew  of  the  first  mortgage,  and  of  its 
priority,  and  that  such  mortgage  was 
to  be  paid  when  the  cattle  were  sold, 
was  not  such  notice  to  the  bank  of 
the  agreement  between  the  mortgagor 
and  the  first  mortgagee  as  would 
charge  it  with  a  knowledge  of  the 
trust  character  of  the  fund.  Smith  v. 
Crawford  County  State  Bank,  99  Iowa 
282.   68   N.   W.   690.   61    N.  W.   378. 

That  the  president  of  a  bank  is  a 
stockholder,  and  the  cashier  a  stock- 
holder and  secretary,  of  a  corporation 
which  is  the  payee  of  a  note  trans- 
ferred to  the  bank,  does  not  charge 
the  bank  with  constructive  notice  of 
defenses  of  the  maker  against  the  cor- 
poration payee,  when  neither  the  presi- 
dent nor  cashier  had  actual  notice. 
Towa  Nat.  Bank  v.  Sherman,  17  S.  Dak. 


396,  97  N.  W.  12,  106  Am.  St.  Rep.  778, 
modified  on  rehearing,  19  S.  Dak.  238, 
103   N.  W.  19,  117   Am.   St.    Rep.   941. 

19.  Morris  v.  Georgia  Loan,  etc.,  Co., 
109  Ga.  12,  34  S.  E.  378,  46  L.  R.  A. 
506. 

20.  Reason  of  rule. — Wardlaw  v. 
Troy  Oil  Mill,  74  S.  C.  368,  54  S.  E. 
658,  114  Am.  St.   Rep.  1004. 

21.  Failure  to  communicate. — ]M or- 
ris f.  Georgia  Loan,  etc.,  Co.,  109  Ga. 
12,  34  S.  E.  378,  46  L.  R.  A.  506,  citing 
National  Security  Bank  v.  Cushman, 
121  Mass.  490;  Bank  z'.  Davis  (N.  Y.), 
2  Hill  451;  Farmers',  etc..  Bank  i: 
Payne,  25  Conn.  444,  68  Am.  Dec. 
362. 

22.  Rationale  of  rule. — [Morris  v. 
Georgia  Loan,  etc.,  Co.,  109  Ga.  12, 
34    S.    E.   378. 

23.  Exceptions  or  qualifications. — 
Wardlaw  r.  Troy  Oil  Mill  74  S.  C 
368.  54  S.  E.  658,  114  Am.  St.  Rep.  1004. 

The  general  rule  that  a  principal  is 
held  to  know  all  that  his  agent  knows 
in  a  transaction  in  which  the  agent 
acts  for  him  has  its  exceptions.  Nib- 
lack  !•.  Cosier,  26  C.  C.  A  16,  80  Fed. 
596. 

24.  Examples  of  exceptions. — Ward- 
law  r.  Troy  Oil  Mill,  74  S.  C.  368,  54 
S.  E.  658,  114  Am.  St.  Rep.  1004;  Akers 
7-.  Rowan,  33  S.  C.  451,  12  S.  E.  165, 
10   L.   R.   A.   705. 

Promissory  note  obtained  by  false 
representations  and  transferred  to  a 
bank,   whose   cashier  was  a  partner  in 


§  116  (1) 


REPREISENTATION    OF    BANK. 


821 


knowledge  is  such  that,  according  to  human  nature  and  experience,  tlie 
agent  is  certain  to  conceal,  or  where  the  agent  is  acting  in  an  adversary- 
relation  to  the  principal,  or  meditates  a  fraud  against  his  principal  or  some 
third  person  in  his  own  interest  wdiich  would  be  defeated  by  disclosure. --^ 
The  agent's  knowledge  will  not  be  imputed  to  the  principal  where  the  legal 
effect  of  what  the  agent  did  was  to  wrong,  cheat  or  defraud  the  principal 
for  his  own  benefit.-'^     ^^'here  an  officer  or  agent  of  the  bank,  as  a  party 


business  with  the  payee,  held  enforce- 
able by  the  bank,  where  the  cashier 
had  no  actual  knowledge  of  the  fraud. 
Scott  V.  Choctaw  Bank  (Ala.),  59  So. 
184.  See  Morris  v.  First  Nat.  Bank, 
162   Ala.   301,   50   So.   137. 

As  to  notice  received  in  private 
business,  see  post,  "Notice  Received  in 
Private  Business  or  Outside  Scope  of 
Duties,"   §   116    (4). 

As  to  officer  dealing  in  dual  capacity, 
see  post,  "In  Respect  to  Discounts  and 
Securities,"  §  116  (2);  "In  Respect  to 
Deposits,"  §  116  (3);  "Notice  to  Di- 
rectors,'"' §  116   (5). 

25.  Wardlaw  v.  Troy  Oil  IMill,  74 
S.  C.  368,  54  S.  E.  658,  114  Am.  St.  Rep. 
1004;  Holm  v.  Atlas  Nat.  Bank,  28  C. 
C.   A.   297,   84  Fed.   119. 

Defendant,  at  the  request  of  the 
cashier  of  a  bank  who  was  defendant's 
partner  in  a  real  estate  business,  gave 
his  note  to  the  cashier  to  be  sub- 
stituted in  the  bank's  assets  for  notes 
of  the  cashier.  He  was  told  by  the 
cashier  that  the  bank  would  not  want 
the  cashier's  paper,  and  that  it  would 
not  look  well  to  the  bank  examiner, 
and  he  told  defendant  that  he  would 
never  be  called  upon  to  pay  the  note. 
Rev.  Codes,  §  4001,  makes  it  a  penal 
oflfense  to  knowingly  make  false  en- 
tries in  the  books  of  a  bank,  or  to 
knowingly  subscribe,  or  exhibit  false 
papers  with  intent  to  deceive  the  state 
bank  examiner.  Held,  that  defendant 
was  chargeable  with  notice  of  the  stat- 
ute, and  that  it  was  the  cashier's  pur- 
pose to  violate  it,  and  therefore  the 
knowledge  possessed  by  the  cashier 
Avould  not  be  imputed  to  the  l)ank.  and 
thus  give  it  notice  that  defendant  re- 
ceived nothing  for  the  note,  as  notice 
to  an  agent  will  not  be  imputed  to  the 
principal,  where  the  conduct  of  the 
agent  is  such  as  to  raise  a  clear  pre- 
sumption that  he  would  not  communi- 
cate the  fact  in  controversy  to  his 
principal.  State  Bank  v.  Forsyth,  41 
Mont.   249,   108    Pac.   914. 

The  fact  that  the  president  of  an- 
other corporation  with  which  the  bank 
was  dealing  knew  of  a  lien  which  was 
prior  to  the  claim  of  the  bank,  does 
not    constitute    notice     to      the      bank, 


though  he  is  the  director  of  the  bank 
and  a  member  of  its  loan  committee. 
Wardlaw  v.  Troy  Oil  Mill,  74  S.  C. 
368,  54  S.  E.  658,  114  Am.  St.  Rep. 
1004. 

Fraud  upon  principal. — If  three  of 
the  directors,  including  the  president 
and  cashier,  of  a  bank  having  eighteen 
directors,  make  their  note  and  have 
it  discounted,  and  use  the  proceeds  to 
make  an  overdraft  of  an  insolvent  de- 
positor, and,  by  agreement  between 
themselves,  keep  the  whole  matter 
secret  from  the  other  directors,  from 
fear  that  the  amount  of  the  overdraft 
would  get  to  the  public  and  injure  the 
credit  of  the  bank,  and  agree  among 
themselves  that  the  bank  shall  make 
good  the  amount  to  them  when  they 
deem  it  safe  to  notify  the  other  di- 
rectors, and  afterwards,  at  the  in- 
stance of  one  of  the  makers,  the  l)ank 
becomes  the  owner  of  the  note,  and, 
after  the  claim  against  the  depositor 
has  become  barred  by  the  act  of  limi- 
tations, they  disclose  the  whole  trans- 
action to  the  board  of  the  bank,  and 
ask  that  the  bank  charge  oflf  the  note 
to  profit  and  loss,  the  bank  is  under 
no  obligation  to  do  so,  and  in  an  ac- 
tion on  the  note  by  the  bank  against 
the  makers  they  can  not  defeat  re- 
covery on  the  ground  that  the  note 
was  made  for  the  accommodation  of 
the  bank.  It  would  I)e  both  unreason- 
able and  unjust  to  impute  notice  to  the 
bank  of  a  transaction  which  was  wholly 
unauthorized,  and  which  all  the  parties 
connected  with  it  expressly  agreed  to 
and  did  conceal  from  the  bank.  Such 
knowledge  on  the  part  of  three  di- 
rectors was  not  notice  to  the  bank.  To 
apply  the  doctrine  of  constructive  no- 
tice to  such  a  case  would  make  it  an 
instrument  of  fraud.  Traders,  etc.. 
Bank  t'.  Black.  lOS  V-a.  .V.l,  60  P.  F.  7  I.-?. 

26.  Where  agent  cheats  principal  for 
own  benefit. — Nililack  7'.  Cosier,  26  C. 
C  \.  16.  80  Fed.  596;  Central  Bank  v. 
Thayer,   184   Mo.  61,  82   S.  W.   142. 

.-\s  to  notice  of  officer's  own  fraud, 
see  post,  "Notice  of  Officer's  Own 
Fraud,"   §   116    (6). 

As  to  individual  interest  of  officer 
as    affecting  knowledge   or   notice,    see 


822 


BANKS   AND   BANKING. 


116  (1) 


in  interest,  deals  for  himself  with  the  corporation,  the  latter  is  not  charged 
with  notice  of  information  possessed  by  such  officer  or  agent,  and  this  is 
because  in  such  transaction  the  assumed  agent  is  in  reality  the  adverse 
party,  and  is  not  to  be  treated  while  so  dealing  as  the  corporation's  agent. 
Many  if  not  a  majority  of  the  cases  which  announce  the  doctrine  that,  when 
the  agent  has  an  interest  in  the  transaction  which  would  be  prejudiced  by 
a  disclosure  of  the  information,  the  presumption  of  its  communication  does 
not  prevail,  will  be  found  to  be  where  the  agent  or  officer  acts  in  his  in- 


post,  "In  Respect  to  Discounts  and 
Securities."  §  116  (2);  "In  Respect  to 
Deposits,"  §  116  (3);  "Notice  Received 
in  Private  Business  or  Oiitside  Scope 
of  Duties."  §  116  (4);  "Notice  of  Offi- 
cer's  Own   Fraud,"   §   116   (6). 

As  to  individual  interest  of  director 
as  afifecting  knowledge  or  notice,  see 
post,  "Notice  to  Directors,"  §  116   (5). 

As  to  individual  interest  of  officer 
or  agent  as  affecting  person  dealing 
with  bank,  see  post,  "Individual  In- 
terest of  Officer  or  Agent  as  Affecting 
Person   Dealing  with   Bank,"  §   117. 

"This  exception  has  been  many 
times  noticed  and  applied  and  \vas  the 
subject  of  elaborate  consideration  by 
this  court  in  Read  v.  Doak,  22  U.  S. 
App.  669,  12  C.  C.  A.  643,  65  Fed.  341, 
and  in  Wilson  v.  Pauly,  18  C.  C.  A. 
475,  72  Fed.  129."  Niblack  v.  Cosier, 
26  C.  C.  A.  16,  80  Fed.  596. 

Where  a  bank  has  loaned  money  to 
a  corporation,  the  stock  of  which  is 
nominally  but  not  actually  paid  in  full, 
its  right  to  look  to  the  stockholders 
for  repayment  to  the  extent  to  which 
they  have  not  paid  the  face  value  of 
their  stock  is  not  defeated  because  the 
president  of  the  corporation,  having 
a  substantial  pecuniary  interest  therein, 
was  also  the  cashier  of  the  bank  and 
acted  for  both  parties,  negotiating  the 
loan  without  communicating  to  any 
other  officer  of  the  bank  his  knowl- 
edge that  the  stock  had  been  issued  at 
a  discount,  since  a  corporation  in  deal- 
ing with  one  of  its  own  officers  who 
acts  for  himself  and  not  for  it  is  not 
chargeable  with  notice  of  facts  known 
to  him.  First  Nat.  Bank  z\  Northup. 
82   Kan.   638,   109   Pac.   672. 

Where  a  bank  purchased  a  note 
from  a  corporation  which  had  received 
it  without  consideration,  the  fact  that 
its  cashier,  who  discounted  the  note 
after  consultations  with  the  directors, 
was  .the  president  of  such  corporation, 
and  knew  all  the  facts,  did  not  lund 
the  bank  with  notice  of  the  infirmities. 
People's  Sav.  Bank  v.  Hine,  131  Mich. 
181,  91   N.  W.  130. 


Knowledge  of  a  cashier  and  two  di- 
rectors that  the  cashier  has,  without 
autliority,  pledged  the  bank's  respon- 
sibility upon  the  note  of  a  corporation 
in  which  such  officers  are  interested 
adversely  to  the  bank,  is  not  notice  to 
the  bank.  Ft.  Dearborn  Nat.  Bank  v. 
Seymour,  71   Minn.  81,  73  N.  W.  724. 

"While  the  knowledge  of  an  agent 
is  ordinarily  to  be  imputed  to  the  prin- 
cipal, it  would  appear  now  to  be  well 
established  that  there  is  an  exception 
to  the  construction  or  imputation  of 
notice  from  the  agent  to  ♦^he  principal 
in  the  case  of  such  conduct  by  the 
agent  as  raises  a  clear  presumption 
that  he  would  not  communicate  the 
fact  in  controversy,  as  where  the  com- 
munication of  such  a  fact  would  neces- 
sarily prevent  the  consummation  of  a 
fraudulent  scheme  which  the  agent  was 
engaged  in  perpetrating.  Kennedy  v. 
Green,  3  Mylne  &  K.  699;  Cave  7'. 
Cave,  15  Ch.  Div.  639;  In  re  European 
Bank,  5  Ch.  App.  358:  In  re  Marseilles 
Extension  R.  Co.,  7  Ch.  App.  161;  .At- 
lantic Bank  r.  Harris,  118  Mass.  147; 
Loring  v.  Brodie.  134  IMass.  453.  *  *  *" 
State  Sav.  Bank  v.  Montgomery,  126 
Mich.   327,   85   N.   W.   879. 

"A  bank  or  other  corporation  can 
act  only  through  agents,  and  it  i=;  gen- 
erally true  that,  if  a  director  who  has 
knowledge  of  the  fraud  or  illegality  of 
the  transaction  acts  lor  the  bank — as 
in  discounting  a  note — his  act  is  that 
of  the  bank,  and  it  is  affected  by  his 
knowledge.  National  Security  Bank^'. 
Cushman,  121  Mass.  490."  State  Sav. 
Bank  z:  Montgomery,  126  Mich.  327, 
85    N.    W.    879. 

"But  this  principle  can  have  no  ap- 
plication where  the  director  of  the 
bank  is  the  party  himself  contracting 
with  it.  In  such  case  the  position  he 
assumed  conflicts  entirely  with  the 
idea  that  he  represents  the  interests  of 
the  bank.  To  hold  otherwise  might 
sanction  gross  frauds  by  imputing  to 
the  bank  a  knowledge  those  properly 
rppresenting  it  could  not  have  pos- 
sessed." State  Sav.  Bank  r.  Mont- 
gomery,  126   Mich.   327.   85   N.   W.   879. 


§    116    (1)  REPRESENTATIOX    OF    DANK.  823 

dividual  capacity,  and  treats  with  some  other  officer  or  agent  of  the  corpora- 
tion.-' Where  a  bank  purchases  mortgage  bonds  of  a  corporation  of  which 
its  own  president  is  also  president,  he  knowing  that  the  mortgage  is  invalid 
the  bank  is  not  chargeable  with  his  knowledge.--^  The  knowledge  of  the 
president  of  a  bank  as  to  his  own  insolvency,  or  that  of  a  firm  with  which 
he  was  connected,  could  not  be  imputed  to  the  bank  receiving  securities  in 
connection  with  certain  overdrafts  and  loans  of  the  president,  where  such 
president  dealt  with  the  bank  in  regard  to  his  own  affairs  as  with  a  third 
party.29  But  the  principal  involved  in  the  foregoing  cases  can  not  be  fully 
applicable  to  a  case  where  one  party,  having  knowledge  of  the  invalidity  of 
the  paper  of  which  he  is  the  ostensible  owner,  discounts  it  in  a  bank  of  which 
he  is  the  duly  authorized  agent,  and  himself  acts  for  the  bank,  and  by  his 
act  enables  the  bank  to  collect  and  retain  the  proceeds  of  such  pa]:)er  as 
against  the  rights  of  the  true  owner.  In  such  a  transaction  if  he  is  not  the 
agent  of  the  bank  then  the  discount  is  illegal  and  the  owner  is  entitled  to 
all  its  proceeds;  if  he  is  the  agent  of  the  bank,  his  action  would  be  a  fraud 
upon  the  rights  of  the  owner  of  which  the  bank  can  not  take  advantage.^*^* 
However  the  authorities  seem  to  be  divided  as  to  whether  the  knowledge 
of  an  officer  of  a  bank,  having  a  note  discounted  at  the  bank  for  his  own 
personal  benefit,  as  to  defenses  to  the  note,  is  imputable  to  the  bank.-^i  It 
seems  to  be  established  that  where  one  is  an  officer  of  two  corporations 
which  have  business  transactions  with  each  other,  his  knowledge  can  not 
be  attributed  to  either  corporation  in  a  matter  in  which  he  does  not  repre- 
sent it.  If  he  represents  one  or  both  his  action  will  be  binding,  and  his 
knowledge  will  attach  to  the  one  represented.-'^-     If  a  person  who  is  at  the 

27.  Morris  v.  Georgia  Loan,  etc.,  Babbidge,  160  Mass.  56.3,  36  N.  E.  462; 
Co.,  109  Ga.  12,  34  S.  E.  378,  46  L.  R.  Merchants'  Nat.  Bank  r.  Lovitt,  114 
A.   506.  Mo.  519,  21  S.  W.  825;   Buffalo  Count)' 

28.  DeKay  v.  Hackensack  Water  Nat.  Bank  z'.  Sharpe,  40  Neb.  123,  58 
Co.,  38  N.  J.  Eq.  158.  N.    W.    734;    City    Bank   r.    Barnard,    1 

29.  Knowledge      of      insolvency. —      Hall   70. 

Crooks    z'.    People's    Nat.     Bank,      34  Where    an    officer    or    director    of    a 

Misc.  Rep.  450,  70  N.  Y.  S.  271;  S.  C,  bank  is  also  an  officer  of  a  corporation 

72   App.   Div.   33],   76   N.   Y.   S.   92,   495,  discounting    a    note    at    the    bank,    his 

affirmed  in  177  N.  Y.  68,  69  N.  E.  228.  knowledge,    acquired    in    the    latter   ca- 

30.  Principle  inapplicable. — Morris  pacity,  is  not  chargcalile  to  the  liank. 
T'.  Georgia  Loan,  etc.,  Co.,  109  Ga.  12.  Corcoran  z:  Snow  Cattle  Co.,  151  Mass. 
34  S.  E.  378,  46  L.  R.  A.  506.  And  see  74,  23  N.  E.  727;  First  Nat.  Bank  v. 
First  Nat.  Bank  v.  New  Millford,  36  Loyhed,  28  Minn.  396,  10  N.  W.  421; 
Conn.   93.  Benton      z'.      German-American       Nat. 

31.  Authorities  divided.— Where  a  Bank,  122  Mo.  332,  26  S.  W.  975;  Com- 
])erson  having  a  note  discounted  at  a  mercial  Bank  v.  Burgwyn,  110  N.  C. 
bank  for  his  personal  benefit  is  an  of-  267,  14  S.  E.  623,  17  L.  R.  A.  326;  Wil- 
ficer  of  the  bank,  the  bank  is  charged  son  v.  Second  Nat.  Bank  (Pa.\  7  .Vtl. 
with  his  knowledge  of  defenses  to  it.  145,  Contra,  see  First  Nat.  Bank  z: 
First  Nat.  Bank  z'.  Blake,  60  Fed.  78;  Erickson,  20  Neb.  580,  31  N.  W.  387; 
Tilden  v.  Barnard,  43  Mich.  376,  5  N.  Oak  Grove,  etc..  Cattle  Co.  7'.  Foster. 
W.   420,   38    Am.    Rep.    197;    Le    Due   z>.  7   N.   Mcx.  650.  41    Fac.  522. 

Moore,    111    N.    C.    516,    15    S.    E.    888;  32.    Officer  acting  in  dual  capacity.— 

Black    Hills    Nat.    Bank    z'.    Kellogg,    4  Morris    z:    Georgia     Loan,      etc..      C(i.. 

S.    Dak.   312,   56   N.   W.    1071;   Taylor  z'.  109    Ga.    12,    34    S.    I'..    378.    46    L.    R.    A. 

National  Bank,  6  S.  Dak.  511,  62  N.  W.  506,    citing    Smith    z'.    Farrell.    06    Mo. 

99.      See    contra    First    Nat.    Bank    v.  App.    8.     And   see    I-irst    Nat.    Bank   v. 


824 


BANKS  AND   BANKING. 


§  116  (1) 


same  time  cashier  of  a  bank  and  member  of  partnership  makes,  in  his  dual 
capacity,  a  contract  between  the  parties,  knowledge  possessed  by  him,  though 
not  actually  disclosed,  will  be  imputed  to  both  parties. ^-^  Where  an  indi- 
vidual has  an  interest  in  a  promissory  note  which  he  knows  was  given  with- 
out consideration,  and  such  individual  as  cashier  of  a  bank,  having  full 
authority  and  control  of  the  discounts  of  the  bank  without  reference  to  or 
consultation  with  any  other  officer  of  the  bank,  discounts  such  note  with 
the  funds  of  the  bank,  the  latter  is  not  a  bona  fide  purchaser  of  the  note^ 
without  notice.  If  it  ratifies  the  act  of  its  officer  and  claims  title  to  the  note, 
it  must  take  it  subject  to  the  knowledge  which  the  officer  who  discounted 
it  had  at  the  time.''"*  However,  if  one  though  cashier  of  the  bank  makes 
a  contract  with  the  bank  on  behalf  of  the  partnership  of  which  he  is  a  mem- 
ber, dealing  in  the  transaction  with  other  officers  of  the  bank  and  not  through 
himself  alone,  his  undisclosed  knowledge  will  not  be  imputed  to  the  bank 
as  notice.  The  law  will  not  presume  that  the  person  occupying  such  a  dual 
relation  dealt  with  himself  alone  in  making  a  contract  between  the  partner- 
ship and  the  bank,  and  the  burden  of  proving  that  he  did  so  act  is  upon  the 
person  so  asserting.-"'^  Nor  will  his  knowledge  be  imputed  to  the  bank, 
when  he,  acting  in  such  dual  capacity,  is  actually  endeavoring  to  deceive 
the  bank  to  benefit  himself  in  his  adverse  interests.^*' 


Dunbar,  118  111.  G25,  9  N.  E.  186; 
Farmers',  etc.,  Bank  v.  Kimball  Mill- 
ing Co.,  1  S.  Dak.  388,  47  N.  W.  402, 
36  Am.  St.  Rep.  739;  Bank  v.  Davis  (N. 
Y.),  2  Hill  451;  Holden  v.  New  York, 
etc.,  Bank.  72  N.  Y.  286;  Webb  v. 
Graniteville  Mfg.  Co.,  11  S.  C.  396,  32 
Am.    Rep.    479. 

Fraud  of  president. — "The  fraud  of 
a  bank  president  in  contriving  and 
negotiating  in  his  bank  fraudulent 
notes  of  a  corporation,  for  his  own 
use,  imputes  knowledge  to  the  bank, 
and  it  has  no  claim  against  the  cor- 
poration." Morris  z'.  Georgia  Loan, 
etc..  Co.,  109  Ga.  12,  34  S.  E.  378,  46 
L.   R.   A.   506. 

D.,  who  was  president  of  a  trust 
company,  was  also  the  controlling 
stockholder  in  a  manufacturing  cor- 
poration and  the  principal  partner  of 
D.  &  Co.,  a  firm  acting  as  tiie  corpora- 
tion's selling  agent.  At  D.'s  dictation. 
the  president  and  treasurer  of  the  cor- 
poration drew  drafts  on  D.  &  Co., 
which  were  accepted  by  that  firm  and 
discounted  at  D.'s  instance  bj'  the 
trust  company.  Just  prior  to  the  dis- 
count, the  president  of  the  corpora- 
tion, at.  D.'s  instance,  opened  an  ac- 
count with  the  trust  company  in  the 
name  of  the  corporation,  and  on  the 
day  before  the  discount  was  made  two 
checks  were  drawn  on  the  trust  com- 
pany   by    the    corporation,    payable    to 


D.  &  Co.,  and  cashed  through  another 
Xevv  York  bank,  the  drafts  being  dis- 
counted to  meet  the  checks.  The  dis- 
counts made  by  the  trust  company 
were  authorized  by  D.  under  a  pro- 
vision of  the  trust  company's  by-laws 
declaring  that  the  president  generally 
might  make  investments  between  meet- 
ings of  the  executive  committee,  re- 
porting the  transactions  to  the  com- 
mittee on  the  succeeding  day.  and, 
after  the  discounts  were  made,  the 
minutes  showed  the  approval  of  loans 
made  by  the  trust  company.  Held, 
that  the  trust  company  was  thereby 
charged  with  knowledge  that  the  dis- 
counts were  part  of  a  fraudulent 
scheme  on  the  part  of  its  president  to 
obtain  money  for  his  individual  pur- 
poses. Cook  7:  American  Tubing, 
etc..  Co..  28  R.   T.  41.  05   .\tl.  641. 

33.  Cashier  acting  in  dual  capacity 
— Notice  to  both  parties. — Tavlor  7-. 
Fehk-r.  ;;   Ga.   .\pp.  287.   59   vS.   E.  844. 

34.  Morris  v.  Georgia  Loan,  etc..  Co., 
109  Ga.  12.  34  vS.  K.  378,  46  L.  R.  .-X. 
506. 

35.  Cashier  dealing  through  other 
officer — Notice  not  imputed. — Taylor 
7'.   Fclder.  3   Ga.   App.  287,  59  S.  E.  844. 

36.  Actual  intent  to  deceive. — ^Vhere 
the  casliicr  of  plaintiff  liank  was  also 
president  of  a  printing  corj^oration, 
and  as  such  permitted  the  corporation 
to    become    indelited    to    the    bank    in 


§  116  (1) 


REIPRESENTATIOX    OF    BAXK. 


825 


President. — The  general  rule  is  that  knowledge  of  facts  brought  home 
to  the  president  of  a  bank,  he  being  an  executive  officer,  binds  the  bank.^" 
Where  the  president  of  a  bank  receives  notice  while  engaged  in  business 
for  the  bank,  the  bank  is  chargeable  therewith.^s  Where  a  bank  is  hope- 
lessly insolvent  when  the  deposit  is  made,  the  knowledge  of  the  president 
is  tlie  knowledge  of  the  bank."'^  Notice  to  the  president  of  a  bank  concern- 
ing the  untrustworthiness  of  the  cashier  of  the  bank  is  notice  to  the  bank, 


excess  of  the  corporation's  charter 
debt  limit,  the  cashier's  knowledge  of 
such  debt  limit  was  not  notice  to  the 
bank  as  his  personal  interest  was  ad- 
verse to  that  of  the  bank  and  he  was 
actually  deceiving  the  bank.  Ran- 
dolph i:  Ballard  County  Bank,  142  Ky. 
145,    134    S.    W.    165. 

37.  President. — Louisiana  State  Bank 
V.  Senecal,  13  La.  525;  Fouche  v.  Mer- 
chants' Nat.  Bank,  110  Ga.  837,  36  S. 
E.   256. 

As  to  knowledge  or  notice  of  presi- 
dent in  respects  to  discounts  and 
securities,  deposits,  etc.,  see  post,  "In 
Respect  to  Discounts  and  Securities," 
§  116  (2);  "In  Respect  to  Deposits,"' 
§  116  (3);  "Notice  Received  in  Private 
Business  or  Outside  Scope  of  Duties," 
§  116  (4);  "Notice  of  Officers  Own 
Fraud,"  §  116  (6). 

A  bank  paying  to  the  state  governor 
individually  the  amount  of  a  draft, 
which  the  governor  had  indorsed  to 
it,  is  liable  to  the  state  for  the  amount 
collected  by  it,  v^here  the  president  of 
the  bank  had  notice  that  the  state  was 
the  real  owner  of  the  draft.  McCann 
V.  State,  4  Neb.  324. 

Where  a  bond  and  inortgage  have 
been  procured  by  false  and  fraudulent 
representations  of  the  president  of  a 
bank,  they  can  not  be  enforced  in  a 
court  of  equity,  either  by  the  bank  it- 
self or  by  any  person  for  its  use. 
Curtis  t'.  Hutchinson,  10  West.  L.  J. 
134.  1  O.  Dec.  471. 

Knowledge  by  a  member  of  a  firm 
of  the  true  consideration  of  a  certifi- 
cate of  deposit,  which  the  firm  dis- 
counted at  a  bank  in  payment  of  in- 
dividual notes  of  one  of  its  meml:iers, 
and  which  had  been  negligently  altered 
in  making  out  a  duplicate  certificate, 
held  to  be  imputable  to  the  bank, 
where  the  other  member  of  the  firm 
was  its  president,  and,  as  such,  acted 
as  the  sole  representative  of  the  bank 
in  accepting  the  certificate.  74  Fed. 
1000,  affirmed.  Niblack  ?-.  Cosier,  26 
C.   C.  A.   16,   80   Fed.  596. 

The  president  of  a  bank,  having  em- 
bezzled funds  of  the  bank  on  deposit 
with    its    reserve    agent,    replaced    such 


funds  with  money  borrowed  l)y  him 
on  the  bank's  note,  without  the  di- 
rectors' knowledge,  and  such  bor- 
rowed money  was  thereafter  drawn  out 
to  pay  the  bank's  lawful  debts.  Held 
that,  the  bank  having  received  the 
benefit  of  the  loan  through  its  presi- 
dent, it  was  affected  with  his  knowl- 
edge of  the  loan,  and  hence  was  lial)lc 
to  the  lender  as  for  money  had  and 
received  to  its  use.  Ditty  v.  Dominion 
Nat.  Bank,  22  C.  C.  A.  376,  75  Fed. 
769. 

38.  Notice  while  engaged  in  busi- 
ness for  bank. — Bartlctt  v.  Woodliine 
Sav.    Bank,   r>7   111.   App.   425. 

Tagg  v.  Tennessee  Xat.  Bank,  56 
Tenn.  (9  Heisk.),  479;  Union  Bank  :•. 
Campbell,  23  Tenn.  (4  Humph.),  394; 
Winslow  z:  Harriman  Iron  Co. 
(Tenn.),  42  S.  W.  698;  Memphis  City 
Bank  v.  Smith,  110  Tenn.  337,  75  S. 
W.  1065. 

A  bank  is  chargeable  Avith  the  knowl- 
edge of  its  president  that  a  payment 
made  by  an  obligor  on  a  note  was 
with  the  understanding  that  he  was 
to  be  released  when  the  president  was 
acting  for  the  l)ank,  and  had  no  oriier 
interest  in  the  transaction.  Merchants' 
Nat.  Bank  v.  McAnulty  (Tex.  Civ. 
App.),  31    S.  W.  1091. 

Where  the  president  of  a  bank  knew 
that  its  cashier  had  purchased  shoop 
from  plaintiff,  and  was  in  del)t  tliere- 
for,  that  outside  of  them  he  could  not 
pay  the  price,  and  that  he  had  gone 
with  the  sheep  to  market,  to  sell  thcin. 
the  bank  is  chargeable  with  notice 
that  a  draft  sent  to  it  by  the  cashier 
was  the  proceeds  of  the  sheep,  and  of 
plaintiff's  interest  therein  as  mort- 
gagee of  the  sheep,  and  was  lial)le  to 
plaintiff  for  a  portion  of  the  draft  ap- 
plied on  its  own  dclit.  Rock  Springs 
Nat.  Bank  ,-.  Luinan,  6  Wyo.  123.  42 
Pac.  874. 

39.  Knowledge  of  bank  s  insolvency. 
—St.  Louis,  etc.,  K.  Co.  :■.  .loluisloti, 
133  II  S.  566.  33  L.  I'.d.  f,S3,  10  S.  Ct. 
.-90;  Martin  7-.  Wel)b.  110  U.  S.  7,  28  L. 
Kd  49  3  S  Ct.  428;  Manliattan  Bank 
7'  Waikcr.  130  U.  S.  267.  .12  L.  I'd. 
959,    9    S.    Ct.    519. 


826  BANKS   AND   BANKING.  §    116    (1) 

unless  the  president  is  an  accomplice  of  the  cashier.^"    A  bank  is  chargeable 
with  notice  of  the  insolvency  of  a  debtor  from  whom  it  receives  a  payment, 
and  that  such  payment  constitutes  an  unlawful  preference  under  the  bank- 
ruptcy act,  where  its  president  had  knowledge  of  such  insolvency,  gained 
while  acting  for  the  bank  in  the  matter  of  such  indebtedness.-* ^    The  knowl- 
edge of  a  president  of  a  bank  that  certain  stock  had  not  been  fully  paid  up 
is  imputable  to  the  bank,  if  he,  acting  for  it  and  in  its  behalf,  accepted  a 
transfer  of  the  stock  to  it,  and  it  thereunder  retained  the  same.^-     Notice 
to  a  bank  president  of  an  outstanding  mortgage  is  notice  to  the  bank.-*^ 
And  notice  to  the  president  of  a  banking  corporation  that  stock  standing 
upon  the  books  of  the  bank  in  the  name  of  one  person  is  held  by  him  in 
trust  for  another  is  notice  to  the  corporation.     And  it  is  not  necessary,  in 
order  to  affect  the  corporation  with  notice  of  such  trust,  that  there  should 
have  been  a  full  communication  of  all  the  circumstances  connected  with  it. 
It  is  enough,  in  such  case,  if  the  party  be  put  upon  inquiry ."^^     It  seems  that 
an  officer  of  a  bank  may  have  dealings  altogether  independent  of  his  con- 
nection with  the  bank,  and  that  the  bank  will  not  be  affected  thereby.-*^ 
But  a  bank  can  not  receive  the  proceeds  of  a  (Hverted  trust  in  payment  of 
the  debt  due  it,  the  diversion  and  its  reception  of  the  funds  being  the  result 
of  the  action  of  its  president,  and  then  hold  the  fund  against  the  rightful 
beneficiary  under  the  trust,  because  of  the  averment  of  the  corporation  that 
it  did  not  know  that  its  debtor  was  paying  the  proceeds  of  a  diverted  trust 
asset,  or  because  its  receiving  officer  did  not  know   from  what  source  its 
debtor  got  the  money  he  paid  to  it.'*^ 

Vice-President. — Where  a  bank  joins  as  a  partner  with  certain  persons 
in  forming  a  joint  stock  company  and  the  vice-president  of  the  bank  be- 
comes  a  member  of   the   joint   stock   company,  the  bank   is   charged   with 

40.  Notice    of    cashier's    dishonesty,       the  bank  in  the  transaction.     Holm  v. 

Merchants'   Xat.   Bank  :•.   Guihiiartin,       Atlas    Nat.    Bank,   28   C.   C.   A.   297,   84 

93  Ga.  503,  21  S.  E.  55.  44  Am.  St.  Rep.       Fed.  119. 

jg2  46.    Diversion  and  reception  of  trust 

41.  Notice  of  insolvency  of  debtor.  fund— Action  of  president.— Hughes 
—In   re   Gillette,    104    I'cd.    760.  v.  Settle    (Tenn.),  36   S.  \\  •   577. 

42.  Notice  that  stock  not  fully  paid.  The  president  and  sole  manager  ot 
— Foushe  V.  Merchants'  Nat.  Bank,  a  bank  transferred  a  number  of  shares 
110  Ga    827,  36  S.   E.  256.  ol  the  stock  which  he  held  in  his  own 

43.  Notice  of  outstanding  mortgage,  name  to  himself  as  executor  and  trus- 
— Bur--oyne  :•.  Clarkson.  2  West  L.  J.  tee,  giving  a  check  on  the  trust  funds, 
325    l"0    Dec.  119.  and   having   such    funds   transferred   to 

"44  Notice  that  stock  held  in  trust.  his  individual  account,  which  was 
—Porter  v  Bank,  19  Vt.  410.  largely  overdrawn.  The  bank  was  at 
45.  Dealing  independent  of  connec-  the  time  insolvent,  and  the  investment 
tion  with  bank.— Hughes  v.  Settle  of  trust  funds  in  its  stock  was  highly 
(Tenn)  36  S  W.  577;  Holm  v.  Atlas  improper.  Held,  that  all  his  knowl- 
Nat  Bank  28  C.  C.  A.  297,  84  Fed.  119.  edge  as  an  individual,  executor,  and 
That  the  president  of  a  corporation  trustee,  or  as  president,  was  imp"table 
for  which  a  bank  discounted  notes,  in  to  the  bank,  and,  being  in  fraud  of  the 
the  ordinary  and  usual  course  of  its  cestuis  que  trustent,  was  void  as  to 
business,  was  vice-president  of  the  them;  and  that  the  bank  was  liable  for 
bank,  does  not  charge  the  bank  with  the  full  amount  of  the  trust  fund  mis- 
notice  of  a  secret  infirmity  in  one  of  applied.  Holden  v.  New  \  ork,  etc., 
such  notes,  where  he  did  not  represent  Bank,   72    N.   \.   286. 


§  116  (1) 


REPRESEXTATIOX    OF    BANK. 


827 


knowledge  of  the  company's  authority  to  borrow  money  and  where  cer- 
tain officers  of  the  company,  without  proper  authorization,  borrow  money 
from  the  bank,  the  bank  can  not  recover  from  such  company.^" 

Cashier. — The  cashier  of  a  bank  being  an  executive  officer  of  the  bank, 
his  acts,  done  in  the  ordinary  course  of  business,  bind  the  bank,  and  notice 
to  him  is  ordinarily  notice  to  the  bank.-*^  Thus  the  cashier  of  a  bank  is 
held  out  to  the  world  as  the  bank's  agent  for  the  management  of  its  notes 


47.  Vice-president. — Camerson  z\ 
First  Nat.  Bank,  4  Tex.  Civ.  App.  309. 
23   S.  W.  334. 

48.  Cashier. — First  Nat.  Bank  z\ 
Ledbetter  (Tex.  Civ.  App,).  34  S.  \\'. 
1042. 

As  to  knowledge  or  notice  of  cash- 
ier in  respect  to  discounts,  securities, 
deposits,  etc.,  see  post,  "In  Respect  to 
Discounts  and  Securities,"  §  116  (2); 
"In  Respect  to  Deposits."  §  116  (3); 
"Notice  Received  in  Private  Business 
or  Outside  Scope  of  Duties,"  §116(4); 
"Notice  of  Officer's  Own  Fraud," 
§  116  (6). 

Notice  to  the  cashier  of  a  bank  or 
banker,  as  to  matters  coming  within 
the  scope  of  his  duties,  is  notice  ^to 
them.  Duncan  v.  Jaudon  (U.  S.). 
1.5  Wall.  165,  21  L.  Ed.  142;  Merchants' 
Nat.  Bank  7'.  State  Nat.  Bank  (U.  S.), 
10   Wall.   604,   19    L.  Ed.   1008. 

And  knowledge  acquired  by  the 
cashier  in  the  course  of  the  business 
of  the  bank,  and  not  communicated  by 
him  to  the  board  of  directors,  should 
be  regarded  as  the  knowledge  of  the 
bank.  Fidelity,  etc.,  Co.  v.  Courtney, 
186  U.  S.  342,  46  L.  Ed.  1193,  22  S.  Ct. 
833,  reafifirnied  in  Cherry  v.  Fidelity, 
etc.,  Co.,  205  U.  S.  537,  51  L.  Ed.  920, 
27   S.   Ct.   790. 

"Beyond  all  question  the  cashier  of 
the  plaintiff  bank  represented  his  bank, 
he  was  an  agent  with  full  authority, 
and  what  he  knew  in  respect  to  the 
transaction  in  question  must  be  re- 
garded as  known  to  his  bank."  Mer- 
chants' Nat.  Bank  v.  State  Nat.  Bank 
(II.  S.),  10  Wall.  604,  19  L.  Ed.  1008. 
The  cashier  drew  a  check  on  the  es- 
tate's account  payable  to  another  bank, 
obtaining  therefor  a  certificate  of  de- 
posit, which  he  indorsed  and  deposited 
in  his  bank  to  his  individual  account, 
checking  it  out  for  his  own  use.  It 
did  not'appear  in  whose  name  the  cer- 
tificate was  issued,  and  hence  whether 
the  officers  of  the  bank  other  than  the 
cashier  had  notice  of  the  ownership  of 
the  funds.  Held,  that  the  cashiers 
knowledge    bound    the    bank    and    ren- 


dered it  liable  for  the  amount  of  the 
certificate;  the  directors  having  for  a 
long  time  failed  to  supervise  the  bank's 
afifairs  and  having  allowed  him  to  run 
it  as  he  pleased  for  his  individual 
benefit.  Whatever  knowledge  he  had 
acquired  in  his  individual  capacity  was 
carried  with  him  into  the  e.xercise  of 
his  duties  as  cashier.  Lowndes  z:  City 
Nat.  Bank.  82  Conn.  8.  72  .\tl.  150. 

Where  the  cashier  of  a  bank  had  in- 
formation sufficient  to  put  him  on  in- 
quiry, the  bank  was  bound  to  make  the 
inquiry.  Groff  z'.  Stitzer,  75  N.  J.  Eq. 
(5    Euch.)    452.  72   Atl.  970. 

A  bank  is  chargeable  with  the  knowl- 
edge of  its  cashier  of  facts  relating  to 
a  transaction  in  the  line  of  its  busi- 
ness. McLeod  z'.  Fourth  Nat.  Bank, 
20  Fed.  225;  New  Hope,  etc.,  Bridge 
Co.  z:  Phenix  Bank.  3   N.  Y.  156. 

Notice  to  the  cashier  of  a  bank  is 
ordinarily  notice  to  the  bank.  Grant 
County  Deposit  Bank  z:  Points,  22  Ky. 
L.   Rep.   105,  56   S.   W.  662. 

In  an  action  growing  out  of  the  re- 
fusal of  a  bank  to  allow  certain  shares 
of  stock  to  be  transferred  on  its 
books,  it  appeared  that,  with  the 
knowledge  of  the  cashier,  who  was  ex 
ofllcio  a  member  of  the  committee 
charged  with  buying  and  selling  notes, 
the  stock  had  been  pledged  by  the 
stockholder  as  security  for  a  debt;  th.it 
this  debt  was  subsequently  renewed; 
and  that,  after  the  renewal,  a  note  of 
the  stockliolder  was  discounted  l)y  tiie 
bank.  Held,  that  the  cashier's  knowl- 
edge of  the  original  debt  and  pledge 
was  sufficient  to  put  him  on  inquiry, 
and  therefore  it  should  be  prcsunuMJ 
that  he  knew  that  the  renewal  did  not. 
as  a  matter  of  law,  release  the  pledge. 
Bank  v.  McNeil   (Ky.).  10  Bush  54. 

Knowledge  of  facts  brought  home  to 
the  cashier,  the  I)ank's  executive  of- 
ficers, l)inds  it.  Louisiana  State  Banlc 
z:    Senecal.    13   La.   525. 

Notice  to  the  cashier  of  a  l)ink  is 
notice  to  the  bank.  First  Nat.  ^ank  ''• 
Ledbetter  (Te.x.  Civ.  .App).  34  S.  W. 
1042. 


828 


BANKS  AND  BANKING. 


§  116  (1) 


and  other  securities.-*^  Notice  to  the  cashier  of  a  bank  is  notice  to  the 
bank,  in  transactions  conducted  by  him  for  it  within  the  scope  of  his  au- 
thority, regardless  of  his  bona  fides  in  conducting  such  transactions,  where 
the  bank  adopts  his  acts.^"  Where  a  bank  cashier  makes  purchase  of  a 
certificate  of  stock  as  such  cashier,  he  acts  within  the  scope  of  his  author- 
ity, and  the  knowledge  that  he  has  of  the  condition  of  the  stock  must  be 
imputed  to  the  bank.^^  So  if  he  knowingly  takes  a  note  a  firm  indorsed 
by  a  partner  in  payment  of  an  individual  debt,  the  bank  is  afifected  by  his 
knowledge.^-  Notice  to  the  cashier  of  a  bank  that  certain  stock  which  is 
pledged  is  trust  stock, ^-^  that  a  certain  fund  assigned  to  the  cashier  is  to 
be  applied  to  a  debt  of  the  assignors  to  the  bank,^-*  that  a  mortgage  is  un- 
recorded,^-^ or  that  certain  bills  will  not  be  paid,^*^  is  notice  to  the  bank. 
Where  a  bank  cashier,  who  is  also  agent  of  a  trustee,  receives  in  payment 
of  the  trustee's  individual  debt  to  the  bank  money  which  he  knows  belongs 
to  the  trust  estate^  the  bank  is  chargeable  with  the  knowledge.-^'  Notice 
to  the  cashier  of  a  bank  that  its  modification  of  the  proposals  of  a  party 
is  acceded  to  by  him  is  notice  to  the  bank.^^  Where  a  bank,  by  its  presi- 
dent and  cashier,  executed  a  deed  of  land  to  the  president  individually,  the 
execution  by  the  cashier  constituted  express  notice  of  the  sale  to  the  bank.^^ 
So  notice  to  the  cashier  of  a  bank  of  equities  between  the  maker  and  iii- 
dorser  of  a  note,  is  chargeable  to  the  bank  where  he  was  allowed  full  lib- 
erty and  the  widest  authority  to  discount  paper,  and  the  board  of  directors 


49.  Cashier  held  out  as  agent. — Bank 

V.   Mumford,  6  Ga.  44;  Veasey  v.   Gra- 
ham,  17   Ga.   99,   G:5   Am.   Dec.   228. 

50.  Scope  of  authority  and  not  good 
faith  criterion. — I'^armers'  I'ank  r.  Sal- 
ing,    33    Ore.    394,    54    Pac.    190. 

51.  Purchase  of  certificate  of  stock. 
— Farmers',  etc.,  Bank  v.  Loyd,  89  Mo. 
App.    262. 

52.  Indorsement  by  partner — Pay- 
ment of  individual  debt. — Fall  River 
Union  Bank  v.  Sturtevant  (Mass.),  12 
Gush.  372. 

53.  Notice  that  stock  pledged  is 
trust  stock. — Duncan  v.  Jaudon  (U.  S.), 
15  Wall.   165,  21   L.   Ed.   142. 

54.  Notice  of  application  to  be  made 
of  fund. — Stebbins  v.  Lardner,  2  S. 
Dak.    127,    48    N.    W.    847. 

Where  an  assignment  is  made  to  the 
cashier  of  a  bank  to  be  applied  to  the 
satisfaction  of  a  particular  debt  of  the 
assignors  to  the  bank,  and  is  received 
by  the  cashier  under  an  agreement  to 
that  effect,  notice  to  the  cashier  of 
such  understanding  is  notice  to  the 
bank  itself,  and  the  bank  is  bound 
thereby,  and  it  was  error  in  an  action 
on  said  note  to  exclude  evidence  of 
such  agreement.  Stebbins  v.  Lardner, 
2    S.   Dak.    127,    48   N.   W.   847. 


55.  Notice  that  mortgage  unrecorded. 

— The  articles  of  incorporation  of  a 
bank  provided  that  "it  is  to  act  as  an 
agent  in  the  investment  of  funds,"  and 
"to  transact  any  business  that  may 
properly  be  done  by  a  financial  agent." 
Its  cashier  made  a  loan  for  a  customer 
who  had  money  deposited  therein, 
took  the  acknowledgment  to  the  mort- 
gage securing  the  loan,  had  possession 
of  the  imrecorded  mortgage,  and  re- 
ceived two  or  three  installments  of  in- 
terest, which  he  placed  to  such  cus- 
tomer's credit,  on  his  pass  book.  Held, 
that  the  knowledge  of  its  cashier  was 
the  knowledge  of  the  bank,  affecting  it 
with  notice  of  such  unrecorded  mort- 
gage. Christie  v.  Sherwood,  113  Cal. 
526,   45   Pac.   820. 

56.  Notice  that  bills  will  not  be  paid. 
— Notice  to  the  cashier  of  a  bank  that 
certain  bills  will  not  be  paid  is  notice 
to  the  bank.  Boggs  v.  Lancaster 
Bank   (Pa.),  7  Watts  &  S.  331. 

57.  Knowledge  of  trust  fund. — Lor- 
ing  V.  Brodie,   134  Mass.  453. 

58.  Notice  of  modification  of  pro- 
posals.— Branch  Bank  v.  Steele,  10 
Ala.    915. 

59.  Execution  of  deed  to  president. 
—Veasey  v.  Graham,  17  Ga.  99,  63  Am. 
Dec.   228. 


116  (1) 


REPRESENT ATIOX    OF    BANK. 


829 


and  discount  committee  rarely  met,  and  did  not  look  after  the  discounts 
as  was  their  duty.*"* 

Teller. — Knowledge  of  the  teller  of  a  bank  is  considered  as  knowledge 
of  the  bank,  where  it  pertains  to  a  matter  within  the  scope  of  the  teller's 
official  duty,  and  as  to  which  he  acts  officially.*' ^  As  the  public  is  not  sup- 
posed to  have  notice  of  the  appointment  of  duties  relating  to  bank  matters 
among  bank  officers,  knowledge  of  its  teller  in  regard  to  the  collection  of 
money  must  be  regarded  as  the  knowledge  of  the  bank,  and  notice  to  him 
k  notice  to  the  bank.^2 

Attorney. — In  general  it  may  be  said  that  notice  to  an  attorney  is  notice 
to  his  client,*'^^  but  obviously  notice  is  not  imputed  to  an  attorney  in  all  his 
personal,  professional  and  official  connections  from  the  fact  that  one  of  his 
clients  has  notice.''^'* 

Manager  of  Branch  Bank. — Where  a  banking  corporation  has  several 
branches  in  different  places,  the  managers  of  which  are  treated  as  its  agents, 
and  a  draft  in  favor  of  the  bank  was  payable  at,  and  sent  for  acceptance 
to,  one  of  such  branches,  the  acceptor  has  a  right  to  presume  that  the  man- 
ager of  such  branch  has  authority  to  receive  notice  that  the  acceptance  is 
for  the  accommodation  merely  of  the  drawer,  so  that  such  notice  will  bind 
the  bank. 65 

Bookkeeper. — The  knowledge  of  a  bookkeeper  of  a  bank  is  knowledge 
of  the  bank,  where  it  pertains  to  a  matter  within  the  scope  of  the  book- 


60.  Notice  of  equities  between  maker 
and  indorser  of  note. — Bank  v.  Pen- 
land,  101   Tenn.  445,  47  S.  W.  603. 

61.  Teller — Official  duty  and  action. 

— Where  the  teller  and  bookkeeper, 
after  having  paid  worthless  checks  of 
a  company,  the  manager  of  which  was 
also  cashier  of  the  bank  and  adminis- 
trator of  an  estate  and  carried  them 
as  cash,  took  the  cashier's  checks 
against  the  estate's  account  to  cover 
his  company  checks,  knowingly  re- 
lieving the  bank  from  liability,  and 
depleting  the  estate's  resources  for  a 
purpose  they  knew  to  be  wholly  for- 
eign to  its  affairs,  the  bank  was  lial>le 
to  it  for  the  amount  so  drawn;  knowl- 
edge of  its  teller  and  bookkeeper  be- 
ing imputed  to  it.  Lowndes  v.  City 
Nat.  Bank,  82  Conn.  8,  72  Atl.  150. 

Plaintiff  drew  a  draft  in  favpr  of  de- 
fendant bank,  and  delivered  it  to  the 
bank's  teller  for  collection,  and  directed 
the  teller  to  deposit  the  proceeds  to 
plaintiff's  own  credit,  or  to  the  ac- 
count of  the  teller  as  trustee.  The 
teller  deposited  the  proceeds  to  his 
own  personal  account,  and  imme- 
diately checked  out  the  entire  amount, 
and  convened  it  to  Iiis  own  use.  Plum- 


tift'  sued  the  bank  for  the  proceeds. 
Held,  tliat  when  the  l^ank  received  the 
draft  through  the  teller  for  collection, 
the  teller  acted  for  the  bank;  and  the 
knowledge  had  by  him  as  to  the  proper 
disposition  to  make  of  the  proceeds  of 
the  draft  was  the  bank's  knowledge, 
liecause  it  pertained  to  a  matter  within 
the  scope  of  the  teller's  ofticial  duty, 
and  as  to  which  he  acted  ofticially. 
Ihl  V.   Rank.  2f.   Mo.   .\pp.   129. 

62.  Knowledge  of  teller  as  to  collec- 
tion.—City  Xal.  Bank  v.  INlartin.  70 
'I'ex.  ()4:2,  8  S.  W.  507,  8  Am.  St.  Rep. 
6:'.2. 

63.  Notice  to  attorney. — Wardlaw 
V.  Troy  Oil  Mill,  74  S.  C.  368,  54  S.  H. 
658,    114    Atn.    St.    Rep.    1004. 

64.  Rule  of  notice  to  attorney 
limited. — The  bank  could  not  be 
charged  with  notice  through  M,  its 
president,  of  a  mortgage  of  another 
corporation  of  whicli  I\f  was  the  at- 
torney, wiien  M  himself  had  no  notice 
of    such    mortgage.    Wardlaw    :•.    Troy 


Oil   Mill,  74  S.  C.  :56S 
Am.    St.    Rep.    1004. 
65.      Manager     of 

Canadian    Bank    .-■. 
:!5H,   n    .V.   W.   i'.»6. 


5  1    S.   v..  65S,  114 

branch     bank. — 

Coinnbc,     17    Micli. 


830 


BANKS   AND   BANKING. 


§  116  (2) 


keeper's  official  duty  and  as  to  which  he  acts  officially.^'^  A  bank  is  charged 
with  notice  of  letters  duly  mailed  to  it  and  received  by  the  general  book- 
keeper, whose  duty  it  is  to  open  and  distribute  mail  matter,  although  he 
conceals  such  letters  to  hide  certain  irregularities  in  his  office,  and  thereby 
prevents  their  coming  into  the  hands  of  the  other  bank  officers.*^" 

Notice  to  Trustee. — Notice  to  a  trustee,  not  otherwise  an  officer  of  a 
bank,  is  not  notice  to  the  bank  of  any  matter  within  the  peculiar  control 
of  the  officers  in  charge.*''^ 

Messenger. — A  bank  is  not  attected  by  information  given  to  its  mes- 
senger, by  a  third  party,  which  is  without  the  scope  of  the  messenger's 
agency,  where  such  information  is  not  in  fact  communicated  to  the  bank.^"^ 

Effect  of  Change  of  Personnel  of  Officers. — W  here  a  bank  is  charged 
with  notice  of  the  character  of  a  transaction,  it  continues  to  be  affected  by 
such  notice  whatever  changes  may  occur  in  its  officers."" 

Evidence — Question  of  Fact. — Whether  entries  in  the  books  of  a  bank 
are  sufficient  to  charge  the  officers  with  notice  of  the  transactions  involved 
is  for  the  jury."^ 

§  116  (2)  In  Respect  to  Discounts  and  Securities. — The  rule 
seems  to  be  that  knowledge  or  notice  on  the  part  of  an  officer  or  agent,  with 
respect  to  discounts  and  securities,  when  such  matters  are  within  the  scope 
of  his  duties  or  agency,  are  chargeable  to  the  bank  and  bind  it  in  subsequent 
proceedings.'-     I'ut  the  rule  can  not  hold  good  when  the  officer  is  also  acting 


66.  Bookkeeper. — Lowndes  z\  City 
Nat.    Bank.   82   Conn.   8,   72   Atl.    150. 

A  bookkeeper's  knowledge  of  a  firm's 
dissolution,  acquired  because  of  his 
position,  was  not  notice  to  a  bank  of 
which  he  was  assistant  cashier  and 
liookkeeper.  Morris  t'.  First  Nat. 
Bank,  162  Ala.  301,  50  So.   137. 

67.  First  Nat.  Bank  v.  Fourth  Nat. 
Bank,  6  C.  C.  A.  183,  56  Fed.  967. 

68.  Notice  to  trustee. — Bank  t'. 
Blakesly,    42    O.    St.    64.".. 

69.  Information  given  to  messenger 
without  scope  of  agency. — A  ban):  was 
not  affected  by  information  given  to 
one  of  its  messengers  by  a  memner  of 
a  former  partnership,  to  whom  a  draft 
upon  v/hich  the  partnership  was  bable, 
and  which  was  subsequently  renewed, 
was  presented,  to  the  effect  that  the 
partnership  had  been  dissolved,  and 
that  the  other  partner  was  liable  for 
its  debts,  where  the  information  was 
not  in  fact  communicated  to  the  bank, 
and  the  messenger's  agency  was  con- 
fined to  mere  collections.  Camp  t'. 
Southern  Banking,  etc.,  Co.,  97  Ga. 
582,   25    S.    E.    362. 

70.  Effect  of  change  of  personnel  of 
officers. — United  States  Nat.  Bank  f. 
Forstedt,  64  Neb.  855,  90  X.  W.  919. 


"This  was  an  action  by  Per  Forstedt 
against  the  United  States  National 
Bank  of  Holdredge  to  recover  the  pen- 
alty provided  for  in  §  5198,  Rev.  St. 
U.  S.  (National  Banking  Act).  In  our 
opinion,  there  is  no  fairly  debatable 
question  in  the  case.  The  jury  were 
well  warranted  in  finding  that  the  de- 
fendant knowingly  contracted  for  and 
received  interest  in  excess  of  ten  per 
cent,  and  that  the  amount  so  received 
was  at  least  fifty  per  cent  of  the  ver- 
dict and  judgment.  The  contention 
of  counsel  for  the  bank  that  the  bank 
officers  who  actually  received  the  last 
payments  upon  the  usurious  contract 
were  not  connected  with  the  bank  at 
the  time  the  contract  was  made,  and 
were  therefore  ignorant  of  the  fact  that 
it  was  tainted  with  usury,  is,  of  course, 
without  merit."  United  States  Nat. 
Bank  r.  Forsedt.  'U  Neb.  855,  90  N. 
W.  919. 

71.  Evidence — Question  of  fact. — 
Searle  v.  First  Nat.  Bank  (Pa.),  2 
Walk.    395. 

72.  Rule  with  respect  to  discounts 
and  securities. — A  note  with  the  words, 
"Credit  the  drawer,"  written  across  its 
face  by  the  payee,  and  involving  a 
usurious  bank   discount,  held,  in  a  suit 


116  (2) 


REPRESEXTATIOX    OF    BANK. 


831 


by  the  bank  thereon,  to  be  void,  al- 
though only  the  president  of  the  bank- 
knew  of  the  usurious  character  of  the 
transaction.  Newport  Nat.  Bank  v. 
Tweed  (Del.).  4  Houst.  225. 

As  to  knowledge  or  notice  of  di- 
rector, see  post,  "Notice  to  Directors,"' 
§   116    (5). 

The  cashier  of  a  bank  is  held  out  to 
the  world  as  its  general  agent,  for  the 
management  of  its  notes,  and  other 
securities.  Bank  z:  Mumford,  0  Ga.  44- 
Veasey  z:  Graham,  17  Ga.  99,  63  Am' 
Dec.  228. 

As  to  knowledge  or  notice  of  cash- 
ier, see  ante,  "In  General,"  §  116  (l) 

Where  the  cashier  of  a  bank  has  full 
authority  to  make  loans  and  discounts, 
notice  to  him  of  equities  against  a 
note  discounted  by  the  bank  is  notice 
to  the  bank.  Merchants',  etc..  Bank  v 
Penland,  101  Tenn.  445,  47  S.  W.  693. 
G.,  cashier  of  a  bank  which  had  ex- 
press notice  that  W.  was  manager  of 
H.  &  Co.,  and  was  prohibited  from 
selling  or  discounting  drafts  received 
in  the  course  of  business,  having,  as 
agent  of  L.,  bought  a  draft  indorsed 
to  W.,  manager,  and  then,  as  cashier, 
received  the  pioceed.s  of  the  check 
given  by  L.,  and  placed  it  to  the  in- 
dividual credit  of  W.,  and  the  draft 
having  afterwards  been  received  by 
the  bank  for  collection,  and  the  pro- 
ceeds when  collected  having  been  paid 
to  L.,  the  bank  is  liable  to  H.  &  Co. 
therefor.  Heinz  v.  Fourth  Nat.  Bank 
(Tenn.),   48    S.   W.    1H3. 

A   bank   declared   on   a  note   payable 
to    defendant's    order    and    by    him    in- 
dorsed   to   the    bank.      Defendant's    de- 
fense was  that  the   note  was  given   to 
the  president  of  the  bank  with  the  un- 
derstanding tliat  it  was  not  to  be  used 
by    him,    and    that,    when    it    was    used 
by    such    person    in     his      capacity      of 
president    and    passed    to    the    bank    in 
violation    of    the    agreement,    the    bank 
was  affected  with   notice  of  the  agree- 
ment   under   which    it    was    given,    and 
could  not  recover  on  the  note  because 
its   use  was  in   violation   of  the   agree- 
ment  ai'.d   in   fraud   of  the   defendant's 
right.     Held,  that  it  was  proper  to  in- 
struct that  if  the  president  of  the  bank 
came   to   the   knowledge   of  the    defect 
in    the    note    in    his   capacity    as     such 
president,    and    failed    to    communicate 
his   knowledge    to   the   bank   when    the 
note    was     received,      the      bank      was 
thereby  affected  with   constructive   no- 
tice  of   the   defect   in   the    note.     Tagg 
V.   Tennessee    Nat.    Bank,   56   Tenn.    (9 
Heisk.)    479. 

A  bank  which,  as  assignee  ot  an  ac- 
commodation   note,    receives   the    same 


with  notice  either  to  its  president  or 
cashier  of  its  true  character,  and  that 
It  was  made  under  an  agreement  that 
designated  collaterals  should  be  held 
to  secure  its  payment,  and  that  such 
collaterals  were  not  so  held  but  the 
contract  to  hold  them  was  violated  by 
then-  transfer  without  the  consent  of 
the  maker,  can  not  enforce  payment 
against  the  maker  of  the  accommoda- 
tion note.  Smith  v.  Traders'  Nat 
Bank,    74  Tex.   4,^7,    12    S.    W.    113. 

Notice  to  note  teller  as  notice  to 
bank. — \\  here  a  borrower  from  a  bank 
presented  collaterals  to  the  assistant 
cashier,  who  was  authori7ed  to  repre- 
sent the  bank  in  the  transaction,  and 
was  directed  by  the  latter,  in  accord- 
ance with  custom,  to  take  such  col- 
laterals to  the  note  teller,  who  had 
chaige  of  the  collaterals  to  be  cliecked 
up,  notice  to  the  teller  in  regard  to  the 
rights  of  a  third  person  in  one  of  the 
securities  pledged  was  notice  to  the 
bank.  Zeis  v.  Potter,  44  C.  C.  \  66.) 
105    Fed.   671. 

Absence  of  evidence  as  to  scope  of 
employee's  authority.— Prior  to  the  ex- 
ecution of  a  tirni  noie  sued  on  in  re- 
newal of  other  notes  by  one  of  the 
members  of  the  firm,  defendant,  an- 
other member  of  such  firm,  applied  to 
plaintiff  bank,  the  holder  of  such  note. 
to  open  an  account,  and.  in  conversa- 
tion with  one  of  plaintiff's  employees, 
notified  him  that  the  firm  had  been 
dissolved.  Held  that,  in  the  absence 
of  evidence  as  to  the  scope  of  such  em- 
ployee's authority,  such  notice  to  him 
was  insufficient  to  bind  the  bank. 
Marsh  v.  Wheeler.  77  Conn.  449,  59 
Atl.   410,   107   Am.    St.    Rep.    40. 

Evidence  to  show  knowledge   of  of- 
ficer.—  In    an    action    l)y    a    l)ank    on    a 
note   discounted  by  it,   defendants  con- 
tended that  the  note  was  payable  two 
months  after  date,  and  not  four,  as  al- 
leged  by  plaintiff,   and   that   they   were 
relieved    from    liability    I)y    nonprotest. 
It  was  doubtful  whether  the  time  writ- 
ten   in    the    note    was     two      or      four 
months   after   date.      Meld,   tiiat   checks 
drawn  on  plaintiff  by  tlie  maker  of  the 
note   were   admissible    for   tiie   purpose 
of    charging    plaintiff    with    knowledge 
of  the  maker's  peculiar  way  of  writing 
the    word    "two,"    though    the    checks 
passed   only   the   paying   teller  and   the 
l)Ookkeeper,    and    were    not    l)efore    the 
directors,    as    in    the    case   of   notes   of- 
fered   for     discount.      State      Hank      ?'. 
Postal,   12   Misc.    Rvp.  546,  34    \'.   Y.   S. 
IS,    67    N.    Y.    St.    Rep,    ST.!. 

Cashier  presumed  to  have  been 
present  at  transaction. — .\  cashier  of  a 
bank    who    was    ex    officio    menil)er    of 


832 


BANKS   AND   BANKING. 


§  116  (2) 


in  part  for  himself  and  in  his  own  behalf."^  A  bank  whose  president  has 
knowledge  of  a  defect  in  a  guaranty  on  negotiable  bonds  at  the  time  that 
it,  acting  through  him,  makes  a  loan  thereon,  is  not  charged  with  notice; 
he  being  a  part  owner  in  the  bonds,  and  the  loan  being  in  part  for  his  ben- 
efit."'-!  The  knowledge  of  an  officer  of  a  bank,  being  also  a  member  of  itb 
discount  committee,  who  takes  part  in  discounting  a  note  made  to  him  in- 
dividually for  an  unlawful  purpose,  in  which  he  participates,  is  not  imput- 
able to  the  bank."^  Knowledge  of  a  president  and  cashier  of  a  bank  of  a 
proposed  loan,  and  their  conduct  in  assisting  to  procure  it,  is  the  knowl- 
edge and  act  of  the  bank."^  And  knowledge  by  one  of  the  officers  of  a 
bank,  who  participated  in  the  acceptance  for  the  bank  of  a  negotiable  note 
before  due,  of  a  fact  which  could  put  a  prudent  person  upon  inquiry  as  to 
the  power  of  the  maker  to  execute  the  paper,  is  sufficient  to  charge  the 
bank  with  notice  of  a  disability,  if  such  existed.''^  So  where  an  agent  of 
a  bank  has  notice  that  notes  and  a  mortgage  securing  them  w^ere  without 
consideration  and  fraudulent,  the  bank  can  not  hold  the  notes  as  collateral, 
it  being  charged  whh  the  knowledge  of  its  agent."^  But  the  mere  fact 
that  the  president  or  cashier  of  a  bank  which  purchased  municipal  bonds 
had  notice  or  knowledge  of  facts  w-hich  would  have  recjuired  inquiry  as 
to  what  the  bonds  were  given  for.  had  he  made  the  purchase,  is  not  notice 


the  committee  charged  with  buying 
and  selling  notes  and  bills,  and  who 
knew  that  a  stockholder  had  pledged 
"his  stock  to  secure  a  debt,  held  to  be 
presumed,  in  the  absence  of  evidence 
to  the  contrary,  to  have  been  present 
when  a  note  of  such  stockholder  was 
discounted  by  the  bank;  and  therefore 
his  knowledge  that  the  stock  had  been 
pledged  was  a  sufficient  notice  to  the 
bank.  Bank  v.  McNeil  (Ky.).  10 
Bush    54. 

73.  Rule  inapplicable  where  officer 
acting  in  own  behalf. — Where  the  in- 
terest of  the  president  of  a  bank,  who 
was  also  its  attorney,  in  the  discount 
of  a  note  sued  on,  was  adverse  to  the 
bank,  his  knowledge  of  an  infirmity  in 
the  paper  was  insufficient  to  charge 
the  l:)ank  therewith.  Davis  z'.  Boone 
Countv  Deposit  Bank,  2.5  Ky.  L.  Rep. 
2078,  80  S.  W.  161. 

The  president  of  a  l^ank,  acting  in 
his  own  interest  and  not  in  that  of  the 
bank,  procured  the  discount  of  certain 
notes  oi  a  cattle  company,  given  by  its 
treasurer,  from  the  directors  of  the 
bank,  who  had  no  knowledge  or  notice 
of  any  fact  affecting  the  validity  of  the 
notes.  Held,  that  the  bank  was  not 
chargeable  with  the  president's  knowl- 
edge of  any  such  fact,  and,  in  the  ab- 
sence of  evidence  to  the  contrary,  was 
warranted  in  assuming  that  the  com- 
pany had   the   power   to   issue,   and   its 


treasury  the  authority  to  give,  the 
notes.  Corcoran  v.  Snow  Cattle  Co., 
151   Mass.  74,  23   N.   E.  727. 

As  to  notice  received  in  private  busi- 
ness, etc.,  see  post,  "Notice  Received 
in  Private  Business  or  Outside  Scope 
of  Duties,"  §  116   (4). 

As  to  individual  interest  as  affecting 
knowledge  or  notice,  see  ante,  "In 
General,"  §  116  (1);  post,  "Notice  of 
Officer's  Own  Fraud,"  §  116  (6);  "In- 
dividual Interest  of  Officer  or  Agent 
as  Affecting  Person  Dealing  with 
Bank,"  §   117. 

74.  President  interested  in  loan. — 
Louisville  Trust  Co.  f.  Louisville,  etc., 
R.  Co.,  22  C.  C.  A.  378,  75  Fed.  433, 
modified,  174  U.  S.  552,  43  L.  Ed.  1081, 
19    S.    Ct.    817. 

As  to  knowledge  of  notice  of  presi- 
dent, see  ante,  "In  General,"  §  116  (l). 

75.  Discounting  note  made  to  of- 
ficer individually. — Graham  :■.  Orange 
County  Nat.  Bank.  59  N.  J.  L.  225,  35 
Atl.   1053. 

76.  Knowledge  as  to  proposed  loan. 
— Harris  7'.  American  Bldg.,  etc..  Ass'n, 
122    Ala.    545.   25    So.    200. 

77.  Acceptance  of  negotiable  note 
before  due. — Hagcr  v.  National  Ger- 
man-American Bank.  105  Ga.  116,  31 
S.   F.   141. 

78.  Knowledge  of  fraud  and  want 
of  consideration. — Baldwin  z'.  Davis, 
118   Iowa  36,  91   N.  W.  778. 


116  (2) 


REPRESENTATION    OF    BANK. 


833 


to  the  bank,  where  the  purchase  is  not  made  by  him,  but  by  another, 
having  no  such  notice  or  knowledge.'"  Xor  is  the  knowledge  of  one  mem- 
ber of  the  discount  committee  of  a  bank,  being  also  president  of  the  bank, 
who  was  not  present  when  the  renewal  of  a  note  was  taken,  and  had  no  part 
in  the  transaction,  enough  to  charge  the  bank  with  notice  of  the  fact,  known 
to  him,  that  the  indorser  of  the  note  had  become  incompetent  to  do  busi- 
ness.^'* ^'  Where  a  bank  cashier  acting  within  the  scope  of  his  authority  has 
notice  that  bonds  deposited  by  a  debtor  as  collateral  are  held  in  trust  by 
such  debtor,8i  that  there  exists  a  mortgage  prior  to  one  accepted  by  him.^^ 
that  there  are  defenses  existing  against  a  note  accepted  by  him,^^  qj.  ^i-,^,.  ^ 
note  discounted  was  obtained  by  fraud,s-i  such  knowledge  is  imputed  to 
the  bank.  Where  a  bank  president  acting  in  his  official  capacity,  receives 
information  that  there  is  an  outstanding  mortgage, ''^  that  a  guaranty  of 
certain  bonds  on  which,  he  acting  for  the  bank,  had  loaned  money,' had 
been  repudiated  by  the  guarantors,^^  or  that  certain  stock,  on  which  a  loan 
is  subsequently  made  by  the  bank,  is  pledged  to  another,  although  such 
information  was  received  some  time  prior,^^  the  bank  is  bound  thereby. 
\\'here  the  president  of  a  bank,  acting  for  the  bank  and  having  no  interest 


79.  Purchase  made  by  another  of- 
ficer   than    one     having      knowledge. — 

Thompson   V.    Mecosta,    141    Mich.    175, 
104  X.  W.  C94. 

80.  Officer  not  present  and  taking 
no  part  in  transaction. — Bank  z\  Sneed, 
97  Tenn.  120,  3G  S.  W.  716,  citing  Union 
Bank  z'.  Campbell,  23  Tenn.  (4 
Humph.)    394. 

81.  Knowledge  that  bonds  are  held 
in  trust. — Knowledge  of  a  bank  cash- 
ier that  stocks  and  bonds  which  a 
debtor  of  the  bank  deposited  as  col- 
lateral security  were  held  by  the  debtor 
as  trustee  merely,  will  be  binding  on 
the  bank.  Loring-  7'.  Brodie,  134  Mass. 
453;  Gaston  z'.  American  Exch.  Nat. 
Bank.  29  N.  J.   Eq.  98. 

82.  Existence  of  prior  mortgage. — 
Where  tlie  cashier  of  a  bank  accepts 
a  mortgage  with  actual  notice  of  a 
prior  mortgage,  the  bank  will  be  bound 
thereby.  Trenton  Banking  Co.  v. 
Woodruff.   2    N.   J.    Eq.    117. 

83.  Existence  of  defenses  to  note. — 
Notice  to  a  bank's  casliier  of  defenses 
against  a  note  received  by  him  in  the 
regular  course  of  the  bank's  business 
is  notice  to  the  bank.  Messick  &  Co. 
7-.  Roxbury,  1  Handy  190,  12  O. 
Dec.    95. 

84.  Fraud  in  obtaining  note. — Notice 
to  the  casliier  of  an  incorporated  bank 
that  a  note  discounted  with  the  bank 
was  obtained  by  fraud  is  notice  to  the 
bank,  so  that  the  defense  is  available 
against  it.     Citizens'  Sav.  Bank  v.  Wal- 

1    B    &   B— 53 


den,  21   Ky.   L.   Rep.   7:;9,  52   S.   W,  95;;. 

85.  Notice  of  outstanding  mortgage. 
— Notice  to  the  president  of  a  bank  of 
an  outstanding  mortgage  is  notice  to 
the  bank.  Burgoyne  v.  Clarkson,  2 
West.  L.  J.  325,  1  O.  Dec.  119;  Otta- 
guechee  Sav.  Bank  f.  Holt,  58  Vt.  166. 
1    Atl.   485. 

86.  Repudiation  of  guaranty. — A  bank 
v/hose  president  acted  lor  it  in  making 
a  loan  on  guarantied  negotiable  bonds, 
after  he  haxl  learned  that  tlie  stock- 
holders of  the  company  making  the 
guaranty  had  repudiated  it  as  unau- 
thorized, will  be  charged  with  notice. 
Louisville  Trust  Co.  v.  Louisville,  etc., 
R.  Co.,  22  C.  C.  A.  378,  75  Fed.  433. 
modified  Louisville,  etc.,  R.  Co.  v. 
Louisville  Trust  Co.,  174  U.  S.  552,  43 
L.   Ed.    1081,   19   S.   Ct.  817. 

87.  Existence  of  pledge  of  stock. — 
The  president  of  a  hank,  to  whom  a 
pledgee  of  stock  exhibited  the  certifi- 
cate held  by  him  to  ascertain  witii  cer- 
tainty that  it  had  l)een  regularly  issued, 
stating  the  fact  of  the  pledge,  received 
such  information  while  acting  in  liis 
official  capacity,  and  the  hank  was 
thereby  charged  with  notice  of  the 
pledge,  so  as  to  render  its  statutory 
lien  on  the  stock  for  a  loan  subse- 
quently made  to  the  pledgor,  although 
some  two  or  three  years  afterwards, 
subject  to  the  rights  of  the  pledgee, 
whose  debt  had  not  been  paid.  Curtice 
V.  Crawford  County  Bank,  5()  C.  C.  A. 
174,    118    Fed.    390. 


834  BANKS    AND    BANKING.  §    116    (3) 

adverse  to  it,  accepts  payment  from  an  obligor  on  a  note  held  by  the  bank, 
under  an  agreement  as  to  the  effect  of  such  payment  on  the  obligors  lia- 
bility, the  bank  is  chargeable  with  notice  of  the  agreement.*^  \\'hile  it  may 
be  as  a  general  rule,  that  the  discounting  of  bills  and  notes  is  not  within 
the  scope  and  duty  of  the  president  of  a  bank,  and  therefore  notice  to  him 
would  not  generally  be  notice  to  the  bank  in  relation  to  such  transactions, 
still  where  it  appears,  that  the  officers  of  the  bank  consulted  and  acted 
upon  the  question  as  to  whether  a  note  should  be  accepted  by  the  bank  as 
collateral  for  an  existing  debt,  notice  to  any  of  the  officers  w4io  partici- 
pated in  the  conference  w^ould  be  notice  to  the  bank,  and,  in  the  absence 
of  proof  as  to  what  officers  were  in  such  consultation,  it  might  be  inferred 
that  the  president  and  directors  were  those  referred  to.^^ 

Notice  to  Cashier  to  Sue. — Notice  to  sue  to  the  principal  maker  of  a 
note,  by  the  security,  directed  to  the  cashier  of  a  bank,  which  is  the  holder 
of  the  note,  is  sufficient  notice  to  the  bank,  especially  if  the  bank  acts  upon 
such  notice.^*^ 

Want  of  Knowledge  by  Officer  as  Evidence. — \\  here  a  bank  had  no 
committee  or  agent  to  make  loans  eiN^epting  their  cashier,  evidence  that 
he  had  no  knowledge  that  a  note  indorsed  to  them  for  value  was  pro- 
cured by  fraud  is  prima  facie  sufficient  to  show^  want  of  such  notice  by 
the  bank.91 

Sufficiency  of  Excuse  Rebutting  Constructive  Knowledge. — The 
knowledge  possessed  by  a  bank  president,  or  acquired  by  him  in  connection 
with  the  discount  of  a  note,  is  the  knowledge  of  the  bank,  and  his  acci- 
dental absence  at  a  particular  time  is  no  legal  excuse  for  the  failure  of  the 
bank  to  act  upon  such  knowledge.^- 

§  116  (3)  In  Respect  to  Deposits. — The  general  rule  that  knowl- 
edge or  notice  of  facts  by  an  agent  or  officer  of  a  bank  within  the  scope 
of  his  agency  is  the  knowledge  of  or  notice  to  the  bank  of  such  facts,  ap- 
plies when  questions  respecting  deposits  arise.  Thus  where  a  depositor 
notifies  the  receiving  teller  of  the  application  to  be  made  of  the  deposit 
such  notification  is  binding  on  the  bank,  as  the  transaction  with  the  teller 

88.  Agreement  as  to  effect  of  pay-  W.  1056;  Harrington  v.  McFarland,  1 
ment  by  obligor. — \\'here  the  president  Tex.  Civ.  App.  289,  21  S.  W.  116,  af- 
of  a  bank  accepted  a  payment  from  one  firmed  in  93  Tex.  66.3,  no  op. 
of  the  obligors  of  a  note  held  by  it,  gg.  Knowledge  obtained  in  perform- 
under  an  agreement  that  such  obligor  ance  of  duty.— Hager  v.  National  Ger- 
was  to  be  released  from  all  further  ha-  man-American  Bank,  105  Ga.  116,  31 
bility  thereon,  the  bank  was  chargeable  g     E     141 

with    the    knowledge    possessed    by    its  -g^;   ^^'-^^  ^^  ^^^^.^^  ^^  sue.-Bank 

president  of  the  character  of  this  trans-  ,^,    Mumford,  6  Ga.  44. 

action  where  the  president  v/as  acting  ._.'.,„ 

for   the  bank  and   had   no   interest   ad-  ^  91-    Want  of  notice  by  officer  as  evi- 

verse   to   it.     Merchants'   Xat.   Bank  v.  dence.— Drovers    Nat.   Bank  v.   Potvin, 

McAnulty    (Tex.   Civ.   App.),  31    S.   W.  ^^  Mich.  474,  74  N.  W.  724. 

1091.   afifirmed  in   part  and   reversed   in  92.      Excuse     rebutting     constructive 

part  in  89  Tex.  124,  citing  Traders'  Nat.  knowledge. — Central      Nat.      Bank      v. 

Bank  v.   Smith   (Tex.  Civ.  App.),  22   S.  Levin,  6   Mo.  App.  543. 


§  116  (3) 


REPRESEXTATIOX    OF    BANK. 


835 


is  binding  on  the  bank.^-'  Where  the  cashier  of  a  bank  has  notice  that  a 
deposit  is  a  married  woman's  separate  estate,  the  bank  is  chargeable  with 
such  notice  in  an  action  against  it  for  conversion  of  the  deposit.''-*  Where 
the  president  of  a  bank,  in  the  course  of  its  business,  learns  that  moneys 
deposited  with  it  in  the  depositor's  individual  account  belong  to  an  estate  of 
which  he  is  the  assignee  for  creditors,  the  bank  is  charged  with  notice  and 
can  not  appropriate  the  moneys  to  the  payment  of  notes  held  by  it,  and 
personally  made  by  the  depositor.^^  Where  the  president  of  a  bank,  at  the 
time  of  the  reception  of  a  check  for  deposit,  knew  that  it  had  been  given 
in  payment  to  a  curator  for  his  ward's  lands,  and  the  cashier  knew  that  the 
curator  and  the  drawer  of  the  check  were  on  a  trade  as  to  the  ward's 
lands,  such  facts  justify  an  inference  that  the  bank  knew  that  the  amount 
called  for  belonged  to  the  ward's  estate.^^  But  the  fact  that  the  president 
of  a  bank  knew  that  a  person  depositing  money  in  the  bank  on  account  of 
a  corporation  had  no  authority  to  draw  out  such  money,  if  he  had  no 
knowledge  that  the  depositor  intended  so  to  do,  where  the  depositor  after- 
wards withdrew  the  money,  without  the  knowledge  of  the  president,  the 
notice  to  the  president  was  not  such  notice  to  the  bank  as  to  render  it 
liable  for  the  loss  of  the  deposit.^"  When  the  cashier  of  a  bank  acts  as 
agent  for  the  depositor,  the  bank  is  not  bound  by  his  knowledge,  but  where 
he  is  acting  for  and  on  behalf  of  the  bank  the  bank  is  bound  therebv."*^     In 


93.  With  respect  to  deposits. — Straus 
v.  Tradesman's  Nat.  Bank,  122  N.  Y. 
379,  25  N.   E.   372. 

As  to  individual  interest  of  officer 
or  agent  as  aflfecting  knowledge  or  no- 
tice, see  ante,  "In  Genefal,"  §  116   (1). 

As  to  knowledge  or  notice  of  presi- 
dent, see  ante,  "In  General,"  §  116  (1). 

As  to  knowledge  or  notice  of  cash- 
ier,  see  ante,  "In   General,"  §   116   (1). 

As  to  individual  interest  as  affecting 
knowledge  or  notice,  see  ante,  "In 
General,"  §  116  (1);  post,  "Notice  of 
Officer's  Own  Fraud,"  §  116  (6);  "In- 
dividual Interest  of  Officer  or  Agent 
as  Affecting  Person  Dealing  with 
Bank,"  §   117. 

As  to  officer  or  agent  dealing  in  dual 
capacity,  see  ante,  "In  General,"  §  116 
(1);  post,  "Notice  of  Officer's  Own 
Fraud,"   §   116    (6). 

Where  the  depositor  of  a  certified 
check  notified  the  receiving  teller  of 
the  application  to  be  made  of  it,  evi- 
dence of  the  president  ol  the  bank  as 
to  when  he  first  heard  of  the  transac- 
tion is  immaterial,  as  the  transaction 
with  the  teller  will  of  itself  be  binding 
on  the  bank.  Straus  v.  Tradesman's 
Nat.  Bank,  122  N.  Y.  379,  25  N.  E.  372. 

94.  Knowledge  that  deposit  is  married 
woman's  separate  estate. — .\  complaint 
by  a  married  woman  against  a  bank  f(jr 
conversion,   alleging  that  plaintiff  sold 


her  separate  property,  placing  the  con- 
veyance with  defendant's  cashier  to 
deliver  on  payment  of  the  purchase 
money,  and  that  defendant,  through 
such  cashier,  collected  such  purchase 
money  and  placed  it  to  the  credit  of 
her  husband,  in  violation  of  the  agree- 
ment to  deposit  it  to  her  account,  states 
a  cause  of  action,  as  the  knowledge  ac- 
quired by  the  cashier  in  the  reception 
of  the  deposit  was  chargeable  to  the 
bank.  Rhinehart  f.  People's  Bank,  89 
Mo.  App.   511. 

95.  Notice  to  president  of  ownership 
of  deposit. — First  Xat.  Bank  :■.  IVi.stit 
(Pa.).  2   T'enny  ■::!. 

96.  Knowledge  as  to  ownership  of 
deposit. — Mayer  v.  Citizens  Bank,  SO 
Mo.   App.   422. 

97.  Mere  knowledge  that  depositor 
had  no  authority  to  draw  on  deposit. — 
Fulton  Bank  7\  .Vow  York,  etc.,  Caii.il 
Co.,    (N.    Y.),   4    I'aige   127. 

98.  When  cashier's  knowledge  binds 
bank. — WHicre  a  cashier  of  a  b.iiik,  ;ict- 
ing  as  a  special  agent  for  a  third  party, 
purchase  Ijonds  for  liim,  and  then,  as 
agent  of  the  bank,  receives  them  as  a 
special  deposit,  and  afterwards,  to  con- 
ceal certain  embezzlements  of  his  own, 
he,  without  tiie  knowledge  of  the  dc- 
positr)r  transfers  these  l)oii(!s  from  tlic 
special  deposit,  and  enters  thei.n  as  part 
of  the   assets   of   the    l)aiik    iiis   agency 


836 


BANKS    AND   BANKING. 


§  116  (3) 


order  to  prevent  the  title  to  a  deposit  vesting  in  the  bank  it  may  be  shown 
that  the  bank  had  notice  of  its  insolvency,  thereby  constituting  such  fraud 
as  will  enable  the  depositor  to  repudiate  the  deposit  and  reclaim  the  same  ;9» 
and  in  such  a  case  the  knowledge  of  the  cashier  as  to  its  hopeless  insolvency 
should  be  imputed  to  the  bank.^  This  question  of  knowledge  on  the  part 
of  the  officer  or  agent  of  a  bank,  being  imputed  to  the  bank  has  arisen  in 
various  and  different  kinds  of  cases,  some  more  favorable  to  the  bank, 
others  less  favorable,  yet  the  voice  of  the  authorities  seems  to  sustain  the 
general  rule  that  knowledge  or  notice  on  the  part  of  the  officer  or  agent 
of  the  bank  acting  within  the  scope  of  his  agency  is  binding  upon  the 
bank.- 


for  the  depositor  ceases  with  the  pur- 
chase. Throughout  the  remainder  of 
the  transaction  he  is  the  agent  of  the 
bank,  and  his  knowledge  of  the  de- 
positor's rights  is  notice  to  the  bank. 
The  bank  does  not  become  a  purchaser 
for  value  without  notice.  First  Nat. 
Bank  v.  Dunbar,  118  111.  625,  9  N.  E. 
186.  Followed  in  First  Nat.  Bank  v. 
Stran-    i:38   111.  :J47,  27  N.  E.  903. 

99.  Knowledge  of  insolvency.— Orme 
V.  Baker,  74  ().  St.  ;!:]7,  78  N.  E.  4:59. 
113  Am.  St.  Rep.  968;  Cragie  v.  Had- 
ley,  99  N.  Y.  131,  1  N.  E.  537,  52  Am. 
Rep.  9. 

1.  Cashier's  knowledge  imputed  to 
bank.— Orme  v.  Baker,  74  O.  St.  337, 
78  N.   E.  439,  113  Am.  St.  Rep.  968. 

Where  a  deposit  was  received  into 
a  bank  at  a  time  when  it  was  insolvent 
and  just  before  it  failed,  and  knowl- 
edge of  such  insolvency  was  known  to 
the  cashier  and  vice-president,  who 
Vv^ere  owners  of  more  than  half  of  the 
capital  stock  of  the  bank  and  caused 
its  insolvency  by  using  the  bank's  funds 
in  the  prosecution  of  outside  enter- 
prises, and  the  books  showed  their  en- 
tire course  of  dealing,  which  ware  open 
to  the  directors  and  all  officers  of  the 
bank,  the  knowledge  of  such  officers 
of  its  insolvency  was  the  knowledge 
of  the  bank.  Baker  v.  Orme,  6  O.  C. 
C,  N.  S.,  289,  17-27  O.  C.  D.  465,  af- 
firmed in  74   O.   St.   337. 

Where  a  director  of  a  l)anking  cor- 
poration as  its  cashier  was  placed  in 
control  and  made  the  active  manager 
of  the  business,  and,  during  the  last 
year  of  the  l^ank's  existence,  there  was 
no  meeting  of  the  directors,  and  dur- 
ing that  time  the  bank  became  hope- 
lessly insolvent  through  the  fraud  of 
the  cashier  and  its  vice-president,  v/ho 
was  a  director,  who,  both  being  insol- 
vent, used  the  funds  of  the  bank  for 
their  own  purposes  without  the  knowl- 
edge of  the  directors,  and  an  examina- 
tion   of  the  bank    at  any  time    within 


thirty  days  before  it  closed  would  have 
shown  its  insolvency,  and  on  the  last 
day  the  bank  v.-as  open  for  business  a 
customer,  being  ignorant  of  its  insol- 
vency, made  a  general  deposit,  which 
was  entered  on  his  pass  book  to  his 
credit,  but  was  not  entered  on  the 
books  of  the  bank,  and  the  cash  was 
mingled  with  other  funds  of  the  bank, 
and  two  days  before  the  deposit,  the 
cashier  and  the  vice-president  ab- 
sconded, leaving  persons  in  charge 
who  knew  the  bai^k  was  insolvent  ac- 
cording to  its  books,  and  on  the  second 
day  thereafter  a  receiver  took  posses- 
sion and  caused  the  cash  deposited  to 
be  entered  to  the  credit  of  the  deposi- 
tor, and  collected  the  amount  called 
for  by  the  checks  deposited,  the  knowl- 
edge of  the  cashier  as  to  its  insolvency 
should  be  imputed  to  the  bank.  Orme 
V.  Baker,  74  O.  St.  337,  78  N.  E.  439, 
113   Am.   St.    Rep.   968. 

2.  Orme  v.  Baker,  74  O.  St.  337,  78 
N.   E.  439,  113  Am.   St.   Rep.  968. 

"In  Smith  v.  Anderson,  57  Hun  72, 
10  N.  Y.  S.  278,  32  N.  Y.  St.  Rep.  5, 
the  plaintifif  delivered  monies  to  the 
president  of  a  iKink  to  be  deposited 
therein  and  the  latter  without  plain- 
tifif's  knowledge  or  consent,  deposited 
them  in  his  own  name  as  her  attorney, 
and  afterwards  unlawfully  appropriated 
a  large  part  thereof  to  his  own  use. 
It  was  held  that  the  bank  is  liable, 
since  it  is  charged  with  the  knowledge 
possessed  by  its  president.  On  page 
279  the  court  says  'if  Warner  (the 
president)  had  converted  the  money 
without  the  bank  having  received  it, 
or  v/it'hout  credit  being  given  on  its 
books,  it  would  not  be  liable.  But 
when  its  president  receives  funds  which 
go  into  the  bank,  it  is  chargeable  with 
all  the  knowledge  possessed  by  him; 
otherwise  those  dealing  with  banks 
would  be  without  remedy  in  case  of 
fraud  or  misappropriation  on  the  part 
of  its  president.'     And  on  page  280,  it 


§  116  (4) 


REPRESEINTATION    OF    BANK. 


837 


§  116   (4)  Notice  Received  in  Private  Business  or  Outside  Scope 
of   Duties.— Notice    or   Knowledge   Outside    Scope   of   Duties.— The 

general  rule  seems  to  be  that  notice  to  a  bank  ufticer  binds  the  bank  only 
when  it  is  the  duty  of  such  officer  to  act  on  the  information,  or  transmit 


is  said:  'the  bank  created  its  president, 
and  if,  through  his  fraud,  it  or  a  third 
person  must  suffer,  the  maxim  pro- 
tects the  customer.'  "  Orme  z'.  Baker, 
74  O.  St.  337,  78  N.  E.  439,  113  Am.  St. 
Rep.   968. 

"In  Black  Hills  Nat.  Bank  z'.  Kel- 
logg, 4  S.  Dak.  312.  50  N.  W.  1071,  the 
cashier  took  a  note  payable  to  himself, 
as  an  individual,  and  transferred  it  to 
the  bank  of  which  he  was  cashier.  It 
was  held  that  knowledge  of  the  cash- 
ier as  to  defenses  and  equities  exist- 
ing against  the  note  was  the  knowl- 
edge of  the  bank."  Orme  v.  Baker,  74 
O.  St.  337,  78  N.  E.  439,  113  Am.  St. 
Rep.  968. 

"In  Le  Due  v.  Moore,  111  N.  C.  516, 
15  S.  E.  888,  J.  had  executed  his  prom- 
issory note  to  M.,  the  president  of  a 
bank,  who  before  its  maturity  and  for 
value,  but  for  his  own  benefit,  in- 
dorsed the  note  over  to  the  bank.  The 
president  and  cashier  composed  the 
discount  committee  of  the  bank,  and 
the  president  participated  in  discount- 
ing the  note.  It  was  held,  that  the 
bank  took  the  note  subject  to  all  the 
equities  by  which  th6  president  as  an 
individual  was  bound,  the  presumption 
being  that  his  knowledge  was  the 
knowledge  of  the  bank."  Orme  f. 
Baker,  74  O.  St.  337,  78  N.  E.  439,  li:! 
Am.   St.    Rep.   968. 

"Of  like  import  is  Oak  Grove,  etc.. 
Cattle  Co.  V.  Foster,  7  N.  Mex.  650,  41 
Pac.  522.  In  Hardy  v.  First  Nat.  Bank, 
56  Kan.  493,  43  Pac.  1125,  it  appeared 
that  the  president  and  cashier,  respec- 
tively, of  a  bank,  were  part  owners  of 
a  note  sued  on  by  the  bank,  which  note 
v/as  taken  in  the  name  of  S.  by  the 
procurement  of  the  president  and  cash- 
ier, who  had  full  knowledge  of  the 
transaction  in  which  it  was  given.  It 
was  held,  that  the  endorsement  of  the 
rote  by  S.  without  recourse  did  not 
operate  to  transfer  it  to  the  bank  free 
from  defenses  existing  between  the 
original  parties  to  it."  Orme  v.  Baker, 
74  O.  St.  337,  78  N.  E.  439,  113  Am.  St. 
Rep.   968. 

The  same  principle  is  maintained  in 
City  Bank  v.  Phillips,  22  Mo.  85,  64 
Am.  Dec.  254;  Bank  v.  New  Milford, 
36  Conn.  93;  Orme  v.  Baker,  74  O.  St. 
337,  78  N.  E.  439,  113  Am.  St.  Rep.  968. 

"In  Loring  v.  Brodie,  134  Mass.  45:{, 
it  is  held  that  i''  tlic   cashier  of  a  bank 


receives  securities  on  a  loan  from  the 
bank  to  a  trustee,  with  knowledge  that 
the  securities  belong  to  a  trust,  the 
bank  is  affected  with  the  knowledge 
of  its  cashier,  and  is  put  upon  inquiry 
as  to  whether  the  trustee  has  authority 
to  pledge  the  securities."  Orme  v. 
Baker,  74  O.  St.  337,  78  N.  E.  439,  113 
Am.  St.^  Rep.  968. 

"In  I'armers',  etc..  Bank  z\  Loyd,  89 
Mo.  App.  262,  it  was  held  that  where 
a  bank  cashier  makes  purchase  of  a 
certificate  of  stock  as  such  cashier,  he 
acts  within  the  scope  of  his  authority 
and  the  knowledge  that  he  has  of  the 
condition  of  the  stock  must  be  imputed 
to  the  bank."  Orme  v.  Baker,  74  O.  St. 
337,  78  N.  E.  439,  113  Am.  St.  Rep.  968. 

"In  Baldwin  v.  Davis,  118  Iowa  36, 
91  N.  W.  778,  it  is  held  that  where  an 
agent  of  a  bank  has  notice  that  notes 
and  a  mortgage  securing  them  were 
without  consideration  and  fraudulent, 
the  bank  can  not  hold  the  notes  as 
collateral,  it  being  charged  with  the 
knowledge  of  its  agent.  See,  also. 
Bank  v.  Smith,  110  Tenn.  337,  75  S.  W. 
1065,  v/here  the  same  doctrine  is  ap- 
proved." Orme  v.  Baker,  74  O.  St. 
337,  78  N.  E.  439,  113  Am.  St.  Rep.  968. 

"Goshorn  v.  People's  Nat.  Bank,  33 
Ind.  App.  428,  69  N.  E.  185,  102  Am. 
St.  Rep.  248,  is  a  case  where  a  deposi- 
tor, desiring  to  withdraw  his  bank  de- 
posit and  commit  it  to  a  trust  com- 
pany, received  from  the  bank  cashier 
a  suggestion  as  to  a  particular  trust 
company,  and  drawing  a  ciieck  de- 
livered it  to  the  cashier,  witii  instruc- 
tions to  deposit  the  amount  named  with 
the  company  suggested.  Instead  of  do- 
ing so,  the  casliier  substituted  the  de- 
positor's money  for  paid  cliecks  of  Iiis 
own  on  tlic  bank  wliich  lie  was  carrying 
in  cash.  It  was  held  that  even  on  tlie 
theory  that  the  cashier  was  the  de- 
positor's agent  for  the  transmission  of 
the  fund,  the  bank  was  Iial)Ie  for  its  mis- 
appropriation, and  transaclion  amount- 
ing to  a  payment  of  tlie  deposi- 
tor's check  merely  with  the  evidences 
of  the  cashier's  indebtedness,  and 
the  hank  being  cognizant  of  the  fraud 
through  its  casliier."  Orme  r.  Baker, 
7  1  ().  St.  3;{7,  TS  \.  S.  •I3'.».  113  Am.  St. 
Kep.  968. 

"In  Martin  v.  Webb,  110  V.  S.  7,  28 
L.  lul.  19,  3  S.  Ct.  128,  it  was  ludd  that 
knowli'dge    of    the    president    of   ;i    l):iiik 


838 


BANKS    AND    BANKING. 


116    (4) 


it  to  the  bank. 3  When  several  agents  are  employed  by  a  bank  with  dis- 
tinct and  separate  duties,  the  knowledge  of  one  of  those  agents  of  the 
residence  of  an  indorser,  who  was  not  the  proper  agent  to  give  notice,  is 
not  the  knowledge  of  the  bank,  and  therefore  can  not  be  set  up  to  charge 
negligence  in  giving  notice.-*  Notice  of  facts  concerning  transactions  which 
it  is  the  duty  of  the  cashier  of  a  bank  to  conduct  is  not  binding  on  the 
bank  when  received  by  the  president  in  conducting  business  of  another 
company,  of  which  the  president  was  director,  and  which  business  was  in 
no  way  connected  with  the  bank.^  A  president  of  a  national  bank  has  no 
power,  in  the  ordinary  course  of  business,  to  certify  to  the  fidelity  or  in- 
tegrity of  the  cashier  for  the  purpose  of  enabling  him  to  procure  a  bond 
insuring  his  fidelity;  and  hence  the  bank  can  not  be  deemed,  merely  by 
virtue  of  the  president's  relation  to  it,  to  have  any  knowledge  of  the  giving 
by  him  of  such  certificate.*"'  Where  a  partner  sells  to  a  bank  of  which  he 
is  cashier  a  note  due  the  firm,  and  the  bank  acts  wholly  through  its  discount 
committee,  of  which  he  is  not  a  member,  it  is  not  aflfected  with  knowledge 
possessed  by  him  of  infirmities  in  the  note." 

Unofficial  Knowledge   or  Notice. — Some  of  the  authorities  maintain 
that  it  is  essential  that  the  knowledge  to  be  attributed  to  the  bank  should 


is  its  knowledge."  Orme  v.  Baker,  74 
O.  St.  337,  78  N.  E.  439,  113  Am.  St. 
Rep.    968. 

"In  Cragie  v.  Hadley,  99  N.  Y.  131, 
1  N.  E.  537,  52  Am.  Rep.  9,  the  court 
held  that  the  acceptance  of  a  deposit 
by  a  bank  irretrievably  insolvent,  con- 
stituted such  a  fraud  as  entitled  the 
depositor  to  reclaim  his  drafts  or  their 
proceeds."  Orme  v.  Baker,  74  O.  St. 
337,  78  N.  E.  439,  113  Am.  St.  Rep.  968. 

"Indeed  there  are  peculiar  and  ur- 
gent reasons  for  a  niore  stringent  en- 
forcement of  the  rule  against  corpora- 
tions than  against  individual  principals, 
from  the  fact  that  the  only  waj^  of 
communicating  actual  notice  to  a  cor- 
poration is  through  its  agents.  Fulton 
Rank  v.  New  York,  etc..  Canal  Co. 
(N.  Y.),  4  Paige's  ch.  127:  'A  corpora- 
tion can  not  see  or  know  anything  ex- 
cept by  the  eyes  and  intelligence  of  its 
officers.' "  Orme  v.  Baker,  74  O.  St. 
337,  78  N.  E.  43S,  113  Am.  St.  Rep.  968. 

3.  Notice  as  to  matters  without 
agent's  scope  of  duty. —  Fulton  Bank  v. 
New  York,  etc.,  Canal  Co.  (N.  Y.),  4 
Paige  127. 

As  to  notice  received  outside  scope 
of  official  duties,  see  ante,  "In  General," 
§  116  (1);  "In  Respect  to  Discounts 
and  Securities,"  §  116  (2);  "In  Respect 
to  Deposits,"  §  116  (3);  post,  "Notice 
to  Directors,"  §  116  (5). 

As  to  individual  interest  of  officer  or 
agent,  see  ante,  "In  General,"  §  116  (1^; 
post,  "Individual  Interest  of  Officer  or 


Agent  as  Affecting  Person  Dealing 
with  Bank,"  §  117. 

A  bank  is  not  chargeable  with  notice 
of  fraud  in  the  mception  of  a  note 
which  it  discounted  merely  because  its 
president  had  knowledge  of  the  facts, 
which  was  gained  by  him  in  his  capac- 
ity as  an  officer  of  another  corporation, 
where  he  had  nothing  to  do  with  the 
discounting  of  the  note,  and  had  no 
knowledge  of  it  at  the  time.  AlcCal- 
mont  V.  Lanning,  84  C.  C.  .\.  138,  3  54 
Fed.  353. 

The  fact  that  the  president  of  o  bank 
received  a  note  executed  by  a  depos- 
itor payable  at  the  bank  to  his  order 
under  an  agreement  to  hold  the  pro- 
ceeds for  the  benefit  of  a  charitable 
organization  did  not  give  the  bank 
notice  of  the  existence  of  the  note,  fo' 
the  bank  had  no  interest  in  the  dis- 
position of  the  depositor's  funds  in  its 
hands  but  was  a  mere  stake  holder, 
and  the  president  was  under  no  duty 
to  communicate  his  knowledge  to  the 
bank.  Organized  Cliarities  Ass'n  v. 
IMansfield.  82  Conn.  504.  74  Atl.  781. 

4.  Goodloe  v.  GoiJley  (Miss.),  13 
Smedes  &  M.  233,  51  Am.  Dec.  150. 

5.  Washington  Nat.  Bank  v.  Pierce, 
6  Wash.  491,  33  Pac.  972,  36  Am.  S^ 
Rep.   174. 

6.  American  Suretv  Co.  v.  Pauly,  170 
U.  S.  133.  42  L.  Ed.  977.  18  S.  Ct.  552, 
affirming  18  C.  C.  A.  644.  72  Fed.  470. 

7.  National  Bank  v.  Feeney,  9  S.  Dak. 
550,  70  N.  W.  874. 


§  116  (4) 


REPRESENTATION    OF    BANK. 


839 


have  been  acquired  by  its  officer  not  casually,  through  his  individual  rela- 
tions to  the  other  parties,  but  in  an  official  capacity;  and  because  of  a 
necessity  for  him  to  inquire  and  to  know  the  fact  on  behalf  of  the  bank.s 
Thus  it  is  held  that  knowledge  of  the  cashier  or  other  officer  of  a  bank, 
obtained  by  reason  of  his  interest,  and  connection  with  other  parties,  but 
not  obtained  in  the  performance  of  any  duty  he  owed  to  tiie  bank,  is  not 
notice  to  the  bank»  and  that  notice  acquired  by  the  president  in  a  private 
transaction   is   not  chargeable   to  the  bank.i«     Other  cases  hold  that  the 


8.  Merchants'  Nat.  Bank  v.  Clark,  139 
N.  Y.  314,  34  N.  E.  910,  36  Am.  St.  Rep. 
710;  Scott  V.  Choctaw  Bank  (Ala.),  59 
So.  184. 

Knowledge  acquired  by  officers  act- 
ing in  individual  capacity. — "On  tlie  is- 
sue as  to  notice  to  the  bank  of  vices 
in  the  note  when  it  was  negotiated, 
the  bank  requested  the  following 
charge,  to  wit:  'In  determining 
whether  or  not  the  plaintiff  had  knowl- 
edge of  the  defenses,  if  any,  of  the  de- 
fendant, H.  L.  Hall,  to  the  note  sued 
on  at  the  time  it  acquired  the  same, 
you  will  not  consider  any  knowledge 
or  information  that  may  have  some  to 
any  person  who  was  an  officer  or 
agent  of  the  plaintiff  at  a  time,  when 
he  was  not  engaged  in  the  plaintiff's 
business.  Knowledge  or  information 
derived  by  persons  who  occupied  the 
relation  of  officers  or  agents  of  the 
plaintiff  at  times  and  in  transactions 
when  and  where  they  were  acting  for 
themselves  individually  and  not  for  the 
plaintiff  would  not  be  binding  on  the 
plaintiff  or  affect  its  rights.'  This 
charge  embraces  a  correct  principle  of 
law  and  should  have  been  given.  Allen 
V.  Garrison,  92  Tex.  546,  50  S.  W.  335, 
affirmed  in  48  S.  W.  554;  Texas  Loan 
Agency  v.  Taylor,  88  Tex.  47,  29  S.  W. 
1057."  Grayson  County  Nat.  Bank  v. 
Hall  (Tex.  Civ.  App.),  91  S.  W.  807. 

To  charge  a  bank  discounting  a  note 
with  the  president's  knowledge  of  equi- 
ties between  the  parties,  it  is  neces- 
sary that  the  knowledge  should  have 
come  to  him  in  his  official  capacity. 
Merchants'  Nat.  Bank  v.  Clark.  139  X. 
Y.  314,  34  N.  E.  910,  36  Am.  St.  Rep. 
710. 

9.  Knowledge  obtained  when  acting 
in  his  own  interest. — National  Bank  v. 
Fitze,    76    :\Io.    App.    356. 

A  bank,  purchasing  a  note  subject  to 
certain  defenses  in  the  hands  of  the 
payee,  is  not  bound  by  the  knowledge 
or  information  of  such  defenses  that 
may  have  come  to  its  officers  at  a  time 
when  they  were  not  engaged  in  its 
business,  but  when  they  were  acting 
for    themselves    individually.      Grayson 


County  Nat.    Bank  v.   Hall    (Tex.   Civ. 
App.),  91   S.  W.  807. 

The  cashier  of  a  bank,  in  pledging 
stock  of  the  bank,  owned  by  him,  as 
security  for  a  personal  debt,  acts  in 
his  individual  capacity,  and  not  as  an 
officer  of  the  bank;  and  his  knowledge 
of  the  transaction  is  not  attributable 
to  the  bank  to  affect  the  validity  of  its 
statutory  lien  on  the  stock  as  security 
for  a  loan  subsequentl)^  made  him. 
Curtice  v.  Crawford  County  Bank,  110 
Fed.   830. 

10.  President's  private  transaction. 
— Smith  V.  Carmack  (Tenn.),  64  S.  W. 
372. 

A  bank  is  not  to  lie  charged  with 
notice  of  facts  of  which  its  president 
acquires  knowledge  while  dealing  in 
his  private  capacity  and  in  his  own  be- 
half with  third  persons;  nor  is  knowl- 
edge on  his  part  thus  acquired  im- 
putable to  the  bank  when,  acting 
through  another  official,  it  deals  with 
him  at  arm's  lengtli  as  with  any  other 
individual  representing  himself  alone. 
People's  Bank  v.  Exchange  Bank,  116 
Ga.  820,  43  S.  E.  269,  94  .\m.  St.  Rep. 
144. 

Notice  that  a  stockholder  in  a  bank 
has  pledged  his  stock  to  a  tliird  per- 
son, acquired  by  the  president,  who 
has  no  part  in  the  active  management 
of  the  bank's  business,  and  who  is  not 
at  the  time  acting  in  its  l)ehalf,  is  not 
notice  to  the  bank  which  will  affect 
its  statutory  lien  on  such  stock  for  a 
loan  subsequently  made  to  the  stock- 
holder without  the  president's  knowl- 
edge. Curtice  v.  Crawford  Count  v 
Bank,    110    Fed.    830. 

Instructions. — A  h.ink,  suing  upon  a 
note  held  hy  it,  rc(|ucsted  a  charge 
tliat  "in  (ietorminiiig  whether  or  not 
the  plaintiff  had  kiiowK'dge  of  the  de- 
fense, if  any,  of  defendant,"  the  jury 
should  not  '"consider  any  knowledge  or 
information  that  may  have  come  to 
any  person  who  was  an  officer  or 
agent  of  the  plaintiff  at  a  time  when 
he  was  not  engaged  in  the  plaintiff's 
business."  .Altliontrh  the  evidi-iice 
leiidcd  til  show  tliat  otjicr  ulViccrs  (if  the 


840 


BANKS   AND  BANKING. 


§  116  (4) 


principal  is  not  bound  by  such  unofficial  information  unless  it  is  present  to 
the  agent's  mind  at  the  time  of  the  transaction. ^^  Upon  the  question 
whether  a  principal  is  bound  by  knowledge  or  notice  which  his  agent  had 
previous  to  his  employment  in  the  service  of  the  principal,  the  authorities 
disagree.i2  The  negative  of  the  question  has  been  uniformly  maintained 
in  Pennsylvania  and  some  other  of  the  states.i^  \\h\\e  the  decisions  in 
other  states  maintain  that  the  better  rule  is  that  the  knowledge  of  an 
agent,  obtained  prior  to  his  employment  as  agent,  will  be  an  implied  or 
imputed  notice  to  the  principle,  under  certain  limitations  and  conditions, 
which  are  these:  the  knowledge  must  be  present  to  the  mind  of  the  agent 
when  acting  for  his  principal,  so  fully  in  his  mind  that  it  could  not  have 
been  at  the  time  forgotten  by  him;  the  knowledge  or  notice  must  be  of  a 
matter  so  material  to  the  transaction  as  to  make  it  the  agent's  duty  to 
communicate  the  fact  to  his  principal;  and  the  agent  must  himself  have  no 
personal  interest  in  the  matter  which  would  lead  him  to  conceal  his  knowl- 
edge from  his  principal,  but  must  be  at  liberty  to  communicate  it.^"*     How- 


bank  knew  of  the  whole  transaction, 
the  charge  only  related  to  the  knowl- 
edge of  the  bank's  president.  It  was 
held  that  this  charge  was  not  suffi- 
ciently comprehensive  to  cover  the 
knowledge  of  other  officers  and  did 
not  sufficiently  cover  the  cliarge  re- 
quested. Grayson  County  Nat.  Bank 
r.  Hall   (Tex.  Civ.  .\pp.),  91   S.  W.  807. 

11.  Unless  present  to  agent's  mind. — 
Campl)cll  t'.  First  Xat.  Bank,  22  Col. 
177,  43  Pac.  1007;  Armstrong  v.  .\b- 
bott,  11  Colo.  220,  17  Pac.  517. 

Whether  one  who,  at  different  times 
during  a  period  extending  from  three 
years"  down  to  ten  or  eleven  months 
prior  to  a  levy  of  a  writ  of  attachment 
in  a  suit  by  the  bank  of  which  he  was 
and  had  been  the  president,  had  been 
frequently  told  in  the  course  of  his 
private  business  of  a  third  ownership 
of  the  property  levied  on.  still  retained 
that  knowledge  at  the  time  the  at- 
tachment suit  was  begun,  is  a  question 
for  the  jury.  Campbell  z\  First  Nat. 
Bank,  22  Colo.  177,   43   Pac.   1007. 

"Whatever  knowledge  he  had  in  that 
respect,  although  acquired  in  his  indi- 
vidual capacity,  under  the  circum- 
stances of  this  case,  he  carried  over 
with  him  into  the  exercise  of  his  duties 
and  powers  as  cashier.  He  carries  it 
with  him  into  every  transaction  in 
which  the  bank  participated  through 
him.  Tn  re  Carew's  Estate,  2fi  Beav. 
39;  New  York,  etc.,  R.  Co.  r.  Schuyler, 
34  N.  Y.  30;  Holden  7'.  New  York,  etc.. 
Bank,  72  N.  Y.  280;  Loring  v.  Brodie, 
134  Mass.  4.")3."  Lowndes  r.  City  Xat. 
Bank.  82  Conn.  8.  72  Atl.  150. 

Notice  to  individuals  who  are  presi- 


dents of  l)anks  which  subsequently 
become  creditors  of  the  insolvent  cor- 
poration is  not  sufficient  to  charge 
the  liank  with  notice,  in  the  absence 
of  evidence  that  they  acted  for  the 
banks  in  extending  the  credit  to  the 
corporation  at  such  time  and  under 
sucii  circumstances  as  to  authorize 
the  inference  that  the  knowledge  form- 
erly acquired  was  still  present  before 
their  minds.  Mathis  z'.  Pridham,  1 
Tex.  Civ.  App.  58,  20  S.  W.  1015. 

Parties  can  not  be  required  to  store 
away  in  their  minds  all  facts  which 
ihey  learn,  so  as  to  be  able  to  call 
them  up  at  any  time  in  the  future  to 
afifect  other  tra^isactions  than  that  in 
which  the  knowledge  was  acquired. 
Such  information  has  not  the  char- 
acteristics of  notice  in  law.  unless  the 
transactions  affected  thereby  took  place 
under  such  circumstances  as  would 
lead  to  the  reasonable  conclusion  that 
the  fact  reported  was  still  remembered. 
Mathis  f.  Pridham.  1  Tex.  Civ.  .\pp. 
58.  20  S.  W.   !01.-). 

12.  Information  received  prior  to 
agency. — Fairfield  Sav.  Bank  z\  Chase, 
72  Me.  226.  39  Am.  Rep.  319. 

13.  Pennsylvania  rule. — Tn  the  late 
case  of  Housman  :•.  Girard  Mut.  Bldg., 
etc.,  Ass'n,  81  Penn.  256.  it  was  said 
that  notice  to  an  agent  twenty-four 
hours  before  the  relation  commenced 
is  no  more  notice  than  twenty-four 
hours  after  it  has  ceased  would  be. 

14.  Rule  imputing  knowledge  or  no- 
tice to  principal. — Fairfield  Sav.  Bank 
f.  Chase.  72  Me.  226.  39  Am.  Rep.  319. 

A  bank  taking  from  payees  notes  of 
third    persons    as   collateral    security   is 


§  116  (4) 


REPRESENTATION    OF    liANK. 


841 


not  charged  with  notice  of  the  under- 
standing between  the  payees  and  the 
makers  from  the  fact  that  one  of  the 
third  persons,  unconnected  with  the 
bank  when  the  notes  were  executed 
was  president  on  the  making  of  the 
loan.  Cooke  z\  Mesmer  (Cal.),  128 
Pac.  917.  See  Christie  v.  Sherwood, 
113  Cal.  526,  45  Pac.  820;  Wittenbock 
r.  Parker,  102  Cal.  92,  36  Pac.  374. 

A  trustee  of  a  bank,  who  was  also 
an  attorney,  had  actual  knowledge  of 
an  existing  unrecorded  deed  of  lands. 
With  that  knowledge,  he,  as  such  at- 
torney, afterwards  wrote  and  took  an 
acknowledgment  of  a  mortgage  on  the 
same  lands  from  the  same  grantor  to 
the  bank,  and  the  deed  was  recorded. 
Held,  that  the  bank  was  not  chargeable 
with  his  knowledge,  unless  the  fact 
wfas  in  his  mind  at  the  time,  nor  unless 
he  was  acting  for  the  bank  in  the  mak- 
ing of  the  mortgage.  Fairfield  Sav. 
Bank  v.  Chase,  72  Me.  226,  39  Am.  Rep. 
319. 

If  an  agent  receive  notice  while  he 
is  concerned  for  the  principal,  the 
principal  would  be  bound  by  it,  though 
the  agent  might  forget  the  facts,  and 
have  no  memory  of  them  during  the 
transaction  to  which  they  relate;  so, 
if  the  agent  receive  the  notice  before 
the  agency,  and  have  knowledge  at  the 
time  of  the  transaction;  but  it  would 
be  otherwise  if  he  have  notice  in  his 
own  transaction  l^efore  the  agency,  and 
have  forgotten  it  when  he  comes  to 
act  as  agent.  Union  Bank  z'.  Campl^ell, 
23  Tenn.   (4  Humph.)   394. 

"Again,  it  is  insisted  that  notice,  to 
have  been  effectual,  must  have  been 
conveyed  to  tlie  officers  of  the  bank 
while  they  were  acting,  and  although 
Mr.  Simpson,  with  other  officers  of  the 
bank,  may  have  known  beforehand  of 
Mrs.  Wolfe's  rights,  unless  they  had 
notice  at  the  time  of  executing  the 
mortgage,  it  would  be  of  no  avail  to 
her;  and  we  are  cited  to  4  Thomp. 
Corp.  §  5197.  It  is  true  that  this  dis- 
tinguished author  does  say  that  notice 
will  not  be  imputed  to  the  principal 
unless  the  knowledge  of  the  fact 
reaches  the  agent  while  acting  for  his 
principal,  either  generally,  or  with  ref- 
erence to  the  transaction  to  which  tlie 
notice  relates.  But  this  statement,  we 
take  it,  was  never  intended  by  the  au- 
thor to  apply  to  that  class  of  cases 
where  the  defendant  was  relying  upon 
the  doctrine  of  innocent  purchaser." 
Wolfe  V.  Citizens'  Bank  (Tenn.),  42  S. 
W.  39. 

"In  this  class  of  cases  it  can  cer- 
tainly make  no  difference,  if  the  agent 
who  was  acting  on  the  matter  in  hand 


had  knowledge  of  the  rights  of  third 
parties,  how  he  got  it,  or  when  it  was 
communicated.  The  class  of  cases  to 
which  the  doctrine  as  quoted  applies  is 
that  where  an  active  duty  is  imposed 
upon  persons  seeking  to  assert  rights 
to  give  a  notice.  The  doctrine  of  in- 
nocent purchaser  requires  for  its  main- 
tenance the  utmost  good  faith.  This 
could  not  exist  where  either  a  principal 
or  an  agent,  acting  upon  the  matter. 
has  either  actual  knowledge,  or  sufti- 
cient  to  put  him  upon  inquiry,  and  dis- 
regards tlie  rights  of  others  to  their 
loss.'  Wolfe  f.  Citizens'  Bank  (Tenn.), 
42  S.  W.  39. 

"But  this  question,  we  think,  is  con- 
clusively settled  in  this  state  in  tlie 
case  of  Tagg  z\  Tennessee  Nat.  Bank 
56  Tenn.  (9  Heisk.)  479.  and  Union 
Bank  v.  Campbell.  23  Tenn.  (4  Humph.) 
394.  In  the  case  of  Tagg  t'.  Bank.  Judge 
Freeman,  speaking  of  the  knowledge 
of  the  president  of  the  bank  as  to  a 
defect  in  a  note  discounted,  although 
tlie  knowledge  had  been  acquired  pre- 
vious to  the  transaction,  said.  "If  he 
fails  afterwards  to  communicate  his 
knowledge  when  acting  further  for  his 
principal,  his  principal  is  liound  as 
fully  as  if  the  communication  had  been 
actually  made.'  See,  also.  Bank  ?'.  Da- 
vis (N.  Y.),  2  Hill  451."  Wolfe  ::  Cit- 
izens' Bank   (Tenn.).  42  S.  W.  39. 

"In  the  case  of  Union  Bank  7".  Camp- 
bell, 23  Tenn.  (4  Humph.)  394.  Judge 
Green,  with  incisive  logic,  shows  how 
utterlv  futile  an  attempt  would  be  to 
estalilisli  notice  if  the  principal  con- 
tended for  in  that  case,  as  in  this,  could 
be  maintained.  And  he  says.  'The  ex- 
istence of  knowledge  in  an  agent  when 
acting  for  his  principal  is  notice  to  tlie 
principal,  however  thnt  knowledge  may 
have  l^een  acquired.'  "  Wolfe  r'.  Cit- 
izens' Bank  (N.  Y.).  42  S.  W.  39. 

In  a  suit  to  enforce  a  resulting  trust 
in  certain  land  alleged  to  have  been 
purchased  liy  one  of  the  defen<I;ints 
with  funds  lieloiiiiing  to  conn^lain.iiits. 
ihe  title  to  which  he  wrongfully  took 
in  himself,  and  which  lie  sul)scqnfntlv 
mortgaged  to  the  defeiulant  bank,  it 
appeared  from  the  testimony  of  one  of 
tlie  directors  of  the  bank  thai  he  un- 
derstood, from  Iiavimr  been  told  by 
the  mortgagor,  that  the  properly  in 
controversy  belonged  to  ciiini)Iainniils. 
but  that  he  did  not  know  at  the  linu" 
on  what  property  the  ni<»rtnago  was  to 
be  given.  It  also  ap])carcd  from  the  tes- 
limonv  of  the  president  and  cashier 
that  the  loan  in  question  was  discussed 
and  passed  upon  by  the  directors,  tliat 
it  was  understood  that  the  deed  of 
trust   was   to   be   given   on   'he  properly 


842 


BANKS   AND  BANKING. 


§  116  (4) 


ever,  additional  modifications  might  be  required  in  some  cases.^^  Where 
these  evidences  appear  it  seems  just  to  say  that  such  previous  knowledge 
on  the  part  of  the  agent  constitutes  a  present  knowledge  on  the  part  of 
the  principal.  The  presumption  that  an  agent  will  do  what  it  is  his  right 
and  duty  to  do,  having  no  personal  motive  or  interest  to  do  the  contrary, 
is  so  strong  that  the  law  does  not  allow  it  to  be  denied.  There  may  be 
instances  where  this  rule  operates  harshly,  but  under  the  other  rule  pre- 
viously stated  any  fraud  can  be  easily  perpetrated. ^^  Of  course  the  knowl- 
edge must  be  that  of  the  principal  who  is  executing  some  agency,  and 
not  acting  merely  in  some  ministerial  capacity  as  servant  or  clerk.^'^  Although 
it  be  conceded  that  an  officer  of  a  bank  may  have  dealings  altogether  inde- 
pendent of  his  connection  with  the  bank  and  that  the  bank  will  not  be  af- 
fected thereby, 1^  yet  a  bank  can  not  receive  the  proceeds  of  a  fund  in  pay- 
ment of  a  debt  due  it,  the  diversion  and  its  reception  of  the  funds  being 
the  result  of  the  action  of  its  officer  or  agent,  and  then  hold  the  fund  against 
the  person  justly  entitled  to  it,  because  of  an  averment  of  the  corporation 
that  it  did  not  know  that  its  debtor  was  paying  the  proceeds  of  such  a  fund, 
or  because  its  receiving  officer  did  not  know  from  what  source  its  debtor 
got  the  money  he  paid  to  it.^'*  The  knowledge  of  officers  of  a  bank,  that 
a  firm,  of  which  they  are  also  members,  is  insolvent,  is  imputable  to  the 


in  controversy  and  other  property,  and 
tliat  they  knew  that  complainants  were 
occupyint^  sucli  property  as  their  home, 
and  understood  that  it  had  been  fur- 
nished them  by  the  mortgagor,  and 
that  the  title  was  in  him.  Held  suffi- 
cient to  put  the  bank  on  inquiry,  and 
to  affect  it  with  notice  of  complain- 
ants' rights.  Wolfe  v.  Citizens'  Bank 
(N.  Y.).  42  S.  W.  39. 

Question  of  fact. — It  is  for  the  jury 
to  say.  wlien  the  knowledge  of  fact  had 
been  communicated  previous  to  the 
agency,  whether,  in  view  of  all  the  cir- 
cumstances, it  was  reasonably  to  be  in- 
ferred tliat  the  fact  was  remembered, 
and  the  knowledge  still  existed.  Union 
Bank  v.  Campbell.  23  Tenn.  (4  Humph.) 
394. 

15.  Additional  modifications. — Fair- 
field Sav.  Bank  v.  Chase.  72  Me.  220, 
39  Am.   Rep.  319. 

16.  Fairfield  Sav.  Bank  v.  Chase,  72 
Me.  226,  39  Am.  Rep.  319. 

17.  Fairfield  Sav.  Bank  v.  Chase,  72 
Me.  226.  39  Am.  Rep.  319. 

18.  Hughes  V.  Settle  (Tenn.),  36  S. 
W.  577. 

19.  Hughes  V.  Settle  (Tenn.),  36  S. 
W.   577. 

Where  an  agent  of  an  undisclosed 
principal,  holding  bonds  as  collateral, 
with  notice  that,  subject  to  such  pledge, 
they    have     been     transferred     as     col- 


lateral to  another,  surrenders  them  to 
ihe  pledgor,  who,  from  proceeds  ob- 
tained from  a  sale  thereof,  pays  a  debt 
to  a  bank  of  which  such  agent  is  presi- 
dent, having  been  urged  by  such 
president  to  make  a  payment,  the  bank 
will  be  liable,  for  the  money  so  re- 
ceived, to  the  one  having  the  secondary 
rights  in  the  bonds  as  security;  the 
president,  and  through  him  the  bank, 
being  charged  with  notice  how  the 
money  was  obtained.  Hughes  v.  Set- 
tle  (Tenn.).  36  S.  W.  577. 

The  cashier  having  drawn  checks 
against  his  personal  account,  certifying 
them  himself,  and  subsequently  having 
drawn  checks  against  an  estate's  ac- 
count, of  which  he  was  administrator, 
payable  to  his  personal  account,  to 
meet  the  other  ciiecks,  the  sum  being 
subsequently  used  to  take  up  the  cer- 
tified checks,  the  bank  benefited  to  the 
amount  of  the  certified  checks  made 
good  and  was  lialde  therefor  to  the 
estate,  though  the  certification  was  not 
binding.  Lowndes  v.  City  Nat.  Bank, 
82  Conn.  8,  72  Atl.  150. 

It  was  not  liable  for  the  amount  of 
a  check  drawn  on  the  estate's  account 
by  the  cashier  as  administrator  to  him 
individually,  where  it  did  ^  not  appear 
for  what  the  money  was  used,  since  the 
check  was  not  irregular  on  its  face. 
Lowndes  t-.  City  Xat.  Bank,  82  Conn. 
8.  72  Atl.  150. 


116  (5) 


REPRESENTATION    OF    BANK. 


843 


bank,  where  such  firm  has  made  an  assignment  to  the  bank.^'^ 

§  116  (5)  Notice  to  Directors.— Notice  to  Directors  as  Officials. 
—Knowledge  of  a  material  fact  communicated  by  a  bank  director  to  the  board 
at  a  regular  meeting  is  notice  to  the  bank.^i  Where  the  directors  of  a 
bank  were  informed  of  all  facts  essential  to  put  them  upon  notice  that 
collateral  upon  which  they  were  making  a  loan  was  held  by  the  party 
pledging  it  in  a  trust  capacity,  this  was  the  knowledge  of  the  bank  and 
the  trust  property  could  be  followed  into  the  hands  of  the  bank  and  re- 
covered.22  If  a  director  knows  of  fraud  or  illegality  in  the  inception  of  a 
note  discounted  by  his  bank,  the  bank  can  not  recover  thereon,  it  he  acted 
for  the  bank  in  discounting  the  note.^^ 

Effect  of  Entire  Change  of  Personnel  of  Board.— Notice  to  the  board 
of  directors  of  a  bank  that  certain  stock  of  the  bank  is  held  in  trust  is 
notice  of  the  trust  to  a  subsequent  board  of  directors,  and  binding  on  the 
bank.--' 

Knowledge  While  Acting  as  Director— Duty  to  Communicate.— 

Wliere  a  director  acts  for  his  bank  in  a  business  transaction,  either  indi- 
vidually or  as  a  member  of  the  board  of  directors,  knowledge  which  he 
may  have  obtained  in  relation  thereto  is  binding  upon  and  imputable  to 
the  bank,  as  the  director  is  bound  to  communicate  such  knowledge  to  Ins 
bank.^-'i     Notice  to  the  director  of  a  bank  of  facts  afifecting  the  character 


20.  Officers  members  of  insolvent 
firm. — An  insolvent  firm,  two  memhcr.s 
of  which  were  president  and  cashier  of 
a  bank,  on  the  eve  of  bankruptcy  con- 
veyed their  bank  stock  to  the  bank,  in 
pursuance  of  a  prior  verbal  hypothe- 
cation. An  action  was  brought  by  the 
receiver  of  the  firm  to  set  aside  the 
transfer.  Held,  that  the  knowledge  of 
the  officers  of  the  insolvency  of  tlieir 
firm  was  the  knowledge  of  the  bank. 
Nisbit  z'.  ^lacon  Bank,  etc.,  Co.,  12  Fed. 
686,  4  Woods  464. 

21.  Knowledge  communicated  by  di- 
rector to  board.— Bank  r.  Whitehead 
(Pa.),   10  Watts  397,   36   Am.   Dec.   186. 

22.  Smith  v.  Ayer,  101  U.  S.  320,  25 
L.   Ed.  955. 

A  subsequent  board  of  directors  of 
a  bank  is  to  be  considered  as  knowing 
all  the  circumstances  communicated, 
or  known,  to  a  previous  board.  Me- 
chanics' Bank  v.  Seton  (U.  S.),  1  Pet. 
299,  7  L.  Ed.  152.  See  post,  "Bank's 
Lien,"  V,  G,  2. 

23.  National  Security  Bank  v.  Cush- 
man,  121   ]\Iass.  490. 

24.  Effect  of  change  of  personnel  of 
board. — Mechanics'  Bank  v.  Seton  (U. 
S.),  1    Pet.  299,  7   L.   Ed.   152. 

A  suljsequent  board  of  directors  of 
a  bank  is  to  be  considered  as  knowing 
all     the     circumstances     communicated 


or  known  to  a  previous  board.  Me- 
chanics' Bank  z:  Seton  (V.  S  >,  1  Pet. 
299.  7    L.    r-M.    152. 

25.  Knowledge  obtained  while  acting 
as  director — Duty  to  communicate. — 
Union  Bank  ;■.  Campl)ell,  2.'!  Ti'mi.  (  4 
Humph.)  394;  Bank  z:  Rhea  (Tonn.), 
59   S.  W.  442. 

In  an  action  by  a  bank  on  a  note, 
against  accommodation  indorsers,  it 
appeared  that  one  K.,  a  director  ot  the 
bank,  drew  the  notes,  and  procured  de- 
fendant's indorsement,  and  that  he 
agreed  with  them  that  a  certain  other 
person  should  also  indor.>;e  tlie  iioje. 
One  witness  testified,  witliout  ol\iec- 
tion,  tliat,  so  far  as  he  knew,  K.  was 
the  l)ank's  counsel.  Plaintiff  gave  4io 
proof  on  the  subject  of  K.'s  agency. 
Held,  that  the  evidence  was  sulYicient 
to  show  that  notice  to  K.  was  notice 
to  the  bank  of  the  agreement  to  pro- 
cure such  additional  indorser.  Twenty- 
Sixth  Ward  B.ank  z:  Steam's,  14S  \.  \'. 
515,  42  X.  E.  1050,  atVirniing  7  Misc. 
Rep.  270.  27  X.  V.  S.  «8.1. 

Where  the  principal  directors  of  a 
l)ank  are  also  directors  of  a  corjxiratio'i 
whose  property  is  heavily  mortgagee! 
to  the  bank,  tlie  bank  sin  uld  he  held 
to  have  notice  that  fixtures  of  consiil- 
eral)le  value  covered  l)y  the  uiortgaKC 
were    not    paid    for,    and    were    lioiight 


844 


BANKS   AND   BANKING. 


§  116  (5) 


of  negotiable  paper  taken  by  the  bank  is  notice  to  the  bank,  where  the 
director  is  present,  as  a  director,  at  a  meeting  when  the  note  is  offered  for 
discount  and  received.-^  So  where  notice  of  the  dissokition  of  a  firm  is 
communicated  to  a  bank  director  for  the  purpose  of  being  communicated 
to  the  board  of  directors,  or  where  he  is  called  upon  to  act  as  a  director 
in  a  transaction  affecting  the  interests  of  the  members  of  the  dissolved  firm, 
he  is  bound  to  communicate  that  knowledge  to  the  bank,  and,  if  he  do  not, 
the  bank  is  by  law  charged  with  notice  of  the  facts  so  withheld.-" 

Knowledge  of  Director  as  Individual. — Notice  to  a  director  of  a  bank 
as  an  individual,  and  not  acting  as  such  director,  can  not  operate  to  the 
prejudice  of  the  bank.-'*     Knowledge  obtained  by  him,  while  not  engaged 


under  a  conditional  contract  providinp^ 
title  should  remain  in  the  seller  till 
paid  for  in  full.  State  Bank  z:  Fish 
(Sup.),   120   X.   Y.   S.  365. 

Where  a  director  of  a  bank,  which 
purchases  an  order  assigning  the  prof- 
its of  a  county  contract,  knows  that 
the  maker  received  no  consideration 
therefor,  the  bank  is  chargeable  with 
notice  thereof,  which  will  prevent  a 
recovery  from  the  maker.  P>ank  f. 
Rhea  (tenn.).  .59  S.  W.  442. 

Evidence  insufficient  to  show  di- 
rector acting  for  bank. — At  the  trial 
of  an  action  by  the  assignee  of  an  in- 
solvent corporation  to  recover  from  a 
bank  as  an  unlawful  preference  a  pay- 
ment upon  a  note  of  the  insolvent  cor- 
poration, indorsed  by  one  R.,  it  ap- 
peared that  R.  was  president  of  the  in- 
solvent corporation  and  one  of  its 
active  managers,  and  was  also  a 
director  of  the  defendant  bank,  and, 
with  the  treasurer  of  the  insolvent  cor- 
poration, conducted  the  transactions 
relied  upon  to  constitute  the  prefer- 
ence. Held,  that  there  was  no  suffi- 
cient evidence  that  R.  was  acting  in 
l^ehalf  of  the  bank  in  any  of  these 
transactions.  Clarke  v.  Second  Nat. 
Bank,  177  Mass.  257,  59  N.  E.  121. 

26.  Director  present  as  director 
when  note  is  received. — Clerks'  Sav. 
Bank  t'.  Thomas,  2  Mo.  App.  3G7. 

27.  Notice  of  dissolution. — The  knowl- 
edge of  two  of  tlie  directors  of  a  bank 
of  the  dissolution  of  a  firm  was  held 
to  be  knowledge  of  the  bank,  although 
not  communicated  in  the  discount  of 
a  note  by  the  lioard  of  directors,  one 
of  the  directors  having  knowledge 
participating  in  the  act,  and  the  other 
only  retiring  because  he  was  interested 
in  the  proceeds  of  the  note,  so  as  to  re- 
lease one  of  the  late  partners  from  lia- 
bility on  an  endorsement  of  the  firm 
name  l)y  the  other  partner,  the  firm 
having  had  such  dealings  with  the  bank 


as  to  render  direct  notice  of  the  dis- 
solution necessary.  Union  Bank  v. 
Campbell,  23  Tenn.  (4  Humph.)  394. 
The  al)Ove  case  is  cited  in  Bank  v.  Rhea 
(Tenn.),  50  S.  W.  442,  to  a  similar 
proposition. 

28.  Notice  to  director  as  individual. 
— \\'estrteld  Bank  z\  Cornen,  37  X.  Y. 
320.  93  Am.  Dec.  573;  Continental  Nat. 
Bank  z:  :\IcGeoch,  92  Wis.  286,  66  N. 
W.  606;  Clarke  v.  Second  Nat.  Bank, 
177  Mass.  257,  59  N.  E.  121;  Holm  z: 
Atlas  Nat.  Bank,  28  C.  C.  A.  297,  84 
Fed.  119. 

As  to  information  received  in  private 
business,  etc.,  see  ante,  "Notice  Re- 
ceived in  Private  Business  or  Outside 
Scope  of  Duties,"  §  116  (4). 

The  knowledge  of  a  director  of  a 
bank,  as  to  the  object  for  which  cer- 
tain bills  of  exchange  were  delivered 
to  a  party  applying  to  the  bank  for  a 
discount  thereof,  such  director  not  be- 
ing present  at  the  meeting  of  the  di- 
rectors at  which  such  application  was 
made  and  such  bills  discounted,  and 
not  having  coinmunicated  his  knowl- 
edge to  any  other  director  or  officer 
of  the  bank,  is  not  to  be  regarded  as 
notice  to  the  bank.  Farmers',  etc.. 
Bank  z:  Payne,  25  Conn.  444,  68  Am. 
Dec.  362. 

Knowledge  of  a  director  of  a  bank 
that  a  grantee  holds  land  as  trustee  is 
not  notice  to  the  bank.  Home,  etc., 
Sav.  Bank  v.  Peoria  Agricultural,  etc., 
Soc,  206  111.  9,  69  N.  E;  17,  99  Am.  St. 
Rep.   132. 

Where  one  of  the  directors  of  a 
bank  obtained  possession  of  a  note  un- 
der the  pretense  of  getting  it  dis- 
counted for  the  maker,  and  pledged  it 
to  the  bank  for  a  loan  to  himself,  and 
to  secure  a  prior  existing  debt  due 
from  such  director,  it  was  held  that, 
as  he  did  not  act  in  his  capacity  of  a 
director  in  procuring  the  discount  and 
making   the   pledge,   the   l)ank   was   not 


§  116  (5) 


REPRESENTATION    OF    BANK. 


845 


either  officially  or  as  an  agent  or  attorney  in  the  business  of  the  bank,  can 
not  bind  the  bank ;-»  otherwise,  corporations  would  incur  the  same  lia- 
bility  for  the  unofficial  acts  of  directors  that  partnerships  do  for  the  acts 
of  partners,  which  would  end  in  extraordinary  confusion  of  the  corporate 
business  and  create  hazards.^o  Where  he  'is  not  acting  for  the  bank 
and  is  not  an  organ  of  communication  with  the  corporation  though 
he  is  present  when  the  corporate  act  is  afterwards  done,  which  is  soug'lit 
to  be  affected  by  the  notice,  notice  to  him  can  not  be  imimted  to  the 
bank.->i  Hence  notice  of  the  dissolution  of  a  firm  with  which  a  bank 
has  business  relations,  where  published  in  a  newsi)aper.  and  accidentally 
reaching  a  director,  who  has  no  power  to  act  for  the  bank  except 
in  conjunction  with  others,  is  not  equivalent  to  actual  notice  to  the 
bank.32  The  fact  that  one  who  recommends  to  the  managing  officers  of  a 
bank  to  discount  certain  negotiable  paper  is  a  director  of  the  bank  does  not 


affected  by  his  knowledge  of  the  cir- 
cumstances under  which  he  received 
the  note,  and  might  recover  against 
the  maker  the  amount  of  the  whole 
note,  provided  it  did  not  exceed  the 
amount  of  the  money  advanced  and 
the  prior  debt.  Washington  Bank  v. 
Lewis   (Mass.).  22  Pick.  24. 

Notice  to  a  director  of  a  banking 
corporation  privately,  or  acquired  by 
him  generally  through  channels  open 
to  all  persons,  and  which  he  does  not 
communicate  to  his  associates  in  the 
management  of  the  corporation,  is  not 
binding  on  the  name.  Black  v.  First 
Xat.   Bank,  96  Md.  399,  54  Atl.  88. 

Notice  to  a  bank  director,  or  knowl- 
edge obtained  by  him  while  officially 
not  engaged  in  the  business  of  the 
bank,  will  not  affect  the  bank.  Bank 
V.  Davis  (N.  Y.),  2  Hill  451. 

Where  the  payee  of  a  note  happens 
to  be  a  director  of  the  bank  that  dis- 
counts the  note  for  his  benefit,  with- 
out notice  of  the  maker's  claim  for  re- 
coupment, the  bank  can  recover  as  an 
innocent  bona  fide  holder  without  no- 
tice. The  private  knowledge  or  an  of- 
ficer is  not  the  knowledge  of  the  bank. 
Loomis,  etc.,  Co.  7'.  Kagle  Bank,  1 
Disn.  285,   12   O.   Dec.  025. 

29.  Unofficial  information  or  notice. 
— Fairfield  Sav.  Bank  v.  Chase.  72  Me. 
226,  39  Am.   Rep.  319. 

Notice  to  a  director  and  stockholder 
of  a  bank,  who  was  not  an  office^,  con- 
cerning the  character  of  paper  held  hy 
it,  is  not  notice  to  the  bank.  Murpliy 
T'.  Gumaer,  12  Colo.  .'\pp.  472,  55  Pac. 
951. 

In  an  action  hy  the  receiver  of  a  cor- 
poration which  had  deposited  money 
with  a  trust  company,  organized  under 
the    l)anking   law,    sul)jcct    to    i)ayment 


on  checks  signed  by  the  president  and 
treasurer  of  the  corporation,  for  the 
deposit  paid  by  the  trust  company  on 
forged  checks,  a  conversation  with  a 
director  of  the  trust  company  and  a 
member  of  its  executive  committee  and 
one  of  the  regular  attorneys  for  the 
company,  importing  notice  to  him  of 
the  payment  by  the  trust  company  of 
the  deposit  on  forged  checks,  was  in- 
competent to  bind  the  company  in  ab- 
sence of  a  showing  that  the  director 
acted  for  the  company  in  the  matter 
or  communicated  the  information  to 
the  company.  Shattuck  z:  Guardian 
Trust  Co.,  145  .App.  Div.  734,  130  X.  V 
S.  658. 

30.  Fairfield  Sav.  Bank  z:  Chase.  72 
-Me.   226.   39   Am.    Rep.   319. 

-An  oil-dealing  firm  made  K.  an  at- 
torney in  fact  to  make  and  indorse 
notes  in  conducting  its  l)usiness.  D.. 
who  was  factor  for  the  firm,  drew  a 
note  for  his  own  accomniodatiim  to 
the  order  of  the  firm,  which,  witliout 
the  knowledge  of  either  of  the  firm, 
was  indorsed  in  the  firm  name  hy  K.. 
and  discounted  by  an  unincorp<  rated 
hanking  association  in  wliicli  1).  was 
a  stockholder,  and  wiiich  liad  dis- 
counted business  paper  of  the  tirm  for 
him.  Held  tiiat,  D.,  being  a  ]Kirtncr 
in  the  bank,  it  was  ufit  a  l)ona  fide 
liolder  of  the  note,  protected  against 
D.'s  improper  use  of  it.  Stockdale  r. 
Keyes   Bros.,  79   Pa.  251. 

31.  Presence  of  director  immaterial. 
—  Custer  ?'.  'l^  inipkiiis  ("omit\-  I'.iiik, 
9   I 'a.  27. 

32.  Notice  of  dissolution  of  firm 
transacting;  business  with  bank.  Xa- 
tional    liank   ;■.    Xorton    (X.    \.).    I    Hill 


846  BANKS  AND   BANKING.  §    116    (5) 

charge  the  bank  with  knowledge  which  the  director  possessed.^^  The  mere 
fact  that  a  director  knew  of  fraud  or  illegality  in  the  inception  of  a  note 
discounted  by  his  bank  will  not  prevent  the  bank  from  recovering  thereon, 
where  he  does  not  act  for  the  bank  in  the  discounting.^^  So  if  a  note  is 
discounted  by  a  bank,  at  the  instance  of  a  director,  who  knows,  but  fails  to 
disclose,  a  condition  on  which  it  was  given,  the  bank  will  not  be  considered 
cognizant  of  the  condition.^^  When  a  bank  deals  with  a  mortgagor  on  the 
faith  of  his  apparent  title,  a  private  knowledge  of  its  simulation  in  two  of 
the  directors,  who  are  not  clothed  with  any  special  authority  in  the  premises, 
and  who  constitute  a  small  minority  of  the  whole  number,  which  knowl- 
edge was  undisclosed  to  the  board,  can  not  destroy  the  rights  of  the  corpo- 
ration as  a  bona  fide  mortgagee.^^ 

Dual  Capacity  of  Director. — Where  a  director  of  a  bank  is  a  member 
of  a  firm  discounting  a  note  at  the  bank,  his  knowledge  in  respect  to  the 
note,  not  actually  communicated  to  other  officers  or  directors,  does  not 
charge  the  bank.^'"  The  fact  that  a  bank  director  is  also  a  director  in  a 
corporation  discounting  a  note  is  not  notice  to  the  bank  of  equities  between 
the  parties.-'^s  Where  a  bank  director  is  also  president  of  a  railroad  com- 
pany, his  knowledge,  in  respect  to  notes  discounted  at  the  bank  by  the 
railroad  company,  is  not  chargeable  to  the  bank,  where  he  refused  to  take 
any  part  in  the  proceedings  of  the  discount  committee. ^^ 

Individual  Interest  of  Director, — \\here  a  director  deals  with  his 
bank  in  behalf  of  his  individual  interest,  the  bank  is  not  charged  with  the 
director's  knowledge  in  regard  to  matters  relating  to  the  transaction,-**^  even 

33.  Effect  of  recommendation  by  di-  39.  Refusal  to  take  part  in  proceed- 
rector. — Shaw  z\  Clark.  49  Mich.  3S4,  ings  of  discount  committee. — Waynes- 
13  N.  W.  786.  43  Am.  Rep.  474.                       ville    Xat.    Bank   r.    Irons.   8   Fed.    1. 

34.  National  Security  Bank  z:  Cush-  40.  Individual  interest  of  director, — 
man,  121   Mass.  490.                                            Innerarity    v.    Merchants'    Nat.    Bank, 

A    bank    discounting    a    note    before  139  Mass.  332,  1  N.  E.  282,  52  Am.  Rep. 

maturity  is  not  chargeable  with  knowl-  710. 

edge    of   illegality   or   want    of    consid-  As  to  individual  interest  as  affecting 

eration   acquired   by   one   of  its   direct-  knowledge    or    notice,    see    ante,    "In 

ors   in   other  than  his   official  capacity,  General."'    §    116    (l);    "In    Respect    to 

if    such    director    did  not    act  with    the  Discounts    and    Securities,"    §    116    (2); 

board   in    making   the    discount.      First  "In  Respect  to  Deposits,"  §  116   (3). 
Nat.   Bank  ?•.   Christopher,  40  N.  J.  L.  As    to    a    director's    own    fraud,    see 

435.  29  Am.  Rep.  262.  post.  "Notice  of  Officer's  Own  Fraud," 

35.  Failure    of    director   to    disclose  §    116    (6). 

knowledge. — Louisiana    State    Bank    v.  As   to  individual   interest  of  director 

Senecal.  13  La.  525.  as  affecting  person  dealing  with  bank, 

36.  Undisclosed  knowledge  of  two  see  post,  "Individual  Interest  of  Of- 
directors  with  no  special  authority. —  ficer  or  Agent  as  Affecting  Person 
Mercier  7\  Canonge.  8  La.  Ann.  37.  Dealing  with  Bank,''  §  117. 

37.  Director  member  of  both  firm  Notice  or  knowledge  of  failure  of 
and  bank. — First  Nat.  Bank  <:•.  Christo-  consideration  of  a  negotiable  note, 
pher,  40  N.  J.  L.  435,  29  Am.  Rep.  262;  which  the  director  of  a  bank  sells  to 
Atlantic  State  Bank  v.  Savery,  82  N.  it  before  the  maturity  of  the  paper,  is 
Y.  291.  not    imputable    to    the    bank,    when    in 

38.  Dual  capacity  of  director, —  the  transaction  the  seller  did  not  act 
Casco  Nat.  Bank  z'.  Clark,  139  N.  Y.  for  it  at  all,  but  exclusively  for  him- 
307,  34  N.  E.  908.  36  .^m.  St.  Rep.  705,  self,  and  the  bank  was  represented  by 
affirming  64  Hun  634,  18  N.  Y.  S.  887.  another    of    its     officials,      who      alone 


§  116  (5) 


REPRESENTATION    OF    BANK. 


84; 


though  the  director  is  present  when  the  board  of  directors  passes  on  the 
transaction. "^i  Where  a  bank  discounts  a  note  for  a  director,  he  not  being 
present,  it  is  not  charged  with  his  knowledge  of  antecedent  illegalities.^ - 
So  where  a  director  is  interested  in  protecting  his  own  title,  his  knowledge 
in  regard  to  matters  relating  thereto,  which  he  has  not  disclosed  to  the 
board  of  directors,  is  not  notice  to  the  bank.'*^  A  bank,  when  making  a 
loan,  is  not  chargeable  with  notice  of  a  fact  because  it  is  known  to  two 
of  its  directors,  when  they  do  not  act  for  it  in  the  transaction,  but,  on  the 
contrary,  act  for  the  borrower,  and  are  indorsers  on  the  note.^-*     The  cir- 


acted  for  it.  English-American  Loan, 
etc.,  Co.  V.  Hiers,  112  Ga.  823,  38  S. 
E.    103. 

Where  the  director  of  a  bank  pre- 
sented a  note  as  an  applicant  for  dis- 
count, and  did  not  act  officially  with 
the  other  members  in  deciding  whether 
it  should  be  discounted,  his  knowledge 
is  not  to  be  regarded  as  notice  to  the 
bank.  Frost  v.  Belmont  (Mass.),  6 
Allen  152. 

That  a  borrower  was  officially  con- 
nected with  a  bank  as  director  is  in- 
sufficient to  charge  it  with  notice  of 
his  fraudulent  purposes  in  negotiating 
a  loan.  Southern  Commercial  Sav. 
Bank  v.  Slattery,  166  Mo.  620,  66  S. 
W.   1066. 

Where  a  bank  director  and  a  cashier 
executed  a  note  as  makers,  the  di- 
rector being  in  fact  only  a  surety  for 
the  cashier,  who  obtained  a  loan  on  it 
from  the  bank,  without  any  other  bank 
official  having  knowledge  of  the  sure- 
tyship, the  director  was  liable  as 
principal,  since  knowledge  to  him  and 
the  cashier,  in  such  case,  was  not 
knowledge  to  the  bank.  First  Nat. 
Bank  v.  Briggs,  70  Vt.  594,  41  Atl.  580. 

Notice  to  a  director  of  a  matter  af- 
fecting the  interest  of  the  bank,  which 
it  is  to  the  interest  of  such  director  to 
conceal,  is  not  notice  to  the  bank. 
First  Nat.  Bank  v.  Lowther-Kaufman 
Oil,  etc.,  Co.,  66  W.  Va.  505,  66  S.  E. 
713. 

Where  the  payees  of  a  note  fraudu- 
lently acquired  offered  it  to  a  bank  of 
which  they  were  directors  and  mem- 
bers of  the  discount  committee,  but 
withdrew  from  the  meeting'  of  the 
committee,  and  took  no  part  in  the 
committee's  determination  of  the  ad- 
visability to  purchase,  and  did  not  dis- 
close any  facts  which  would  have  led 
to  the  discovery  of  the  fraud,  the 
payees'  knowledge  thereof  was  not  im- 
puted to  the  bank  because  of  their  re- 
lation to  it.  under  the  rule  that  the 
law  will  not  impute  notice  from  an 
agent  to  his  principal  where  such   no- 


tice would  necessarily  prevent  the  con- 
summation of  the  transaction  in  which 
the  agent  was  engaged.  Lilly  :•. 
Hamilton  Bank,  102  C.  C.  A.  1,  178 
Fed.   53. 

41.  The  fact  that  one  who  pledges 
to  a  bank,  as  security  for  a  loan  to 
him,  goods  consigned  to  him  for  sale, 
was  a  director  of  such  bank,  does  not 
cliarge  the  latter  with  knowledge, 
though  the  director  was  present  at  the 
meeting  when  the  loan  was  voted. 
Innerarity  v.  Merchants'  Nat.  Bank, 
139  Mass.  332,  1  N.  E.  282,  52  Am.  Rep. 
710. 

"A  shipped  a  cargo  of  sugar  to  B, 
and  gave  him  authority  to  sell  the 
same.  The  bill  of  lading  recited  that 
the  shipment  was  by  order  of  B,  and 
that  the  sugar  was  delivered  to  his 
order,  and  made  no  mention  of  any 
agency.  B  indorsed  the  bill  of  lading, 
and  delivered  it  to  a  bank  of  which 
he  was  a  director,  and  pledged  the 
cargo  to  the  bank  as  security  for  a 
loan  by  the  bank  to  him.  This  loan 
was  approved  by  the  board  of  direct- 
ors, at  a  meeting  at  which  B  was 
present.  Held,  that  B's  knowledge  of 
tlic  fraud  was  not  imputable  to  tlic 
bank;  and  that  an  action  l)y  A  against 
the  bank,  for  the  conversion  of  tlic 
sugar,  could  not  be  maintained."  Webb 
V.  Stasel,  4  N.  P.,  N.  S.,  587.  17  O.  D. 
N.   P.   317. 

42.  Discounting  note  for  director. — 
Third  Nat.  I'.ank  t-.  Harrison,  10  I-od. 
243,   3   McCrary  316. 

43.  Where  a  director  of  a  bank  was 
one  of  the  grantees  in  an  unrecorded 
deed  of  property,  which  the  gra!ilor 
sul)sequently  conveyed  to  tlic  l)ank. 
the  director's  knowledge  of  tlic  prior 
deed  is  not  notice  to  the  bank  nf  its 
existence,  if  such  director  he  in- 
terested in  protecting  his  own  title  by 
not  communicating  his  knowledge  to 
the  board  of  directors.  Lync  v.  Bank 
(Ky.),  5  J.  J.  Marsh.  545. 

44.  Martin  v.  South  Salem  Land  Co., 
94  Va.  28,  26  S.   K.   591. 


848  BANKS  AND   BANKING.  §    116    (5) 

cumstance  that  the  mdorser  of  a  discounted  note  was  a  director  in  the  bank 
by  which  it  was  discounted  will  not  be  deemed  constructive  notice  to  the 
bank  that  the  note  was  made  for  his  accommodation/^  or  that  the  con- 
sideration of  the  note  was  illegal.^*' 

Indirect  Interest. — Where  a  director  does  not  communicate  his  knowl- 
edge to  his  bank,  the  fact  that  he  is  indirectly  interested  in  the  transaction 
may  be  sufficient  to  prevent  the  knowledge  from  being  imputed  to  the  bank.-*' 
.  Presumption  of  Director's  Knowledge. — The  authorities  establish  the 
presumption  that  there  is,  as  to  the  directory,  a  certain  legal  presumption 
of  knowledge  as  to  the  transactions,  business  and  condition  of  the  bank, 
which  is  conclusive  upon  the^ank,  and  against  the  existence  of  which,  as  a 
matter  of  fact,  no  testimony  will  be  received."''-'  The  doctrine  is  one  founded 
on  public  policy,  essential  to  the  safety  of  third  persons  in  their  dealings 
with  the  bank,  and  to  the  protection  of  the  stockholders  interested  in  its 
welfare  and  safe  management.  So  far  as  is  necessary  to  accomplish  these 
results,  this  doctrine  should  be  carefully  and  strictly  upheld.^^  But  this 
doctrine  should  not  be  carried  beyond  this,  or  to  such  extent  as  to  work 
an  injury  to  the  bank.  The  purpose  is  to  enforce  the  strictest  fidelity  and 
watchfulness  upon  the  directors  as  custodians  of  a  most  important  and 
delicate  trust;  a  purpose  which  would  be  thwarted  if  it  were  turned  into  an 
instrument  of  injury  and  destruction  to  the  bank  and  its  stockholders.-^ ^ 
Hence  this  doctrine  should  not  be  invoked  to  uphold  a  wrongful  appro- 
priation of  moneys  of  the  bank  that  the  cashier  or  another  officer  thereof 
made  and  entered  upon  the  bank's  books  without  the  actual  knowledge  of 
the  director.-"*-  Persons  dealing  with  the  directory  have  a  right  to  pre- 
sume that  it  knows  all  the  affairs  of  the  bank,  that  is,  all  that  the  bank  as 
a  principal  ought  to  know  as  of  its  condition  and  business.  On  the  other 
hand  persons  who  are  pecuniarily  interested  in  the  management  and  pros- 
peritv  of  the  bank,  stockholders  and  the  depositors,  look  to  the  directors 
for  the  protection  of  their  interests  and  have  a  right  to  demand  that  such 
directors  watch  after  those  interests  in  the  minutest  details. ^^     But  as  to 

45.  Discounted  note  indorsed  for  di-  holders,  will  not  be  imputed  to  the 
rector's  accommodation. — Commercial  l)ank.  Central  Rank  z'.  Thayer,  184 
Bank  r.   Cunniuj^ham   (.Mass.).  24  Pick.       Mo.    f.1.    S2    S.    W.    142. 

270;      Washington      Bank      z.       Lewis  49.    Presumption  of  director's  knowl- 

(Mass.i    22    Pick.    24.  edge.— First     Xat.    Bank    r.    Drake.    29 

46.  Illegality    in      consideration     in       Kan.  311.   44   Am.    Rep.   (UO. 

note    discounted. — Where    a     liank     di-  50,     Basis     of     doctrine. — First     Xat. 

rector  procures  a  note  on   which  he   is  Bank    7:    Drake,    29    Kan.    311,    44    Am. 

indorser  to  be  discounted  for  his  bene-  Rep.    046. 

fit  at  a  bank,  his  knowledge  of  illegality  g^    Extent  and  limitation  of  doctrine, 

in    the    consideration    does    not    charge  _^-^^^    ^.^^     p,.^„,.    .,     j^,..^,.^.     .^^    k^^„. 

the  bank.     Third  Nat.  Bank  r.  Tinslcy,  ,^^-j     ^^     .y^^^^     y;,^.^^    ,.^,. 

''4?.^'lndrrect'interest.-Knouledge  of  ^  52-     Should    not    be    invoked    to    up- 

the  cashier  and  of  a  director  oi  a  bank  hoW     wrongful      appropriation.-F.rst 

of   a   transaction   with   it.   in   which   the  Nat.    Bank   r.    Drake,    29    Kan.    311.    44 

cashier  and   the   father  of  the   director  ^m-    ^^P-    6-^*^- 

were  interested,  and  which  they  never  53.     First    Nat.    Bank    :•.     Drake,     20 

imparted    to    other    officers    or    stock-  Kan.  311,   44   Am.   Rep.   646. 


116  (6) 


REPRESENTATION    OF    BANK. 


849 


an  officer  and  director  the  reason  for  this  doctrine— tliat  is.  this  concUisive 
presumption  as  to  the  knowledge  of  the  directors— fails,  and  therefore  the 
presumption  should  not  be  held  to  exist.  Presumptions  are  for  the  benefit 
of  those  outside,  who  can  not  in  fact  know,  and  who  must  rely  upon  the 
representations  and  acts  of  those  inside.  There  is  no  need  of  any  pre- 
sumption for  those  inside,  for  the  simple  reason  that  they  are  where  they 
may  in  fact  know.^^  Xo  officer  should  be  permitted  to  enforce  his  own 
wrong  against  his  principal,  the  bank,  through  the  inattention  or  neglect 
of  any  other  agents  of  the  bank.  Clearly,  one  agent  can  not  empower 
another  to  do  wrong.  Nor  can  the  inattention  and  neglect  of  one  officer 
make  the  wrong  of  another  effective  and  remediless.^^ 

Director's  Knowledge  as  Evidence  of  Bank's.— Where  the  issue  is 
whether  the  plaintiff'  bank  had  knowledge  of  the  preference  of  a  creditor 
of  its  debtor,  although  the  bank  is  not  chargeable  with  knowledge  of  its 
directors  acting  individually,  yet  the  jury  may  consider  the  knowledge  of 
the  directors  as  tending  to  prove  knowledge  on  the  part  of  the  bank.'""'^ 

§  116  (6)  Notice  of  Officer's  Own  Fraud.— The  general  rule  that 
knowledge  of  the  agent  will  be  imputed  to  a  principal  rests  upon  the 
agent's  duty  to  disclose  such  facts  to  his  principal ;  hence  it  is  seen  that  one 
of  the  exceptions  to  the  rule  is  where  the  agent  engages  in  a  scheme  to 
defraud  his  principal. ■'5'  or  to  defraud  a  third  person  where  actual  knowl- 


54.  Doctrine  does  not  apply  to  of- 
ficers or  directors. — First  Nat.  Bank  v. 
Drake.   29   Kan.   311,   44   Am.   Rep.   646. 

55.  First  Nat.  Bank  v.  Drake,  29 
Kan.  311,  44  Am.  Rep.  646,  citing 
Minor  z-.  Mechanics'  Bank  (U.  S.),  1 
Peters  44,  7  L.   Ed.  47. 

56.  Director's  knowledge  as  evi- 
dence of  bank's. — Continental  Nat. 
Bank  v.  :\IcGeoch,  9  Wis.  286,  66  N. 
W.   606. 

57.  Where  agent  undertakes  to  de- 
fraud principal. — American  Suretj'  Co. 
V.  Pauly,  170  U.  S.  133.  42  L.  Ed.  977. 
18  S.  Ct.  552;  Henry  v.  Allen,  151  N. 
Y.    1,   45   N.    E.   355. 

As  to  imputing  to  bank  officer's 
knowledge  or  notice  where  officer  is 
attempting  to  perpetrate  a  fraud  upon 
his  principal,  see  ante,  "In  General," 
§   116    (1). 

To  the  same  effect  are  Benedict  v. 
Arnoux,  154  N.  Y.  715,  49  N.  E.  326, 
and  Kettlewell  v.  Watson  (N.  Y.),  21 
Ch.  Div.  685.  In  the  latter  case  it  was 
said  that  the  presumption  arising  from 
the  duty  of  the  agent  to  communicate 
what  he  knows  to  his  principal  "may 
1)6  repelled  by  showing  that,  whilst 
he  was  acting  as  agent,  he  was  also 
acting   in    another   character,   viz,   as    a 

1   B   &  B— 54 


party  to  a  scheme  or  design  to  de- 
fraud,   etc." 

In  Commercial  Bank  v.  Cunningiiam 
(Mass.),  24  Pick.  270,  which  involved 
the  question  whether  certain  notes 
held  by  a  bank  were  to  be  deemed  to 
have  been  made  for  the  accommoda- 
tion of  a  firm,  one  member  of  whicli 
was  a  director  of  the  bank  at  tlie 
time  the  notes  were  taken,  it  was  held 
tliat  the  knowledge  of  the  latter,  al- 
though a  director,  was  not  proof  of 
notice  to  the  corporation,  "especially 
if  he  was  a  party  to  all  these  con- 
tracts, whose  interest  might  be  op- 
posed   to   that    of   the    corporation." 

This  principle  is  rearfirmed  in  Innor- 
arity  v.  Merchants'  Nat.  Bank.  i;i9 
Mass.  332.  1  N.  E.  282,  52  .\m.  Rop. 
710,  in  which  the  court  said:  "While 
the  knowledge  of  an  agent  is  ordi- 
narily to  be  imputed  to  the  principal. 
it  would  appear  now  to  be  well  es- 
tablished that  there  is  an  exception 
to  the  construction  or  imputation  of 
notice  from  the  agent  to  the  principai 
in  case  of  such  conduct  by  the  .igeiit 
as  raises  a  clear  presumption  llial  be 
did  not  communicate  the  fact  in  con- 
troversy, as  where  the  coinmnnicatinn 
of  sucli  fact  would  necessarily  prevent 
the    coiisiiinni.ilion     of      a      frandulcnt 


850 


BANKS  AND   BAXKINX. 


§  116  (6) 


edge  of  the  facts  by  the  principal  would  defeat  the  consummation  of  the 
fraud.^^  The  presumption  that  the  agent  will  inform  its  principal  of 
that  which  his  duty  and  the  interest  of  his  principal  requires  him  to  com- 
municate does  ngt  arise  where  the  agent  acts  or  makes  declarations  not  in 
the  execution  of  any  duty  that  he  owes  to  the  principal,  nor  within  any 
authority  possessed  by  him,  but  to  subserve  simply  his  own  personal  ends 
or  to  commit  some  fraud  against  the  principal. ^»     In  such  cases  the  prin- 


scheme  which  the  agent  was  engaged 
in  perpetrating."  The  court  here  cites 
Kennedy  7:  Green,  3  Myl.  &  K.  699; 
Cave  c'.  Cave,  15  Ch.  Div.  639;  In  re 
European  Bank,  L.  R.  5  Ch.  App.  368; 
In  re  Marseilles  Extension  Ry.,  L.  R. 
7  Ch.  App.  167;  Atlantic  Nat.  Bank  v. 
Harris,  118  Mass.  147;  Loring  t. 
Brodie,  134  Mass.  453. 

Prior  to  the  issue  of  a  bond  by  a 
fidelity  insurance  company  guaranty- 
ing a  bank  against  dishonesty  of  its 
cashier,  the  cashier  and  president  of 
the  bank  had  conspired  to  rob  it,  and 
had  been  engaged  in  fraudulent  prac- 
tices. When  application  was  made  fur 
the  bond,  the  compar.y  required  a  cer- 
tificate from  the  bank  of  the  cashier's 
good  character,  which  was  made  by 
the  president,  apparently  without  any 
direct  authority  from  the  board  of  di- 
rectors, or  any  knowledge  on  their 
part  that  the  certificate  was  made  or 
required.  Held,  that  the  president's 
knov>ledge  of  the  cashier's  dishonesty 
could  not  be  imputed  to  the  bank,  so 
as  to  make  it  responsible  for  the  mis- 
representations contained  in  the  cer- 
tificate. American  Surety  Co.  z\ 
Pauly.   IS   C.   C.  A.  644,  72   Fed.  470. 

A  cashier  of  a  bank,  who  was  also 
a  director  of  a  manufacturing  com- 
pany, and  as  such  director  assisted  in 
promulgating  false  statements  as  to 
the  financial  conditiDn  of  the  company, 
for  the  purpose  of  defrauding  all  of 
its  creditors,  including  the  bank,  was 
not  the  agent  of  the  bank  in  such  mat- 
ter so  as  to  affect  the  validity  of  its 
claims  against  the  company.  Decree 
Hadden  v.  Natchaug  Silk  Co.,  84  Fed. 
80,  reversed  in  Hadden  :'.  Dooley,  34 
C.  C.  A.  338,  92  Fed.  274;  S.  C,  35  C. 
C.  A.  554,  93  Fed.  728;  reversed  in 
Dooley  c-.  Hadden,  179  U.  S.  646,  45  L. 
Ed.  357,  21   S.  Ct.  259. 

Where  the  president  of  a  bank,  as 
agent  of  a  shareholder,  fraudulently 
and  without  authority  has  such  share- 
holder's certificates  canceled  and  new 
certificates  issued  to  himself  as  trans- 
feree he  is  acting  in  a  double  ca- 
pacity, and  the  bank  is  bound  by  his 
knowledge    of    th'j    fraud    and    want    of 


authority.  Withers  r.  Lafayette  County 
Bank,  67  Mo.  App.  115. 

58.  Though  generally  the  knowledge 
of  an  agent,  acquired  in  the  course  of 
his  agency,  is  imputed  to  the  prin- 
cipal, a  bank  is  not  chargeable  with 
notice  of  its  cashier's  fraud  in  inducing 
defendant  to  make  a  note  to  the  bank 
for  discount  by  it,  the  proceeds  to  be 
invested  by  the  cashier  for  defendant's 
benefit,  though  he  intended  from  the 
beginning  to  misappropriate  the  pro- 
ceeds, since  knowledge  of  an  agent's 
fraud  is  not  imputable  to  the  principal, 
where  actual  knowledge  of  the  facts 
by  the  principal  would  defeat  the  con- 
summation of  the  fraud.  Hilliard  v. 
Lyons,  103   C.   C.  A.  651,  180  Fed.  685. 

As  to  individual  interest  of  officer 
as  affecting  knowledge  or  notice,  see 
ante.  "In  General,"  §  116  (l);  "In  Re- 
spect to  Discounts  and  Securities," 
§  116  (2);  "In  Respect  to  Deposits," 
§  116  (3);  "Notice  to  Directors," 
§  116  (5);  post,  "Individual  Interest  of 
Ofiicer  or  Agent  as  Afifecting  Person 
Dealing  with   Bank,"  §  117. 

59.  American  Surety  Co.  v.  Pauly, 
170  U.  S.  133,  42  L.  Ed.  977,  18  S.  Ct. 
552. 

Knowledge  by  the  president  of  a 
bank  of  his  misappropriation  of  its 
funds  in  personal  transactions  is  not 
notice  to  the  l)ank.  Lamson  v.  Beard, 
36  C.  C.  A.  56,  94  Fed.  30,  45  L.  R. 
A.   822. 

The  cashier  of  a  bank  sold  cattle  in 
which  he  and  complainant  were  jointly 
interested,  receiving  payment  in  a  draft 
and  credit  slip  payable  to  the  bank. 
These  he  deposited  to  his  own  credit, 
and  collected  and  thereafter  checked 
out  the  entire  amount,  and  converted 
it  to  his  own  use.  He  transacted  the 
entire  business  on  behalf  of  both  the 
bank  and  himself,  and  no  one  else  con- 
nected with  the  bank  had  any  knowl- 
edge of  complainant's  interest  in  the 
cattle  or  their  proceeds.  Held,  that 
the  bank  was  not  chargeable  with  no- 
tice that  complainant  had  any  interest 
in  the  fund  deposited,  and  occupied 
no    trust    relation    to    him    which    ren- 


§  116  (6) 


rEprEse;ntation  of  i?ank. 


851 


cipal  is  not  bound  for  the  acts  or  declarations  of  the  agent  unless  it  be 
proved  that  he  had  at  the  time  actual  notice  of  them,  or  having  received 
notice  of  them  failed  to  disavow  what  was  assumed  to  be  said  and  done  in 
his  behalf.^*'  So  when  the  circumstances  are  such  as  to  render  it  certain 
that  the  officer  did  not  communicate  his  knowledge  to  his  principal,  the 
principal  can  not,  on  the  ground  of  imputed  knowledge,  be  held  liable.'^ ^ 
Where  a  cashier,  acting  for  his  bank,  makes  an  agreement  with  a  third 
party  whereby  they  enter  into  an  unlawful  transaction,  the  cashier's  knowl- 
edge is  not  chargeable  to  or  binding  on  the  bank.*^^  It  would  seem  to  follow 
that  a  bank  is  presumed  to  know  what  its  president  knows  only  while  he 
acts  within  the  scope  of  his  agency;  hence  knowledge  of  his  fraudulent  in- 
tent in  drawing  a  fund  from  the  bank  in  his  private  capacity  as  trustee  of 


dered  it  accountable  for  such  interest. 
Bank  v.  Thompson,  56  C.  C.  A.  554, 
118   Fed.  798. 

Where  the  other  bank  officers  were 
ignorant  of  the  acts  of  the  vice  presi- 
dent in  his  personal  dealings  with  the 
bank,  which  were  against  its  interests, 
the  bank  is  not  bound  by  his  knowl- 
edge of  such  dealings.  Findley  v. 
Cowles,  93   Iowa  389,  61  N.  W.  998. 

The  knowledge  of  the  vice-president 
of  a  bank  of  his  own  interest  to  mis- 
appropriate funds  obtained  by  him 
from  the  bank  as  treasurer  of  a  cor- 
poration doing  business  with  the  bank 
is  not  the  knowledge  of  the  bank,  so 
as  to  enable  the  corporation  to  set 
off  the  amount  obtained  by  him  against 
the  notes  of  the  corporation.  Gunster 
V.  Scranton,  etc..  Power  Co.,  181  Pa. 
337,  37  Atl.  550,  59  Am.   St.  Rep.  650. 

60.  American  Surety  Co.  v.  Pauly, 
170  U.  S.  133,  42  L.  Ed.  977,  18  S.  Ct. 
552. 

61.  Where  the  cashier  of  a  l)ank 
fraudulently  procures  plaintiff's  note 
as  an  accommodation  for  his  personal 
benefit,  and,  selling  the  same,  receives 
in  payment  a  draft,  which  he  indorses 
to  his  bank,  it  being  ignorant,  except 
through  him,  of  the  circumstances  of 
the  transaction,  the  bank  is  not 
charged  with  notice  of  the  fraud,  the 
usual  presumption  that  an  agent  has 
disclosed  his  knowledge  to  his  prin- 
cipal not  arising,  as  the  circumstance;; 
render  it  certani  that  the  cashier  did 
not  so  disclose  his  knowledge  to  the 
bank.  Hummell  v.  Bank,  7  5  Iowa.  389, 
37  N.  W.  954. 

A  bank  is  not  chargeable  with  no- 
tice of  the  misappropriation  of  money 
by  its  cashier,  acting  as  agent  for  a 
third  party,  in  his  individual  capacity, 
although   the   cashier  was   in   fact   sole 


manager  of  the  bank,  and  the  money 
was,  in  the  lirst  instance,  deposited  lo 
its  credit  with  a  correspondent,  when 
it  was  immediately  transferred  on  the 
books  to  the  credit  of  the  cashier,  and 
checked  out  by  him;  nor  is  it  liable  to 
the  principal  for  such  money,  wlien  it 
realized  no  benefit  therefrom.  Sciiool 
Dist.  f.   De   Woesc.   luo   Fed.  705. 

62.  Unlawful  transaction  in  pursu- 
ance of  an  agreement. — W'liere,  with 
the  knowledge  of  Ixitli  parties  of  a 
rule  of  a  bank  proliibiting  an  oiVicer 
thereof  from  becoming  its  debtor,  its 
cashier,  in  order  to  obtain  money  from 
the  bank  to  purchase  corporate  stock, 
makes  an  agreement  with  a  third  pariy 
by  which  he  is  to  purchase  tlie  sii>ck, 
the  cashier  advancing  tlie  bank's 
money  to  pay  therefor,  and  the  pur- 
chaser giving  his  note  to  the  bank  for 
the  money,  and  depositing  the  stuck 
as  collateral,  and  the  cashier  assuming 
payment  of  the  note,  such  transaction 
is  illegal,  and  the  casiiier's  knowledge 
in  respect  thereto  is  not  chargcal)le  to, 
or  binding  on,  the  bank.  Savannah 
Bank,  etc.,  Co.  r.  Ilartridgc.  75  Ga. 
149. 

The  fact  thai  a  cashier  of  a  l)ank, 
who  had  abstracted  funds  therefrom, 
knew  the  liaiik  was  insolvent,  is  not 
notice  of  such  insolvency  to  llie  olluT 
officers.  Perth  .\ml)oy  Gasliglit  C.>  ;•. 
Middlesex  County  Hank,  60  N.  .1.  I'.q. 
84,  45  Atl.  704. 

Where  a  cashier  of  a  bank  pledge.s 
a  certificate  of  stock  indorsed  in  blank 
to  secure  a  loan  to  liiiii,  tlie  bank  was 
not 'chargeal)le  with  the  knowledge  of 
the  cashier  that  he  had  no  authority 
to  pledge  such  stock.  Brady  :•  AH. 
Morris  Rank,  65  Xpi-.  Piv.  21U.  7:J  N. 
Y.   S.  532. 


852 


BANKS   AND   BANKING. 


§  117 


the  fund,  with  intent  to  misappropriate  it,  is  not  imputed  to  the  bank.«3 
Where  the  cashier  of  a  bank  has  fraudulently  obtained  a  draft,  and  indorsed 
the  same  to  his  bank,  his  knowledge  of  the  fraud  is  no  ground  for  charging 
the  bank  with  constructive  notice  thereof.^-i  And  where  the  maker  of  a 
note,  for  a  blank  amount,  hands  it  to  a  bank  director  to  be  filled  up  with  a 
certain  amount  to  use  in  renewal  of  another  note,  if  the  director  fraud- 
ulently fills  up  the  note  for  a  larger  amount,  and  discounted  it  for  his  own 
use  at  the  bank,  without  communicating  the  facts  to  any  other  director,  but 
sits  as  one  of  the  discount  board,  the  bank  is  not  charged  with  knowledge 
of  his  fraud.^5  But  where  the  cashier  of  a  bank  in  a  given  transaction  alone 
represents  the  bank  and  a  third  party,  whose  agent  he  is,  the  bank  is  charge- 
able with  knowledge  of  the  cashier's  fraud  in  the  transaction.^*'  And  where 
the  cashier  of  a  bank  conspires  with  a  third  person  to  sell  worthless  prop- 
erty to  defendant  at  par,  in  order  that  the  proceeds  may  be  applied  to  the 
payment  of  a  debt  due  the  bank,  the  bank  is  chargeable  with  the  knowledge 
that  the  cashier  had  of  such  conspiracy/'"^ 

§  117.  Individual  Interest  of  Officer  or  Agent  as  Affecting  Person 
Dealing  with  Bank. — It  is  an  old  doctrine  that  an  agent  can  not  l)in(l  his 
principal,  even  in  matters  touching  his  agency,  where  he  is  known  to 
be  acting  for  himself  or  to  have  an  adverse  interest.*^^     And  where  a  bank 


63.  Fraud  in  his  private  capacity. — 

Knobcloch   7\    Gcrnuinia   Sav.    I'ank,   50 
S.    C.   259,   27    S.    E.   902. 

Possession  of  books  l\v  a  bank,  con- 
taining entries  of  drafts  fraudulently 
drawn  by  the  president  in  personal 
brokerage  transactions,  is  not  notice 
thereof  to  the  bank,  where  the  books 
were  under  the  sole  control  of  the 
president,  and  kept  in  sucli  a  manner 
as  to  conceal  his  defalcations.  Lam- 
son  V.  Beard.  94  Fed.  30,  36  C.  C.  .\.  56, 
45   L.   R.   A.   822. 

64.  Cashier  fraudulently  obtaining 
draft. — lluninicl  :■.  Ikiiik,  '•'>  Imva  (ISO, 
37   X.  W.  954. 

A  bank  cashier's  fraud  in  procuring 
the  execution  of  a  note  can  not  be  im- 
puted to  the  l)ank  merely  from  the  fact 
that  he  was  its  cashier,  on  the  cash- 
ier's transferring  the  note  to  the  bank 
as  security  for  a  loan,  so  as  to  pre- 
clude the  bank  from  recovering  on  vhe 
note.s  as  indorsee.  First  Nat.  Bank  t'. 
Bevin,    72    Conn.    666.    45    All.    ;).",4. 

65.  Fraud  in  filling  up  note  made  out 
in  blank. — Terrell  r.  Brancli  Bank.  12 
Ala.  .••)02. 

66.  Where  officer  alone  represents 
bank  and  a  third  party  as  agent.— 
Leonard   v.   Latimer.   67    Mo.   .\pp.    138. 

A  holder  of  bank  stock  placed  it  in 
the  hands  of  the  bank's  cashier  for 
negotiation.      The    cashier    obtained    a 


loan  on  the  stock,  and  was  advised  by 
the  owner  to  remit  the  proceeds  to 
him.  The  owner  was  at  the  same  time 
indebted  to  the  bank,  and  the  cashier, 
without  authority,  deposited  the  pro- 
ceeds in  the  bank,  by  which  it  was  ap- 
propriated in  payment  of  the  indebted- 
ness. Held,  that  the  bank  was  charge- 
able with  notice  of  the  cashier's  fraud, 
and  could  not  make  the  appropriation. 
Winslow  T'.  Harriman  Iron  Co. 
(Tenn.).   42    S.   W.   COS. 

67.  Proceeds  applied  to  debt  due 
bank.— Merchants'  Nat.  Bank  r.  Tracy. 
7  7  llun  443.  29  N.  Y.  S.  77.  distinguish- 
ing Xew  York  7:  Tenth  Xat.  Bank.  Ill 
X.   Y.  446.   IS  X.  E.  618. 

68.  Agreement  by  agent  having  in- 
terest.—Fowler  z:  \Valch.  119  App. 
Div.    542.    104    X.    Y.    S.    54. 

As  to  officer  acting  in  dual  capacity, 
see  ante.  "In  General."  §  116   (!}■ 

.*\s  to  individual  interest  of  ofhcer  or 
agent  as  aflfecting  imputation  of 
knowledge  or  notice  to  his  principal, 
see  ante.  "In  General."  §  116  (iV.  "In 
Respect  to  Discounts  and  Securities.'^ 
§  116  (2);  "In  Respect  to  Deposits,'^ 
§  116  (3);  "Xotice  to  Directors," 
§   116   (5). 

The  manaser  of  a  bank  ronducled 
by  a  firm  has  no  authority  to  bind  it 
by  the  payment  of  the  individual  debt 
of  a  partner  out  of  firm  assets.     Blake 


§  117 


REPRESENTATION    OF    BANK. 


853 


officer  acts  in  his  individual  capacity  or  as  agent  for  a  third  party,  the  hank 
can  not  be  held  liable  to  one  with  notice  for  the  acts  or  on  the  representa- 
tion of  such  officer.*^^  So  it  may  be  generally  stated  that  acts  of  officers 
of  a  bank  in  any  transaction  in  which  both  the  bank  and  the  officers  are 
interested  do  not  bind  the  bank.""     An  officer  of  a  bank  can  not  bind  tlie 


a^    ^.ak.ULi 


V.   Third   Nat.    Bank,   219    Mo.   644,   118 
S.  W.  641. 

That  one  who  as  cashier  and  for  a 
bank  issued  its  draft  had  an  interest 
therein  did  not  differentiate  him  from 
any  other  payee  thereof  having  an  in- 
terest. Milmo  Nat.  Bank  v.  Cobbs 
(Tex.),   128   S.   W.   15L 

"It  is  a  well-established  principle  of 
law  that  agents  can  not  act  so  as  to 
bind  their  principals,  where  they  have 
an  adverse  interest.  Story  on  Agency, 
§§  210,  211.  The  principle  is  illustrated 
by  examples;  thus,  an  agent  employed 
to  sell  can  not  become  the  purchaser, 
nor  can  one  employed  to  buy  become 
the  seller,  nor  indexed  can  the  agent 
represent  his  principal  in  any  transac- 
tion where  he  may  derive  a  benefit  at 
the  expense  of  the  principal  out  of  the 
transaction,  or  where  the  interests  of 
the  agent  and  principal  are  antagonis- 
tic." Morgan  &  Co.  z:  Merchants' 
Nat.  Bank,   81  Tenn.    (13  Lea)   234. 

The  rule  of  equity  jurisprudence  that 
a  party  holding  a  fiduciary  relation  to 
trust  property  can  not  become  the  pur- 
chaser of  such  property  either  directly 
or  indirectly,  and  if  he  does  the  sale 
is  voidable  and  will  be  set  aside  at  the 
mere  pleasure  of  the  beneficiaries,  al- 
though such  fiduciary  may  have  paida 
full  price  and  gained  no  advantage,  is 
not  confined  to  trustees  and  fiduciaries 
in  the  technical  sense  of  those  terms, 
but  it  embraces  cashiers  of  banks. 
Reilly  z'.   Oglebay,  25   W.   Va.   36. 

69.  Officer  acting  in  individual  ca- 
pacity and  not  an  agent  of  bank.— 
Where  the  vice-president  and  manager 
of  a  bank  is  also  manager  of  a  part- 
nership of  which  the  bank  is  a  mem- 
ber, his  mismanagement  of  the  part- 
nership business  is  not  cliargeable  to 
the  bank,  since  in  that  business  he  does 
not  act  as  agent  of  the  bank.  Cameron 
V.  First  Nat.  Bank,  4  Tex.  Civ.  App. 
309,  23  S.  W.  334,  affirmed  in  03  Tex. 
656,   no   op. 

The  act  of  a  bank  cashier  in  induc- 
ing defendant  to  execute  a  note  to 
the  bank  for  discount  by  it,  the  pro- 
ceeds to  be  invested  by  the  cashier  for 
defendant's  benefit,  and  his  act  in  re- 
ceiving the  proceeds  were  acts  of  de- 
fendant's agent  and  not  the  bank's  and 
hence  defendant  can  not  assert  failure 


of  consideration  as  a  defense  to  the 
note,  although  the  cashier  appro- 
priated the  proceeds  to  his  own  use; 
the  l)ank  having  discharged  its  duly 
to  defendant  by  turning  the  proceeds 
over  to  the  cashier  as  the  defendant's 
accredited  agent.  Milliard  x'.  Lyons. 
103   C.    C.   A.   651,   180   Fed.   685. 

70.  Acts  in  which  both  interested. — 
First  Nat.  Bank  r.  Giflord,  47  luwa 
575. 

"Such  rule  seems  to  be  sustained  l)y 
the  decided  weight  of  authority.  Wash- 
ington Bank  v.  Lewis  (Miss.).  22  Pick. 
24;  Farmers',  etc..  Bank  v.  Payne.  25 
Conn.  444,  68  Am.  Dec.  362;  Farrcl 
Foundry  v.  Dart,  26  Conn.  376;  Seneca 
County  Bank  v.  Neass  (N.  Y.).  5 
Denio  329;  Winchester  r.  Baltimore, 
etc.,  R.  Co.,  4  Md.  231;  Piatt  :•.  Birm- 
ingham Axle  Co..  41  Conn.  255."  First 
Nat.    Bank   v.    GifTord,    47    Iowa    575. 

"The  only  case  in  seeming  contlict 
with  the  foregoing  to  which  our  at- 
tention has  been  called  is  Scripture  v. 
I'Vancestown  Soapstone  Co..  50  N.  11. 
571,  but  even  this  case  does  not  sus- 
tain the  claim  made  by  the  defendant. 
In  that  case  the  party  seeking  to  avail 
himself  of  notice  to  the  ofticer  was  an 
outside  party,  in  no  way  connected 
with  the  corporation;  while  liere  the 
defendant  seeks  to  avail  liiinself  of 
his  own  knowdedge,  or,  as  it  were,  of 
notice  to  himself,  and  by  this  bind  the 
corporation.  Such  doctrine  we  arc  iin- 
willing  to  sanction."  First  Nat.  Bank 
V.  Gifford,  47  Iowa  575. 

So,  where,  under  a  private  a^Tee- 
ment  between  the  cashier  and  the 
president,  wherel)y  stock  of  the  bank 
was  purchased  l)y  the  cashier  with 
monev  liorrowed  from  llie  l)aiik  lor 
which  he  yave  his  note  ind..rsed  hy 
the  president,  the  bank  was  not  bound 
to  hold  the  note  for  the  protection  of 
the  president.  I'irst  Xal.  I-mk  ;•,  (.H- 
fnrd,   47   Iowa  575. 

The  <lirectors  of  a  railroad  cinpany 
made  their  personal  promissory  note, 
payable  t.-  Hi-  nrdt-r  of  one  I.,  who 
was  one  <>f  th.  makers,  and  th.-  pr<  .- 
dent  of  the  company,  and  w;is  M. 
president  of  the  bank  to  winch  the 
l=ame  was  Iransferre.l.  The  n..te  was 
triven  in  renewal  of  others  upon  which 
ninnry  had  Uvvu  oblaiiicl  for  the  com- 


854 


BANKS    AXD    BAXKIXG. 


§  117 


bank  by  an  agreement  adverse  to  its  interests  made  with  another  party, 
when  such  party  and  officer  are  at  the  time  such  agreement  is  made  en- 
gaged in  serving  their  own  interests  or  the  interests  of  another  corpora- 
tion in  which  they  are  jointly  interested,  and  where  the  sole  purpose  of  the 
agreement  is  to  benefit  themselves  or  the  corporation  or  company  in  which 
they  are  interested."  ^  Xor  can  he  bind  the  bank  by  his  representations  or 
acts  in  relation  to  a  transaction  in  which  he  is  acting  for  his  own  behalf, 
to  the  knowledge  of  the  other  party,  without  ratification  by  the  bank;' 2 
it  is  generally  conceded  that  where  an  agent  has  a  personal  interest  ad- 
verse to  that  of  his  principal,  which  would  tend  to  prevent  him  from  com- 
municating his  knowledge,  a  third  person  having  notice  of  this  adverse 
interest  can  not  hold  the  principal  bound  by  such  knowledge."^     But  where 


pany  purposes.  Held,  that  the  bank 
could  not  be  bound  by  an  agreement 
made  by  such  directors  with  a  third 
party,  whereby  he  agreed  to  pay  this 
note,  and  release  the  makers  from  all 
responsibility,  though  I.,  the  prcsidcni 
of  the  bank,  was  present,  and  con- 
sented to  such  agreement;  being  lialjle 
on  the  note,  he  could  not  act  for  the 
bank  so  as  to  release  himself.  Gallery 
V.  National  Exch.  Bank,  41  Mich.  169. 
2  N.  W.  n»3,  .32  Am.  Rep.  14i>.  attirmmg 
Lewis   V.   Westover,   29    Mich.    14. 

71.  Fowler  v.  Walsh.  119  .App.  Div. 
542,  104  N.  Y.  S.  54;  Bank  v.  Purdy, 
100  App.  Div.  64.  91   N.  Y.   S.  310. 

Where  the  president  of  a  bank  pro- 
cured a  note,  signed  by  himself  and 
others  and  payable  to  himself,  as  trus- 
tee, to  be  discounted  by  the  bank 
solely  for  the  joint  benefit  of  himself 
and  the  other  makers,  he  had  no  au- 
thority, as  president,  to  bind  the  bank 
by  an  agreement  that  the  note  should 
be  paid  from  the  proceeds  of  the  in- 
vestment of  the  borrowed  money,  nor 
by  an  agreement  tliat  the  bank  should 
accept  another  note  signed  by  one  of 
the  makers  of  the  original  note  alone, 
in  full  payment  of  such  original  note. 
Fowler  t-.  Walch.  119  .\pp.  Div.  542, 
104  N.  Y.  S.  54. 

72.  As  to  personal  sale  of  stock  and 
issue  of  certificate. — Moores  v.  Citi- 
zens" Nat.  Hank,  111  U.  S.  156,  28  L. 
Ed.  385.  4   S.   Ct.   345. 

There  is  no  precedent  for  holding 
that  one  who  has  dealt  with  the  cash- 
ier individually,  and  lent  money  to  him 
for  his  private  use.  and  received  from 
him  a  certificate  in  her  own  name, 
which  stated  that  shares  were  trans- 
ferable only  on  the  books  of  the  bank 
and  on  surrender  of  former  certificates, 
and  no  certificate  having  been  surren- 
dered by  liim  or  by  her,  and  there  be- 
ing   no    evidence    of    the    bank    having 


ratified  or  received  any  benefit  from 
the  transaction,  can  recover  from  the 
bank  the  value  of  the  certificate  de- 
livered to  her  bv  its  cashier.  Moores 
f.  Citizens'  Nat.' Bank,  111  U.  S.  156, 
28  L.  Ed.  385.  11  S.  Ct.  345. 

B.  lent  money  to  A.,  cashier  of  a  na- 
tional bank,  for  his  private  use,  on  his 
representations  to  her  that  he  owned 
stock  in  the  bank,  and  that  such  stock 
had  been  transferred  to  her.  These 
were  representations  made  by  him  per- 
sonally, and  not  as  cashier;  and  there 
is  no  evidence  that  the  plaintiff  under- 
stood, or  had  anj'  reason  to  under- 
stand, that  those  representations  were 
made  by  him  in  behalf  of  the  bank. 
The  duty  of  transferring  his  stock  to 
the  plaintiff  before  taking  out  a  new 
certificate  in  her  name  was  a  duty  that 
he.  and  not  the  bank,  owed  to  the 
plaintiff.  The  making  of  such  a  trans- 
fer was  an  act  to  be  done  by  him  in 
his  own  behalf  as  between  him  and  the 
plaintiff,  and  in  the  plaintiff's  behalf 
as  between  her  and  the  bank.  There 
is  nothing,  therefore,  in  his  extrinsic 
representations,  for  which  tlie  bank  is 
responsible.  Moores  f.  Citizens'  Nat. 
Bank,  111  U.  S.  156.  2S  L.  Ed.  3S5.  4 
S.   Ct.   345. 

73.  Third  person  with  notice  of  ad- 
verse interest. — Traders'  Xat.  Bank  z'. 
Smith   (Tex.  Civ.  .\pp.\  22   S.  W.  1056. 

A  cashier  of  a  bank  executed  notes 
to  the  bank  in  his  individual  capacity 
and  as  treasurer  of  a  company.  These 
notes  he.  as  cashier,  sold  to  a  third 
person.  The  company  note  was  re- 
newed several  times  by  the  cashier  as 
treasurer,  the  new  notes  beinq:  indorsed 
or  guarantied  by  him  as  cashier  of  the 
bank.  The  individual  notes  were  also 
renewed  several  times  Subsequently 
the  cashier  gave  notes  for  the  amount 
of  the  renewal  notes  directly  to  the 
third  person,  with  the  bank's  guaranty. 


§  117 


REPRESENTATION    OF    BANK. 


855 


the  agent  acts  for  the  principal  in  the  particular  transaction,  and  the  third 
person  does  not  know  of  such  adverse  interest,  and  one  of  them  must 
suffer  through  his  fraud,  it  would  seem  upon  principle  that  tiie  one  who 


Held,  that  the  third  person  took  the 
notes  with  notice  that  the  cashier  could 
not  deal  with  himself  individually  or 
as  treasurer  of  a  company,  and  hence 
the  bank  could  not  be  bound  by  the 
guaranty.  German  Sav.  Bank  v.  Des 
Moines  Nat.  Bank,  122  Iowa  737,  98  N. 
W.   606. 

Where  the  president  of  a  bank  and 
member  of  its  discount  committee  sold 
to  the  bank  a  third  person's  note,  nego- 
tiable upon  its  face  and  delivered  by 
the  third  person  under  a  personal  con- 
tract between  him  and  the  president 
that  the  proceeds  should  be  used  to 
purchase  land  upon  such  person's_  ac- 
count and  the  profits  equally  divided 
between  them,  the  president  was  acting 
for  himself  and  third  person  jointly 
in  negotiating  the  note,  and  the  bank 
was  not  charged  with  knowledge  of 
lack  of  consideration  and  diversion  to 
an  unauthorized  purpose,  known  only 
to  the  president.  First  Nat.  Bank  v. 
Persall,  110  T^Iinn.  333,  125  N.  W.  506, 
rehearing  denied  in  125  N.  W.  675. 

A  bank  cashier  personally  procured 
the  discount,  by  his  bank's  corre- 
spondent, of  a  note  of  a  land  company 
in  v/hich  he  was  interested.  The  corre- 
spondent bank  discounted  the  note 
upon  the  condition  that  it  be  allowed 
to  charge  it  against  the  cashier's  bank 
at  its  option,  to  which  the  cashier 
agreed.  The  cashier's  bank  was  not  a 
party  to  the  note,  and,  except  for  the 
knowledge  of  its  president  and  two 
directors  who  were  also  interested  in 
the  land  company,  did  not  know  of 
the  transaction.  Held  that,  since  the 
cashier's  agreement  amounted  to  a 
pledge  of  his  bank's  responsibility  upon 
the  note,  it  was  beyond  the  scope  of 
his  authority  and  void.  Ft.  Dearborn 
Nat.  Bank  v.  Seymour,  71  ^Minn.  81, 
73   N.  W.   724. 

The  cashier  of  a  St.  Paul  bank,  who 
was  the  secretary  of  a  land  company, 
drew  a  check  for  $25,000.  as  such  secre- 
tary, on  his  bank,  to  pay  a  note  ot  the 
land  company,  and  then  accepted  the 
check,  as  indorsed  by  the  payee  of 
the  note,  to  be  deposited  m  the  bank 
to  the  credit  of  the  payee.  On  the 
next  day  the  amount  of  the  check  was 
credited  to  the  payee  on  the  books  ot 
the  bank,  and  the  land  company  was 
charged  with  the  amount.  At  the  same 
time  the  cashier  drew  up  ^  ""fe  from 
the  land  company   to  plaintiff  hank   in 


Chicago,  credited  it  to  the  account  of 
the  land  company  in  the  books  of  his 
bank,  and  inclosed  it  to  the  cashier  of 
the  Chicago  bank,  with  a  letter,  in  his 
individual    name,    stating    that    he    had 
been  called  on  to  lake   up  $25.0CO  tor 
a  company  in  which  he  was  interested, 
and  did  not  want  to  borrow  the  money 
from   his   own   bank,   and   asked   if   the 
Chicago  bank  would  place  tiie  inclosed 
note    to    the    account    of   the    St.    Paul 
bank,    adding    that     the      latter      bank 
would  not  draw  against  it.     The  cash- 
ier  of   the    Chicago   bank   replied   that 
he  had  placed  the  proceeds  oi  the  land 
company  note  to  the  credit  of  the  St. 
Paul  bank,  with  the  understanding  that 
none  of  it  was  to  be  paid  out,  and  that 
they   reserved   the   privilege   of   charg- 
ing the  land  company  note  to  the  St. 
Paul  bank,  at  their  option.     The  cash- 
ier   replied,    accepting    the    conditions. 
The  Chicago  bank  then  discounted  the 
land    company's    note,    and    placed    the 
proceeds  to  the  credit  of  ihe  St.  Paul 
bank,    which    then   paid    the   $2.j.000   to 
the  land  company.     The  St.  Paul  hank 
was  not  a  party  to  the  note  of  the  land 
company,    and    had    no    interest    in    it. 
None    of   the    officers   of   the    St.    Paul 
bank,    except    those    who    were    stock- 
holders in  the  land  company,  ever  au- 
thorized, knew  of.  or  ratified  the  agree- 
ment   between    their    cashier    and    the 
Chicago  bank,  and  they  had  no  notice 
that  the  credit  of  $25,000  by  the  bank 
to  the  St.  Paul  hank  was  not  an  actual 
and   unconditional   credit   for   cash   de- 
posited.     Held,    that    the    fraud    of    the 
Chicago    bank    injured    the     St.      Paul 
bank, ^though    the    latter    honored    the 
check  drawn  by  tlic  land   company   in 
favor  of  the  payee  of  the  note  before 
the   Chicago  l)ank  discounted   the  new 
note    of   the    land    company,    since    the 
acts  of  the  cashier  in  acting  for  both 
the    land    compatiy    and    the    St.    1  aul 
bank  were  voidable  by  the  latter,  if  it 
acted  promptly,  as  it  would  have  done, 
were    it    not   for   the   acts   of   the   Chi- 
cago  bank.     Ft.    Dearborn    Nat.    Bank 
t'.  "Seymour,   7.'»    Minn.    lOO.    ..    .n.    \\  • 

543  I 

Where  the  president  of  a  hank 
agreed  with  the  maker  of  a  note,  in- 
dor.sed  to  the  hank  for  discount  or 
,I,e  benefit  of  a  corporation,  of  which 
1,„1,  the  president  of  the  l'-1"»<  -n.d  !'<• 
maker  of  the  note  were  "ftuers  «i 
out  knowledge  on  the  part  of  the  di- 


856 


BANKS    AND    BANKING. 


§  117 


employed  such  an  agent  should  bear  the  loss  rather  than  the  other."-*  Then 
the  question  arises,  whether  the  officer  or  agent  has  such  adverse  interest 
to  the  bank  as  will  prevent  the  bank  from  being  charged  with  notice  to 
him,  which  must  be  determined  according  to  the  facts  of  each  particular 
case  as  they  arise.  It  seems,  though,  that  his  interest  must  be  really  ad- 
verse, and  if  his  interests  on  both  sides  equally  balance,  generally  speaking, 
he  can  not  be  said  to  hold  such  an  interest  as  will  prevent  his  knowledge 
from  being  im])uted  lo  the  bank."-'' 

Unauthorized  Use  of  Bank's  Funds  to  Pay  Third  Person. — Where 
a  transaction  between  the  president  of  a  bank  and  defendants,  in  which 

lii 


rectors  of  the  bank,  that  the  maker 
should  not  be  required  to  pay  the 
note,  such  agreement  was  no  defense 
to  tlie  maker's  lialiility  thereon;  the 
latter  knowing  that  the  interest  of  the 
president  of  the  bank  in  the  corpora- 
tion was  in  conflict  with  his  duties  to 
the  bank.  Bank  v.  Purdy,  100  App. 
Div.  G4,  91  N.  Y.  S.  310. 

Where  the  president  of  a  bank,  the 
stock  of  which  is,  under  its  charter, 
subject  to  a  lien  in  favor  of  the  l^ank 
for  the  indebtedness  of  the  holder  of 
such  stock  to  the  bank,  assigns  a  cer- 
tificate of  stock,  of  which  he  is  the 
owner,  as  collateral  security  for  a  per- 
sonal loan,  notice  of  the  bank's  lien 
being  expressly  given  by  the  certifi- 
cate so  transferred,  the  president's 
knowledge  of  the  assignment  thus 
made  by  him  is  not  notice  to  the  bank 
of  sucii  assignment,  so  as  to  preclude 
it  from  asserting  its  lien  upon  such 
stock  as  to  debts  to  the  bank  incurred 
by  the  president  after  the  assignment, 
but  before  the  bank  has  received  any 
other  notice  of  such  assignment. 
Franklin  Rank  v.  Commercial  Rank,  5 
O.    Dec.   3.39. 

Plaintiffs  were  the  assignees  of  a 
corporation  which  had  a  deposit  with 
defendant  bank.  Defendant  held  three 
of  the  corporation's  notes,  which  de- 
fendant's cashier,  who  was  treasurer 
of  the  corporation,  had  personally  in- 
dorsed. On  the  assignment  plaintiffs 
informed  defendant's  cashier  of  the 
same,  who  agreed  to  transfer  the  de- 
posit account  of  the  corporation  to 
plaintiffs,  and  to  honor  the  checks  of 
one  of  them.  Held,  that  the  defend- 
ant's cashier  was  not  the  proper  bank 
officer  with  whom  the  plaintiffs  should 
have  dealt,  because  of  his  interest  in 
the  affairs  of  the  corporation,  and 
hence  the  agreement  to  transfer  the 
deposit,  being  repudiated  liy  the  di- 
rectors, was  void.  Ellis  v.  First  Nat. 
Bank,  22   R.   I.  5fi.5,  48   .\tl.  036. 

74.    Third  person  without  notice   of 


adverse  interest. — Traders'  Xat.  Bank 
V.  Smith  (Tex.  Civ.  App.),  22  S.  W. 
1056. 

Under  an  agreement  with  the  cash- 
ier of  defendant  bank,  complainant 
company  mortgaged  its  property  to 
secure  bonds,  which  were  left  in  the 
mortgagee's  possession,  to  be  de- 
livered to  the  cashier  for  sale,  on  his 
demand,  the  proceeds  to  be  credited 
on  complainant's  debt  to  the  bank.  In 
the  cashier's  absence,  complainant  was 
notified  that  certain  notes  given  to  the 
ijank  were  due,  and  the  assistant  cash- 
ier, under  instructions  from  the  di- 
rectors, agreed  to  extend  credit  till  the 
cashier  should  return,  on  condition 
that  the  unsold  bonds  should  be  held 
by  the  bank  as  collateral,  and  com- 
plainant thereupon  gave  a  note  recit- 
ing that  it  was  secured  by  said  bonds. 
The  cashier,  on  his  return,  surrendered 
this  note  to  complainant,  taking  re- 
newal notes,  with  the  agreement  that 
the  bonds  should  be  security  for  all 
complainant's  indebtedness  to  the 
bank;  and,  after  obtaining  the  bonds 
from  the  mortgagee,  the  cashier 
pledged  them  lo  the  bank  as  collateral 
security  for  his  own  debt.  Held,  that 
the  bank  could  not  apply  the  bonds  on 
the  cashier's  indebtedness,  but  should 
hold  them  as  collateral  security  for 
complainant's  del)t.  Detroit  Motor 
Co.  i:  Third  Xat.  Bank.  Ill  Mich.  407, 
69   N.  W.  726. 

75.  Interest  must  be  adverse. — 
Where  the  president  of  the  plaintiff 
bank  purchased  from  an  investment 
company,  of  which  he  was  a  stock- 
holder and  director,  a  note  given  to 
the  company  under  an  agreement  to 
which  he,  as  director,  was  a  party,  the 
plaintiff  is  chargeable  with  notice  of 
the  condition  upon  which  the  note  was 
executed  at  the  time  it  acquired  the 
same.  Traders'  Nat.  Bank  v.  Smith 
(Tex.   Civ.   .App.).  22   S.  W.   1056. 

Where  one  who  is  an  officer  of  an 
incorporated  bank  acts  in  a  given  mat- 


§    ^^^  •  REPRESENTATION    OF    BANK.  gz,y 

the  president  paid  defendants  money  belonging  to  the  bank  which  he 
wrongfully  appropriated,  was  concealed  from  the  bank,  and  the  mere  state- 
ment of  the  facts  to  the  directors  would  have  disclosed  the  fraud  defend- 
ants are  liable  to  the  bank  for  the  money  so  received.""  In  the  absence  of 
special  authority,  conferred  by  the  directors  of  a  bank  l.v  resolution  ac- 
quiescence, or  implied  assent,  the  president  of  a  bank  has'  no  authority  to 
draw  drafts  on  its  funds  in  payment  of  personal  debts."  That  the  presi- 
dent was  permitted  to  draw  them  through  the  culpable  negligence  of  the 
directors  is  unavailing,  where  there  was  no  finding  of  such  negli-ence.  or 
that  defendants  were  influenced  thereby  to  accept  the  drafts,  of  which 
they  had  notice  the  president  was  making  improper  use.'S  Rut  if  the 
directors  of  a  bank,  trusting  the  president's  integritv  or  individual  re- 
sponsibility, authorized  him  to  use  drafts  drawn  on  it's  funds  for  private 
purposes,  whether  paid  for  at  the  time  or  not,  any  loss  resulting  from  the  mis- 
use of  such  authority  would  fall  on  the  bank,  and  not  on  a  third  person, 
who  had  taken  the  drafts  for  value  and  in  good  faith,  which,  in  such  casei 
would  be  determined  by  the  established  rules  governing  the  transfer  of  ne- 
gotiable paper."^ 

Cashier. — A  bank  may  recover  funds  misappropriated  by  its  cashier 
from  one  receiving  them  with  knowledge  of  the  misappropriation.s"  Where 
the  cashier  of  a  bank  pays  his  individual  debts  by  entering  the  amount 
to  the  credit  of  his  creditor,  the  bank  may  recover  of  the  creditor  the  money 
it  may  pay  out  on  checks  drawn  on  the  faith  of  the  unauthorized  credit.**' 
And  where  the  cashier's  creditor  accei)ts  the  cashier's  false  statement 
that  he  had  deposited  a  sum  to  creditor's  account,  the  creditor  is  liable 
to  the  bank  for  overdrafts  caused  by  reason  thereof,  and  the  bank  is  not 
liable  to  the  creditor  on  account  of  the  cashier's  agreement."*-     Whore  the 

ter  in  behalf  of  the  bank,  his  acts  are  A  custom   of  bank  cashiers  to  draw 

binding    on    the    corporation,    although  on   their   own   banks   to  pay   their  per- 

at  that  time  and  in  the  same  matter  he  sonal   indelitcdness   would   be   contrary 

may  have   been   acting  also  in  his   in-  to  law,  and  could  not   affect   the  lo>;al 

dividual    interest.      Smith   zr.    Wilson,    1  consequence   that   a  payee  of  tlrafts  so 

Tex.  Civ.  App.  115,  20  S.  W.  1119  (see  drawn,  who  knew  tliat  the   funds  were 

85   Tex.   40^).  to  be  applied  on  the  casliier's  personal 

76.  Unauthorized  use  of  bank's  funds  transactions,  would  be  lialile  to  repay 
to  pay  third  person. — Lamson  v.  Beard,  the  same  to  tlie  l)ank.  Kitchens  :•. 
36  C.  C.  A.  56,  94  Fed.  30,  45  L.  R.  A.  Teasdale  Comm.  Co..  Kt.'.  .M...  App. 
822.  463,    79    ?.    W.    1177. 

77.  Necessity  for  special  authority.  81.  Payment  of  individual  debts.- 
— Lamson  z'.  Beard,  36  C.  C.  A.  56,  94  Ilicr  ;■.  Miller.  C.s  K;m.  'J.''S.  :,',  I'.u-  77. 
Fed.  30,  45   L.  R    A.  S32.                                     82.     Overdrafts    caused    by    cashier's 

78.  Negligence  of  directors. — Tvani-  false  agreement.  A  iMsiiin  .-i  .i  b.tnk. 
son  57.  Beard,  36  C.  C.  A.  56,  94  Vcd.  in  sole  charge  thereof,  pniuii^ed  his 
30,  45  L.   R.  A.  822.  creditor   to   deposit    in    the     bank     the 

79.  Effect  of  existing  authority. —  amount  of  the  debt  at  maturity.  The 
Lamson  v.  Beard,  36  C.  C.  .\.  ^>*>,  9i  amount  was  not  credited  on  the  pass- 
Fed.   30,   45   L.   R.   A.   822.  book  of  the  creditor,   nor  was  any  rn- 

80.  Misappropriation  of  funds  by  try  made  thereof  on  the  b.»oks  of  the 
cashier.— Hier  v.  Miller,  68  Kan.  25H,  bank.  The  creditor  aicrpied  the  faUr 
75  Pac  77-  Kitchens  v.  Teasdale  statement  of  the  cashier  that  tiie  dr- 
Comm.  Co.,  105  Mo.  App.  463,  79  S.  W.  posit  had  lu-en  made,  .•m.l  drew  against 
2177  llic    <!rp(isil.    :in<l    Ins   cheeks   were   paid 


858 


BAXKS    AND    BANKING. 


§  117 


cashier  of  a  bank  places  the  amount  of  his  debt  to  the  credit  of  his  creditor 
on  his  pass  book,  the  fact  that  the  cashier  is  personally  interested  is  suffi- 
cient to  put  the  creditor  on  inquiry  as  to  the  extent  of  the  cashier's  power.s^ 
Where  a  bank  cashier  transmits  funds  to  a  commission  company  by  draft 
on  the  bank's  correspondent,  over  his  official  title,  to  be  used  in  grain  specu- 
lation, the  commission  company  is  apprised  that  the  cashier,  by  the  abuse 
of  his  power,  is  employing  the  funds  of  the  bank  in  speculation  on  his  indi- 
vidual account.^-* 

Authority  of  Cashier.— The  general  authority  of  a  cashier  of  a  bank 
does  not  authorize  him  to  issue  drafts  of  the  bank  for  himself  or  for  his 
private  use.*=^  And  he  has  no  such  implied  authority,  the  bank  having  re- 
ceived nothing  of  value  in  the  transaction.^*"  The  cashier  of  a  bank,  as 
such,  has  no  authority  to  issue  cashier's  drafts  to  his  own  order  in  pay- 
ment of  his  individual  debts,  and  a  creditor  accepting  a  draft  so  drawn 
takes  the  risk  of  such  lack  of  authority.*'  Where  checks  are  drawn  for 
the  cashier's  individual  use  on  his  bank,  the  payee  can  not  assume  that  he 
is  acting  in  the  scope  of  his  official  duties,  and  such  payee  is  under  obliga- 
tion to  ascertain  the  special  authority  of  the  cashier  to  make  out  checks  out- 
side such  official  duties.^® 

Misappropriation  of  Assets— Rights  of  Assignee.— Where  the  di- 
rectors and  trustees  of  a  defunct  bank  have  no  authority  to  pledge  the 
assets  of  the  bank,  an  assignment  of  a  life  policy  beld  by  it,  as  security  for 
a  note,  to  a  third  person  in  consideration  of  their  personal  indebtedness  to 


on  presentation.  Subsequently  the 
hank  went  into  liquidation.  The 
creditor  did  not  show  that  he  couhl 
have  made  his  claim  out  of  the  cash- 
ier. Held,  that  the  creditor  was  lial)lc 
to  the  bank  for  his  overdrafts,  and  the 
bank  was  not  responsible  to  him  as  a 
depositor  for  the  amount  the  cashier 
agreed  to  deposit  to  his  credit.  Lang- 
lois  V.  Gragnon,  123  La.  453.  49  So.  18. 

83.  Sufficient  notice  of  third  party. 
— llicr  7'.  Millor.  tiS  Kan.  2r)S.  T.">  Pac.  77. 

84.  Fund  to  be  used  in  speculation. 
— KitcluMis  V.  Teasdalc  Coinni.  Co..  lO.j 
Mo.    App.    4r..^,    79    S.    W.    1177. 

85.  Authority,  generally,  of  cashier. 
—Mendel  :•.  Boyd.  71  Xeli.  657,  90  X. 
W.   493. 

86.  Cashier  has  no  implied  authority. 
— The  cashier  of  a  bank  has  no  im- 
plied autliority  to  pay  liis  individual 
debts  by  entering  the  amount  of  them 
as  a  credit  on  the  pass  book  of  his 
creditor,  who  keeps  an  account  \vith 
the  bank,  and  permitting  the  creditor 
to  exhaust  such  account  by  checks, 
which  are  paid;  the  bank  having  re- 
ceived nothing  of  value  in  the  trans- 
action. Hier  v.  Miller.  68  Kan.  258, 
75  Pac.  77. 


87.  Right  to  use  cashier's  drafts  for 
personal  use. — Gale  v.  Chase  Nat. 
I'.ank.   43   C.   C.   .\.  496,   104   Fed.   214. 

88.  Duty  of  payee  to  ascertain  cash- 
ier's authority. — The  cashier  of  a  bank 
kept  an  account  with  defendants,  who 
were  lirokers  and  bought  and  sold 
stocks  for  him,  and  from  time  to  time 
defendants  received  checks  of  his  bank 
en  another  bank,  its  correspondent, 
drawn  by  him  in  his  official  capacity, 
and  collected  them  and  applied  them 
to  the  cashier's  individual  account.  In 
an  action  by  a  receiver  of  the  bank 
of  the  cashier  to  recover  of  defendants 
the  amount  of  the  checks  received  by 
them,  held  that,  the  checks  being  made 
payable  to  the  order  of  defendants  for 
the  cashier's  individual  use.  defendants 
took  them  under  an  obligation  to  as- 
certain that  the  cashier  had  authority 
outside  his  ordinary  official  authority 
to  make  the  checks,  and  could  not  as- 
sume that  he  was  acting  in  the  scope 
of  his  official  duties.  Anderson  v. 
Kissam.  35  Fed.  699.  judgment  reversed 
on  other  points.  Kissam  v.  .\nderson. 
145  U.  S.  435.  36  L.  Ed.  765,  12  S.  Ct. 
960. 


§118  REPRESENTATION    OF    BANK.  SS'") 

such  assignee,  is  invalid. ^^ 

As  Affecting  Purchaser  of  Negotiable  Paper. — Where  a  person  ac- 
cepts, in  good  faith,  negotiable  paper  in  a  bank,  the  same  being  pledged  to 
him  by  the  cashier,  he  acquires  a  good  title,  and  such  title  can  not  be  di- 
vested by  a  fraudulent  recovery  thereof  by  the  cashier.""     Where  a  note 
executed  solely  for  the  accommodation  of  a  bank  was  made  payable  to  the 
order  of  the  bank's  cashier,  and  indorsed  in  blank,  the  mere  fact  that  the 
president  of  the  bank  negotiated  the  note  for  his  personal  benefit  to  a  third 
person,  who  knew  his  office,  was  not  of  itself  notice  to  the  purchaser  of 
the  facts,  or  sufficient  to  put  him  on  inquiry  as  to  the  legality  of  the  presi- 
dent's act.^^     A  creditor  of  the  president  who  in  good  faith  received  the 
note  from  him  before  its  maturity  and  without  notice  of  the  equities  exist- 
ing between  the  makers  and  the  payee,  was  a  bona  fide  holder  for  value 
in  the  due  course  of  business,  although  the  creditor  took  the  note  as  col- 
lateral security  for  an  existing  debt  of  the  president,  and  for  this  jnirpose 
and   upon  this   consideration  only.^- 

As  Affecting  Depositor— Depositor  for  Collection.— Where  the  cash- 
ier of  a  bank  receives  deposits,  and  evidences  of  debt  for  collection,  the 
bank  can  not  avoid  accounting  to  the  depositor,  on  the  ground  that  the 
cashier,  without  the  banker's  knowledge,  acted  in  furtherance  of  an  inde- 
pendent, fraudulent  scheme  to  appropriate  the  funds  to  his  own  use."-'' 

Estoppel  of  Bank.— Where  the  cashier  actually  makes  a  false  entry  ot 
deposit  in  favor  of  his  creditor,  the  bank  is  estopped  to  deny  the  validity 
of  the  creditor's  check  to  that  amount,  which  it  has  paid  and  not  objected  to 
until  after  its  failure,  and  can  not  recover  against  him.''« 

§  118.  Evidence  as  to  Authority.— Presumptions.— The  general  rule 
is  that  a  bank  acts  through  its  president,  and  through  him  executes  its  con- 
tracts and  agreements;    and  an  act  pertaining  to  the  business  of  the  corpo- 

,     r  ^„cptc  for  92.     Bona    fide    holder    without    no- 

89.  Invahd  assignment  of  assets  tor  •  ^^-.^1,^,^  ,,  Unin-.l  St;itis  Nat. 
personal       indebtedness.— New       York       ^^^^^    ^,^  '^..^    .,.,,    .,,.  ^^    ,.-    ,;..„ 

Life  Ins.  Co.  v.  Kansas  City  Bank,  121  ^^  '  -^   affecting   depositor     Deposi- 

Mo.  App.   479,   97   S.  W.  195.  ^^^   j^j.    collection.— 1  laiisoii    ::    lU-.u.i. 

90.  Acceptor,  in  good  faith,  of  nego-      ^^  ^^    ,f    ,,,„     .^    .\tl.  78S. 

tiable  bond.— Ringlins   J'-    Kohn,   4  Mo.  g^      Estoppel    to    deny     validity      of 
App.  59.  checks.— 'Plu-  cashier  of  a  bank.  bciUK' 
"As  a   general  rule,  where   a  trustee  individually  indebted  to  ..  d;M>-s<t<^.  '"- 
nr  p^ent  has  converted  the  subject  of  formed  him  that  he  had  placed  >2.0M 
hs    trust   or    agency   into   money,    and  ,o  his   credit   at   the   bank   on   accoun 
^ll«Th;    same    in    the    due    course    of  of  such  debt,  but  only  onterrd  a  credit 
l^-      t     inXcharA   of   his    own   in-  of  $1,000  to  the  depositor  on  the  bank 
SSss    to'::;!^i|nc^ant  of  the  na.  ,oL    a"'V,-VS^si;;;r   .avh;   "l^w" 
trre   of  his  title    the  payee  acquires  a  the  bank.    T^' ^  ''' I''\^''"'^..'\'  "  ^,,-    „. 
iSe?^  ^^ndefeasi,|   nj^;t   agamst  ch^    ^r    the    cntn.J..oo.^.^c^- 
^rk^^.    A^eS^an^lSf  ^.^Bank  nl^.^at    -   receive   was ^c^^ 
(N.  Y.^.  34  Hun  26;  Stephens  ^.  Board,  ^  cU  ny  1   e  ere  b,^^^     _^  ^^^  ^^_^^^^ 
79  N.  Y.  183,  35  Am.  Rep.  511.  ^J'L!     L   $1  000    for    which    no   credit 
91.  As   affecting  Purchaser  ^^  nego-  ^^f  i^I^^^'wiUiains   :■.    Porricr.    135 
tiable  paper.-Kaiser  ^-   United    States  was    K    c  ^^    ^^^    ^^^.,^ 
Nat.   Bank,   99   Ga.  258,  25   S.   E.   (.20.  la.. 


g50  BANKS    AND    BAXKING.  §    118 

ration,  not  clearly  foreign  to  the  general  power  of  the  president,  done 
through  him,  will,  in  the  absence  of  proof  to  the  contrary,  be  presumed 
to  have  been  authorized  to  be  done  by  the  corporate  body.^^  But  an  excep- 
tion to  this  general  rule  may  be  created  by  the  provisions  of  the  by-laws 
of  the  corporation.''^  The  directors  of  a  bank  having  the  power  to  author- 
ize the  president  to  assign  or  transfer  a  note  for  the  purpose  for  which  it 
was  assigned,  or  subsequently  to  ratify  it  if  unauthorized,  such  assignment 
will  be  presumed  to  be  binding  on  the  bank  until  it  is  shown  that  it  was 
not  authorized  or  ratified  by  its  directors/^'  In  the  absence  of  evidence  to 
the  contrary,  it  will  be  presumed  that  the  president  of  a  bank  has  authority 
to  offer  a  reward  for  information  leading  to  the  arrest  of  a  defaulting 
teller.^^  The  cashier,  as  one  of  the  executive  officers  of  a  bank,  has  prima 
facie  authority  to  receive  deposits  and  collect  notes,  checks,  etc..  as  an  in- 
cident to  the  banking  business,  and  to  bind  the  bank  to  that  extent.^-'  The 
cashier  of  a  national  bank  stands  no  dift'erent  in  this  respect  from  the 
cashiers  of  other  banks  of  discount.  Such  banks  have  authority  to  make 
collections,  etc.,  as  an  incident  to  the  business,  although  the  authority  is 
not  expressly  mentioned  in  the  national  banking  act.^  The  cashier  is  pre- 
sumed to  have  all  the  authority  he  exercised  in  dealing  with  the  executive 
functions  legally  within  the  power  of  the  bank  itself,  or  which  are  usually 
or  customarily  done,  or  held  out  to  be  done  by  such  agent.  But  the  test 
of  the  transaction  is  whether  it  is  with  the  bank  and  its  business  or  with 
the  cashier  personally  and  in  his  business.^  As  to  the  former,  all  presump- 
tions are  in  favor  of  its  regularity  and  binding  force.  In  the  latter,  no 
such  presumption  arises. -"^       In  fact,  upon  proof  that  it  was  known  to  the 

95.  Presumptions  as  to  acts  done. —  1.  Same  rules  apply  to  cashiers  of 
Bank  7:  C.ritVni.  ms  111.  314.  4S  X.  1-*.  national  banks.— I  laiisnn  r.  Heard.  69 
154;  jMoser  f.  KreiRli.  49  111.  84;  X.  11.  I'.tu.  iis  .\tl.  788;  Vcrkcs  z:  Na- 
Mitcliell  7'.  Deeds,  49  Til.  410.  9.5  Am.  tional  Bank,  69  X.  Y.  382.  25  \m.  Rep. 
Dec.  621;  Smith  v.  Smith.  62  111.  49.3;  208;  Keycs  7-.  Bank.  52  Mo.  App.  323. 
Glover  7'.  Lee.  140  111.  102.  20  N.  E.  See  post.  "Representation  of  Bank  by 
6R0.  Officer."   §  262. 

96.  Exception  to  rule.— Bank  v.  2.  Presumption  in  favor  of  authority 
Gritiiii,   ir.s    111.   :il4.   4S    X.    1"..   1.">4.  exercised. — CainplK-11  :■.   Maimtacturcrs' 

97.  Authority  to  make  assignment.  Xat.  Bank.  67  N.  J.  L.  301.  51  Atl.  497, 
— Harris  :•.  Randolph  County  I'aiik.  91  .\m.  St.  Rep.  438;  Claflin  7-.  Farm- 
157  Ind.  120,  60  N.  E.  1025;  National  crs".  etc..  Bank.  25  X.  Y.  293;  Moores 
State  Bank  v.  Vieo  County  Nat.  Rank,  7'.  Citizens'  Nat.  Bank.  Ill  U.  S.  156, 
141    Ind.   352.   40  N.   E.  799.   50   .\m.   St.  28  L.  Ed.  335.  4  S.  Ct    345. 

Rep.  330;  First  Nat.  Bank  7'.  New,  146  In    the    absence    of   statute,    the    acts 

Tnd.    411.    45    N.    E.    597;    Hawkins    7-.  of    a    bank    cashier     in      the      ordinary 

Fourth   Nat.  Bank.  150  Ind.  117,  49  N.  course  of  business  actually  confided  to 

F.  957.  him   are   prima   facie   within    the    scope 

98.  Bank  7.  Griffin.  168  111.  314.  48  of  his  authority.  Third  Nat.  Bank  7-. 
X.  F.  ir>4.  St.    Charles    Say.    Bank    (Mo.\    149    S. 

99.  Prima  facie  authority  of  cashier.  W.  495. 

— Hanson   7'.    Heard.   60    X.    H.    I'.io,  ;?s  3.     Campbell   7'.    Manufacturers'    Nat. 

Atl.  788;   Eastman  v.  Coos   Bank.   1  X.  Bank.   67   N.   J.    L.   301.   51    Atl.   497.   91 

H.  23;  Corscr  7'.  Paul.  41    N.  H.  24.  77  Am.   St.   Rep.   438. 

.\m.   Dec.  753;   Bank  7-.  Haskell,  51  N.  Where    a    transaction    is   had   with    r\ 

H.   115;   Hunter  7-.   New  York.  etc..  R.  cashier    personally    and    in    relation    to 

Co..  116  N.  Y.  615.  23  N.  E.  9.  his    business,    there    is    no   presumption 


§  118 


REPRESENTATION    OF    I5ANK. 


861 


claimant  to  be  an  individual  transaction,  and  not  one   for  the  bank,  tbe 
burden  is  cast  upon  the  claimant  to  establish  by  proof  that  the  act  of  the 
cashier  thus  done  for  his  own  benefit  was  authorized  or  ratified.     These 
are  fundamental  principles  applicable  to  principal  and  agent  in  every  trans- 
action arising  out  of  that  relation.-*     Where  a  bank  is  shown  to  be  right- 
fully in  the  collection  business,  including  the  collection  of  rents,  the  pre- 
sumption is  that  the  cashier  of  the  bank,  in  receiving  money  due  plaiiuitl 
on   a   lease   and   depositing   it   subject   to   plaintiff's   clicck.   is   acting  oth- 
cially,  rather  than  individually. •'"'     It  will  be  presumed,  until  the  contrary 
is  shown,  that  a  cashier  who  sold  a  note  on  behalf  of  a  bank  was  authorized 
to  do  so  by  the  directors,  or  that  they  ratified  his  act."     In  the  absence  of 
proof  to  the  contrary,  the  cashier  of  a  bank  will  be  held  to  have  authority 
to  turn  out  assets  of  the  bank  in  payment  of  its  indebtedness."     I'sually  tlie 
authority  of  the  cashier  of  a  bank  is  a  limited  authority,  ami  a  party  seek- 
ing to  show  a  release  by  the  cashier  from  liability  upon  commercial  paper 
held  by  the  bank,  except   from  the  ordinary  course,  must  show  tlial  the 
cashier  had  authority  from  the  directorate,  or  that  the  act  had  been  ratiticil 
■or  acquiesced  in   by  the  bank.     Such  authority,  however,  may  be  shown 
expressly   or   by    necessary   implication,   or   it   may   be   established   by   the 
particular  usage,  practice,  or  mode  of  doing  l)usincss  of  the  bank.'"*     It  is 
not  presumed  that  the  cashier  of  a  bank  has  authority,  on  receiving  a  de- 
posit, to  promise  interest  at  a  usurious  rate.^     However,  such  a  promise, 
although  unauthorized  and  illegal,  can  not  relieve  the  bank  of  tiie  obhga- 
tion  to  return  the  money  so  received  to  the  party  to  whom  it  rightly  be- 
longs.^" 

Admissibility.— Agency  for  a  corporation  may  be  proved,  and  authority 
to  act  for  it  implied,  just  as  in  the  case  of  a  natural  person." 


that  he  had  the  authority  he  exercised 
in  the  matter.  Campbell  v.  Manufac- 
turers' Nat.  Bank,  67  N.  J.  L.  301,  51 
Atl.    497,   91    Am.    St.    Rep.   438. 

4.  Individual  transaction  must  be 
proven  ratified  or  authorized.— Camp- 
bell V.  Manufacturer's  Nat.  Bank,  6< 
N  J  L.  301,  51  Atl.  497,  91  Ani.  St. 
Rep.  438;  Bank  v.  American,  etc.,  Irust 
Co  143  N.  Y.  559,  38  N.  E.  713;  Man- 
hattan Life  Ins.  Co.  v.  Forty-Second, 
etc  R.  Co..  139  N.  Y.  146,  34  N.  h. 
776;  Shaw  v.  Spencer,  100  Mass.  382. 
97  Am.  Dec.  107,  1  Am.  Rep.  ll.'- 
Petrie  z>.  Clark,  11  Serg.  &  R.  37-,  1 
Am  Dec.  636;  Rochester,  etc..  Road 
Co.  V.  Paviour,  164  N.  Y  ^«1-  •'%.^, 
E.  114,  52  E.  R.  A.  '90;  l^"*^^-  •^--  *■-'' 

Ed.),    p.    110.  ,  ^       ,„      „, 

5.     Collection    of    rents.— Knaop      <  • 

c  1     ..      1-     Q      nnk      404,    90    N.     N'V  ■ 

Satinders,     i  ■>    o-    i^aw.    -+"-». 

"e.  Sale  of  note  by  cashier -llaw- 
Tcins  V.  Fourth  Nat.  F,ank^l5n  Ind  11-. 
49   N.    E.   957;   National   State    Lank    -. 


Vigo  County  Nat.  Rank.  141  Ind.  352. 
40  N  E  799.  50  .\m.  St.  Rep.  330; 
Smith  r.  Wells  Mfg.  Co.,  t  is  Ind.  333. 
46  N  1'  1000;  People's  Bank  f.  Na- 
tional r.ank.  1(11  r.  s.  isi.  ::.'.  I.,  'mi- 

907. 

7     Payment  of  debts  with   assets.— 

Peninsular    T.ank  r.    liannuT,    1»    Mich. 

207.  ...  » 

8.    Acts  within    cashiers    scope     ot 

duty.— Wing  :•.  Coiinmrcial.  etc..  Hank. 

lOI!     Mich.     .-.6,-..     61      \.     \y.     .009 

9     Acts  prohibited  by  law.—  l  l;»ii-.>n 
.,    I'l, .;,,,].  <■,;.  X.   II.   191).  :••>    \'l    -'*;'< 
10.    Effect  of  illeg-'l  promise -Han- 

Mass.  137.  3M  \.  F..  :!<-.s.  n    \m   M    K«Mv 

^'il  Admissibility  to  nrove  aRcncy. 
Metxtrer  r.  SoikIutu  Ih.nk.  "«  M'"" 
;;;«  r.t'^Vo  211 :  Ca.cv-Halli.lay  I.um- 
Tr"  C  .  ■  Cain.  TO  Mis^  n2H.  ^  S>. 
oiiJ.  and  see  Rivers  :;  Va.»o.  c.c.  R. 
Co..    90     Miss.     196.    43    So.    4.1.       >«'C. 


862 


BANKS    AND    BANKING. 


§  118 


Authority  of  President. — The  inference  that  authority  to  enter  into  a 
certain  contract  has  been  conferred  on  the  president  of  a  bank  may  be 
legitimately  drawn  from  proof  that  he  was  in  the  habit  of  doing  such  acts 
or  making  contracts  of  the  same  character  as  the  particular  act  or  contract 
in  question,  and  that  these  acts  or  contracts  so  done  or  made  by  him,  though 
in  relation  to  different  subjects,  involve  the  same  general  power.^-  The 
fact  that  the  president  of  a  bank  has  been  authorized  by  the  board  of  di- 
rectors to  transfer  or  assign  notes  belonging  to  the  bank  may  be  proven  by 
showing  the  existence  of  such  facts  as  constitute  a  public  holding  out  that 
he  had  such  authority,  and  may  be  legitimately  inferred  from  the  proof 
that  he  was  in  the  habit  of  doing  acts  of  the  same  general  character,  though 
applied  to  a  different  subject — as  the  assignment  of  bonds  or  judgments; 
but  such  authority  can  not  be  inferred  from  the  evidence  that  he  was  in 
the  habit  of  receiving  deposits  or  payments  of  notes,  or  that  he  was  actually 
authorized  to  receive  generally  deposits  and  payments  made  to  the  bank.'^ 
And  it  is  also  true  that  it  could  not  be  legitimately  inferred  from  his  habit 


also,  the  following,  amongst  many 
other  authorities:  Birmingham  Trust, 
etc.,  Co.  7'.  Louisiana  Xat.  Bank,  'jy 
Ala.  379,  13  So.  112,  20  L.  R.  A.  600; 
Second  Xat.  Bank  t-.  Howe,  40  Minn. 
390,  42  X.  W.  200,  12  Am.  St.  Rep.  744; 
Merchants'  Xat.  Bank  r.  Mc.\nulty 
(Tex.  Civ.  App.),  31  S.  W.  1091. 

Where  certain  directors  of  a  hank 
gave  a  note  for  a  loan  from  anotlier 
bank,  the  note  l)cing  indorsed  by  the 
bank  by  its  president,  and  it  was  re- 
newed by  another  note  indorsed  by  the 
cashier,  and  in  a  suit  on  the  note 
against  the  bank  the  defense  was  that 
the  officers  had  no  authority  to  make 
the  indorsement,  and  that  the  loan  was 
procured  by  them  for  their  individual 
use,  it  was  error  not  to  admit  cvid<Micc 
that  the  president  of  the  borrowing 
bank  told  the  cashier  of  the  lender  l>e- 
fore  tlic  renewal  was  made  that  the 
loan  was  for  the  bank.  First  Xat. 
Bank  v.  Arnold,  156  Ind.  487,  60  X. 
E.  134. 

Where,  in  an  action  by  a  bank  for 
an  indebtedness  due  to  it,  defendant 
relied  on  a  settlement  with  his  cred- 
itors, including  the  bank,  and  the  pay- 
ment to  the  bank  of  the  amount  due 
imder  the  settlement,  and  that  the  bank 
was  bound  by  the  settlement  by  rea- 
son of  the  acts  of  the  cashier  having 
authority  to  manage  the  affairs  of  the 
bank,  and  by  the  bank's  ratification  of 
the  acts  of  the  cashier,  or  by  estoppel, 
evidence  that  the  action  was  brought 
shortly  after  the  death  of  the  mother 
of  defendant,  from  whom  he  inherited 
an    interest    in    her    property,    was    ad- 


missible as  bearing  on  the  question  of 
ratification  or  csti>ppel.  Metzgcr  v. 
Southern  Bank,  98  Miss.  108,  54  So. 
241. 

In  an  action  against  a  bank  for 
money  received  through  the  instru- 
mentality of  its  cashier,  conversations 
between  the  cashier  and  plaintiff's  of- 
ficers during  the  negotiation  of  the 
transaction  held  admissible  after  the 
cashiers  authority  had  been  repudi- 
ated. Third  Xat.  Bank  r.  St.  Charles 
Sav.    Bank   (Mo.).   149   S.  W.  495. 

The  authority  of  an  attorney  in  fact 
of  a  l)ank  to  receive  lands  in  satisfac- 
tion of  drafts  held  by  the  bank  may  be 
inferred  from  the  acts  and  conduct  of 
the  parties,  and  need  not  be  shown  by 
resolution  or  l»y-law  of  a  board  of  di- 
rectors.    Xorton  V.  Bull,  43  Mo.  113. 

The  power  of  a  bank  officer  to  re- 
lease a  surety  without  payment  can  lie 
conferred  by  direct  action  on  the  part 
of  the  board  of  directors  of  the  bank, 
but  may  be  inferred  from  evidence  of 
a  general  course  of  dealing,  or  from 
proof  tliat  the  officer  or  agent  had 
been  intrusted  with  the  entire  man- 
agement of  the  business  of  the  bank. 
Pierce  Citv  Xat.  Bank  r.  Hughlett,  84 
Mo.   App.   -i-.s. 

12.  Admissibility  to  show  authority 
of  president. — First  Xat.  Bank  7-.  Kim- 
berlantls.  16  W.  Va.  555.  See  Farmers' 
Bank  r-.  McKee,  2  Pa.  318;  Mount 
Sterling,  etc..  Road  Co.  f.  Looney 
(Ky.\  1  Mete.  550,  71  .Am.  Dec.  491. 

13.  Smith  r.  Lawson,  18  W.  Va.  212, 
41    Am.    Rep.    688. 


§    118  REPRESENTATION    OF    BANK.  863 

of  receiving  deposits  in  the  bank  or  his  receiving  payment  of  its  negotiable 
notes  that  the  power  to  dispose  of  or  transfer  a  negotiable  note  had  been 
conferred  on  the  president  of  a  bank ;  for  this  would  be  the  exercise  of  an 
entirely  different  sort  of  power,  and  one  much  more  limited  in  its  character. 
Thus  the  clerk  of  the  cashier  of  a  bank  in  his  temporary  absence  may  re- 
ceive deposits  or  payments  of  notes,  but  can  not  dispose  of  or  transfer 
the  negotiable  notes  belonging  to  the  bank.^-*  In  an  action  on  a  certificate  of 
deposit  signed  by  one  alleged  to  be  the  president  of  the  bank  as  "manager," 
a  certificate  to  another  than  plaintiff,  issued  by  the  same  person  as  manager, 
is  admissible  in  evidence  as  tending  to  show  the  authority  of  such  president 
to  issue  such  certificate.^^ 

Authority  of  Cashier. — Under  an  allegation  that  a  guaranty  sued  on 
was  executed  by  the  defendant  bank  in  the  name  of  its  cashier,  and  that 
such  cashier  was  authorized  by  a  general  usage  to  bind  the  bank  to  similar 
contracts,  the  plaintiff  may  prove  any  competent  authority  to  the  cashier, 
and  is  not  restricted  to  proof  of  usage. ^^^  On  the  question,  whether  the 
cashier  of  a  bank  has  authority  to  issue  a  certificate  of  deposit,  other  acts 
of  a  similar  kind,  frequently  done  by  him  are  admissible  as  evidence.*" 

Negotiation  of  Loan. — Where  the  cashier  of  a  bank  effects  a  loan,  and 
it  becomes  material  to  ascertain  whether  it  was  made  for  his  own  accoum 
or  for  the  use  of  the  bank,  evidence  of  the  negotiation  and  circumstances 
may  be  given  for  that  purpose,  whatever  may  be  the  form  of  the  securities 
given  or  received,  when  the  latter  are  introduced  only  cullatcraliy  in  the 

cause. ^^ 

Purchase  of  Property.— In  an  action  against  the  bank  for  tlie  price  ul 
property  purchased  a  witness  should  not  be  permitted  to  testify  that  he 
signed  the  order  sued  on  as  chairman  of  the  organization  committee  of  thf 
bank,  without  proof  from  the  minutes  of  the  creation  of  such  a  ct)mmittee. 
or  of  powers  conferred  on  it.  Nor  should  such  witness  be  permitted  to 
testify  that  in  making  the  purchase  he  considered  he  was  purchasing  some- 
thing needed  by  the  bank  and  covered  with  his  understantling  of  authority."' 

Authority  of  Assistant  Teller.— The  authority  of  an  assistant  teller 
of  a  bank  to  certify  checks  as  "good"  may  not  be  shown  by  evidence  of  a 

mercial    Bank,    48    S-    C.    430,   20    S.    K.       '^■\l^''-^-'^^,-^,;^,,    of    loan     Evidence 

"^25.  .  .  ^„       „c   tr.  rViararfer  in  which  made.     H.ink 

16.  Authority   of  cashier  to  execute       a^  to  character  ,n  _^    _,^    ^ 

guaranty .-Seeber  v.   Commercial   ^at.  '^  I^^;!';^^'>    Ct-  .■'•   •' 

Bank,    77    Fed.    9.57.            ,.    ,     y       -^o-  Vq  'purchase  of  property     Authority 

17.  Acts    of     similar    kmd-Issumg  J%^^'^^^'y,Jchl^^^^^^ 
certificates    of    deposits.-Robinson     ..  ^  ,^"^ '"i;^,,^.  ^,.;,,   ,;;,„i,  :•    lhnr..,m-h» 
Bealle,  20   Ga.  275.  ^,.        ^f     ,,    Co.,  <51    I-la.  n:t.  -*  ^o. 

In    an    action    on    certificates    of    de-       Acldum 
posit  signed  by  the  cashier  of  a  bank.       89b. 


864 


BAXKS    AND    BANKING. 


§  118 


general  custom  of  banks  to  authorize  such  agents  to  pledge  the  credit  ot 
the   bank  by   certifying  checks.-"' 

Weight  and  Sufficiency  of  Evidence.— Where  the  question  in  issue 
is  the  existence  of  an  agency  for  a  bank  or  the  existence  of  an  authority 
to  act  for  the  bank  in  a  matter,  the  general  rules  as  to  the  weight  and  suffi- 
ciency of  evidence  apply.  The  agency  or  authority  to  act  must  be  estab- 
lished by  a  preponderance  of  the  evidence.  In  the  footnotes  will  be 
found  cases  on  the  question  of  authority  of  particular  officers  on  the  fol- 
lowing subjects:  of  vice-president  to  employ  an  attorney^i  of  president 
to  execute  a  bondr^  of  cashier  to  issue  cashier's  drafts  to  his  own  order 
in  payment  of  his  individual  obligations.-^^  of  cashier  in  regard  to  convey- 
ance and  reconveyance  of  property^-*  of  cashier  to  execute  instruments  on 
behalf  of  bank,^^  of  cashier  to  cancel  bond  given  to  the  bank  to  indemnify 
against  discounts,  etc.,-*''  of  cashier  to  bind  bank  by  statements  as  to  finan- 


20.  Authority    of    assistant    teller, — 

Hill  r.  Nation  Trust  Co..  108  Ta.  1,  .56 
Am.   Rep.  189. 

21.  Authority  of  vice-president  to 
employ  attorney. — In  an  action  by  at- 
torneys to  recover  for  personal  serv- 
ices rendered  a  bank,  in  which  the  de- 
fense was  that  the  vice-president,  who 
employed  the  plaintififs.  both  for  him- 
self individually  and  for  the  bank  had 
no  right  to  act  for  the  bank,  the  evi- 
dence reviewed,  and  held  insufficient 
to  sustain  a  judp^mcnt  entered  on  a 
verdict  for  the  defendant  directed  by 
the  court  at  the  close  of  plaintiff's  testi- 
mony. Russell  f.  Washington  Sav. 
Bank.  2:^   .\pp.   D.   C.  :^08. 

22.  Authority  of  president  to  execute 
bond. — .V  Ixind  was  executed  under  the 
seal  of  a  bank  by  its  president  who 
made  an  affidavit  stating  that  he  was 
president,  that  the  seal  affixed  was  the 
corporate  seal  of  the  bank,  and  that 
the  seal  was  affixed  by  order  of  the 
board  of  directors,  and  that  he  sub- 
scribed the  same  by  their  order.  Held 
prima  facie  evidence  of  the  authority 
of  the  president  to  execute  the  bond. 
Mutual  Life  Ins.  Co.  v.  Yates  Cpunty 
Nat.  Bank.  2r,  \pp.  Div.  218.  .vt  X.  V. 
S.   74.3. 

23.  Authority  of  cashier  to  issue 
cashier's  drafts. — To  warrant  a  finding 
lliat  the  ca.sliicr  of  a  i^ink  had  implied 
authority  to  issue  cashier's  drafts  to 
his  own  order  in  payment  of  his  in- 
dividual debts,  such  as  will  bind  the 
bank  and  protect  a  creditor  in  accept- 
ing a  draft  so  drawn  for  a  sum  so  large 
as  to  be  out  of  the  usual  line  of  con- 
duct in  the  banking  business,  a  settled 
course  of  business  must  be  shown,  by 
which  he  was  permitted,  with  the  ac- 
quiescence   of    the    directors,    to    exer- 


cise such  authority  during  a  series  of 
years  or  in  numerous  transactions;  and 
evidence  that  he  had  drawn  not  ex- 
ceeding nine  drafts  in  all  in  payment 
oi  his  own  debts,  only  four  of  which 
were  to  his  own  order,  and  all  of 
which  were  issued  within  the  preced- 
ing six  m.onths,  is  insufficient.  Gale  -•. 
Chase  Nat.  Bank.  43  C.  C.  .\.  4'.)r..  104 
Fed.   214. 

24.  Conveyance  of  property — Cashier. 
—  Evidence,  in  a  suit  to  compel  recon- 
veyance of  property  conveyed  to  a 
bank,  held  to  show  that  the  cashier 
who  acted  for  it  in  the  matter  acted  as 
its  authorized  representative  in  agree- 
ing to  reconvey  within  a  year  if  grantor 
within  that  time  succeeded  in  selling 
the  property.  Porter  t-.  Farmers',  etc., 
Sav.  Bank.  143  Iowa  629,  120  K.  W. 
633. 

25.  Execution  of  instrument  by 
cashier. — The  execution  of  an  instru- 
ment on  l)ehalf  of  a  bank  by  its  cash- 
ier is  shown  to  have  had  the  authority 
of  the  officers  by  evidence  that  the 
bank's  attorney,  one  of  the  directors, 
was  consulted  and  approved  the  in- 
strument, that  the  cashier's  acts  in 
similar  transactions  were  invariably 
acquiesced  in  and  his  own  testimony 
that  the  act  in  question  received  the 
director's  approval.  Whitney  :•.  Fos- 
ter.   117    Mich.    643.    76    X.   W.    114. 

26.  Authority  to  cancel  bond. — I  nan 
action  against  the  surety  on  a  bond 
given  to  a  bank  to  indemnify  it  against 
all  discount,  etc..  of  the  paper  of  a 
certain  corporation,  the  defense  was 
that  the  bond  had  been  surrendered 
and  canceled,  and  another  one  taken, 
and  plaintiff  denied  the  authority  of 
tlie   c:\shier  to  surrender  tiie   bond.     A 


§  118 


REPRESENTATION    OF    HANK. 


865 


cial  responsibility  of  third  persons,-'  of  cashier  with  reference  to  lessee 
of  rooms  in  bank  building,-^  of  particular  officers  to  assign  notes.-''  of  as- 
sistant cashier  in  reference  to  erection  of  bank  building,  building  con- 
tracts, etc.,^'*  of  teller  to  accept  and  discount  notes.^^  of  particular  agents 
to  sign  certificates  of  deposit.^^  The  same  general  rules  applv  to  the 
question  of  ratification  of  acts  done  by  the  bank's  agents.-'"'  \\here  a  pre- 
sumption exists  in  favor  of  the  acts  and  authority  of  an  officer  of  a  bank. 
such    presumption   must   be   overcome  by   negative   testimony   as   in   other 


cases. 


by-law  of  the  bank  gave  the  cashier 
general  charge  of  the  books,  papers, 
and  property,  subject  to  the  direction 
of  the  officers.  The  plaintiff's  president 
testified  that  the  cashier  generally  de- 
termined the  rate  of  discount,  etc..  and 
looked  after  the  securities,  and  a  di- 
rector testified  that  ihe  cashier  had 
general  charge  o(  the  lending  of 
money.  Held,  that  the  cashier  had 
authority  to  cancel  the  bond.  Judg- 
ment, 78  N.  Y.  S.  38,  75  App.  Div.  393, 
affirmed.  German-American  Bank  7'. 
Schwinger,  178  N.  Y.  569,  70  N.  E. 
1099. 

27.  Statements  as  to  financial  re- 
sponsibility of  third  persons. — In  an 
action  against  a  bank  to  recover  dam- 
ages because  of  statements  of  its  cash- 
ier to  plaintiff  on  inquiry  as  to  the  re- 
sponsibility of  a  customer  of  the  bank, 
by  which  plaintifif  was  induced  to  sell 
goods  to  such  customer  on  credit, 
when  at  the  time  he  was  financially 
irresponsible,  evidence  examined,  and 
held  not  to  show  that  defendant  cash- 
ier was  acting  within  the  scope  of  his 
authority  when  he  made  the  state- 
ments. Judgment  73  N.  Y.  S.  924. 
68  App.  Div.  458.  reversed.  Taylor 
V.  Commercial  Bank,  174  N.  Y. 
181.  66  N.  E.  726,  32  L.  R.  A.  783,  95 
Am.   St.   Rep.   564. 

28.  With  reference  to  lessee  of 
rooms  in  bank  building.— Sufficiency  of 
circumstances  to  show  that  the  act  of 
a  bank  cashier  in  causing  the  rooms 
of  a  tenant  in  the  bank  buikhng  to  be 
barred  up  was  the  act  of  the  l)ank. 
Continental  Bank  v.  Lidwell,  3  iVo. 
App.,  appx.,  591. 

29.  Authority  to  assign  notes.— Evi- 
dence held  to  show  that  a  vice-presi- 
dent and  cashier  had  authority  to  as- 
sign a  note.  Stone  v.  Gray,  10  Cal. 
App.  609,  103  Pac.  155. 

30.  Authority  of  assistant  cashier- 
Building  contracts.— Merchants  Lank 
V.  Acme  Lumber,  etc..  Co.,  160  Ala.  4.i.., 
49  So.  782. 

1  B  &  B— 55 


31.  Accepting  and  discounting  notes 
— Teller. — Authority  of  a  liank  tilli-r 
to  accept  and  discount  a  mUe  fur  a 
particular  person  is  sliown  liy  the  fact 
that  the  teller  v/as  accustomed  to  ac- 
cept and  discount  notes  for  persons 
doing  business  with  the  bank,  ancl  had 
often,  in  the  absence  of  the  cashier, 
accepted  and  discounted  other  notes 
for  such  person,  and  that  these  trans- 
actions had  been  recognized  and  ap- 
proved by  the  officers  of  the  bank. 
Iowa  Xat.  Bank  -'.  Sherman.  17  S.  Dak. 
396,  97  N.  VV.  12,  106  .\m.  St.  Rep.  778. 
modified  on  rehearing,  19  S.  Dak.  238, 
103   N.  W.   19,   117   Am.   St.   Rep.   941. 

32.  Signing  certificates  of  deposit. 
—Cornwall  7'.  McKinney.  12  S.  O.ik. 
118.  80  N.  W.  171. 

33.  Ratification  of  acts  done. — Evi- 
dence held  to  show  ratification  l)y  a 
bank  and  its  directors  of  the  acts  cf 
its  cashier  in  making  loans  and  al- 
lowing overdrafts  in  violation  of  its 
by-laws.  Wynn  7:  Talkqioosa  County 
Bank.   16S  Al'a.    If.'.i.  .Vi   So.  22S. 

34.  Overcoming  presumption.— The 
presumption  of  the  authority  of  tlic 
president  of  a  bank  to  execute  a  IxmuI 
to  pay  a  debt  which  wa.s  a  sjiecilic  hen 
on  property  acquired  by  it,  arisinu  from 
the  use  of  its  seal  and  his  arfulavit  to 
the  bond,  reciting  his  office,  iiieiitify- 
ing  the  seal,  and  slating  that  it  was 
affixed  by  order  of  the  board  of  di- 
rectors, and  that  they  autli.>n/ed  him 
(o  subscrilie  the  bond,  is  not  over- 
come by  negative  testimony  <tf  a  di- 
rector, who  acted  as  clerk  of  the  hoar« 
of  directors,  that  he  did  not  know  c 
any  resolution  being  passed  in  renanl 
to  the  l)ond.  and  that  he  f.mnd  ii" 
such  resolution  in  tlie  records  ..f  tin- 
board  nor  any  record  of  the  property 
l,eing  sold  or  cnveyed  to  the  bank 
though  he  knew  tlie  hank  had  an  in- 
terest in  it.  especially  where  the  bank 
had    afterwar.ls    conveyed    its    inter.;. 

in  the  property.  \''""-\V''^  •  \ m 
7'  Yates  C.mntv  Nat.  Hank.  .1..  App 
Div.   218,   r.-l    N.    V.   S.   713. 


A  \i7    T  TT^R  ARY 


AA    000  742  684 


